SECTION 4. SCOPE

.01 Applicability . Except as provided in section 4.02, this revenue procedure is the exclusive procedure for a corporation within its scope to secure the Commissioner’s approval and applies to a corporation requesting approval to change its annual accounting period, including a corporation that wants to change to (or from) a 52–53-week taxable year.

.02 Inapplicability . This revenue procedure does not apply to the following corporations:

(1) Prior change . A corporation that has changed its annual accounting period within the most recent 48-month period ending with the last month of the requested taxable year, unless:

(a) the prior change was made in order to comply with the common taxable year requirement of either § 1.1502–75(d)(3)(v) or 1.1502–76(a)(1) (see § 1.442–1(c));

(b) the prior change was made by a corporation that either was acquired within the preceding 12 months by a new majority shareholder using a different taxable year, or whose majority share

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(7) PSC . A corporation that is a personal service corporation (PSC) (as defined in § 441(i)). See Rev. Proc. 2006–46 for procedures to follow for certain automatic changes in the annual accounting period of a PSC;

(8) CFC . A corporation that is a controlled foreign corporation as defined in § 957, including a CFC that also is a passive foreign investment company (PFIC) as defined in § 1297(a), unless:

(a) the CFC does not have a required taxable year under § 898;

(b) the CFC is changing to its required taxable year under § 898, to a 52–53-week taxable year that references that year, or, if the CFC has a majority U.S. shareholder year (as defined in § 898(c)(3)), to a one-month deferral year described in § 898(c)(2) or to a 52–53-week taxable year that references such one-month deferral year; or

(c) with respect to the CFC’s taxable years beginning after July 10, 1989, no U.S. shareholder has been required to include in gross income an amount described in § 951(a) (subpart F inclusion).

(9) Tax-exempt organization . A corporation that is a tax-exempt organization, other than an organization exempt from federal income tax under § 521, 526, 527, or 528. See Rev. Proc. 85–58, 1985–2 C.B. 740, for procedures to follow in changing an annual accounting period of a tax-exempt organization that is not within the scope of this revenue procedure;

(10) Possessions corporation . A corporation that has in effect an election under § 936;

(11) Cooperative association . A corporation that is a cooperative association (within the meaning of § 1381(a)) with a loss in the short period required to effect the change of annual accounting period, unless it is changing from a 52–53-week taxable year to a non-52–53-week taxable year that ends with reference to the same month, and vice versa, or the patrons of the cooperative association are substantially the same in the year before the change of annual accounting period, in the short period required to effect the change, and in the year following the change. For purposes of this subsection, “substantially the same” means that ownership of more than 90 percent of the cooperative association’s stock is owned by the same members; or

corporation should compare the existing deferral period (between the pass-through entity’s and the corporation’s current taxable years) with the new deferral period (between the new required taxable year of the pass-through entity or CFC and the corporation’s new taxable year). See section 4.04 of this revenue procedure for an example of this rule;

(c) the pass-through entity or CFC in which the corporation has an interest has been in existence for at least 3 taxable years and the interest is de minimis . For this purpose, an interest is de minimis if:

(i) for each of the prior 3 taxable years of the corporation, the amount of income (including ordinary income or loss, capital gains or losses, rents, royalties, interest, dividends and deduction equivalents of credits) from de minimis interest in a pass-through entity or CFC is less than or equal to (A) 5 percent of the corporation’s gross receipts (or, in the case of a member of a consolidated group, the consolidated group’s gross receipts) for each of those taxable years, and (B) $500,000; and

(ii) the amount of income from all de minimis interest in pass-through entities and CFCs in the aggregate is less than or equal to the amounts described in (A) and (B) of (c)(i) above. See section 4.04 of this revenue procedure for an example of this rule;

(d) the corporation wants to change from a 52–53-week taxable year to a non-52–53-week taxable year that ends with reference to the same month, and vice versa;

(e) the pass-through entity or CFC does not have a required year;

(f) the corporation wants to change to a natural business year (as defined in section 5.04 of this revenue procedure) that satisfies the 25-percent gross receipts test described in that section; or

(g) the corporation is a CFC that wants to revoke its one month deferral election under § 898(c)(1)(B) and change its taxable year to the majority U.S. shareholder year (as defined in § 898(c)(1)(C)).

(3) Shareholder of certain FSCs or IC-DISCs . A corporation that is a shareholder of a foreign sales corporation (FSC) or interest charge domestic international sales corporation (IC-DISC), as of the end of the short period (as defined in section 5.06 of this revenue procedure). However,

an interest in a FSC or IC-DISC is disregarded if any of the following conditions is met:

(a) the FSC or IC-DISC in which the corporation is the principal shareholder ( i.e., the shareholder with the highest percentage of voting power as defined in § 441(h)) would be required to change its taxable year pursuant to §§ 1.921–1T(b)(4) and (6) to the new taxable year of the corporation. See section 6.09 of this revenue procedure for a special term and condition related to this exception;

(b) the new taxable year of the corporation would result in no change in or less deferral of income (as determined under the principles of § 1.706–1(a)(3)) from the FSC or IC-DISC than the present taxable year of the corporation;

(c) the corporation wants to change from a 52–53-week taxable year to a non-52–53-week taxable year that ends with reference to the same month, and vice versa;

(d) the corporation wants to change to a natural business year that satisfies the 25-percent gross receipts test described in section 5.04 of this revenue procedure; or

(e) the corporation is a CFC that wants to revoke its one month deferral election under § 898(c)(1)(B) and change its taxable year to the majority U.S. shareholder year (as defined in § 898(c)(1)(C));

(4) FSC and IC-DISC . A corporation that is a FSC or an IC-DISC. See § 1.921–1T(b)(4) for rules regarding automatic changes of the annual accounting period of a FSC or IC-DISC to the taxable year of its principal shareholder;

(5) S or terminated S corporation . A corporation that either is an S corporation (as defined in § 1361) or a corporation that is requesting a change in annual accounting period that is within an S termination year (as defined in § 1362(e)(4)). See Rev. Proc. 2006–46 for procedures to follow for certain automatic changes in the annual accounting period of an S corporation;

(6) Electing S corporation . A corporation that attempts to make an S corporation election for the taxable year immediately following the short period, unless the change is to a permitted taxable year, or from a 52–53-week taxable year to a non-52–53-week taxable year that ends with reference to the same month, and vice versa;

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(12) Corporation with a required tax- able year . A corporation that has a required taxable year ( e.g., a REIT, or a Qualified Settlement Fund or Designated Settlement Fund as defined in § 1.468B), unless the corporation is changing to their required taxable year.

(13) Corporation that exits a consoli- dated group . A corporation that ceases to be a member of a consolidated group during the consolidated group’s first effective year.

(14) Certain members of a consolidated group . A corporation that is a member of a consolidated group requesting to change to (or from) a 52–53-week taxable year unless the requested taxable year is identical to the taxable year of the consolidated group.

.03 Nonautomatic Changes . A corporation that is unable to obtain automatic approval for a change in accounting period under this or any other applicable revenue procedure, or under a regulation, must secure prior approval from the Commissioner for a change in an accounting period pursuant to § 442 and the regulations thereunder. See Rev. Proc. 2002–39 (or any successor).

.04 Examples . (1) Example 1 . (a) Corporations V, W, X, Y, and Z hold equal 20 percent interests in the capital and profits of partnership ABC. V and W are calendar year taxpayers. X and Y have taxable years ending June 30, and Z has a taxable year ending September 30. ABC does not have a business purpose for a particular taxable year, and thus, pursuant to § 1.706–1, ABC is required to use a taxable year ending June 30 because that taxable year results in the least aggregate deferral of income to its partners. Z currently has a 3-month deferral period (the number of months from the end of ABC’s taxable year to the end of Z’s taxable year). Z wants to change its taxable year to a calendar year.

(b) If Z changes its taxable year to a calendar year, ABC would be required to change its taxable year under § 706 to its majority interest taxable year, which would be the calendar year. As a result of Z’s new taxable year and ABC’s new taxable year, Z’s deferral period would be eliminated. Because Z’s new taxable year would reduce Z’s deferral, Z may disregard its interest in ABC under section 4.02(2)(b) of this revenue procedure.

(2) Example 2 . (a) Corporation X, a calendar year taxpayer, wants to change its taxable year to a year ending June 30. X has interests in five partnerships, ABC, DEF, GHI, JKL, and MNO. All of the partnerships have been in existence for over three taxable years. X’s interests in each of ABC and DEF is greater than 50 percent. X’s interest in GHI, JKL, and MNO is 15 percent, 10 percent, and 5 percent, respectively. GHI uses the majority interest taxable year ending May 31 and JKL and

MNO each use their respective majority interest taxable year ending December 31. X’s distributive share of income/(loss) from JKL for the prior three taxable years is $300,000, $(100,000), and $200,000, respectively, and from MNO is $300,000, $200,000, and $100,000, respectively. X’s gross receipts for each of those same taxable years was $15,000,000.

(b) X’s interests in its pass-through entities will be disregarded for purposes of section 4.02(2) of this revenue procedure only if each pass-through entity satisfies one of the exceptions enumerated under section 4.02(2) of this revenue procedure. In the instant case, X’s interests in ABC and DEF each meet the exception in section 4.02(2)(a) because X is the majority interest partner in each partnership. X’s interest in GHI meets the exception in section 4.02(2)(b) because X’s new taxable year would result in less deferral than its old taxable year (the deferral between May 31 and June 30 of 1 month as compared to the deferral between May 31 and December 31 of 7 months). Because X is not the majority interest partner in JKL and MNO and because its new taxable year would not result in less deferral from these partnerships, X’s interests in JKL and MNO may be disregarded only if they satisfy the de minimis exception in section 4.02(2)(c). Although the income from JKL and MNO for each of the prior three taxable years is less than 5 percent of X’s gross receipts and $500,000, the income for year 1 from JKL and MNO, in the aggregate ($300,000 and $300,000), exceeds the $500,000 amount specified in section 4.02(2)(c)(ii). Consequently, JKL and MNO fail to satisfy the de minimis exception in section 4.02(2)(c). Because X’s interests in all of its pass-through entities will not be disregarded, X is not within the scope of this revenue procedure.