SECTION 4. SCOPE

.01 Applicability. Except as provided in section 4.02, this revenue procedure, which is the exclusive procedure for a taxpayer (as defined in section 5.01 of this revenue procedure) within its scope to secure the Commissioner’s approval, applies to:

(1) Required taxable year . A partnership, S corporation, electing S corporation, PSC, or trust that wants to change to its required taxable year (as defined in section 5.05 of this revenue procedure), or a partnership, S corporation, electing S corporation, or PSC that wants to change to a 52–53-week taxable year ending with reference to such required taxable year;

(2) Natural business year . A partnership, S corporation, electing S corporation, or PSC (other than a member of a tiered structure as defined in § 444 and § 1.444–2T) that wants to change to or retain a natural business year that satisfies the 25-percent gross receipts test described in section 5.07 of this revenue procedure, or to a 52–53-week taxable year ending with reference to such taxable year;

(3) Ownership taxable year . An S corporation or electing S corporation that wants to adopt, change to, or retain its ownership taxable year (as defined in section 5.08 of this revenue procedure), or to a 52–53-week taxable year ending with reference to such taxable year;

(4) Certain 52–53-week taxable years . A partnership, S corporation, electing S corporation, or PSC that wants to change from a 52–53-week taxable year that references a particular calendar month to a non-52–53-week taxable year that ends on the last day of the same calendar month that is a permitted taxable year, and vice versa;

(5) Certain taxpayers that are required to make concurrent changes . Notwithstanding any limitation in this revenue procedure to the contrary (including any limitations in section 4.02 of this revenue procedure) or any conflicting testing date provisions, this revenue procedure applies to a taxpayer that is required to concurrently change its annual accounting period as a term and condition for the approval of a related taxpayer’s change of annual accounting period.

.02 Inapplicability. Except as provided in section 4.01(5) of this revenue procedure, this revenue procedure does not apply to:

(1) Under examination . A change or retention in annual accounting period if the taxpayer is under examination (as defined in section 5.13 of this revenue procedure), unless it obtains consent of the appropriate director as provided in section 7.03(1) of this revenue procedure;

(2) Before an area office . A change or retention in annual accounting period if the taxpayer is before an area office with respect to any income tax issue and its annual accounting period is an issue under consideration (as defined in section 5.14 of this revenue procedure) by the area office;

2006–45 I.R.B. 863 November 6, 2006

tion 5.09 of this revenue procedure) or a § 444 election.

.06 Permitted Taxable Year. A “permitted taxable year” is the required taxable year; a natural business year; the ownership taxable year; a taxable year elected under § 444; a 52–53-week taxable year that references the required taxable year, natural business year, ownership taxable year, or a taxable year elected under § 444; or any other taxable year for which the taxpayer establishes a business purpose to the satisfaction of the Commissioner.

.07 Natural Business Year. A “natural business year” is a year for which a partnership, S corporation, electing S corporation, or PSC satisfies the following “25-percent gross receipts test”:

(1) 25-percent gross receipts test . Except as provided in (2) below, the 25-percent gross receipts test is satisfied if each of the results described in (a) and (b) below equals or exceeds 25-percent:

(a) Gross receipts from sales and services for the most recent 12-month period that ends with the last month of the requested annual accounting period are totaled and then divided into the amount of gross receipts from sales and services for the last 2 months of this 12-month period.

(b) The same computation as in (1)(a) above is made for the two preceding 12-month periods ending with the last month of the requested annual accounting period.

(2) Exception . The taxpayer must determine whether any annual accounting period other than the requested annual accounting period also meets the 25-percent test described in (1). If one or more other annual accounting periods produce higher averages of the three percentages (rounded to 1/100 of a percent) described in (1) than the requested annual accounting period, then the requested annual accounting period will not qualify as the taxpayer’s natural business year.

(3) Special rules . (a) To apply the 25-percent gross receipts tests for any particular taxable year, the taxpayer must compute its gross receipts from sales and services under the method of accounting used to prepare its federal income tax returns for such taxable year.

(b) If a taxpayer has a predecessor organization and is continuing the same busi

(3) Before a federal court . A change or retention in annual accounting period if the taxpayer is before a federal court with respect to any income tax issue and its annual accounting period is an issue under consideration by the federal court;

(4) Issue under consideration in con- nection with partner or shareholder re- turn . A change or retention in annual accounting period by a partnership or S corporation if, on the date the taxpayer otherwise would file its application with the Service Center, the taxpayer’s annual accounting period is an issue under consideration in the examination of a partner’s or shareholder’s federal income tax return or an issue under consideration by an area office or by a federal court with respect to a partner’s or shareholder’s federal income tax return; or

(5) Prior change . A change to, or retention of, a natural business year as described in section 4.01(2) of this revenue procedure if the taxpayer has changed its annual accounting period at any time within the most recent 48-month period ending with the last month of the requested taxable year. For this purpose, the following changes are not considered prior changes in annual accounting period:

(a) a change to a required taxable year or ownership taxable year;

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

(c) a change in accounting period by an S corporation, electing S corporation, or PSC, in order to comply with the common taxable year requirements of §§ 1.1502–75(d)(3)(v) and 1.1502–76(a)(1).

(6) Terminated S corporation . A corporation that is requesting a change in a taxable year that is within an S termination year (as defined in § 1362(e)(4)).

(7) Section 444 election . A partnership, S corporation, electing S corporation, or PSC that makes or terminates a § 444 election.

.03 Nonautomatic Changes. Any taxpayer that wants to adopt, change to, or retain an annual accounting period that cannot do so automatically under this revenue procedure (because the requested taxable year is not described in section 4.01 or be

cause of any application of section 4.02) or pursuant to a provision in the Code, regulations, or other published administrative procedures, must obtain the approval of the Commissioner. See § 1.442–1(b) and Rev. Proc. 2002–39 (or any successor) for rules relating to nonautomatic changes of annual accounting periods by partnerships, S corporations, electing S corporations, PSCs, and trusts.