SECTION 6. TERMS AND

CONDITIONS OF CHANGE

.01 In General. An adoption, change, or retention in annual accounting period filed under this revenue procedure must be made pursuant to the terms and conditions provided in this revenue procedure.

.02 Record Keeping/Book Conformity.

(1) In general . The taxpayer must compute its income and keep its books and records (including financial statements and reports to creditors) on the basis of the requested taxable year. The books and records of the taxpayer must be closed as of the last day of the first effective year and the taxpayer must conform the

accounting period used for financial statement purposes and reports to creditors concurrently.

(2) Certain short periods exempt from financial statement conformity . If the taxpayer is not required to issue financial statements for the short period required to effect the change, the taxpayer will be deemed to have met the financial statement conformity requirement for the first effective year provided the taxpayer’s accounting period used for financial statement purposes already conforms to the requested taxable year or the taxpayer makes the change in accounting period used for financial statement purposes and reports to creditors concurrently.

(3) Certain taxpayers using required year exempt from financial statement con- formity . If the requested taxable year is the taxpayer’s required taxable year, the taxpayer must compute its income and keep its books and records for U.S. federal income tax purposes on the basis of the required taxable year, but is not required to conform its financial statements and reports to creditors on the basis of the required taxable year. The books and records of the taxpayer must be closed as of the last day of the first effective year.

.03 First Effective Year Tax Return.

(1) When to file . The taxpayer generally must file a federal income tax return for the first effective year by the due date of that return, including extensions, in accordance with § 1.443–1(a).

(2) Annualization . If the taxpayer is a PSC or a trust, the taxpayer’s taxable income for the short period must be annualized and the tax must be computed in accordance with the provisions of § 443(b) and § 1.443–1(b). However, for changes to (or from) a 52–53-week taxable year referencing the same month as the current (or requested) taxable year, see special rules in § 1.441–2.

.04 Subsequent Year Tax Returns. Returns for subsequent taxable years generally must be made on the basis of a full 12 months (or on a 52–53-week basis) ending on the last day of the requested taxable year, unless the taxpayer secures the approval of the Commissioner to change that taxable year.

.05 Changes in Natural Business Year. If a partnership, S corporation, electing

November 6, 2006 866 2006–45 I.R.B.

.03 Additional Procedures If Under Examination, Before an Area Office, or Before a Federal Court.

(1) Taxpayer under examination . (a) A taxpayer under examination may request approval to change or retain its annual accounting period under this revenue procedure only if the appropriate director consents to the change or retention. The director will consent to the change or retention unless, in the opinion of the director, the taxpayer’s annual accounting period ordinarily would be included as an item of adjustment in the year(s) for which the taxpayer is under examination. For example, the director will consent to a change if the taxpayer is using a permissible annual accounting period. The director also will consent to a change from an impermissible annual accounting period if the period became impermissible ( e.g., due to a change in ownership or a change in the taxpayer’s business) subsequent to the years under examination. The question of whether the taxpayer’s annual accounting period from which the taxpayer is changing is permissible or became impermissible subsequent to the years under examination may be referred to the national office as a request for technical advice under the provisions of 2006–2, 2006–1 I.R.B. 89 (or any successor).

(b) A taxpayer changing or retaining an annual accounting period under this revenue procedure with the consent of the appropriate director must attach to the application a statement from the director consenting to the change or retention. The taxpayer must provide a copy of the application to the director at the same time it files the application with the Service Center. The application must contain the name(s) and telephone number(s) of the examining agent(s).

(2) Taxpayer before an area office . A taxpayer that is before an area office must attach to the application a separate statement signed by the taxpayer certifying that, to the best of the taxpayer’s knowledge, the taxpayer’s annual accounting period is not an issue under consideration by the area office. The taxpayer must provide a copy of the application to the appeals officer at the same time it files the application with the Service Center. The application must contain the name and telephone number of the appeals officer.

to determine whether the taxpayer qualifies for the exception in (b) above.

.09 Creation of General Business Cred- its. In the case of a PSC changing its annual accounting period, if there is an unused general business credit or any other unused credit generated in the short period, the PSC must carry that unused credit forward. An unused credit from the short period may not be carried back.