Partnership receives 30 days to file a late tax-year change request

Plain-English summary

A partnership became majority-owned by a corporation with a March 31 tax year, requiring the partnership to change from a calendar year to the majority partner's fiscal year. Its tax professionals filed the short-period and later fiscal-year returns late and overlooked Form 1128 and its filing deadline. The IRS found that the partnership acted reasonably and in good faith and that relief would not prejudice the government. It agreed to treat the late Form 1128 request as timely if the partnership files within 30 days. Because the automatic-change deadline had already passed, the partnership must proceed under Revenue Procedure 2002-39 and pay the required additional user fee. The ruling does not decide whether the requested accounting-period change is otherwise permitted.

Ruling snapshot

• Question: May the partnership file a late Form 1128 to change its tax year to March 31 after a new majority partner created that required year?
• Outcome: Approved, with 30 days to file under the nonautomatic procedure and pay the additional user fee
• Key authorities: IRC § 442; Treas. Reg. §§ 1.442-1(b) and 301.9100-3; Rev. Proc. 2002-39 and Rev. Proc. 2006-46

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202314015                                              Third Party Communication: None
 Release Date: 4/7/2023                                         Date of Communication: Not Applicable
 Index Number: 9100.00-00, 9100.09-00
                                                                Person To Contact:
 -------------------                                            ------------------------, ID No. -----------------
 ------------------------------------                           Telephone Number:
 ----------------                                               -------------------
 -------------------                                            Refer Reply To:
 ------------------------------                                 CC:ITA:B4
                                                                PLR-122238-22
                                                                Date:
                                                                January 12, 2023




Legend:

 Taxpayer          =   ----------------
 Corporation       =   --------------------------------------
 Year 1            =   -------
 Year 2            =   -------
 Year 3            =   -------
 X percent         =   --------



Dear ------------------:

This letter ruling refers to your request that the Internal Revenue Service grant an
extension of time, under the authority in § 301.9100-3 of the Regulations on Procedure
and Administration, to file Form 1128, Application to Adopt, Change, or Retain a Tax
Year. Taxpayer, a partnership, requests an extension of time to file Form 1128 to make
an election under Internal Revenue Code (Code) § 442, Treas. Reg. § 1.442-1(b), and
Rev. Proc. 2006-46 to change its accounting period, for federal income tax purposes,
from a taxable year ending December 31 to a taxable year ending March 31, effective
March 31, Year 2.

Taxpayer is owned by Corporation and a number of individuals. In July Year 1,
Corporation purchased an additional X percent interest in Taxpayer. As a result of the
additional acquisition, Corporation became the majority partner. Corporation has a
fiscal year ending March 31. Prior to Corporation becoming the majority partner,
Taxpayer had a tax year ending December 31.

Taxpayer hired external tax professionals to prepare its tax returns for Year 1 and Year

2. The tax professionals did not become aware of a statutory requirement to change
PLR-122238-22                                  2

the Taxpayer’s taxable year to that of the majority interest taxable year until the
Summer of Year 3. Although the tax professionals filed the short period return for the
tax year ending March 31, Year 2, and the fiscal year return for the tax year ending
March 31, Year 3, consistent with the accounting period of its new majority shareholder,
the returns were filed late. Additionally, the tax professionals overlooked the
requirement to file Form 1128 and the required filing date of Form 1128 to effect the
change in accounting period. Thus, the Taxpayer has requested an extension of time to
file its Form 1128 under § 301.9100-3.

Section 301.9100-3(a) provides that requests for extensions of time for regulatory
elections that do not meet the requirements of § 301.9100-2 (automatic extensions),
such as the instant case, must be made under the rules of § 301.9100-3. Requests for
relief subject to § 301.9100-3 will be granted when the taxpayer provides evidence to
establish that the taxpayer acted reasonably and in good faith, and that the granting of
relief will not prejudice the interests of the government.

Based on the facts and information submitted and the representations made, we
conclude that Taxpayer has acted reasonably and in good faith under § 301.9100-3(b),
and that the interests of the Government will not be prejudiced by the granting of relief
under § 301.9100-3(c). Accordingly, Taxpayer has satisfied the requirements of the
regulations for the granting of relief, and the Service will consider Taxpayer's late filed
Form 1128 requesting permission to change to a tax year ending March 31, effective
March 31, Year 2, timely filed. However, the granting of an extension of time is not a
determination that Taxpayer is otherwise eligible to make the election. See § 301.9100-
1(a).

Revenue Procedure 2006-46, 2006-45 I.R.B. 859, provides the exclusive procedures for
certain taxpayers, including partnerships, to obtain an automatic approval to adopt,
change, or retain its annual accounting period under § 442 of the Internal Revenue
Code and § 1.442-1(b) of the Income Tax Regulations.

Section 7.02(2) of Revenue Procedure 2006-46 provides that the Form 1128 must be
filed no earlier than the day following the end of the first effective year and no later than
the due date (including extensions) for filing the federal income tax return for the first
effective year.

Because the Taxpayer did not file Form 1128 by the due date (including extensions) of
the short period return for the first effective year, the Taxpayer does not qualify to make
the change automatically under Rev. Proc. 2006-46. The Taxpayer must file its Form
1128 under Rev. Proc. 2002-39, 2002-22 I.R.B. 1046, and pay the additional user fee
required by Appendix A of Rev. Proc. 2023-1, 2023-1 I.R.B. 1, 85. The taxpayer must
file its Form 1128 within 30 days of the date of this letter to be considered timely under
Rev. Proc 2002-39, section 6.02.
PLR-122238-22                                 3

This ruling addresses the granting of § 301.9100-3 relief only. We express no opinion
regarding the tax treatment of the instant transaction under the provisions of any other
section of the Code or the regulations that may be applicable, or regarding the tax
treatment of any conditions existing at the time of, or effects resulting from, the instant
transaction. Specifically, this ruling expresses no opinion as to whether the Code and
applicable regulations, or Rev. Proc. 2002-39, permit the Taxpayer to change to the tax
year requested in the Form 1128.

This ruling is based upon facts and representations submitted by the Taxpayer and
accompanied by a penalty of perjury statement executed by an appropriate party. This
office has not verified any of the material submitted in support of the request for a ruling.
However, as part of an examination process, the Service may verify the factual
information, representations, and other data submitted.

This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3) of the
Code provides that it may not be used or cited as precedent. Enclosed is a copy of the
letter ruling showing the deletions proposed to be made when it is disclosed under §
6110.

In accordance with the Power of Attorney on file with this office, we are sending a copy
of this letter to your authorized representatives.




                                       Sincerely,



                                       Angella L. Warren
                                       Branch Chief, Branch 4
                                       Office of Associate Chief Counsel
                                       (Income Tax & Accounting)




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