Partnership gets more time to file a late Form 1128 to switch to a calendar year

Plain-English summary

A partnership wanted to change its tax year to a calendar year, which requires filing Form 1128 with its tax return. Its accounting firm timely got an extension to file the return but then missed the extended deadline, so both the return and the accompanying Form 1128 were late. The firm admitted the miss was its own oversight and told the partnership shortly after the deadline. The partnership asked for relief under § 301.9100-3 to file the late Form 1128. The IRS found the partnership acted reasonably and in good faith by relying on a qualified tax professional who failed to file, and that relief would not harm the government. It gave the partnership 60 days to file the Form 1128 under the automatic change procedures of Rev. Proc. 2006-46.

Ruling snapshot

• Question: May the partnership get an extension to file a late Form 1128 to change to a calendar tax year?
• Outcome: Approved, 60-day extension to file the Form 1128 under Rev. Proc. 2006-46
• Key authorities: IRC §§ 441, 442; Treas. Reg. § 301.9100-3; Rev. Proc. 2006-46

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202428005 Third Party Communication: None
Release Date: 7/12/2024 Date of Communication: Not Applicable
Index Number: 9100.00-00
Person To Contact:
-------------------------------------- ----------------, ID No. -----------------
-------------------------- Telephone Number:
------------------------------------ --------------------
-------------------------------------- Refer Reply To:
CC:ITA:B08
PLR-124318-23
Date:
April 12, 2024

Legend

Accounting Firm = -----------------------------
Corporation X = ----------------------------------------------------------
Date 1 = --------------------------
Date 2 = ---------------------
Date 3 = ----------------------
Date 4 = ---------------------------
State Z = --------
Taxpayer = ----------------------------------------------------------------
Year 1 = -------

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

This letter responds to Taxpayer’s request for a letter ruling dated Date 1. Specifically,
Taxpayer requests relief under section 301.9100-1 and 301.9100-3 of the Procedure
and Administration Regulations, for an extension of time to file a Form 1128, Application
to Adopt, Change or Retain a Tax Year.

                                                 FACTS

Taxpayer is a partnership, formed under the laws of State Z, and taxed as a partnership
for Federal income tax purposes. Taxpayer currently files its Form 1065, U.S. Return of
Partnership Income, using a taxable year ending Date 2.

Taxpayer’s partners consist of five individuals and Corporation X; the latter of which has
a 51% interest in Taxpayer’s profit, loss, and capital. Prior to Date 3, Corporation X had
a taxable year ending Date 2. Effective Date 3, Corporation X changed its taxable year
to a calendar year. Taxpayer represents that if timely filed, the request to change its
PLR-124318-23 2

taxable year end to a calendar year would have qualified under the automatic
procedures found in Rev. Proc. 2006-46, 2006-2 C.B. 859.

Accounting Firm has prepared Taxpayer’s returns for years prior to Year 1. Taxpayer
engaged Accounting Firm to prepare an extension of time to file its Year 1 Federal
income tax return, to file its return, and to file an accompanying Form 1128 to change
Taxpayer’s year end from Date 2 to a calendar year.

Accounting Firm timely filed Taxpayer’s extension of time to file the return, resulting in
an extended return due date of Date 4. However, Accounting Firm failed to file the
return by Date 4. Because Accounting Firm failed to timely file the return, Accounting
Firm also failed to timely file an accompanying Form 1128. According to Taxpayer’s
representations, Accounting Firm’s failure was due to Accounting Firm’s oversight and
Accounting Firm informed Taxpayer of its failure shortly after Date 4. Accounting Firm
then advised Taxpayer to apply for this requested relief.

                              LAW AND ANALYSIS

Section 441(a) of the Internal Revenue Code provides that taxable income is computed
on the basis of the taxpayer’s taxable year. Section 441(b) and § 1.441-1(b)(1) of the
Income Tax Regulations provide that the term “taxable year” generally means the
taxpayer’s required taxable year.

Section 442 and § 1.442-1(a) provides that if a taxpayer wants to change its annual
accounting period and use a new taxable year, it generally must obtain the approval of
the Commissioner. Section 1.442-1(b)(1) provides that to secure approval of the
Commissioner to change an annual accounting period, a taxpayer must file an
application, generally on Form 1128, Application to Adopt, Change, or Retain a Tax
Year, with the Commissioner within such time and in such manner as provided in
administrative procedures published by the Commissioner.

Rev. Proc. 2006-46, 2006-2 C.B. 859, provides the exclusive procedures for a
partnership to obtain automatic approval to change its annual accounting period under §

442. A partnership complying with all the applicable provisions of Rev. Proc. 2006-46
     will be deemed to have established a business purpose and obtained the approval of
     the Commissioner to change its annual accounting period.

Section 7.02(2) of Rev. Proc. 2006-46 provides that a Form 1128 filed pursuant to the
revenue procedure will be considered timely filed for purposes of § 1.422-1(b)(1) only if
it filed on or before the time (including extensions) for filing the Federal income tax
return for the first effective year.

Section 5.10 of Rev. Proc. 2006-46 provides that the “first effective year” is the first
taxable year for which a change in annual accounting period is effective. The first
effective year is generally the short period required to effect the change. Section 5.11 of
PLR-124318-23 3

Rev. Proc. 2006-46 provides that a “short period” is the period beginning with the day
following the close of the old taxable year and ending with the day preceding the first
day of the new taxable year.

Under § 301.9100-1(b), a “regulatory election” is defined as an election whose due date
is prescribed by regulations published in the Federal Registrar, or a revenue ruling,
revenue procedure, notice, or announcement published in the Internal Revenue Bulletin.
Because Rev. Proc. 2006-46 sets forth the manner and timing for an entity to file a
Form 1128 to change its taxable year, these elections are regulatory elections.

Sections 301.9100-1 through 301.9100-3 provide the standards that the Commissioner
will use to determine whether to grant an extension of time to make a regulatory
election. 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 (including affidavits) 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.

Under § 301.9100-3(b), a taxpayer is determined to have acted reasonably and in good
faith if the taxpayer requests relief before the failure to make the regulatory election is
discovered by the Service, or reasonably relied on a qualified tax professional, and the
tax professional failed to make, or advise the taxpayer to make, the election. However,
a taxpayer is not considered to have reasonably relied on a qualified tax professional if
the taxpayer knew or should have known that the professional was not competent to
render advice on the regulator election or was not aware of all relevant facts.

In addition, § 301.9100-3(b)(3) provides that a taxpayer is deemed not to have acted
reasonably and in good faith if the taxpayer—

(i) seeks to alter a return position for which an accuracy-related penalty has
been or could be imposed under § 6662 at the time taxpayer requests relief,
and the new position requires or permits a regulatory election for which relief
is requested;

(ii) was fully informed in all material aspects of the required election and related
tax consequences but chose not to make the election; or

(iii) uses hindsight in requesting relief. If specific facts have changed since the
original deadline that make the election advantageous to a taxpayer, the
Service will ordinarily not grant relief.

Based on the facts and information submitted and the representations made, we
conclude that Taxpayer has acted reasonably and in good faith, and that the granting of
relief will not prejudice the interests of the government. Taxpayer relied on a qualified
PLR-124318-23 4

tax professional and that professional failed to make or advise Taxpayer to make the
election. Further, Taxpayer’s request for relief was filed less than 90 days after the due
date of the Taxpayer’s first effective year tax return.

Accordingly, based solely on the facts and information submitted and the
representations made in the ruling request, Taxpayer has satisfied the requirements for
the granting of relief. Taxpayer’s Form 1128, requesting permission to change to a
calendar year end, effective Year 1, must be filed under the provisions of Rev. Proc.
2006-46 within 60 days of this letter.

Taxpayer must attach a copy of this letter to the Form 1128 that is filed with the
appropriate Service Center. Alternatively, taxpayers filing their returns electronically
may satisfy this requirement by attaching a statement to their return that provides the
date and control number of the letter ruling. Any further communication regarding this
matter should be directed to the Service Center.

This ruling is based upon facts and representations submitted by Taxpayer and
accompanied by a penalty of perjury statement executed by all appropriate parties. 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 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
sections of the Code or 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, we express no opinion as to whether the taxpayer is permitted
under the Code and applicable regulations to change to the tax year requested in the
Form 1128, or whether the change may be affected under Rev. Proc. 2006-46.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

                                   Sincerely,

                                   ERIKA C. REIGLE
                                   Senior Technician Reviewer, Branch 8
                                   (Income Tax & Accounting)

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