To change your tax year with Form 1128, you either qualify for automatic IRS approval under Revenue Procedure 2006-45 or 2006-46 and file the form with your short-period return at no charge, or you submit a ruling request to the IRS Associate Chief Counsel in Washington, D.C. with a user fee that starts at $5,750 for 2026. Which path applies depends on your entity type, whether you have changed your accounting period in the last 48 months, and whether you can show a substantial business purpose for the switch.
The Two Paths: Automatic Approval or Ruling Request
Almost every tax year change needs IRS consent. Form 1128 is how you ask, and the form has two parts corresponding to two very different processes.
Part II is the automatic approval route. If you meet every condition of the revenue procedure that governs your entity, the IRS treats you as having established a business purpose the moment you properly file. There is no user fee and no separate approval letter. You file the original with the IRS Service Center where you normally send your income tax return, addressed to “Attention: Entity Control,” and attach a copy to the short-period return that bridges your old and new year-ends.1Internal Revenue Service. Instructions for Form 1128 – Application To Adopt, Change, or Retain a Tax Year Corporations other than S corporations and personal service corporations use Revenue Procedure 2006-45; partnerships, S corporations, PSCs, and trusts use Revenue Procedure 2006-46.2Internal Revenue Service. Revenue Procedure 2006-45
Part III is the ruling request route. You file Form 1128 directly with the Associate Chief Counsel, pay the user fee, and wait for a letter ruling that either approves or denies the change. This path is required whenever you don’t fit the automatic conditions, and it takes considerably longer.
Can Your Entity Even Use the Year You Want?
Before deciding which path to take, confirm the IRS allows your entity to use the year-end you have in mind. Pass-through entities face “required tax year” rules that limit their options because a mismatched year-end lets owners defer income.
An S corporation must use a permitted year, generally the calendar year, unless it establishes a business purpose to the IRS’s satisfaction or makes a Section 444 election. Income deferral to shareholders does not count as a business purpose.3GovInfo. 26 U.S. Code 1378 – Taxable Year of S Corporation
A partnership works through a cascade. First, it must use the tax year of partners who together own more than 50 percent of profits and capital. If no single year qualifies, it uses the tax year of all principal partners holding 5 percent or more. If those partners don’t share a common year, the partnership defaults to the calendar year. A different year requires proving a business purpose or making a Section 444 election.
Personal service corporations, meaning C corporations whose principal activity is performing services in fields like health, law, engineering, accounting, architecture, actuarial science, performing arts, or consulting, generally must use a calendar year unless they establish a business purpose or elect under Section 444.4eCFR. 26 CFR 1.441-3 – Taxable Year of a Personal Service Corporation
The IRS recognizes three types of annual accounting periods: a calendar year, a fiscal year ending on the last day of a month other than December, and a 52-53 week year that always ends on the same day of the week. Moving between a 52-53 week year and a standard fiscal year ending in the same month is treated as a simpler change and often qualifies for automatic approval; moving from a calendar year to a completely different fiscal year faces stricter review.5Office of the Law Revision Counsel. 26 U.S. Code 441 – Period for Computation of Taxable Income
What Disqualifies You From Automatic Approval
Automatic approval has a long list of exclusions, and hitting even one sends you to the ruling request path.
The most common barrier for every entity type is a prior change. If you switched your year-end within the last 48 months, automatic approval is off the table unless a narrow exception applies, such as the prior change having been to a required tax year.2Internal Revenue Service. Revenue Procedure 2006-45
Corporations under Revenue Procedure 2006-45 are also blocked from automatic approval if the corporation:
- Holds an interest in a pass-through entity as of the end of the short period
- Is an S corporation, PSC, or controlled foreign corporation (governed by other procedures)
- Is a tax-exempt organization, with narrow exceptions for entities exempt under sections 521, 526, 527, or 528
- Is leaving a consolidated group during the group’s tax year
- Has a required tax year (like a REIT), unless the change is to that required year
Partnerships, S corporations, PSCs, and trusts under Revenue Procedure 2006-46 lose automatic eligibility if the entity is currently under IRS examination without the examiner’s consent, if its accounting period is at issue before an appeals office or federal court, or if the accounting period is under scrutiny in a partner’s or shareholder’s audit. The entity must also close its books as of the last day of the new tax year and conform its financial statements and reports to creditors to the same period. If your books and reports still track the old year-end, the IRS will not treat the change as valid.6Internal Revenue Service. Revenue Procedure 2006-46
Proving a Business Purpose for a Ruling Request
When you file under Part III, the IRS wants to see that the change serves a real operational need rather than shifting income into a better period. This is the “substantial business purpose” test.
The most concrete way to satisfy it is the natural business year test, also called the 25-percent gross receipts test. You calculate gross receipts from sales and services for the last two months of your proposed year-end and divide by total gross receipts for the full twelve-month period ending on that date. Repeat for the two preceding twelve-month periods. If all three results equal or exceed 25 percent, and no other potential year-end produces a higher average across those three periods, the IRS treats the proposed year as your natural business year.7Internal Revenue Service. Revenue Procedure 2002-38
Running the test requires at least 47 months of gross receipts history: 36 for the proposed year plus 11 for comparison against other candidate months. Newer businesses that don’t have that track record cannot use the natural business year test and must find another way to establish a business purpose.
Filling Out and Filing Form 1128
Form 1128 opens with identifying information: legal name, current address, and taxpayer identification number. You specify both your current year-end and the proposed one, and you identify your entity type. Getting the entity type wrong can derail the application because each type falls under a different revenue procedure with different eligibility rules.1Internal Revenue Service. Instructions for Form 1128 – Application To Adopt, Change, or Retain a Tax Year
Ruling requests need detailed financial documentation. Profit and loss statements and balance sheets from the preceding several years help establish the pattern the IRS is looking for. If you’re relying on the 25-percent gross receipts test, include the month-by-month revenue breakdowns for all three testing periods.
Entities under IRS examination or before an appeals office or federal court must attach statements identifying the examining agent or appeals officer by name and phone number and certify that the accounting period is not currently an issue in the proceeding.
Form 1128 is paper-only. There is no electronic filing option.8Internal Revenue Service. Where to File Your Taxes for Form 1128 For automatic approval, mail the original to the Service Center where you file your income tax return and attach a copy to the short-period return. If an S corporation is changing its year before making the S election, Form 1128 is attached to Form 2553 instead.
Ruling requests go to:
Internal Revenue Service
Associate Chief Counsel (Income Tax and Accounting)
Attention: CC:PA:LPD:DRU
P.O. Box 7604, Ben Franklin Station
Washington, DC 20044-7604
Every application needs an original signature from an authorized person: a corporate officer, a general partner, or the individual taxpayer. A tracking service or certified mail gives you proof of the submission date, which matters when a deadline is tight.
User Fees for 2026
Automatic approval carries no user fee. Ruling request fees were updated for 2026. The standard user fee for a Form 1128 ruling request is $5,750. A late-filing extension under the 9100 relief rules costs $6,100. Reduced fees are available for taxpayers with lower gross income who provide the required certification.9Internal Revenue Service. Internal Revenue Bulletin 2026-1
Pay by check or money order made out to the United States Treasury, and include the payment with the application. Without the fee, the IRS won’t process the request.
How Long the IRS Takes
Under automatic approval, there’s no separate response from the IRS. You’re deemed approved the moment you properly file Form 1128 and attach a copy to the short-period return. The Service Center reviews the filing for compliance, and you begin using your new year-end without waiting for a letter. If the Service Center later determines you didn’t qualify, it will deny the change retroactively.
For ruling requests, the IRS acknowledges receipt within 45 days. If you hear nothing within 90 days, the Form 1128 instructions direct you to contact the Control Clerk. Complex cases with extensive financial data take several months at minimum.
If the IRS needs more information, the assigned attorney will contact you and give you 21 calendar days to respond. Extensions require written justification and branch reviewer approval. Miss the 21-day window without an extension and the IRS closes your request; reopening it means paying the user fee a second time.10Internal Revenue Service. 32.3.2 Letter Rulings
Once approved through a ruling, attach a copy of the letter to the first return filed under the new accounting period.
The Short-Period Return
The gap between your old year-end and new year-end is a “short period,” and it requires its own return covering fewer than twelve months. The IRS doesn’t let you simply pay tax on whatever income fell into that window. Section 443 requires annualization to keep the short period from landing you in artificially low brackets.11Office of the Law Revision Counsel. 26 U.S. Code 443 – Returns for a Period of Less Than 12 Months
Take your short-period taxable income, multiply by 12, and divide by the number of months in the short period. Compute tax on that annualized figure, then pay the fraction equal to short-period months divided by 12. A business with $80,000 of taxable income across a four-month short period annualizes to $240,000, computes the tax on $240,000, and pays four-twelfths of that amount.
Because annualization pushes income into higher brackets, the result is often more tax than a straight calculation on the short-period income would produce. An alternative method under Section 443(b)(2) lets you compute tax based on your actual twelve-month performance starting from the first day of the short period. If it produces less tax, you can elect it, but the election must be made by the due date, including extensions, of the return for the first full tax year ending at least 12 months after the short period began.
A few other quirks catch filers off guard. Individual taxpayers cannot claim the standard deduction on a short-period return and must itemize. Personal exemptions, where still relevant, are prorated. Business credits tied to income or deduction amounts are computed on the annualized figures rather than the short-period actuals.12eCFR. 26 CFR 1.443-1 – Returns for Periods of Less Than 12 Months
Section 444: An Alternative to Changing Through Form 1128
Partnerships, S corporations, and personal service corporations that can’t get their preferred year-end under the required tax year rules have a separate option. A Section 444 election lets the entity keep a fiscal year that produces no more than three months of income deferral compared to its required year.13Office of the Law Revision Counsel. 26 U.S. Code 444 – Election of Taxable Year Other Than Required Taxable Year
The trade-off is a required payment under Section 7519 that offsets the deferral benefit to the entity’s owners. It equals a percentage of the entity’s net base year income multiplied by the highest individual tax rate plus one percentage point. Any required payment above $500 is due by April 15 of the following calendar year. Missing it triggers a 10-percent penalty on the underpayment, and willful noncompliance can terminate the election entirely.14Office of the Law Revision Counsel. 26 U.S. Code 7519 – Required Payments for Entities Electing Not to Have Required Taxable Year
Section 444 is not made on Form 1128. Use Form 8716. Entities in tiered structures generally cannot elect unless every entity in the structure is a partnership or S corporation sharing the same tax year, and once terminated, the election cannot be made again.
Missing the Filing Deadline: 9100 Relief
If you miss the Form 1128 filing deadline, Section 301.9100-3 of the Treasury Regulations allows the IRS to grant an extension for regulatory elections when the taxpayer acted reasonably and in good faith and granting relief won’t prejudice the government’s interests.15eCFR. 26 CFR 301.9100-3 – Other Extensions
The IRS generally finds reasonable action and good faith when the taxpayer discovered the missed election before the IRS did, relied on a qualified tax professional who dropped the ball, or was unaware of the requirement despite reasonable diligence. Relief is typically denied when the taxpayer knew about the election and chose not to file, or when hindsight made it look more attractive after the deadline.
For accounting period elections, the government’s interests are deemed prejudiced if the relief request arrives more than 90 days after the original Form 1128 due date, except in unusual and compelling circumstances. A 9100-3 request is treated as a letter ruling request, which means the $6,100 user fee for 2026, detailed affidavits explaining what went wrong, and declarations from any tax professionals involved.
Appealing a Denial
If the IRS denies your ruling request, the denial letter explains your appeal rights. You generally have 30 days from the date of the letter to file a formal written protest, which goes to the IRS address in the denial letter rather than directly to the Independent Office of Appeals.16Internal Revenue Service. Preparing a Request for Appeals
The office that denied the request reviews the protest and tries to resolve the dispute first. If it can’t, the case moves to the Independent Office of Appeals. You can represent yourself or authorize an attorney, CPA, or enrolled agent using Form 2848. For disputes involving $25,000 or less in additional tax, a simplified small case request on Form 12203 may be available, though S corporations and partnerships are excluded.
Don’t Forget State Filings
A federal tax year change does not automatically update your state filings. Most states tie their income tax reporting to the federal tax year, but requirements for notification vary. Some states want a separate filing when you change your federal accounting period; others pick up the change automatically from your federal return. Check with your state’s revenue department before assuming the federal approval carries over. Filing a state return on the wrong period can trigger penalties even when the federal side is in order.