IRS Form 1128 is the Application to Adopt, Change, or Retain a Tax Year. You file it when a business entity wants a tax year other than the one the IRS would otherwise assign, when it wants to switch from an existing year to a different one, or when certain pass-through entities need to justify keeping a fiscal year they already use.1Internal Revenue Service. About Form 1128, Application to Adopt, Change or Retain a Tax Year Getting the filing wrong can cause the IRS to treat your return as covering the wrong period, which triggers rejected filings and penalties.
When the Form Applies
Three situations put Form 1128 on the table: adopting a tax year that differs from the default, changing an established tax year, and retaining a fiscal year the IRS would otherwise force you to abandon. The form also handles changes to or from a 52/53-week tax year, which is a fiscal year that always ends on the same day of the week and runs either 52 or 53 weeks. Retail and manufacturing businesses sometimes prefer that structure because every reporting period contains the same number of weeks.
Most taxpayers default to a calendar year ending December 31. You must use a calendar year if you keep no books, have no consistent accounting period, or your current period doesn’t qualify as a fiscal year.2Internal Revenue Service. Tax Years
Individuals and estates generally don’t file Form 1128. It applies to C corporations, S corporations, partnerships, personal service corporations, and trusts.
What Tax Year Your Entity Is Allowed to Use
Not every entity picks its tax year freely. The IRS imposes “required tax year” rules on some pass-throughs specifically to prevent owners from deferring income by mismatching their year with the entity’s.
Partnerships
A partnership must use the majority interest tax year, meaning the tax year of partners who together hold more than 50 percent of profits and capital. If no single year meets that threshold, it uses the tax year of all principal partners (those with at least 5 percent). If those partners still don’t share a common year, the partnership defaults to a calendar year.3Office of the Law Revision Counsel. 26 USC 706 – Taxable Years of Partner and Partnership A different year is available only by proving a business purpose or making a Section 444 election.
S Corporations
An S corporation’s permitted year is the calendar year. The alternatives are a Section 444 year, a 52/53-week year referencing December, or a fiscal year for which the corporation establishes a business purpose and obtains the IRS Commissioner’s approval.4eCFR. 26 CFR 1.1378-1 – Taxable Year of S Corporation Most S corporations end up on a calendar year.
C Corporations
C corporations have the widest latitude. They can adopt any fiscal year at formation and change it later through Form 1128, subject to the approval rules below.
Is Section 444 an Easier Path?
Before working through Form 1128, partnerships, S corporations, and personal service corporations should look at Section 444. It lets these entities elect a fiscal year without proving a business purpose, as long as the elected year creates no more than three months of income deferral compared to the required tax year.5Office of the Law Revision Counsel. 26 USC 444 – Election of Taxable Year Other Than Required Taxable Year An S corporation, for instance, could elect a September 30 year-end (three-month deferral) but not June 30 (six months).
The cost is a required payment under Section 7519, reported annually on Form 8752. The payment approximates the tax benefit owners gain from the deferral. It uses prior-year net income, the length of the deferral period, and a flat 38 percent rate, and it’s refundable if the entity later switches back to a required year.6Internal Revenue Service. About Form 8716, Election to Have a Tax Year Other Than a Required Tax Year
To make the election, file Form 8716 by the earlier of the 15th day of the fifth month after the month containing the first day of the new tax year, or the due date of the entity’s income tax return for the tax year resulting from the election.
Automatic Approval vs. Prior Approval
If Form 1128 is the right tool, your first decision is which approval track applies. Automatic approval is faster, cheaper, and skips the detailed justification. Prior approval means a ruling request to the IRS National Office, a user fee of $6,100, and a wait measured in months.7Internal Revenue Service. Internal Revenue Bulletin 2026-1
Automatic Approval
Two revenue procedures govern automatic approval: Rev. Proc. 2006-45 for corporations and Rev. Proc. 2006-46 for partnerships, S corporations, personal service corporations, and trusts.8Internal Revenue Service. Instructions for Form 1128 To qualify under either, the entity generally must not have changed its tax year within the 48 months ending with the last month of the requested year.9Internal Revenue Service. Rev. Proc. 2006-45 Switching between a 52/53-week year and a standard year referencing the same month doesn’t count as a prior change, and neither does a change made to comply with consolidated return requirements.
Under automatic approval, you file Form 1128 with your short period return. There’s no separate submission to the National Office, no user fee, and no ruling letter to wait for. The form must be filed no earlier than the day after the short period ends and no later than the due date (including extensions) for the return covering that short period.9Internal Revenue Service. Rev. Proc. 2006-45 Attach a statement of representations, signed by an authorized officer or representative, certifying that you meet every condition of the applicable revenue procedure.
Prior Approval
If you don’t qualify for automatic approval, you need the Commissioner’s permission. Common triggers for the prior approval path include a consolidated group requesting a change, a controlled foreign corporation, an entity that changed its year within the past 48 months, or any situation the revenue procedures don’t cover automatically.10Internal Revenue Service. Rev. Proc. 2006-46
The core requirement is a business purpose. Preference for a different filing deadline isn’t enough. You need to show the requested year aligns with your natural business cycle, or that a compelling operational reason supports the change. Income deferral is explicitly not a valid business purpose for partnerships.3Office of the Law Revision Counsel. 26 USC 706 – Taxable Years of Partner and Partnership
Prior approval requests go to the IRS National Office with the $6,100 user fee.11Internal Revenue Service. Where to File Your Taxes for Form 1128 Processing typically takes six months or longer, and you cannot adopt the new year until a favorable ruling letter arrives.
Proving a Business Purpose: The 25% Test
The usual way to establish a business purpose for a fiscal year is the 25-percent gross receipts test, also called the natural business year test. If your revenue concentrates at a particular time of year, your tax year should end just after that peak, so your books close when the annual cycle naturally wraps up.
To pass, at least 25 percent of your gross receipts from sales and services must fall in the final two months of the requested fiscal year. You have to show this for each of the three most recent 12-month periods ending with the last month of the requested year. If the percentage hits 25 percent or higher in all three, the IRS treats that as your natural business year.12Internal Revenue Service. Rev. Proc. 2002-38
One catch: if a different fiscal year would produce an even higher three-year average, the IRS won’t accept your requested year. You’d have to switch to the year with the stronger concentration, or find a different justification.
The Short Period Return
Changing tax years leaves a gap between the end of the old year and the start of the new one. That gap is the short period, and it needs its own return. A C corporation moving from a calendar year to a September 30 fiscal year would file a nine-month short period return on Form 1120 covering January 1 through September 30.
Income for the short period must be annualized so you don’t benefit from lower brackets simply because the period is under 12 months. The statute sets the formula in two steps: annualize modified taxable income by multiplying it by 12 and dividing by the number of months in the short period, then compute the tax on that annualized figure and prorate it by multiplying by the number of months in the short period and dividing by 12.13Office of the Law Revision Counsel. 26 USC 443 – Returns for a Period of Less Than 12 Months Errors on the short period return can delay approval and trigger penalties, so accuracy matters.
Where and How to File
Form 1128 is paper-only. There is no electronic submission through the IRS Modernized e-File system.11Internal Revenue Service. Where to File Your Taxes for Form 1128
Where you send it depends on the approval path:
- For automatic approval, file Form 1128 with the IRS Service Center where you normally send your income tax return, marked to the attention of Entity Control. The form travels with your short period return.
- For a prior approval ruling request, mail Form 1128 and the user fee to the IRS Associate Chief Counsel (Income Tax and Accounting) at P.O. Box 7604, Ben Franklin Station, Washington, DC 20044-7604.
After filing an automatic request, you adopt the new year without waiting for a confirmation letter, assuming you met the requirements. For prior approval, keep the ruling letter in your permanent records as proof the change was authorized.
Filing Late
Missing the deadline doesn’t necessarily lock you into your old tax year, but relief gets harder the longer you wait.
File within 90 days after the due date and the IRS may treat the form as timely if you can show you acted reasonably and in good faith, and that granting relief won’t harm the government’s interests.8Internal Revenue Service. Instructions for Form 1128 For a routine oversight, that’s a relatively low bar.
Beyond 90 days, the IRS presumes relief would jeopardize government interests, and you must demonstrate unusual and compelling circumstances to overcome that presumption. Either way, the late request is handled as a ruling request under Treasury Regulation Section 301.9100-3, so you’ll owe the user fee even if the original change would have qualified for automatic approval.8Internal Revenue Service. Instructions for Form 1128 At $6,100, it’s an expensive reminder to file on time.7Internal Revenue Service. Internal Revenue Bulletin 2026-1
Adopting a new tax year without proper approval can lead the IRS to treat the change as invalid, which means subsequent returns may be considered filed for the wrong period. Late-filing penalties can follow, and estimated tax calculations get tangled when the IRS and the taxpayer are working from different annual periods.