Rev. Proc. 2006-45: Automatic Accounting Period Change Rules

Revenue Procedure 2006-45 lets a qualifying corporation change its tax year automatically, without requesting a private letter ruling from the IRS or paying a user fee. It operates under Internal Revenue Code Section 442, which otherwise requires IRS approval for any switch in annual accounting period.¹ The corporation files Form 1128 by the due date of its short-period return, agrees to the procedure’s conditions, and if the IRS says nothing, the change is approved.²

Which Corporations Can Use It

The procedure covers C corporations, associations, joint-stock companies, insurance companies, and individual members of a consolidated group as of the last day of the first year under the new accounting period. Certain S corporations and tax-exempt organizations also fall within its scope if they meet the other requirements.³

The main timing hurdle is the 48-month rule. A corporation cannot use automatic approval if it changed its accounting period at any point in the 48 months ending with the last month of the requested new tax year. Narrow exceptions apply: a prior change made to comply with consolidated group requirements, a recent acquisition by a new majority shareholder using a different tax year where the corporation wants to align for consolidated financial statements, and a switch between a 52-53-week year and a standard year ending in the same month.³

Automatic changes under this procedure carry no user fee under Revenue Procedure 2026-1.⁴

Who Is Shut Out

Several categories of corporations can’t use the automatic route even if the timing works. Check this list before filing.

Corporations under IRS examination cannot use automatic approval without specific consent from the examining agent.
A corporation holding an interest in a partnership, S corporation, trust, estate, or controlled foreign corporation at the end of the first year under the new period is generally excluded. An interest in a pass-through entity that does not have a required taxable year is disregarded.³
A corporation that owns shares in a foreign sales corporation (FSC) or interest charge domestic international sales corporation (IC-DISC) as of the end of the short period is excluded.
FSCs and IC-DISCs themselves must go through the formal ruling process.
S corporations and terminated S corporations are generally covered by Revenue Procedure 2006-46 instead.

Consolidated group members have their own overlay. Subsidiary tax years must generally match the common parent, and a subsidiary that recently joined the group may trigger additional requirements.

Conditions Attached to Automatic Approval

Approval is not free of obligations. The corporation must close its books and records as of the last day of the first year under the new accounting period and keep them on that basis going forward. Financial statements issued to shareholders and reports provided to creditors must align with the new tax year at the same time. If the corporation isn’t required to issue financial statements for the short transition period, conformity is satisfied when its financial reporting period already matches the requested tax year or is switched simultaneously. Books maintained solely for foreign-law purposes are exempt.³

Short-Period Tax

The gap between the old year-end and the new one becomes a short period with its own return. The corporation must annualize its taxable income for that short period under IRC Section 443(b).³ Take the modified taxable income for the short period, multiply by 12, divide by the number of months in the short period, compute the tax on that annualized amount, and pay the fraction corresponding to the short period’s length. A four-month short period means paying 4/12 of the tax computed on the annualized figure.⁵

Section 443(b)(2) offers an alternative that can reduce the tax if the corporation can establish its income for the full 12-month period beginning on the first day of the short period. Because the full-year figure isn’t known at filing, this method is typically claimed later as a refund claim.⁵

Losses in the Short Period

A net operating loss or capital loss generated in the short period cannot be carried back to any year before the short period. It must be carried forward.³ This is a mandatory condition of automatic approval. A corporation expecting a short-period loss that it would want to carry back should weigh whether the letter ruling route makes more sense.

Filing Form 1128

The application is Form 1128, “Application to Adopt, Change, or Retain a Tax Year.”⁶ Check the box for “Automatic Approval Request” in Part II, Section A, and include a statement at the top referencing Revenue Procedure 2006-45. The form calls for the corporation’s Employer Identification Number, current tax year-end, requested new fiscal year-end, principal business activity, and contact information. Incomplete fields can prompt the IRS to reject the application, forcing a refile that may fall outside the deadline.

The filing deadline is the due date, including extensions, of the federal income tax return for the short period.² A copy of the completed Form 1128 must also be attached to the short-period tax return. Mail the form to the IRS Service Center where the corporation normally files its income tax return, addressed to “Attention: Entity Control.”⁷ An authorized officer such as the president or treasurer must sign under penalties of perjury.

What Happens After You File

The IRS does not send a confirmation letter for automatic approval requests. Silence means approval. That places the eligibility judgment entirely on the corporation. If the IRS later determines the corporation was ineligible, the change can be unwound retroactively, generating amended returns and possible penalties.

Keep copies of the filed Form 1128, the short-period return, and proof of mailing. Later audit questions about the accounting period start with those records. Every subsequent return must be filed on the new tax year unless the corporation goes through the change process again.

If You Miss the Deadline

A missed filing deadline is not always fatal. Treasury Regulations Section 301.9100-2 provides an automatic 12-month extension for certain elections, including the Section 444 election to use a tax year other than the required year. The corporation files the election under the normal procedures and writes “Filed pursuant to §301.9100-2” at the top. No letter ruling or user fee is required.

When automatic relief is unavailable, Section 301.9100-3 allows the IRS to grant an extension case by case. The corporation must show that it acted reasonably and in good faith and that the government’s interests won’t be harmed. A detailed affidavit is required, and the IRS may condition approval on extending the statute of limitations for the affected years. The user fee for a Section 9100-3 request related to Form 1128 is $6,100.⁴

When You Need a Letter Ruling Instead

Corporations outside the automatic scope must request a private letter ruling. The IRS reviews the specific business reasons for the change and decides whether to approve it. The user fee for a non-automatic Form 1128 request is $5,750 under the 2026 fee schedule.⁴

The ruling route takes longer and demands more documentation. The corporation must demonstrate a genuine business purpose, and the IRS examines whether the new year would produce a significant deferral of income or other distortion. For corporations with international operations, pass-through interests, or complex ownership structures, this level of scrutiny is unavoidable. The detailed procedures are published annually in Revenue Procedure 2026-1.⁸

1
Internal Revenue Service. 26 USC 442 – Change of Annual Accounting Period
2
Internal Revenue Service. Instructions for Form 1128
3
Internal Revenue Service. Revenue Procedure 2006-45
4
Internal Revenue Service. Internal Revenue Bulletin 2026-1
5
Office of the Law Revision Counsel. 26 USC 443 – Returns for a Period of Less Than 12 Months
6
Internal Revenue Service. About Form 1128, Application to Adopt, Change or Retain a Tax Year
7
Internal Revenue Service. Where to File Your Taxes for Form 1128
8
Internal Revenue Service. Code, Revenue Procedures, Regulations, Letter Rulings