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satisfying the following ‘‘25-percent

Line 8. For an S corporation, an

tax under section 501(a) unless the

gross receipts test:’’

‘‘ownership tax year’’ is the tax year

exemption is denied under section

(if any) that, as of the first day of the

502 or 503.

1. Prior three years gross receipts.

first effective year, constitutes the tax

a. Gross receipts from sales and

Rev. Proc. 85-58 does not apply

year of one or more shareholders

services for the most recent 12-month

to:

(including any shareholder that

•

period that ends with the last month

Farmers’ cooperatives exempt from

concurrently changes to such tax

of the requested annual accounting

Federal income tax under section

year) holding more than 50 percent of

period are totaled and then divided

521,

the corporation’s issued and

•

into the amount of gross receipts from

Organizations described in

outstanding shares of stock. For this

sales and services for the last 2

sections 526, 527, and 528,

purpose, a shareholder that is

•

months of this 12-month period.

Organizations described in section

tax-exempt under section 501(a) is

b. The same computation as in a

401(a), and

disregarded if such shareholder is not

•

above is made for the two preceding

Organizations requesting a change

subject to tax on any income

12-month periods ending with the last

in a tax year on a group basis.

attributable to the S corporation.

month of the requested annual

A central organization should

Tax-exempt shareholders are not

accounting period.

follow Rev. Proc. 76-10 to apply for a

disregarded, however, if the S

2. Natural business year:

group change in tax year for all its

corporation is wholly-owned by such

subordinate organizations.

a. Except as provided in b below,

tax-exempt entities. A shareholder in

if each of the three results described

Rev. Proc. 76-10 does not apply

an S corporation that wants to

in 1 equals or exceeds 25 percent,

concurrently change its tax year must

to:

•

then the requested annual accounting

Farmers’ cooperatives exempt from

follow the instructions generally

period is deemed to be the taxpayer’s

applicable to taxpayers changing their

Federal income tax under section

natural business year.

521,

tax years contained in Regulations

•

b. The taxpayer must determine

section 1.442-1(b), Rev. Proc.

Certain organizations that have

whether any annual accounting

2002-39, or any other applicable

unrelated business taxable income

period other than the requested

administrative procedure published

defined in section 512(a), and

•

annual accounting period also meets

by the IRS.

Organizations that are private

the 25-percent test described in a. If

foundations defined in section 509(a).

Line 9. The partnership must

one or more other annual accounting

concurrently change its tax year as a

periods produce higher averages of

Part III—Ruling Request

term and condition of a related entity

the three percentages (rounded to 1/

change in tax year.

Part III is completed only by

100 of a percent) described in 1 than

applicants requesting to adopt,

the requested annual accounting

Section C—Individuals

change, or retain a tax year that

period, then the requested annual

An individual is eligible for automatic

cannot use the automatic procedures

accounting period will not qualify as

approval if:

listed in Part II.

the taxpayer’s natural business year.

•

The individual is changing from a

3. Special rules:

Also, the applicant must complete

fiscal year to a calendar year and

a. To apply the 25-percent gross

the specific section(s) in Part III that

•

The individual ia not subject to the

receipts test for any particular year,

applies to that particular applicant.

restrictions of section 4.02 of Rev.

the taxpayer must compute its gross

Proc. 2003-62 (or its successor).

receipts under the method of

Complete

If the applicant is:

only

accounting used to prepare its federal

Section D—Tax-Exempt

income tax returns for such tax year.

Organizations

A corporation (other

Sections A and

b. If the taxpayer has a

than an S corporation B, plus any

A tax-exempt organization may

predecessor organization and is

or CFC)

other applicable

request a change to its tax year under

continuing the same business as its

section in Part

the simplified method of either Rev.

predecessor, the taxpayer must use

III

Proc. 85-58 or Rev. Proc. 76-10.

the gross receipts of its predecessor

An S corporation

Sections A and

for purposes of computing the

Under Rev. Proc. 85-58, an

25-percent gross receipts test.

organization exempt under section

c. If the taxpayer (including any

501(a) does not have to file Form

A Partnership

Sections A and

predecessor organization) does not

1128 unless:

have a 47-month period of gross

1. The organization was required

A Controlled Foreign

Sections A and

receipts (36-month period for the

to file an annual information return or

Corporation

requested tax year plus an additional

Form 990-T, Exempt Organization

11-month period for comparing the

Business Income Tax Return, at any

requested tax year with other

time during the last 10 calendar

Do not file a tax return

potential tax years), then it cannot

years, and

using the requested tax

establish a natural business year

2. The organization has changed

year until this application is

CAUTION

under this revenue procedure.

its tax year at any time within the last

approved.

d. If the requested tax year is a

10 calendar years ending with the

52-53-week tax year, the calendar

Rev. Proc. 2002-39 provides the

calendar year that includes the

month ending nearest to the last day

general procedures for obtaining

beginning of the first effective year

of the 52-53-week tax year is treated

approval to adopt, change, or retain a

resulting from the change of tax year.

as the last month of the requested tax

tax year for taxpayers not qualifying

year for purposes of computing the

An organization described in

under the automatic approval rules or

25-percent gross receipts test.

section 501(c) or (d) is exempt from

if the application is late.

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Instructions For Form 1128 - Application To Adopt, Change, Or Retain A Tax Year - 2003 Page 5

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