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at the same time it files the

into the amount of gross receipts from

(including any shareholder that

application with the Service Center.

sales and services for the last 2

concurrently changes to such tax

The application must contain the

months of this 12-month period.

year) holding more than 50 percent of

name and telephone number of the

the corporation’s issued and

b. The same computation as in a,

appeals officer.

outstanding shares of stock. For this

above is made for the two preceding

•

The applicant is before a Federal

12-month periods ending with the last

purpose, a shareholder that is

court and the applicant’s annual

month of the requested annual

tax-exempt under section 501(a) is

accounting period is not an issue

accounting period.

disregarded if such shareholder is not

under consideration by the Federal

subject to tax on any income

2. Natural business year:

court. The applicant must attach to

attributable to the S corporation.

a. Except as provided in b, below,

the application a separate statement

Tax-exempt shareholders are not

if each of the three results described

signed by the applicant certifying that,

disregarded, however, if the S

in 1 above equals or exceeds 25

to the best of the applicant’s

corporation is wholly-owned by such

percent, then the requested annual

knowledge, the applicant’s annual

tax-exempt entities. A shareholder in

accounting period is deemed to be

accounting period is not an issue

an S corporation that wants to

the taxpayer’s natural business year.

under consideration by the Federal

concurrently change its tax year must

b. The taxpayer must determine

court. The applicant must also

follow the instructions generally

whether any annual accounting

provide a copy of the application to

applicable to taxpayers changing their

period other than the requested

the government counsel at the same

tax years contained in Regulations

annual accounting period also meets

time it files the application with the

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

the 25-percent test described in a,

Service Center. The application must

2002-39, or any other applicable

above. If one or more other annual

contain the name and telephone

administrative procedure published

accounting periods produce higher

number of the government counsel.

by the IRS.

averages of the three percentages

If the answer to question 4 is “No”

(rounded to 1/100 of a percent)

Line 8. Answer “Yes” if the

because the applicant (or a partner or

described in 1 above than the

partnership is a related entity that

shareholder) is under examination

requested annual accounting period,

must concurrently change its tax year

and has not obtained the appropriate

then the requested annual accounting

as a term and condition of the

director’s consent to the change or

period will not qualify as the

approval of the taxpayer’s request to

retention of the applicant’s annual

taxpayer’s natural business year.

change its tax year.

accounting period or the applicant is

3. Special rules:

before an appeals office or Federal

a. To apply the 25-percent gross

Section C—Individuals

court and the applicant’s annual

receipts test for any particular year,

Line 9. If the answer to question 9 is

accounting period is an issue under

the taxpayer must compute its gross

consideration by the appeals office or

“Yes,” and the restrictions of section

receipts under the method of

Federal court, do not complete Part

4.02 of Rev. Proc. 2003-62 (or its

accounting used to prepare its federal

III.

successor) do not apply, sign Form

income tax returns for such tax year.

1128 and see Part II— Automatic

If the answer to question 4 is “No”

b. If the taxpayer has a

Approval Request above under

solely because of a prior change as

predecessor organization and is

Where To File. Do not complete Part

described in item (5) above, go to

continuing the same business as its

III. If the answer to question 9 is

Part III after completing Section B.

predecessor, the taxpayer must use

“No,” go to Section A of Part III.

the gross receipts of its predecessor

If the answer to question 4 is “Yes”

for purposes of computing the

(and the answer to question 5, 6, or 7

Section D—Tax-Exempt

25-percent gross receipts test.

is also “Yes”), sign Form 1128 and

Organizations

c. If the taxpayer (including any

see Part II—Automatic Approval

predecessor organization) does not

A tax-exempt organization can

Request under Where To File, above.

have a 47-month period of gross

request a change to its tax year under

Do not complete Part III. If the answer

receipts (36-month period for the

the simplified method of either Rev.

to question 4 is “Yes” (and the

requested tax year plus an additional

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

answer to question 5, 6, or 7 is “No”),

11-month period for comparing the

go to Part III after completing Section

Under Rev. Proc. 85-58, an

requested tax year with other

organization exempt under section

potential tax years), then it cannot

Line 6. A partnership, S corporation,

501(a) does not have to file Form

establish a natural business year

electing S corporation, or PSC

1128 unless the following conditions

under this revenue procedure.

establishes a ‘‘natural business year’’

described in section 3.03 of Rev.

d. If the requested tax year is a

under Rev. Proc. 2006-46 by

Proc. 85-58 apply:

52-53-week tax year, the calendar

satisfying the following ‘‘25-percent

1. The organization was required

month ending nearest to the last day

gross receipts test.’’ The applicant

to file an annual information return or

of the 52-53-week tax year is treated

must supply its gross receipts for the

Form 990-T, Exempt Organization

as the last month of the requested tax

most recent 47 months (or for any

Business Income Tax Return, at any

year for purposes of computing the

predecessor) to compute the 25

time during the last 10 calendar

25-percent gross receipts test.

percent gross receipts test.

years, and

1. Prior 3 years gross receipts:

2. The organization has changed

Line 7. For an S corporation, an

its tax year at any time within the last

a. Gross receipts from sales and

‘‘ownership tax year’’ is the tax year

10 calendar years ending with the

services for the most recent 12-month

other than a calendar year (if any)

period that ends with the last month

that, as of the first day of the first

calendar year that includes the

beginning of the short period resulting

of the requested annual accounting

effective year, constitutes the tax year

from the change of tax year.

period are totaled and then divided

of one or more shareholders

-6-

Instructions For Form 1128 - Application To Adopt, Change, Or Retain A Tax Year - Internal Revenue Service - 2008 Page 6

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