Change in accounting period when return for short year shows an NOL.

• Author: Marchbein, Joe
• Position: Net operating loss - Brief Article

Although many businesses now are S corporations or limited liability companies, many nonservice organizations remain C corporations. These entities have few restrictions on the selection of a fiscal year. Often, an entity's fiscal year was selected years earlier and a different year-end now would better serve the client's purposes.

Regs. Sec. 1.442-1 provides that a taxpayer must obtain prior IRS approval to change its annual accounting period or the change must be authorized under the regulations. Prior approval is obtained by filing Form 1128, Application to Adopt, Change or Retain a Tax Year, with the Service by the fifteenth day of the second calendar month following the close of the short tax year.

Regs. Sec. 1.442-1(c)(1) provides a special rule for certain corporations under which the annual accounting period may be changed without prior approval if certain conditions and filing requirements are met. One of the conditions is that the corporation not have a net operating loss (NOL) in the short period required to make the change of the annual accounting period. If all of the regulation's requirements are met, the taxpayer need only attach the required statement to a timely filed tax return for the short period...