IRS updates automatic approval procedures for accounting-period changes.

• Author: Herndon, Diane

In Rev. Proc. 2006-45, the Service updated its automatic consent procedures for certain eligible corporations to change their annual accounting periods. The procedure clarifies, modifies, amplifies and supersedes Rev. Proc. 2002-37, and is generally effective for accounting-period changes for which the first effective year ends after Oct. 17, 2006.

Overview

Rev. Proc. 2006-45 makes several changes to Rev. Proc. 2002-37, addressing eligibility, terms and conditions, and filing requirements. In dealing with eligibility for automatic consent, it includes the following changes:

* A passthrough entity (as well as a controlled foreign corporation (CFC)) that does not have a required tax year, is disregarded solely for purposes of determining whether a corporation owns an interest in a passthrough entity or CFC in applying certain scope limits under Rev. Proc. 2006-45.

* Neither an S corporation nor a terminating S corporation is eligible for automatic consent under Rev. Proc. 2006-45. An S corporation seeking automatic approval to change its accounting period should follow Rev. Proc. 2006-46.

* A corporation that leaves a consolidated group before the end of the short period effecting a change in tax year by the consolidated parent cannot obtain automatic consent to change its tax year using Rev. Proc. 2006-45. The procedure also clarifies that a consolidated group consists of the parent and any subsidiary that is a member of the group on the last day of the short period required to make the change in tax year.

* A consolidated group member changing to or from a 52-53-week tax year is not eligible for automatic consent for such change, unless the requested year is identical to the consolidated group's tax year.

* A CFC is generally ineligible for automatic consent, unless (1) it does not have a required tax year under Sec. 898; (2) it is changing to a required tax year, a 52-53-week tax year referencing such required year, the one-month deferral year or a 52-53-week year referencing the one-month deferral year; or (3) for post-July 10, 1989 tax years of the CFC, no U.S. shareholder has been required to include subpart F income.

Terms and Conditions

Rev. Proc. 2006-45 also revised and clarified certain terms and conditions for receiving automatic consent to change a tax year. These include:

* A corporation generally must comply with the terms and conditions for the first effective year, even if it is a short period. However, the book-conformity...