How to File IRS Form 1128 to Change Your Tax Year

IRS Form 1128, “Application to Adopt, Change, or Retain a Tax Year,” is a request made to the Internal Revenue Service to approve an annual accounting period that differs from a taxpayer’s required tax year. Businesses and other entities use this form to alter their fiscal reporting cycle for legitimate reasons. The application allows the IRS to review the proposed change to ensure it does not create a substantial distortion of income or provide an unfair tax advantage.

Determining if Filing is Necessary

While many entities must file Form 1128 to change their accounting period, it is not always required. The IRS provides automatic approval procedures that allow certain taxpayers to change their tax year without submitting a formal application or paying a user fee. These automatic approvals are available to entities that meet specific conditions, including not having changed their tax year within the last 48 months.

Corporations can often secure an automatic change by following the guidelines in Revenue Procedure 2006-45. This procedure applies if the corporation meets several conditions, such as not having a financial interest in a pass-through entity like a partnership. The change must also not result in a significant distortion of income. If the criteria are met, the corporation attaches a statement to its short-period tax return instead of filing Form 1128.

Similar provisions exist for other entities. Revenue Procedure 2006-46 offers an automatic approval process for partnerships, S corporations, and personal service corporations (PSCs). For instance, a partnership may automatically change to a tax year that aligns with the tax year of its majority-interest partners. An S corporation can change to a “natural business year,” where at least 25% of its gross receipts for the last three years were recognized in the final two months of the desired new tax year.

These automatic procedures streamline the process for common changes. However, if an entity falls under certain exceptions, such as being under IRS examination or having recently terminated an S corporation election, it will be ineligible for automatic approval. When a desired change does not fit within the automatic approval guidelines, filing a Form 1128 application is necessary to request a ruling from the IRS.

Required Information for Form 1128

To complete Form 1128, you must provide basic filer information, including the legal name, address, and Employer Identification Number (EIN) or Social Security Number (SSN) of the applicant.

You must state both the present tax year and the requested tax year, including the month and day on which each year ends. This information establishes the “short period,” which is the transitional tax period between the end of your old tax year and the beginning of the new one. If the change is approved, the income and expenses for this short period must be reported on a separate tax return.

For non-automatic requests, a business purpose statement is required. The IRS requires a substantial, non-tax reason for changing an accounting period, such as one based on the natural cycle of your business operations. For example, a retailer whose sales peak during the holiday season might request a January 31 year-end to align its financial reporting with its natural business year. Reasons primarily aimed at reducing tax liability or shifting income to gain a tax advantage are not acceptable.

The form is divided into several parts. Part I collects general information, Part II is for certain automatic approval requests, and Part III is for ruling requests. Applicants seeking a ruling must provide a detailed explanation of the business purpose and other supporting financial data.

The Submission and Post-Filing Process

The filing deadline for Form 1128 depends on the type of request. For a ruling request, the form must be filed by the due date, not including extensions, of the federal income tax return for the short tax period. For most automatic approval changes, the form is filed by the due date of the short period return, including extensions.

A user fee is required for applications that request a formal ruling from the IRS National Office. This fee is not necessary for changes that fall under automatic approval procedures. The amount of the user fee can change, so you should consult the most current IRS guidance before submitting the application.

Payment must be made electronically through the Pay.gov portal using a credit card, debit card, or electronic funds transfer. The IRS no longer accepts checks or money orders for these fees. A copy of the payment receipt from Pay.gov should be attached to the Form 1128 application.

The mailing address for the form differs based on the type of request. Applications for a ruling are sent to the IRS National Office in Washington, D.C., while automatic approval requests are filed with the IRS service center where the entity files its tax return. The specific addresses are provided in the form’s instructions. The IRS will issue a letter approving or denying a ruling request.

If the IRS approves the change, the filer must file a short-period tax return. This return covers the months between the end of the old tax year and the start of the new one. For example, if a calendar-year business switches to a June 30 year-end, it must file a return for the short period from January 1 to June 30. The due date for this return is the same as it would be for a full-year return, and a copy of the approved Form 1128 should be attached.