a-03-49.pdf

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Part IV - Items of General Interest

Changes in Annual Accounting Period

Announcement 2003-49

PURPOSE

This announcement discusses some of the changes that the Internal Revenue
Service and Treasury Department have made in finalizing Notice 2002-75, 2002-47
I.R.B. 884, which proposes procedures for individuals to obtain the automatic approval
of the Commissioner to change their annual accounting period from a fiscal year to a
calendar year. The final procedures are contained in Rev. Proc. 2003-62, page ___ of
this Bulletin.

BACKGROUND

The Service published Notice 2002-75 on November 25, 2002, and requested
public comments on the proposed procedures contained therein. No public comments
were received. However, the Service and Treasury Department have made certain
changes to Notice 2002-75 to further conform the rules for automatic accounting period
changes by individuals to those provided in Rev. Proc. 2002-37, 2002-1 C.B. 1030
(providing procedures for automatic approval of annual accounting period changes by
corporations) and Rev. Proc. 2002-39, 2002-1 C.B. 1046 (providing procedures for the
prior approval of annual accounting period changes by taxpayers generally, including
individuals). Also, the Service and Treasury Department have made conforming
changes to Notice 2002-75 as a result of Rev. Proc. 2003-34, 2003-18 I.R.B. 856, which
modifies the term and condition of Rev. Proc. 2002-37 and Rev. Proc. 2002-39
regarding the carryback of losses incurred in the short period.

CHANGES

A. Interest in a Pass-through Entity

The Service and Treasury Department have determined that the $10,000 de
minimis exception for an individual’s interest in a pass-through entity provided in section
4.02(2)(d) of Notice 2002-75 should be raised to $500,000. This change is consistent
with the $500,000 de minimis exception to the “substantial distortion” rule provided in
section 5.05(1)(ii) of Rev. Proc. 2002-39. The corresponding example in Notice 2002-
75 is modified to reflect this change.

Section 4.02(2)(a) of Notice 2002-75 is modified to remove the reference to
foreign personal holding companies (FPHCs), because FPHCs cannot make a one-
month deferral election under § 898(c)(1)(B) of the Internal Revenue Code. Section

- 2 -
4.02(2)(a) of Rev. Proc. 2002-37 also contains this reference. The Service and
Treasury Department intend to remove the reference to FPHCs in section 4.02(2)(a) of
Rev. Proc. 2002-37. No inference should be drawn from that reference that FPHCs are
eligible to make a one month deferral election under § 898(c)(1)(B).

B. Net Operating Loss Term and Condition.

Section 6.05 of Notice 2002-75 provides that a net operating loss (NOL)
generated in the short period is carried back or carried over if the loss is $10,000 or
less. The Service and Treasury Department have determined that the $10,000 ceiling
should be raised to $50,000, consistent with the $50,000 ceiling provided in section 5.04
of Rev. Proc. 2002-39. Also, the Service and Treasury Department have made other
changes to this section consistent with Rev. Proc. 2003-34.

C. Other Changes

Additional conforming changes have been made to Notice 2002-75 to make the
automatic approval procedures applicable to individuals consistent with those of Rev.
Proc. 2002-37 and Rev. Proc. 2002-39. See, for example, section 6.07 of Rev. Proc.
2003-62.

FURTHER INFORMATION

For further information regarding this announcement, contact Roy A. Hirschhorn
or Jeffrey S. Marshall of the Office of the Associate Chief Counsel (Income Tax and
Accounting) at (202) 622-4960 (not a toll-free call).