n-99-19.pdf

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Part III - Administrative, Procedural, and Miscellaneous
Accounting Period Guidance
Notice 99-19
PURPOSE
This notice invites public comment on possible changes to published guidance concerning
accounting period changes. Among possible changes under consideration are: (1) revising the
criteria used to establish a substantial business purpose, including what constitutes a natural
business year; and (2) allowing more accounting period changes to be made automatically.
BACKGROUND
Section 441 of the Internal Revenue Code provides that taxable income must be computed
on the basis of the taxpayer’s taxable year. In general, the term “taxable year” means the
taxpayer’s annual accounting period, which can be a calendar or fiscal year, or a period of less
than 12 months for which a return is made (i.e., a short period). The term “annual accounting
period” means the annual period on the basis of which the taxpayer regularly computes its income
in keeping its books. Special rules under the Code and Income Tax Regulations require particular
accounting periods for certain taxpayers such as domestic international sales corporations and
foreign sales corporations (§ 441(h)), personal service corporations (§ 441(i)), certain trusts (§
644), partnerships (§ 706), real estate investment trusts (§ 859), real estate mortgage investment

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conduits (§ 860D(a)(5)), specified foreign corporations (§ 898), S corporations (§ 1378), and
members of affiliated groups that file consolidated returns (Treas. Reg. § 1.1502-76).
Section 442 provides that if a taxpayer changes its annual accounting period, the new
accounting period becomes the taxpayer’s taxable year only if the change is approved by the
Secretary. In addition, adoptions of fiscal years by certain taxpayers are treated as accounting
period changes and thus can become the taxpayer’s taxable year only with the approval of the
Secretary. (See e.g., § 706(b)(1)(C)).
Section 1.442-1(b) provides that approval for an accounting period change will not be
granted unless the taxpayer and the Commissioner agree to the terms, conditions, and adjustments
under which the change will be effected. In general, a change of annual accounting period will be
approved where the taxpayer establishes a substantial business purpose for making the change.
Under the Code and regulations, certain taxpayers are allowed to change their annual
accounting periods automatically without securing the prior approval of the Commissioner (see,
e.g., § 859(b) and Treas. Reg. §§ 1.442-1(c), (d), and (e)). In addition, the Service has issued
several revenue procedures, such as Rev. Proc. 92-13, 1992-1 C.B. 665; Rev. Proc. 87-32, 1987-
2 C.B. 396; and Rev. Proc. 66-50, 1966-2 C.B. 1260, that enable taxpayers to obtain automatic
approval of changes in their accounting periods, if specific conditions are satisfied.
REQUEST FOR PUBLIC COMMENT
The Service is considering what, if any, changes should be made in order to clarify and
simplify published guidance concerning accounting period changes. Accordingly, the Service and
Treasury request comments on possible changes to current accounting period guidance including,
but not limited to, the following:

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(1) What changes should be made to the rules governing the approval of accounting
period change requests? For example, what changes, if any, should be made to the substantial
business purpose requirement? See Treas. Reg. § 1.442-1(b)(1). How should deferral or shifting
of income, or acceleration or shifting of deductions, (“deferral”) be considered in determining
whether to approve an accounting period change request? For example, should safe harbors
permitting de minimis deferral be established? If an accounting period change that creates deferral
is permitted, what terms and conditions should apply to the change? Should all taxpayers,
regardless of their form (e.g., corporation, partnership, S corporation), be subject to the same
criteria for approval? Should the rules for establishing a natural business year be revised, and if
so, how? See Rev. Proc. 74-33, 1974-2 C.B. 489.
(2) How should the current automatic accounting period change procedures be organized,
clarified, and simplified? See, e.g., Treas. Reg. § 1.442-1, Rev. Proc. 92-13, Rev. Proc. 87-32,
and Rev. Proc. 66-50. Should the Service provide procedures for automatic approval to change
accounting periods in additional situations? If so, what types of situations would warrant such
automatic approval, and what, if any, terms and conditions should apply to such changes?
Taxpayers may submit comments in writing to:
Internal Revenue Service
Attn: CC:DOM:CORP:R (Notice 99-19, Room 5226).
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044
Alternatively, taxpayers may submit comments electronically at:
http://www.irs.ustreas.gov/prod/cover.html (the IRS Internet site).
All comments should be received by June 18, 1999. The comments submitted will be

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available for public inspection and copying.
DRAFTING INFORMATION
The principal author of this notice is Martin Scully of the Office of Assistant Chief
Counsel (Income Tax and Accounting). For further information regarding this notice contact Mr.
Scully on (202) 622-4960 (not a toll-free call).