rp-07-64.pdf

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing.

This collection currently includes the publisher’s available advance-release directory. Historical bulletin renditions are discovered separately; an advance-release record alone does not certify the collection archive complete.

Part III

Administrative, Procedural, and Miscellaneous

26 CFR 601.204: Changes in accounting periods and in methods of accounting.
(Also Part I, §§ 442, 898; 1.442-1)

Rev. Proc. 2007-64

SECTION 1. PURPOSE
This revenue procedure modifies a scope provision and one of the terms
and conditions under which the Internal Revenue Service grants approval of
requests by corporations for changes in annual accounting periods filed under
Rev. Proc. 2006-45, 2006-45 I.R.B. 851. Specifically, this revenue procedure
modifies the scope provision regarding a corporation that exits a consolidated
group. See section 4.02(13) of Rev. Proc. 2006-45. In addition, this revenue
procedure modifies the terms and conditions relating to record keeping and book
conformity in the case of a controlled foreign corporation ("CFC") that has a
majority U.S. shareholder year (as defined in § 898(c)(3) of the Internal Revenue
Code) and that is changing to a one-month deferral year described in § 898(c)(2)
or to a 52-53-week taxable year that references such one-month deferral year.
See section 6.02 of Rev. Proc. 2006-45.
SECTION 2. BACKGROUND

- 2 -
.01 Section 442 and § 1.442-1(a) of the Income Tax Regulations generally
provide that a taxpayer that wants to change its annual accounting period and
use a new taxable year must obtain the approval of the Commissioner.
.02 Section 1.442-1(b)(2) provides that a change in annual accounting
period will be approved only if the taxpayer agrees to the Commissioner's
prescribed terms, conditions, and adjustments for effecting the change.
.03 Rev. Proc. 2006-45 provides the exclusive procedures for certain
corporations to obtain automatic approval of the Commissioner to change their
annual accounting periods.
.04 Section 4.02(13) of Rev. Proc. 2006-45 excludes from the scope of the
revenue procedure a corporation that ceases to be a member of a consolidated
group during the consolidated group’s first effective year (as defined in section
5.05 of Rev. Proc. 2006-45).
.05 The Service has determined that it is appropriate to modify the scope
of Rev. Proc. 2006-45 to clarify that any corporation leaving a consolidated group
is excluded from the automatic change procedures under Rev. Proc. 2006-45
during the consolidated group’s taxable year (without regard to a change in the
consolidated group’s accounting period) in which the corporation ceases to be a
member of the consolidated group. A corporation that ceases to be a member of
a consolidated group must continue to use the annual accounting period of the
consolidated group, unless the corporation receives approval under Rev. Proc.
2002-39, 2002-1 C.B. 1046, to change its annual accounting period (or is

- 3 -
required to change its annual accounting period upon joining another
consolidated group).
.06 Section 898(c)(2) provides that a specified foreign corporation (i.e., a
CFC) may elect, in lieu of the taxable year under § 898(c)(1)(A) (i.e., the majority
U.S. shareholder year as defined in § 898(c)(3)), a taxable year beginning one
month earlier than the majority U.S. shareholder year (i.e., one-month deferral
year described in § 898(c)(2)).
.07 Section 4.02(8) of Rev. Proc. 2006-45 includes in the scope of the
revenue procedure a CFC that has a majority U.S. shareholder year and that is
changing to a one-month deferral year or to a 52-53-week taxable year that
references such one-month deferral year.
.08 With respect to the terms and conditions of change under Rev. Proc.
2006-45, section 6.02(1) of that revenue procedure generally requires that a
corporation compute its income and keep its books and records (including
financial statements and reports to creditors) on the basis of the requested
taxable year. That section further requires that the books and records of the
corporation be closed as of the last day of the first effective year and that the
corporation conform the accounting period used for financial statement purposes
and reports to creditors concurrently.
.09 The Service has determined that in the case of a CFC changing to a
one-month deferral year or to a 52-53-week taxable year that references such
one-month deferral year, the CFC is not required to issue financial statements
and reports to creditors on the basis of the requested year as otherwise required

- 4 -
by section 6.02(1) of Rev. Proc. 2006-45. However, as required by section
6.02(1) of Rev. Proc. 2006-45, the CFC must close its books and records as of
the last day of the first effective year and, every year after the first effective year,
must close its books and records as of the last day of the requested taxable year,
either a one-month deferral year or a 52-53-week taxable year that references
such one-month deferral year. The CFC must also compute its income and
earnings and profits for U.S. tax purposes on the basis of the requested year.
SECTION 3. SCOPE
.01 Corporations leaving a consolidated group. This revenue procedure
applies to a corporation leaving a consolidated group that wants to change its
annual accounting period in the year the corporation ceases to be a member of
the consolidated group.
.02 CFCs changing to one-month deferral year or to a 52-53-week taxable
year that references such one-month deferral year. This revenue procedure also
applies to a CFC that has a majority U.S. shareholder year, and that is properly
applying under Rev. Proc. 2006-45 to change to a one-month deferral year or to
a 52-53-week taxable year that references such one-month deferral year.
SECTION 4. MODIFICATIONS
.01 Section 4.02(13) is modified to read as follows: “Corporation that exits
a consolidated group. A corporation that ceases to be a member of a
consolidated group and wants to change its annual accounting period during the
consolidated group's taxable year in which the corporation ceases to be a
member of the consolidated group. For purposes of the prior sentence, the

- 5 -
consolidated group's taxable year is determined without regard to a change in the
consolidated group’s annual accounting period. A corporation that ceases to be
a member of a consolidated group must continue to use the annual accounting
period of the consolidated group, unless the corporation receives approval under
Rev. Proc. 2002-39 to change its annual accounting period (or is required to
change its annual accounting period upon joining another consolidated group).
A corporation that ceases to be a member of a consolidated group during the
consolidated group’s first effective year is not a member of the consolidated
group for purposes of the consolidated group's change in accounting period. See
section 7.02(7) of this revenue procedure.
(a) Example 1. On March 31, 2006, ABC Corporation ceases to be a
member of a consolidated group that has a taxable year ending on November 30.
ABC Corporation is not eligible to change its annual accounting period under this
revenue procedure to a taxable year beginning before December 1, 2006.
(b) Example 2. Assume the same facts as Example 1, except that the
consolidated group changes its annual accounting period to a taxable year
ending on August 31, effective August 31, 2006. ABC Corporation is not eligible
to change its annual accounting period under this revenue procedure to a taxable
year beginning before December 1, 2006.
(c) Example 3. Assume the same facts as Example 2, except that the
consolidated group changes its annual accounting period to a taxable year
ending on January 31, effective January 31, 2006. ABC Corporation is not

- 6 -
eligible to change its annual accounting period under this revenue procedure to a
taxable year beginning before February 1, 2007.”
.02 Section 6.02 of Rev. Proc. 2006-45 is modified to add paragraph (4)
as follows: "(4) CFCs changing to a year described in § 898(c)(2) or to a 52-53-
week taxable year that references such one-month deferral year. The terms and
conditions regarding financial statements and reports to creditors in section
6.02(1) of this revenue procedure do not apply in the case of a CFC that has a
majority U.S. shareholder year (as defined in § 898(c)(3)), and that is changing to
a one-month deferral year described in § 898(c)(2) or to a 52-53-week taxable
year that references such one-month deferral year. Such a CFC is nevertheless
required to close its books and records as of the last day of the first effective year
and every year thereafter to close its books and records on the last day of the
requested taxable year, and to compute its income and earnings and profits for
U.S. tax purposes on the basis of the requested taxable year.
SECTION 5. EFFECT ON OTHER DOCUMENTS
Rev. Proc. 2006-45 is modified and clarified.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective for changes in annual accounting
periods for which the first effective year (as defined in section 5.05 of Rev. Proc.
2006-45) ends on or after October 18, 2006.
DRAFTING INFORMATION
The principal author of this revenue procedure is Jeffrey S. Marshall of the
Office of Associate Chief Counsel (Income Tax and Accounting). For further

- 7 -
information regarding this revenue procedure, contact Mr. Marshall at (202) 622-
4960 (not a toll-free call).