Form 1128, Application To Adopt, Change, or Retain a Tax Year, is the IRS application a business or individual files to get approval for an annual accounting period. If you qualify for automatic approval under Part II, there is no user fee and the form is due with your short period return, extensions included. If you don't qualify, Part III is a letter ruling request that carries a $5,750 user fee under Rev. Proc. 2026-1 and is due without extensions.
Section 442 of the Internal Revenue Code says a new accounting period becomes your taxable year only if the IRS approves the change, and Form 1128 is how you ask. This guide covers who files Form 1128, which revenue procedure applies, the 2026 user fee and deadlines, how Form 8716 differs, and a short period example.
Your tax year is the annual accounting period you use to keep books and report income. It can take three shapes:
A tax year is a separate question from your accounting method, which has its own application, covered in our guide to Form 3115 and accounting method changes. Form 1128 deals only with the period.
The Instructions for Form 1128 list several situations where no application is filed. The most common ones:
Our business entity selection guide compares how each structure is taxed. Tax-exempt organizations also have a lighter path: under Rev. Proc. 85-58, a 501(a) organization generally does not file Form 1128 unless it changed its year within the past 10 calendar years while it had an annual filing requirement. Organizations still in the formation stage handle exemption first, as covered in our Form 1023-EZ walkthrough.
Partnerships (section 706). Under 26 U.S.C. § 706(b), a partnership uses the majority interest taxable year. If there is none, it uses the year of all its principal partners (partners with 5% or more of profits or capital). If neither exists, the regulations point to the year that produces the least aggregate deferral of income. A partnership can use a different year only by establishing a business purpose, and deferring income to partners does not count as one.
S corporations (section 1378). Under 26 U.S.C. § 1378, an S corporation must use a "permitted year": a year ending December 31, or another period for which it establishes a business purpose. Again, deferral of income to shareholders is not treated as a business purpose. For more on the election itself, see our guide to Form 2553 and the S corp election, and for how the alternative is taxed, our C corporation guide for 2026.
PSCs. A personal service corporation generally uses a calendar year unless it shows a business purpose or makes a section 444 election.
The most common business purpose is a natural business year. Rev. Proc. 2006-46 defines it with the 25-percent gross receipts test. For the requested year-end, you divide gross receipts for the last two months of the 12-month period by total receipts for that 12-month period. You run the same calculation for the two preceding 12-month periods. Each of the three results must be 25% or more. You also need 47 months of gross receipts history, and no other year-end can produce a higher average of the three percentages.
Part II is the automatic route: you confirm that you fit the revenue procedure, and no user fee applies. The Form 1128 instructions assign the procedures this way:
| Applicant | Part II section | Revenue procedure |
|---|---|---|
| Corporation (other than an S corporation or PSC) | Section A | Rev. Proc. 2006-45, as modified by Rev. Proc. 2007-64 |
| Partnership, S corporation, PSC or trust | Section B | Rev. Proc. 2006-46 |
| Individual changing to a calendar year | Section C | Rev. Proc. 2003-62 |
| Tax-exempt organization | Section D | Rev. Proc. 85-58 or 76-10 |
Appendix F of Rev. Proc. 2026-1 lists 2006-45, 2006-46 and 2003-62 as the automatic change in accounting period procedures, so they remain current as of October 2026.
Rev. Proc. 2006-45 (corporations). Both revenue procedures are published in Internal Revenue Bulletin 2006-45. A corporation that complies with Rev. Proc. 2006-45 is deemed to have established a business purpose. The main bar is a prior change: the procedure does not apply if the corporation changed its accounting period within the most recent 48-month period ending with the last month of the requested year, subject to listed exceptions such as changes made to join a consolidated return.
Rev. Proc. 2006-46 (pass-through entities, PSCs and trusts). It covers changes to the required tax year, changes to or retention of a natural business year that meets the 25-percent test, an S corporation's ownership taxable year (the year of shareholders holding more than 50% of the stock), and certain 52-53-week switches. It does not apply if the entity is under examination without the director's consent, if the accounting period is an issue under consideration by an area office or a federal court, or, for a natural business year request, if the entity changed its year within the last 48 months.
If you fall outside every automatic procedure, or you missed the Part II deadline, you complete Part III. Rev. Proc. 2002-39 provides the general procedures for these non-automatic requests. You must explain the legal basis for the requested year and show a business purpose, for example under the annual business cycle test, the seasonal business test or the 25-percent gross receipts test. The instructions also tell applicants not to file a return on the requested year until the application is approved.
Appendix A of Rev. Proc. 2026-1, published in Internal Revenue Bulletin 2026-1, sets these fees for Form 1128 ruling requests as of October 2026:
| Request | User fee |
|---|---|
| Form 1128 ruling request (Part III) | $5,750 |
| Reduced fee, applicant with gross income under $400,000 | $3,450 |
| Letter ruling for an extension of time to file Form 1128 or Form 8716 under § 301.9100-3 | $6,100 |
| Automatic approval under Part II | No fee |
Rev. Proc. 2026-1 says no user fee is required where the change in accounting period is made under a published automatic change procedure. The fee schedule is reset each January, so confirm the current revenue procedure before paying. For ruling requests sent by mail, fax or encrypted email, Rev. Proc. 2026-1 directs you to pay the full user fee through pay.gov first and include the receipt.
Deadlines depend on which part you use:
An application filed within 90 days after the due date may be treated as timely if you show you acted reasonably and in good faith and that relief won't prejudice the government. Relief is requested under Regulations section 301.9100-3 as a letter ruling, which carries its own user fee. Applications filed more than 90 days late are approved only in unusual and compelling circumstances.
Part II goes to the IRS service center where you file your return, marked "Attention: Entity Control," and a copy is attached to the short period return. A corporation that wants to change its year before electing S status, to a year permitted for S corporations, attaches Form 1128 to Form 2553 instead. Part III goes to the IRS National Office (Associate Chief Counsel, Income Tax and Accounting). The IRS acknowledges receipt of a ruling request within 45 days.
Form 8716 is a different mechanism. Under 26 U.S.C. § 444, a partnership, S corporation or PSC may elect a tax year other than its required year without showing a business purpose. The limits:
The deferral period is the number of months between the start of the elected year and the close of the first required year ending within it. A newly formed S corporation adopting a September 30 year-end has a three-month deferral period (October, November and December). An entity already on its required year cannot use section 444 to change, because the deferral period of the year being changed is zero, as the Form 8716 instructions explain.
The election has a cost. Partnerships and S corporations must make required payments under section 7519, and PSCs face the section 280H deduction limits. Section 7519 applies for a year in which the required payment for that year, or any earlier election year, exceeds $500. The payment is figured from the entity's net base year income multiplied by the highest individual rate plus one percentage point, less the net required payment balance already on deposit. The statute and the forms give different dates: section 7519(f) says April 15 of the following calendar year or a later date the IRS prescribes, and the Form 8716 and Form 8752 instructions use May 15. An electing partnership or S corporation files Form 8752 every year the election is in effect, even if the payment is zero.
Form 8716 is due by the earlier of the 15th day of the 5th month after the month that includes the first day of the elected year, or the unextended due date of the return for that year. Comparing required payments against a natural business year request is a standard step in a 1040, 1065 and 1120 prep workflow.
Harbor Supply Inc. is a calendar-year C corporation that wants a September 30 year-end. It has not changed its year in the past 48 months, owns no pass-through interests, and qualifies under Rev. Proc. 2006-45.
Step 1: the short period. The old year ended December 31, 2025. The first effective year is the short period from January 1 to September 30, 2026, which is 9 months. The first full new year runs October 1, 2026 to September 30, 2027.
Step 2: deadlines. Under section 6072(a), a corporate return is due the 15th day of the fourth month after the year ends, so the short period Form 1120 is due January 15, 2027. The IRS Form 7004 instructions set a 6-month extension for tax years beginning in 2026, which moves the return to July 15, 2027 (see our Form 7004 extension guide). Because Part II is due with the short period return including extensions, Harbor Supply can file Form 1128 any time from October 1, 2026 through July 15, 2027.
Step 3: tax on the short period. Section 443(b) requires the short period income to be annualized. Harbor Supply has $540,000 of taxable income for the 9 months.
| Step | Calculation | Result |
|---|---|---|
| Annualized income | $540,000 × 12 ÷ 9 | $720,000 |
| Tax on annualized income at 21% | $720,000 × 21% | $151,200 |
| Short period tax | $151,200 × 9 ÷ 12 | $113,400 |
| Check: flat 21% on actual income | $540,000 × 21% | $113,400 |
Because the corporate rate under section 11(b) is a flat 21%, annualizing gives the same tax as applying 21% to the short period income directly. Annualizing still matters for taxpayers with graduated rates, so run the computation on every short period return.
A short year compresses closing work into fewer months. Books that are reconciled going in make that return far easier, as our bookkeeping cleanup checklist explains.
Is there a user fee for Form 1128? Part II automatic requests have no fee. As of October 2026, a Part III ruling request costs $5,750 under Rev. Proc. 2026-1, or $3,450 if the applicant's gross income is under $400,000.
When is Form 1128 due? A Part II request is due by the due date of the short period return, including extensions. A Part III request is due by the unextended due date of the return for the first effective year.
Do S corporations and partnerships file Form 1128 or Form 8716? Form 1128 is for a change to the required year or to a year supported by a business purpose, such as a natural business year. Form 8716 is a section 444 election for a year with a deferral period of three months or less, which brings section 7519 required payments for partnerships and S corporations.
Can I file Form 1128 late? Sometimes. If filed within 90 days after the due date, the IRS may treat it as timely when you show you acted reasonably and in good faith and that relief won't prejudice the government.
Madras Accountancy works with US CPA firms and their business clients on tax return preparation, bookkeeping and year-end close support, including the short period returns that follow a change in tax year. To discuss a year-end change or the extra return it creates, contact our team.
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