IRS Form 1128

From AIM Financial | Business Tax Preparation in Grand Rapids, Kentwood, Wyoming, and West Michigan

Most business owners think about tax preparation in terms of filing returns, reporting income, and paying taxes. However, another important tax decision is choosing the business’s tax year. The tax year determines the accounting period used to report income, expenses, and other financial activity to the Internal Revenue Service (IRS).

IRS Form 1128, Application to Adopt, Change, or Retain a Tax Year, is used by eligible taxpayers and businesses to request approval to adopt, change, or retain a particular tax year when required.

For business owners in Grand Rapids, Kentwood, Wyoming, and throughout West Michigan, understanding Form 1128 can help support better tax planning and compliance. AIM Financial helps businesses organize their financial records and understand important tax preparation requirements.

What Is IRS Form 1128?

Form 1128 is an IRS application used when a taxpayer or entity needs approval to adopt, change, or retain a tax year under applicable federal tax rules.

A tax year is the annual accounting period used to calculate taxable income. Many businesses use a calendar year ending December 31. Other businesses use a fiscal year that ends on a different date.

For example, a business might use a fiscal year ending June 30 because that period better aligns with its operating cycle. However, a business generally cannot change its tax year simply because another period seems more convenient. Eligibility requirements and IRS procedures must be followed.

According to the IRS, partnerships, S corporations, personal service corporations, and trusts may need to file Form 1128 to adopt or retain a particular tax year. Other entities and individuals may also need the form in certain circumstances. Some taxpayers qualify for exceptions or automatic approval procedures.

Official resource: IRS — About Form 1128.

What Is the Difference Between a Calendar Year and a Fiscal Year?

Understanding the two common types of tax years is the first step in understanding Form 1128.

Calendar tax year: A calendar tax year runs from January 1 through December 31. Many small businesses and individual taxpayers use this period.

Fiscal tax year: A fiscal tax year consists of 12 consecutive months ending on the last day of a month other than December, subject to applicable rules. Certain businesses may also use a 52–53-week tax year.

A business’s choice can affect bookkeeping schedules, tax filing deadlines, financial reporting, and coordination with owners or related entities.

For example, a seasonal business may have a busy period during the summer and a quieter period during the winter. Management might consider whether a fiscal year better fits its accounting cycle. That does not automatically mean the IRS will approve a change; the business must satisfy the applicable requirements.

Who May Need to File Form 1128?

Form 1128 may be relevant to several types of taxpayers, including:

• Partnerships: Certain partnerships must use a required tax year unless an exception or permitted alternative applies.
• S corporations: S corporations generally must use a permitted tax year, commonly the calendar year, unless they qualify for another allowed arrangement.
• C corporations: A corporation seeking to change its tax year may need to follow IRS application procedures.
• Personal service corporations: Special tax-year rules can apply to these entities.
• Trusts and estates: Specific rules govern which tax years are permitted and when an application is necessary.
• Certain individuals and tax-exempt organizations: Special circumstances may require an application or permit a particular tax-year change.

Not everyone who wants to change a tax year must submit Form 1128. The IRS provides exceptions for certain situations, and some taxpayers qualify for automatic approval if they satisfy the relevant conditions.

Because eligibility depends on the entity type, current tax year, requested tax year, and prior changes, businesses should review the latest IRS guidance before filing.

How Does Form 1128 Work?

The process depends on whether the applicant qualifies for automatic approval or must request an IRS ruling.

1. Identify the Business or Taxpayer

The application requests identifying information, including the applicant’s legal name, address, and taxpayer identification number. Businesses generally use their employer identification number (EIN).

The applicant must identify the type of entity and provide information about its current and requested tax years.

2. Explain the Requested Tax-Year Change

The form asks for details about the tax year the applicant wants to adopt, change, or retain. Depending on the situation, the applicant may need to explain the reason for the change and provide supporting information.

A request should reflect the business’s actual circumstances and applicable tax rules. A tax-year change can affect more than the date a return is filed, so it should be considered alongside the business’s financial and tax planning.

3. Determine Whether Automatic Approval Applies

Some eligible taxpayers may qualify for automatic approval under IRS procedures. Others must request a ruling.

The application process, supporting documentation, filing location, and any user fee depend on the procedure being used. Submitting the form alone does not mean every requested change is automatically approved.

4. File Within the Applicable Time Frame

Deadlines are important. Depending on the type of request, Form 1128 generally must be filed by the due date, without extensions, of the federal income tax return for the first effective year.

Late applications may require additional procedures and may not receive the same treatment as timely applications.

5. Follow the IRS’s Instructions for the Resulting Tax Period

A change in tax year may require a short-period tax return covering the transition between the old and new tax years. Businesses should make sure that income and expenses are reported for the appropriate period.

Do not begin filing returns using a requested tax year until the applicable approval requirements have been satisfied.

For the official form and instructions, visit the IRS Form 1128 page. The IRS currently lists the form and instructions there, but the published instructions are older documents. Because tax-year procedures can change, confirm that the applicable revenue procedures and guidance remain current before submitting an application. <Cite refs={[“turn51947search0″,”turn51947search1″,”turn51947search3”]}/>

Why Does Tax-Year Planning Matter?

Choosing an appropriate tax year can affect business administration, reporting schedules, and coordination with related entities. However, the tax year must comply with IRS requirements.

Before changing its tax year, a business should consider:

• Whether the requested year is permitted for its entity type.
• Whether owners or related businesses have tax-year coordination requirements.
• Whether a short-period return will be required.
• Whether the change affects bookkeeping and financial reporting schedules.
• Whether the application qualifies for automatic approval or requires an IRS ruling.

A business should not change its tax year solely to postpone a tax payment or shift income into a different period without understanding the applicable rules.

How AIM Financial Can Help West Michigan Businesses

Tax-year questions can be particularly challenging for growing businesses, partnerships, S corporations, and companies that are changing their operations. Choosing a tax year and completing the required application can involve technical rules that are easy to overlook.

AIM Financial can help businesses organize financial information, prepare for tax filing, and identify tax reporting issues that may need further review. Business owners in Grand Rapids, Kentwood, Wyoming, and throughout West Michigan can benefit from discussing tax planning questions before making changes that affect their accounting and reporting.

Considering a tax-year change or need help with business tax preparation? Contact AIM Financial for tax preparation assistance in Grand Rapids, Kentwood, Wyoming, and West Michigan. Planning ahead can help your business identify the right questions, maintain accurate records, and prepare for its filing responsibilities.

Final Thoughts on IRS Form 1128

IRS Form 1128 is an important application for eligible taxpayers who need to adopt, change, or retain a tax year. However, the rules vary by entity type, and not every request qualifies for automatic approval.

Before changing a business’s tax year, confirm the applicable requirements, deadlines, supporting documents, and potential short-period filing obligations. Careful planning can help avoid unnecessary complications and support accurate tax reporting.

AIM Financial provides tax preparation support for businesses in Grand Rapids, Kentwood, Wyoming, and across West Michigan.

This article is for general educational purposes and is not individualized tax or legal advice. Form 1128 requirements and approval procedures depend on the taxpayer’s circumstances. Consult current IRS guidance or a qualified tax professional before changing a tax year.