Legal Resources - Tax Rules

Tax Rules: Final: 5703-5

5703-5-04 - Changes of a taxpayer's annual accounting period

(A) This rule prescribes the modifications to rule 5703-5-03 of the Administrative Code required to accommodate a change of a taxpayer's annual accounting period. As used in this rule, a change of a taxpayer’s annual accounting period involves a change in the year-end of that accounting period. If, as the result of a change of ownership, a taxpayer has two short-period federal taxable years because of the taxpayer’s inclusion in one or more consolidated federal income tax returns, and if the year-end of the taxpayer’s annual accounting period remains the same after the change of ownership as it was before the change, then there is no change of the taxpayer’s annual accounting period for purposes of this rule. Rule 5703-5-01 of the Administrative Code defines terms used in this rule.

(B) Rule 5703-5-03 of the Administrative Code prescribes the dates on which a taxpayer's taxable year begins and ends. Unless the taxpayer is a new taxpayer, the taxable year begins on the date immediately following the end of the taxpayer's prior taxable year and ends on the date immediately preceding the beginning of the taxpayer's annual accounting period that includes the first day of January of the tax year.

The taxpayer's annual accounting period is used for the taxpayer's computation of income for book purposes. It is ordinarily a period of one year in duration (three hundred sixty-five days, or three hundred sixty-six days if the period includes the twenty-ninth day of February), although it may vary between fifty-two and fifty-three weeks in length.

Since the taxable year ends on the date immediately preceding the beginning of the taxpayer's annual accounting period, the taxable year also generally consists of a period of one year. However, as the result of a change of a taxpayer's annual accounting period, the period prescribed in rule 5703-5-03 of the Administrative Code may be less than or more than one year. Furthermore, if the change occurs because of a change in ownership, the period prescribed in rule 5703-5-03 of the Administrative Code may be difficult to determine or inappropriate to use. Therefore, in the case of a change in the taxpayer's annual accounting period, the following shall apply:

(1) If the taxpayer changes its annual accounting period and the change is not in conjunction with a change of ownership, the period prescribed in rule 5703-5-03 of the Administrative Code shall be the taxable year.

(2) If the taxpayer changes its annual accounting period from one year-end (the "old year-end") to another year-end (the "new year-end") in conjunction with a change in ownership during the calendar year immediately preceding the tax year, the tax year shall be based on a taxable year that ends on the following date in lieu of the date specified in paragraph (C)(1) of rule 5703-5-03 of the Administrative Code:

(a) If the taxpayer's old year-end was on or before the date of acquisition, the old year-end shall be the ending date.

(b) If paragraph (B)(2)(a) of this rule does not apply and the taxpayer's new year-end is on or after the date of acquisition, the new year-end shall be the ending date.

(c) If neither paragraph (B)(2)(a) nor (B)(2)(b) of this rule applies, the date of acquisition shall be the ending date.

(d) For purposes of determining the sequence of dates specified in paragraph (B)(2) of this rule, the old year-end and the new year-end are dates ending in the same calendar year as the date of acquisition.

(C) The following examples illustrate the application of this rule:

(1) For tax year 2004, CORP-H had a taxable year that ended on September 30, 2003. Between September 30, 2003 and June 30, 2004, CORP-H changed the year-end of its annual accounting period from September thirtieth to June thirtieth.

CORP-H's annual accounting period that includes January 1, 2005 begins on July 1, 2004. For tax year 2005, CORP-H's taxable year begins on October 1, 2003 and ends on June 30, 2004 in accordance with paragraph (B)(1) of this rule.

(2) For tax year 2004, CORP-I had a taxable year that ended on June 30, 2003. Between June 30, 2004 and September 30, 2004, CORP-I changed the year-end of its annual accounting period from June thirtieth to September thirtieth.

CORP-I's annual accounting period that includes January 1, 2005 begins on October 1, 2004. For tax year 2005, CORP-I's taxable year begins on July 1, 2003 and ends on September 30, 2004 in accordance with paragraph (B)(1) of this rule.

(3) CORP-J was a wholly owned subsidiary of OLDPARENT, and each had an April thirtieth fiscal year-end. As the result of a sale on July 31, 2004, CORP-J becomes a wholly owned subsidiary of NEWPARENT, who has an November thirtieth fiscal year-end. Accordingly, CORP-J adopts a November thirtieth year-end for its annual accounting period.

CORP-J was included in consolidated federal returns with OLDPARENT for the periods May 1, 2002 to April 30, 2003, May 1, 2003 to April 30, 2004 and May 1, 2004 to July 31, 2004, and is included in consolidated federal returns with NEWPARENT for the periods August 1, 2004 to November 30, 2004, December 1, 2004 to November 30, 2005 and December 1, 2005 to November 30, 2006.

For tax year 2004, CORP-J had a taxable year that ended on April 30, 2003. For tax year 2005, CORP-J's taxable year begins on May 1, 2003; it ends on April 30, 2004 in accordance with paragraph (B)(2)(a) of this rule. For tax year 2006, CORP-J's taxable year begins on May 1, 2004 and ends on November 30, 2005. For tax year 2007, CORP-J's taxable year begins on December 1, 2005 and ends on November 30, 2006.

(4) CORP-K was a wholly owned subsidiary of OLDOWNER, and each had an April thirtieth fiscal year-end. As the result of a sale on January 31, 2004, CORP-K becomes a wholly owned subsidiary of NEWOWNER, who has a November thirtieth fiscal year-end. Accordingly, CORP-K adopts a November thirtieth year-end for its annual accounting period.

CORP-K was included in consolidated federal returns with OLDOWNER for the periods May 1, 2002 to April 30, 2003 and May 1, 2003 to January 31, 2004, and is included in consolidated federal returns with NEWOWNER for the periods February 1, 2004 to November 30, 2004 and December 1, 2004 to November 30, 2005.

For tax year 2004, CORP-K had a taxable year that ended on April 30, 2003. For tax year 2005, CORP-K's taxable year begins on May 1, 2003; it ends on November 30, 2004 in accordance with paragraph (B)(2)(b) of this rule. For tax year 2006, CORP-K's taxable year begins on December 1, 2004 and ends on November 30, 2005.

(5) CORP-L was a wholly owned subsidiary of OLDCORP, and each had a November thirtieth fiscal year-end. As the result of a sale on July 31, 2004, CORP-L becomes a wholly owned subsidiary of NEWCORP, who has an April thirtieth fiscal year-end. Accordingly, CORP-L adopts an April thirtieth year-end for its annual accounting period.

CORP-L was included in consolidated federal returns with OLDCORP for the periods December 1, 2002 to November 30, 2003 and December 1, 2003 to July 31, 2004, and is included in consolidated federal returns with NEWCORP for the periods August 1, 2004 to April 30, 2005 and May 1, 2005 to April 30, 2006.

For tax year 2004, CORP-L had a taxable year that ended on November 30, 2003. For tax year 2005, CORP-L's taxable year begins on December 1, 2003; it ends on July 31, 2004 in accordance with paragraph (B)(2)(c) of this rule. For tax year 2006, CORP-L's taxable year begins on August 1, 2004 and ends on April 30, 2005. For tax year 2007, CORP-L's taxable year begins on May 1, 2005 and ends on April 30, 2006.

(6) CORP-M was a wholly owned subsidiary of PARENT-1, and each had a November thirtieth fiscal year-end. As the result of a sale on July 31, 2004, CORP-M becomes a wholly owned subsidiary of PARENT-2, who also has an November thirtieth fiscal year-end. Accordingly, CORP-M retains a November thirtieth year-end for its annual accounting period and has had no change of its annual accounting period for purposes of this rule.

CORP-M was included in consolidated federal returns with PARENT-1 for the periods December 1, 2002 to November 30, 2003 and December 1, 2003 to July 31, 2004, and is included in consolidated federal returns with PARENT-2 for the periods August 1, 2004 to November 30, 2004 and December 1, 2004 to November 30, 2005.

For tax year 2004, CORP-M had a taxable year that ended on November 30, 2003. For tax year 2005, CORP-M's taxable year begins on December 1, 2003 and ends on November 30, 2004 in accordance with rule 5703-5-03 of the Administrative Code. For tax year 2006, CORP-M's taxable year begins on December 1, 2004 and ends on November 30, 2005.

Effective: Effective: 1-1-04

Promulgated under: 5703.14

Authorized by: 5703.05

Amplifies: 5733.031, 5733.04, 5733.05

Prior effective dates: 2-25-72, 1-4-89