Internal Revenue Service
Revenue Ruling

TaxLinks.com   sm

 Rev. Rul. 60-51

1960-1 C.B. 169

Sec. 441

Sec. 442

Sec. 6012

IRS Headnote

A newly reactivated corporation, which previously had been inactive for a number of years, is considered to be a new taxpayer for purposes of adopting a taxable year which meets the requirements of section 441 of the Internal Revenue Code of 1954. The prior approval of the Commissioner is not required where the facts disclose that the corporation existed for a number of years in name only, even though, during its prior actual operations, the corporation had computed its taxable income on the basis of a different taxable year.

Full Text

Rev. Rul. 60-51

Advice has been requested whether a newly reactivated corporation may compute its taxable income on a fiscal-year basis without obtaining the prior approval of the Commissioner of Internal Revenue although the corporation, prior to an eight-year period of mere formal existence, had been on a calendar-year basis.

The taxpayer was incorporated in June 1947. Operations were continued until April 1949 when the outstanding stock was liquidated and all the assets distributed to the shareholders. Income tax returns, on a calendar-year basis, had been filed for the portion of 1947 in which the corporation was in existence, the full year of 1948, and the first four months of 1949 prior to its liquidation. No further Federal or state income tax returns were filed. Although the state revenue officials were notified of the liquidation, neither the corporate officers nor the state official took the action necessary for formal dissolution of the corporate entity. Under state law, the corporation remained in existence.

In April 1957 the corporation was reactivated for the purpose of acquiring a parcel of land. The reorganized corporation desires to have its taxable year end on March 31.

Section 441 of the Internal Revenue Code of 1954 provides, as far as here pertinent, that taxable income shall be computed on the basis of the taxpayer's taxable year. Section 1.441-1(b)(3) of the Income Tax Regulations provides, with certain limitations, that a new taxpayer in his first return may adopt any taxable year which meets the requirements of section 441 of the Internal Revenue Code of 1954, without obtaining prior approval of the Commissioner. After a taxpayer has adopted a calendar or fiscal year as its taxable year, it must use that year for all subsequent years unless the prior approval of the Commissioner is obtained for the change, or the change is otherwise permitted by the Code or Income Tax Regulations.

Section 442 of the Code provides that, if a taxpayer changes his annual accounting period, the new accounting period shall become the taxpayer's taxable year only if the change is approved by the Secretary of the Treasury or his delegate. Section 1.442-1(a) of the Income Tax Regulations provides that, in order to make such change, the prior approval of the Commissioner is required.

However, if the existence of the taxpayer in this case terminated in 1949, for Federal income tax purposes, the corporation could be said to be a new taxpayer which would be entitled under section 1.441-1(b)(3) of the Income Tax Regulations to adopt a fiscal year as its taxable year without the prior approval of the Secretary or his delegate. Under such circumstance, the taxpayer would not be changing its accounting period and the provisions of section 442 of the Code would not apply.

The facts of this case disclose that, in 1949, the corporation had dissolved all but in name, and remained dormant for a period of eight years as distinguished from the facts in  Revenue Ruling 60-50, page 150, this Bulletin, where a corporation was liquidated and immediately reactivated. For Federal income tax return purposes, it had ceased to exist and had properly filed a return for the four-month period of its existence in 1949. See Rev. Rul. 215, C.B. 1953-2, 149. Having, for these purposes, ceased to exist, the reactivation, in 1957, was in effect the creation of a new taxable entity entitled to all the options available to any new taxpayer. Under such circumstances, section 442 of the Code would not apply. Also see section 6012 of the Code and section 1.6012-2(b)(2) of the regulatons.

Accordingly, in the instant case, its is held that the newly reactivated corporation may elect any taxable year, including a fiscal year, which meets the requirements of section 441 of the Code, without obtaining the prior approval of the Commissioner, although the corporation, during its prior active existence, had computed its taxable income on the basis of a different taxable year.