rp-18-17.pdf

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Part III

Administrative, Procedural, and Miscellaneous

26 CFR 601.204: Changes in accounting periods and in methods of accounting.
(Also: Part I, §§ 442, 898, 965; 1.442-1)

Rev. Proc. 2018-17

SECTION 1. PURPOSE
This revenue procedure modifies the circumstances under which the Internal
Revenue Service (“IRS”) grants approval of certain requests by certain foreign
corporations for changes in annual accounting periods filed under Rev. Proc. 2002-39,
2002-22 I.R.B. 1046, and Rev. Proc. 2006-45, 2006-45 I.R.B. 851. This revenue
procedure is issued pursuant to section 965(o) to prevent the avoidance of the purposes
of section 965 through changes in the taxable years of certain specified foreign
corporations (within the meaning of section 965(e)).
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SECTION 2. BACKGROUND
.01 Section 442 and §1.442-1(a) generally provide that a taxpayer seeking to change
its annual accounting period and use a new taxable year must obtain the approval of the

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The term “specified foreign corporation” is defined differently in sections 898(b) and 965(e). In order to
avoid confusion, this revenue procedure refers to a specified foreign corporation within the meaning of
section 898(b) as a “section 898 specified foreign corporation” and to a specified foreign corporation
within the meaning of section 965(e) as a “section 965 specified foreign corporation.”

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Commissioner.
.02 In general, under §1.442-1(b)(2), a change in annual accounting period will be
approved when a taxpayer agrees to the Commissioner’s prescribed terms, conditions,
and adjustments for effecting the change.
.03 Section 1.442-1(b)(3) provides that the Commissioner will prescribe the
administrative procedures for a taxpayer to be allowed to adopt, change, or retain an
annual accounting period.
.04 Rev. Proc. 2002-39 provides the general procedures under section 442 and
§1.442-1(b) for obtaining the approval of the Commissioner to adopt, change, or retain
an annual accounting period for federal income tax purposes.
.05 Rev. Proc. 2006-45, as a successor to Rev. Proc. 2002-37, 2002-22 I.R.B. 1030,
provides the exclusive procedures for certain corporations to obtain automatic approval
of the Commissioner to change their annual accounting periods, including a section 898
specified foreign corporation that is changing to a one-month deferral year or to a 52-
53-week taxable year that references the one-month deferral year. See section 4.02(8)
of Rev. Proc. 2006-45.
.06 Section 898(a) provides that the taxable year of any section 898 specified foreign
corporation is the required year determined under section 898(c). In contrast, a foreign
corporation other than a section 898 specified foreign corporation generally does not
have a required year.
.07 In general, section 898(b) defines a section 898 specified foreign corporation as
any controlled foreign corporation (as defined in section 957) (“CFC”) with respect to

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which a United States shareholder (as defined in section 951(b), subject to certain
modifications) owns, on certain testing days, more than 50 percent of either the total
voting power of all classes of stock of such corporation entitled to vote or the total value
of all classes of stock of such corporation. The rules of section 958(a) and (b) apply for
purposes of determining ownership. A United States shareholder that meets this more-
than-50-percent ownership threshold is referred to in this revenue procedure as a
“majority U.S. shareholder.”
.08 The required year determined under section 898(c) is the majority U.S.
shareholder year (as defined in section 898(c)(3)), or, if there is no majority U.S.
shareholder year, the taxable year prescribed under regulations. Section 898(c)(2)
provides that a section 898 specified foreign corporation may elect, in lieu of the
required year, a taxable year beginning one month earlier than the majority U.S.
shareholder year.
.09 Section 965(a) provides that for the last taxable year of a deferred foreign
income corporation (“DFIC”) that begins before January 1, 2018, the subpart F income
of the corporation (as otherwise determined for such taxable year under section 952)
shall be increased by the greater of the accumulated post-1986 deferred foreign income
of such corporation determined as of November 2, 2017, or December 31, 2017 (each
such date, a “measurement date”).
.10 For purposes of section 965, a DFIC is, with respect to any United States
shareholder, any section 965 specified foreign corporation of such United States
shareholder that has accumulated post-1986 deferred foreign income (as of a

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measurement date) greater than zero. Section 965(d)(1). The term “section 965
specified foreign corporation” means (A) any CFC, and (B) any foreign corporation with
respect to which one or more domestic corporations is a United States shareholder
(“10-percent corporation”). Section 965(e)(1). For purposes of sections 951 and 961, a
10-percent corporation is treated as a CFC solely for purposes of taking into account
the subpart F income of such corporation under section 965(a). Section 965(e)(2).
However, if a passive foreign investment company (as defined in section 1297) with
respect to the shareholder is not a CFC, then such corporation is not a section 965
specified foreign corporation. Section 965(e)(3).
.11 Section 965(o) provides that the Secretary shall prescribe such regulations or
other guidance as may be necessary or appropriate to carry out the provisions of
section 965, including regulations or other guidance to prevent the avoidance of the
purposes of such section, including through a reduction in earnings and profits, through
changes in entity classification or accounting methods, or otherwise. The Conference
Report accompanying the Act states, “The conferees are also aware that certain
taxpayers may have engaged in tax strategies designed to reduce the amount of post-
1986 earnings and profits in order to decrease the amount of the inclusion required
under this provision. Such tax strategies may include a change in entity classification,
accounting method, and taxable year . . . .” H.R. Rep. No. 115-466, at 619 (2017)
(emphasis added).
.12 A section 965 specified foreign corporation with a taxable year ending on
December 31, 2017, could avoid the purposes of section 965 by changing its taxable

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year. For example, if a DFIC with the calendar year as its taxable year elected,
effective for its taxable year beginning January 1, 2017, a taxable year closing on
November 30, the election could defer by as much as 11 months a United States
shareholder’s inclusion with respect to the DFIC under section 965. Further, the
election could, depending on the facts, reduce the amount of the tax liability of a United
States shareholder of the DFIC by reason of section 965, including through the
reduction of the post-1986 earnings and profits of the DFIC.
SECTION 3. SCOPE
This revenue procedure applies to a section 965 specified foreign corporation
seeking to change its taxable year that ends on December 31, 2017. For purposes of
applying this revenue procedure, a 52-53-week taxable year is deemed to begin on the
first day of the calendar month nearest to the first day of the 52-53-week taxable year,
and is deemed to end or close on the last day of the calendar month nearest to the last
day of the 52-53-week taxable year, as the case may be. See §1.441-2(c).
SECTION 4. MODIFICATIONS
.01 Inapplicability of Rev. Proc. 2006-45. Section 4.02 of Rev. Proc. 2006-45 is
modified to add a new paragraph (15) to read as follows:
“(15) Certain specified foreign corporations. Notwithstanding any other provision in this
section 4, a specified foreign corporation (as defined in section 965(e)) if each of the
following conditions is satisfied:
(a) The specified foreign corporation’s taxable year (determined without regard to the
requested change) ends on December 31;

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(b) If the requested change were permitted, the first effective year of the corporation
would begin on January 1, 2017, and would end on a date before December 31, 2017;
and
(c) The specified foreign corporation has one or more United States shareholders that
must include an amount in gross income under section 951(a)(1) by reason of section
965 with respect to the specified foreign corporation or any other specified foreign
corporation (with such amount determined without regard to the requested change).”
.02 Inapplicability of Rev. Proc. 2002-39. Section 3 of Rev. Proc. 2002-39 is
modified to add a new subsection 3.03 to read as follows:
“.03 Inapplicability for certain specified foreign corporations. Notwithstanding any other
provision of this revenue procedure, a request to change the annual accounting period
of a specified foreign corporation (as defined in section 965(e)) pursuant to this revenue
procedure will not be approved if:
(a) The specified foreign corporation’s taxable year (determined without regard to the
requested change) ends on December 31;
(b) If the requested change were permitted, the first effective year of the corporation
would begin on January 1, 2017, and would end on a date before December 31, 2017;
and
(c) The specified foreign corporation has one or more United States shareholders that
must include an amount in gross income under section 951(a)(1) by reason of section
965 with respect to the specified foreign corporation or any other specified foreign
corporation (with such amount determined without regard to the requested change).”

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SECTION 5. EFFECT ON OTHER DOCUMENTS
Rev. Proc. 2002-39 and Rev. Proc. 2006-45 are modified.
SECTION 6. EFFECTIVE DATE
This revenue procedure applies with respect to any request to change an annual
accounting period that ends on December 31, 2017, regardless of when such request
was filed.
SECTION 7. DRAFTING INFORMATION
The principal author of this revenue procedure is Leni C. Perkins of the Office of
Associate Chief Counsel (International). For further information regarding this revenue
procedure, contact Ms. Perkins on (202) 317-6934 (not a toll free call).