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EXAMPLE 13.5 Mita Corporation wishes to change its tax year from a calendar year to a tax year ending on May 31, 2014. Mita Corporation will have a short tax year for the period January 1 to May 31, 2014.¶13,101IRS PERMISSION OR CONSENTIn order to secure prior approval, the taxpayer must file an application on Form 1128 on or before the 15th day of the third calendar month following the end of the short year. Reg. §1.442-1(b). An application should show that there is a substantial business purpose for the change and that any tax cost to the IRS is insignificant. The IRS will respond to the taxpayer with Form 5654 (Notification of Action on Application for Change in Accounting Period). The form lists several conditions to be met by the taxpayer for final acceptance of the change. No change should be made until the request has been approved.To prevent substantial distortion of income that may result from a change in tax period, an agreement between the taxpayer and the IRS is required. This agreement must provide the terms, conditions, and adjustments necessary to implement the change. The following examples of income distortion are given in Reg. §1.442-1(b):1. Deferring a substantial portion of income, or shifting a substantial portion of deductions, from one year to another so as to reduce the tax liability2. Causing a similar deferral in the case of a related taxpayer, such as a partner, a beneficiary, or a shareholder in an S corporation3. Creating a short period in which there is either a net operating loss or, in the case of an S corporation, amounts treated as long-term capital gain