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Rev. Proc. 2025-6 simplifies tax year changes for certain direct pay entities

ARTICLE | January 28, 2025

Authored by RSM US LLP


Executive summary

Revenue Procedure 2025-6 provides streamlined procedures for certain exempt entities, such as tribal and governmental organizations, to change their annual accounting periods. In addition, eligible entities generally previously filed Form 990-T solely to make an elective payment election under section 6417 and do not otherwise have a Form 990-T filing requirement. They can change their tax year by filing a Form 990-T for the new tax year.

Energy credits and elective pay

Section 6417 provides a mechanism for exempt organizations, including governments and tribal entities, to claim certain energy credits as direct payments. Regulations under section 6417 allow entities without a Form 990-series return filing obligation to adopt a taxable year for purposes of section 6417 on a calendar or fiscal year basis by filing Form 990-T, solely to make this elective payment election. However, the entity must maintain adequate books and records to support the selected taxable year.

After their initial filing, certain entities may wish to change their annual accounting period for tax purposes. Rev. Proc. 2025-6 provides streamlined procedures for entities that filed Form 990-T solely to make an elective payment election.

Revenue Procedure 2025-6: Impact on exempt organizations

Under normal procedures, exempt organizations generally may change their annual accounting period once every ten years by timely filing the appropriate Form 990-series return (however, a Form 990-N may not be used). To change more frequently, exempt organizations must follow standard procedures by filing Form 1128, Application to Change, Adopt, or Retain a Tax Year.

Rev. Proc. 2025-6 provides that certain in-scope entities have automatic approval to change their annual accounting period simply by timely filing a Form 990-T for the first effective year of the change. There does not appear to be any further limitation as to the frequency with which such entities may avail themselves of this procedure.

In-scope entities include:

  • State or local governments and their political subdivisions (including those of U.S. territories).
  • Indian tribal entities and their wholly owned entities.
  • An agency of any applicable entity described above.
  • An entity that has no Form 990-series return filing obligation but adopted a taxable year by filing Form 990-T solely to make an elective payment election, and wants to change its taxable year to match its books and records.

Effective date and implementation

The guidelines set forth in Rev. Proc. 2025-6 are effective for changes in annual accounting periods where the first effective year begins on or after Jan. 1, 2024. Contact your tax advisor if your in-scope entity wants to take advantage of these automatic procedures.

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    • This article was written by Ryan Corcoran, Alexandra O. Mitchell, Elizabeth Cordova, Brent Sabot and originally appeared on 2025-01-28. Reprinted with permission from RSM US LLP.
    © 2024 RSM US LLP. All rights reserved. https://rsmus.com/insights/tax-alerts/2025/rev-proc-2025-6-simplifies-tax-year-changes-direct-pay-entities.html

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    The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

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