(1) The taxpayer’s short period has been specifically approved by the IRS;2 or
(2) The taxpayer was only in existence during part of what would otherwise constitute the applicable accounting period.3
If a taxpayer obtains approval to adopt a short period under (1), above, the taxpayer must annualize taxable income by determining annual income and dividing that amount by the number of months in the short period.4 Further, if the taxpayer is an individual, the amount of the taxpayer’s personal exemption must be reduced so that it bears the same ratio to the full exemption as the number of months in the short period bears to 12 (although the personal exemption was suspended for 2018025).5