Part 20. Penalty and Interest

Chapter 1. Penalty Handbook

Section 3. Estimated Tax Penalties (Cont. 1)

20.1.3  Estimated Tax Penalties (Cont. 1)

20.1.3.2 
IRC Section 6654 — Individual Taxpayers & Fiduciaries

20.1.3.2.1 
Assertion Criteria

20.1.3.2.1.7 
Determining the Penalty Amount

20.1.3.2.1.7.1 
Form 2210 or 2210-F

20.1.3.2.1.7.1.2  ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

20.1.3.2.1.7.2  (03-31-2010)
Substitute For Return

  1. When a taxpayer fails to file a return for any year for which he is required to file, the Secretary is authorized to file a Substitute for Return (SFR) on the taxpayer's behalf under IRC section 6020(b) . For income tax returns, the assessment of tax determined to be due on such a substitute return is made after the Service has issued a notice of deficiency which explains the taxpayer's appeal rights.

  2. When a taxpayer has not filed a return, then the estimated tax penalty to be included in such notice of deficiency is based on the lesser of —

    1. 90% of the tax for the current year (rather than tax shown on the return for the current year), or

    2. 100% of the tax shown on the previous year's return. (This does not apply if the taxpayer has not filed a return for the previous year, or if the return for the previous year was not for 12 months. Additionally, the penalty does not apply if the conditions in IRC section 6654(e)(2) are met. See IRM 20.1.3.2.1(4).)

  3. Taxpayers who disagree with an SFR assessment often will file their own return showing a lesser amount of tax. The IRS is not obligated to consider such a return unless that taxpayer has previously paid the SFR assessment. However, in the interest of customer service and burden reduction, the IRS will generally consider on its merit any return filed by the taxpayer.

  4. When an SFR assessment is adjusted (increase or decrease) after an SFR assessment (including if based on the taxpayer's own return), the estimated tax penalty may be required to be manually adjusted based on the revised tax for the year.

    1. If tax is adjusted without the taxpayer having filed a return, recompute the penalty per (2) above.

    2. If tax is adjusted after the taxpayer filed a return in response to the SFR assessment, recompute the penalty based on the tax shown on the taxpayer's own return. Exception: Do not use tax shown on the return to recompute the penalty if the taxpayer's return is not accepted as filed (math error corrections excepted). Instead, recompute the penalty per (2) above.

20.1.3.2.1.7.3  (03-31-2010)
Household Employment Taxes & Estimated Tax Penalty

  1. Household employment taxes (Schedule H), without consideration of credit for advance earned income credit paid, are includible in tax shown on the return unless —

    1. the taxpayer has no credit for withheld income tax, and

    2. the total tax shown on the return (excluding Schedule H tax) is less than $1,000.

  2. IRC section 3510(b)(2) provides that household employers who are not subject to income tax withholding, and who are not otherwise required to make estimated tax payments, will not be subject to the estimated tax penalty solely by reason of having to include household employment tax on their return.

20.1.3.2.2  (03-31-2010)
Adjustments after Penalty Assessment

  1. With the exception of SFR assessments, the estimated tax penalty is based on tax shown on the original return (or shown on a superseding return filed prior to the return due date). Therefore, most adjustments after penalty assessment are based on taxpayer requests for abatement.

  2. This section will discuss the procedures and criteria for abatement or waiver of estimated tax penalties.

  3. See IRM 20.1.3.2.1.7.2 for rules for adjusting the penalty after SFR assessments.

  4. See IRM 20.1.3.2.1.1.2 for rules for adjusting the penalty when two taxpayers file a joint return if either spouse previously filed separately for that year.

20.1.3.2.2.1  (03-31-2010)
Evaluating Claims for Abatement or Waiver of Estimated Tax

  1. Specific waiver provisions of the estimated tax penalty were adopted under IRC section 6654(e).

  2. Waivers are sometimes granted by legislation, regulation, or administrative pronouncements to provide relief from estimated tax penalties created by the retroactive application or a change in statute or Service position.

  3. All penalty abatement or waiver requests must be in writing and, if not part of the return, must be signed by the taxpayer.

  4. If the taxpayer qualifies under the waiver criteria, take the necessary action to suppress or adjust the penalty as appropriate.

  5. When a determination is made to cancel an estimated tax penalty because the individual is entitled to a waiver, the appropriate Penalty Reason Code must be entered either on the case file or the input document and entered into the Master File. See IRM 20.1.3.1.2.

  6. Requests to verify the accuracy of a penalty computation do not need to be in writing, even if they result in the abatement of all or part of the penalty.

    Example:

    A taxpayer contacts IRS because his tax preparation program computed a penalty of $70 because he entered an incorrect amount for prior year tax. In verifying the taxpayer's figures, the IRS contact representative determines that no penalty is due. The contact representative can abate the incorrectly assessed penalty without a written claim because he is able to verify independently that the penalty is incorrect.

20.1.3.2.2.1.1  (03-31-2010)
Waiver of the Estimated Tax Penalty Due to Retroactive Law Change

  1. Occasionally a law is enacted that has retroactive tax consequences. When this happens, the law often includes a provision under which the estimated tax penalty may be waived to the extent that the penalty is a direct result of the change in the law.

  2. To claim a waiver based on a change to the tax law, the affected taxpayers should:

    1. Compute the penalty (by completing Form 2210 or Form 2210–F) on the basis of the law in effect before the changes were made, and on the basis of the law in effect after the changes were made. The penalty amount eligible for the waiver is the difference between the two computations.

    2. If Form 2210 or Form 2210–F is being filed because a waiver for only part of the penalty is requested, follow the instructions for completing the form with a partial waiver request.

    3. The taxpayer should attach an explanation showing their computation, the amount of penalty to be waived, and what caused the tax increase and related underpayment of estimated tax.

20.1.3.2.2.1.2  (03-31-2010)
Waiver Criteria Under IRC Section 6654(e)(3)(A)

  1. IRC section 6654(e)(3)(A) provides that the estimated tax penalty may be waived if the failure to make the estimated tax payment is due to casualty, disaster or other unusual circumstances such that the imposition of the penalty would be against equity and good conscience.

  2. The waiver provisions of IRC section 6654(e)(3)(A) are not equivalent to reasonable cause. For example, reliance on the advice of a competent tax advisor may constitute reasonable cause that would warrant relief from other penalties, but it does not provide a basis for a waiver of the estimated tax penalty under IRC section 6654(e)(3)(A).

  3. In order for the waiver to be available, both of the following conditions must be met:

    1. The taxpayer's failure to comply with the estimated tax requirements was due to casualty, disaster or other unusual circumstances, and not due to any other reason.

    2. Given all the facts, it would be against equity and good conscience to apply the penalty.

    Reminder:

    A recurring circumstance is not an unusual circumstance.

  4. The following are examples of situations where the waiver may be granted if it is determined that imposition of the penalty would be against equity and good conscience:

    1. The taxpayer's records are destroyed by fire or flood or other natural disaster. Please note, however, that in most instances of natural disaster, area wide guidance on conditions for waivers are issued, and waivers are automatically implemented via programming without taxpayer intervention. See IRM 20.1.3.1.5.2.1.

    2. The taxpayer becomes seriously ill or is seriously injured and is unable to manage his affairs.

    3. The taxpayer designates that an overpayment of tax shown on a prior return is to be credited against estimated tax, but the overpayment is offset for either past-due child support or non-tax federal debt under IRC section 6402(c), and the taxpayer is not notified of the offset before the due date of the estimated tax installment.

      Note:

      This list of examples is not all-inclusive. There may be other examples where the provisions in paragraph (3) above have been met.

  5. The waiver may not be granted if the failure is due to:

    1. Reliance on the advice of a competent tax advisor.

    2. Retroactive application of a statute or regulation unless the statute or regulation specifically grants a waiver of the estimated tax penalty or the Service announces in the Internal Revenue Bulletin that such a waiver has been granted.

    3. Erroneous advice from the IRS unless such advice falls within the provisions of section 301.6404-3 of the regulations, and/or within the provisions of IRC section 6404(f), Abatement of Any Penalty or Addition to Tax Attributable to Erroneous Written Advice by the Internal Revenue Service.

    4. Lack of funds, or when the lack of estimated tax payments points toward a lack of making any attempt to estimate the tax liability.

  6. The waiver also may not be granted if (based on the facts of the case) it would not be against equity and good conscience to assess the penalty. Generally speaking, it would not be against equity and good conscience to impose the penalty if:

    • the circumstance that prevented compliance was reasonably foreseeable, or

    • the taxpayer's actions (or lack thereof) after the circumstance are evidence that the taxpayer is not making a reasonable effort to comply with the estimated tax requirements.

    The following are some examples that may demonstrate these types of case when all relevant facts are considered:

    1. Scheduled surgery might be considered a " serious illness" for the purpose of requesting a waiver. However, the fact that the surgery is scheduled, and that any associated recovery time is also foreseeable, means that the taxpayer could have made arrangements prior to surgery to pay the estimated tax on time.

    2. A taxpayer whose house burned down, and whose funds had to be used to cover basic additional living expenses while waiting for an insurance settlement normally would qualify for a waiver. However, if the taxpayer's funds were used to replace non-essential (luxury) items, then his actions demonstrate that he is not making a reasonable effort to comply with the estimated tax requirements.

    3. Same situation as in b) above, except that in this case the taxpayer fails to make up for missed estimated tax payments after he receives his insurance settlement. This would, again, demonstrate that he is not making a reasonable effort to comply with the estimated tax requirements.

  7. Requests for a waiver of the estimated tax penalty under IRC section 6654(e)(3)(A) must be submitted in writing and signed by the taxpayer. Waivers may not be granted based on an oral request from the taxpayer. Waiver of the penalty must be specifically approved by a manager or designee with delegated authority.

20.1.3.2.2.1.2.1  ≡ ≡ ≡ ≡ ≡ ≡
≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  7. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

20.1.3.2.2.1.3  (03-31-2010)
Waiver Criteria Under IRC Section 6654(e)(3)(B)

  1. A Taxpayer may be eligible for a waiver of the penalty under IRC section 6654(e)(3)(B) if:

    1. During the current or preceding taxable year the taxpayer retired after having attained age 62, or became disabled, and

    2. The underpayment is due to reasonable cause and not willful neglect.

    Reasonable Cause, as it applies to the estimated tax penalty for an individual, is considered only when the individual meets the conditions in both a) and b) above, and then only to determine if the taxpayer is eligible for the statutory waiver of the penalty. See IRM 20.1.1.3 , Relief from Penalties.

  2. If an individual qualifies for this statutory waiver, the estimated tax penalty should be abated using Reason Code 065, with Penalty Reason Code 044 to identify the abatement.

  3. If the individual does not meet the waiver conditions in both a) and b) above, send an 854C letter using paragraph "U" informing the individual of the reason for denial and explaining his/her appeal rights. Input TC 290 for zero with blocking series 98 (without return) or 99 (with return) and Reason Code 065.

    Note:

    If the original return was electronically filed, do not use blocking series 98 unless the controlling DLN doc code is 47, 51 or 54. Instead, use blocking series 99 & attach the appropriate printed transcript (IMFOLR, BMFOLR, TRDBV, RTVUE or BRTVU), or graphic print for modernized e-file returns.

20.1.3.2.2.1.4  (03-31-2010)
Individual Retirement Account (IRA) Rollovers into Roth IRAs

  1. A taxpayer with adjusted gross income (AGI) of $100,000 or less may convert a regular IRA into a Roth IRA at any time. If a taxpayer converts a traditional IRA to a Roth IRA and elects to have the amount included in income ratably over a four-year period, and receives an estimated tax penalty during one of the four-year elections:

    1. Do not remove the penalty.

    2. Explain that it is the taxpayer's responsibility to increase their withholding to cover the additional tax.

    3. Advise the taxpayer to increase their withholding for future years.

  2. If the taxpayer used the annualized method for computing his required installments, the amount converted into a Roth IRA should be divided equally between all four quarters.

20.1.3.3  (03-31-2010)
IRC Section 6655 — Corporations & Others Not Covered by IRC Section 6654

  1. IRC section 6655 imposes an addition to tax when a corporation (C or S), private foundation, private foundation organized as a trust, or tax exempt organization makes an underpayment of estimated tax. IRC section 6655 also applies to qualified settlement funds described in Treas. Reg. section 1.468B-1.

20.1.3.3.1  (03-31-2010)
Assertion Criteria

  1. A corporation (or other entity subject to IRC section 6655) must make estimated tax payments if its tax shown on the return (income tax minus credits) is $500 or more. If the tax is less than $500, no ES payments are required and a penalty will not be assessed.

20.1.3.3.1.1  (03-31-2010)
Determining the Required Payment Amount

  1. For tax periods that begin after 12/31/1993, corporations, certain tax exempt organizations with unrelated business taxable income, and private foundations with certain excise tax or tax on investment income, are required to prepay the lesser of:

    1. 100 percent of its tax liability for the current year, or

    2. 100 percent of prior year tax liability.

    Note:

    See Exhibit 20.1.3-3. for the required annual payment for periods that begin before 1/1/1994 but after 12/31/1987. See the specific instructions for Form 2220 for tax periods that begin prior to 1/1/1988.

  2. The required annual payment amount may not be based on prior year tax if the return for the prior year showed a tax liability of zero.

    Example:

    Corporation "A" (not a large corporation; see IRM 20.1.3.3.1.1.7) reported a loss and zero tax on its 2006 return. Rev. Rul. 92-54, 1992-2 C.B. 320, states that IRC section 6655(d)(1)(B)(ii) (which allows a taxpayer to base required installment payments of estimated tax on the tax shown on the return for the preceding taxable year) does not apply if the return for the preceding taxable year showed $0 tax liability. Therefore, corporation " A" may not use the 2006 tax to determine the required amount of tax year 2007 ES payments. The required annual estimated tax payment is 100% of 2007 tax.

  3. The required annual payment amount also may not be based on prior year tax if the prior tax year was not for a full 12 month period.

    Example:

    Corporation "B" was organized in February of 2006 and filed a short period initial return for the period ending 12/31/2006, reflecting total tax of $2,000. Because the corporation's tax year ending 12/31/2006 is for a period of less than 12 months, the corporation may not use the 2006 tax to determine the required amount of tax year 2007 ES payments. The required annual estimated tax payment is 100% of the 2007 tax.

  4. Corporations may use Form 1120–W, Corporation Estimated Tax Worksheet, to determine the amount of the required payment for either the regular, annualized income installment, or the adjusted seasonal installment method. Tax exempt organizations may use Form 990–W, Estimated Tax on Unrelated Business Taxable Income for Tax-Exempt Organizations. These forms are designed to assist the corporation and should not be filed with the Internal Revenue Service.

  5. Corporations may choose to use the annualized income installment method to compute their required annual payment. The annualized income installment method can result in a lower required annual payment if a disproportionately large fraction of the taxpayer's tax liability is incurred after the final annualization period: Under the annualized income installment method the required annual payment is determined by annualizing the tax liability for the first 9 to 11 months of the taxable year, without respect to that portion of the tax liability incurred in the final 1 to 3 months. See IRM 20.1.3.3.1.1.10.

  6. If a corporation wants to use certain annualization periods for estimated tax purposes, it must make an election on Form 8842 , Election to Use Different Annualization Periods for Corporate Estimated Tax, by the due date of the first estimated tax installment (the 15th day of the 4th month of the year for which the election is being made).

20.1.3.3.1.1.1  (03-31-2010)
Annual Payment Requirement Where the Tax is Small

  1. A corporation is not required to make estimated tax payments if the tax shown on the return (or, if no return is filed, the tax) is less than $500.

20.1.3.3.1.1.2  (03-31-2010)
Short Taxable Years

  1. Corporations (and other taxpayers subject to IRC section 6655) file short period returns for various reasons. Estimated tax payments are still required unless they are otherwise exempt:

    1. A corporation is not required to make estimated tax payments if the tax shown on the return (or, if no return is filed, the tax) is less than $500.

    2. If sufficient income to meet the estimated payment requirements is not earned until the last month of a short taxable period, the corporation is not required to make estimated tax payments prior to the last month. However, the corporation is required to file a Form 2220, with supporting worksheet, showing the annualization of the income. Additionally, it must pay all estimated tax on or before the 15th day of the last month of the short taxable year.

  2. In the case of a short taxable year, the installment due dates are determined by the number of months in the taxable year, and by the type of taxable year the taxpayer has chosen. For the purpose of determining the due date of any required installment for a short taxable year, a partial month is treated as a full month.

    1. In the case of a calendar year filer, the due dates are the 15th day of April, June, September and December.

    2. In the case of a fiscal year filer, the due dates are the 15th day of the 4th, 6th, 9th and 12th month of the taxable year, as determined by the last month of the chosen fiscal year, and not by the first month of the short taxable year.

    3. The due dates for private foundations and charitable organizations taxed at the corporate rate are the same as for corporations, except that the due date of the first installment is the 15th day of the 5th month.

    4. If the first required installment determined under a) or b) above is earlier than the 15th day of the 4th month of the short taxable year, the first required installment shall be the next required installment determined above.

      Example:

      Corporation "A" files its initial return for the period beginning February 19, 2008. It has elected to use a calendar year. Normally the due dates for a calendar year filer are the 15th day of April, June, September and December. However, because April 15, 2008, is earlier than the 15th day of the 4th month in this short taxable year, the first required installment is due June 15, 2008.

    5. If a taxable year ends early (for example, as a result of an acquisition, or a change in taxable year), the due date for the final required installment is the date that would have been the due date for the next required installment if the event that gave rise to the short taxable year had not occurred. However, if this date is within 30 days of the last day of the short taxable year, the due date for the final required installment is the 15th day of the 2nd month following the month that includes the last day of the short taxable year.

      Example:

      1) Corporation "B" , a calendar year filer, was acquired by corporation "C" on July 29, 2008. The installment due dates are April 15, 2008, June 15, 2008, and September 15, 2008.

      Example:

      2) Same as in example above, except that the acquisition date now is August 29, 2008. The installment due dates now are April 15, 2008, June 15, 2008, and October 15, 2008. Because September 15, 2008, is within 30 days of the last day of the short taxable year (August 29, 2008), the due date of the final installment is now the 15th day of the 2nd month following the month that includes the last day of the short taxable year.

  3. If a taxpayer filing a short period return wishes to use tax from the prior year to determine the required annual payment, the tax for the prior period must be adjusted by dividing the tax by 12 and multiplying the result by the number of months in the short period.

  4. Taxpayers may elect to use the annualized income or the adjusted seasonal income installment method for computing the amount required to be paid with each installment. If neither of these methods is used, the corporation must pay a percentage of the required annual payment with each installment, with the percentage determined by the number of required installments:

    1. If four installments are required, the percentage is 25%.

    2. If three installments are required, the percentage is 33.33%.

    3. If two installments are required, the percentage is 50%.

    4. If one installment is required, the percentage is 100%.

      Exception:

      If the taxpayer does not reasonably expect that the taxable year will be an early termination year, then the required installment percentage is 25% of the expected required annual payment, with the balance of the actual required annual payment to be paid with the last installment.

      Note:

      It is important to note that following the exception above (when computing the penalty) does not provide an advantage to the taxpayer, as shown in the following example.

      Example:

      Corporation "Q" is acquired unexpectedly on July 31, 2008 by Corporation "R." Corporation "Q," not a "large" corporation, had expected to pay its estimated tax based on the tax shown on the previous year's return, which was $90,000. Under paragraph (3) above, the required annual payment is $90,000 divided by 12 times 7, which is $52,500. The due dates for payment of estimated tax are April 15, 2008, June 15, 2008, and September 15, 2008. Based on an expected required annual payment of $90,000, the taxpayer would have paid $22,500 each on April 15 and June 15, with the balance of $7,500 due September 15. As you can see, these installments would result in a greater penalty than using 33.33% of the required annual payment, which is $17,500, per installment.

    Reminder:

    A penalty involving a short taxable year must always be computed and adjusted manually.

20.1.3.3.1.1.3  (03-31-2010)
Domestic Corporations

  1. Domestic corporations shall be required to make estimated tax payments based on the excess of the sum of the following tax(es) over any credit(s) allowed under IRC sections 27 through 54:

    1. IRC section 11 — Tax Imposed on Income; or

    2. IRC section 1201(a) — Alternative Tax for Corporations; or

    3. Subchapter L of chapter 1 of the Internal Revenue Code — Insurance Companies; and

    4. IRC section 55 — Alternative Minimum Tax Imposed;

    5. IRC section 59A — Environmental Tax Credit;

    6. IRC section 887 — Imposition of Tax on Gross Transportation Income of Nonresident Aliens and Foreign Corporations.

    Note:

    In the case of a foreign corporation subject to taxation under a), b) or c) of the above provisions, the tax imposed by IRC section 881 is to be treated as a tax imposed by IRC section 11. See IRM 20.1.3.3.1.1.4.

    Caution:

    Care should be taken to ensure that any additional tax assessed by reason of IRC section 1363(d), Recapture of LIFO Benefits, is not included in the estimated tax penalty computation. Per Treas. Reg. section 1.6655–1(g)(2)(iii), a recapture tax is not considered to be a tax imposed by IRC section 11.

20.1.3.3.1.1.3.1  (03-31-2010)
Section 847 Deduction

  1. In the case of taxable years beginning after December 31, 1987, of an insurance company required to discount unpaid losses, an additional deduction may be allowed under IRC section 847 paragraph (1). If the deduction is taken, the ES penalty must be computed after recomputing tax without taking into account that deduction.

20.1.3.3.1.1.4  (03-31-2010)
Foreign Corporations

  1. A foreign corporation that has income described in IRC section 882, Tax on Income of Foreign Corporations Connected with United States Business, which is subject to taxation under IRC section 11 or 1201(a), or under subchapter L of Chapter 1, must make estimated tax payments on this income in the same manner as a domestic corporation described in IRM 20.1.3.3.1.1.2 above.

  2. A foreign corporation that has income described in IRC section 881, Tax on Income of Foreign Corporations not Connected with United States Business, in addition to income described in IRC section 882 must treat the tax imposed under IRC section 881 as a tax imposed by IRC section 11 on which estimated tax payments also must be made.

  3. For taxable years beginning after December 31, 1994, taxpayers using the annualization method to compute estimated tax payments must take into account income under IRC section 936(h) and IRC section 951(a) in a manner specified in IRC section 6655(e)(4). For more information, see Rev. Proc. 95-23.

  4. A foreign corporation that is not subject to tax under IRC section 882 is not required to make estimated tax payments on the tax imposed under IRC section 881.

20.1.3.3.1.1.5  (03-31-2010)
Tax Exempt Organizations and Private Foundations

  1. IRC section 6655(g)(3) requires the payment of estimated tax for tax on unrelated business income of tax exempt organizations and private foundations. Private foundations are also required to pay estimated tax for all tax on of their other taxable income and for any excise tax based on investment income.

20.1.3.3.1.1.6  (03-31-2010)
Sub-chapter S Corporations

  1. Effective for taxable years beginning after December 31, 1989, IRC section 6655(g)(4) requires that certain taxes shall be treated as taxes imposed by IRC section 11. Estimated tax payments are required by S corporations based on the following taxes:

    1. IRC section 1371(d)(2), recapture of investment credit taken before the corporation was a S corporation.

    2. IRC section 1374(a), tax imposed on certain built-in gains.

    3. IRC section 1375(a), tax Imposed when passive investment income of corporation having accumulated earnings and profits exceeds 25 percent of gross receipts.

  2. The required annual payment for S corporations is the lesser of —

    • Total tax shown on the return for the current year, or

    • The sum of tax shown on the current return due to paragraphs a) and b) above, plus the tax shown on the return for the previous year due to paragraph c) above.

20.1.3.3.1.1.7  (03-31-2010)
Large Corporations

  1. Large corporations, for tax years beginning after December 31, 1993, are required to pay 100 percent of the current year's tax.

    1. A large corporation may use 100 percent of prior year tax liability to determine the estimated tax payment required for only the first installment of any tax year ( IRC section 6655(d)(2)(B) ).

    2. When the first estimated tax payment is based on 100 percent of the prior year's tax liability, and that payment is less than the applicable percentage for the current year's tax liability, the difference must be added to what would otherwise be the required payment (applicable percentage for the current year's tax liability) for the second quarter installment.

    3. For example, a large corporation with $400,000 tax in 2006 and $600,000 tax in 2007 must make $600,000 in estimated tax payments during the year. If the corporation pays the minimum required amount of $100,000 as their first installment, the difference between that amount and the amount that would otherwise be due must be made up with the second payment. This means (unless the taxpayer uses the annualized or adjusted seasonal method for figuring required installment amounts) the taxpayer's second estimated tax payment would need to be $200,000: ($150,000 – $100,000) + $150,000.

  2. A large corporation (or its predecessor) is defined as a corporation having taxable income of $1,000,000 or more during any of the 3 years preceding the taxable year.

  3. If any of the three preceding years of a corporation were less than a full year, the corporation must multiply the taxable income for the short year by 12 and divide the resulting amount by the number of months in the short year to determine if it meets the $1,000,000 criterion for a large corporation.

  4. For corporations that are members of a controlled group, the $1,000,000 amount specified shall be equally divided among the members of the controlled group, unless all members agree to an unequal allocation of the amount. Form 1120, Schedule O, Part IV, column (e) is used to report the allocation of the amount.

    Note:

    Large corporations are supposed to file Form 2220 with their return and check the appropriate box on that form (box 8 on the 2008 Form 2220). Reserve code "4" (shown on page R1 of command code BRTVU) signifies that the "large corporation" box was checked.

  5. Large corporation taxable income is determined without regard to any net operating loss or capital loss carried forward or back to the taxable year under IRC section 172 or IRC section 1212(a).

20.1.3.3.1.1.8  (03-31-2010)
Tax Withheld by Partnerships Under IRC Section 1446

  1. Partnerships with foreign partners are required to withhold income tax on all effectively connected taxable income (ECTI) allocable to its foreign partner(s) under IRC section 704. The partnership reports the total tax due on Form 8804.

  2. Tax due on Form 8804 is required to be paid as estimated tax following essentially the same rules as those existing for corporations, except as modified by Treas. Reg. section 1.1446–3.

  3. For specifics regarding the estimated tax requirements, and regarding the computation of the penalty, see the Form 8804 Schedule A instructions.

  4. Programming to identify taxpayers who have met the "prior year safe harbor" requirements is not yet in place. If the necessary information is not available via CC BRTVU or via CC TRDBV, it may be necessary to request the return for the prior year to determine if the requirements have been met and the penalty should be removed.

  5. The following are the requirements a partnership must have met in order to qualify for the prior year safe harbor:

    • The partnership return for the prior year must have been filed on time (including extensions).

    • The prior taxable year must have been a full year comprising 12 months.

    • The Form 8804 for the current taxable year must have been filed on time (including extensions).

    • The ECTI for the prior year must have been at least 50% of ECTI for the current year.

    • The average of the total of estimated tax installments paid by the due date of any installment must be at least 25% of prior year tax computed without regard to the adjustments allowed under Treas. Reg. section 1.1446–6.

    Example:

    If the prior year ended 12/31/2007, prior year tax would be computed by finding the sum of Form 8804, line 4a times .35, plus line 4d times .28, plus line 4g times .25, plus line 4h times .15.

  6. The partnership may elect to use the annualized income installment method, or the adjusted seasonal method in lieu of the safe harbor method. If the taxpayer elects to use the safe harbor method, that method must be used for all installments, with one exception: If, in an installment period following the first installment, the partnership determines that current year ECTI will exceed twice prior year ECTI, then the partnership may elect to change the installment method at that time.

  7. A partnership may claim credit on its return for

    • tax withheld and paid under IRC section 1446 by another partnership in which it was a partner, and for

    • tax withheld and paid under IRC section 1445(a) or under IRC section 1445(e)(1)(B).

    Unlike tax withheld for individual income tax, there is no provision in the law or in regulations that provides for the equal distribution of this credit among installment due dates. The credit should be used in the penalty computation effective with the date(s) of the payment(s) it represents.

  8. Tax withheld is credited with TC 766 and removed with TC 767, using the appropriate credit reference number: Credit reference number 331 for section 1446 withholding, and 332 for section 1445 withholding. When adjusting withholding credit, the estimated tax penalty must be manually recomputed (and adjusted, if applicable).

20.1.3.3.1.1.9  (03-31-2010)
Equal Installments

  1. Unless the taxpayer elects to use the annualized or adjusted seasonal method to determine its required installment amounts, the taxpayer is required to pay the total required annual payment in equal installments paid on each installment due date. The amount of each installment is determined by dividing the required annual payment by the number of installments due.

  2. Exceptions to the equal installment rule:

    1. If a taxpayer's taxable year is an unexpected short termination year, the amount due for each installment except the last is computed by dividing the required annual payment by the number of expected installments. The amount due for the last installment is computed by subtracting the total previous installments from the required annual payment amount.

    2. Large corporations may base the amount of their first installment on the previous year's liability. If this amount is less than what would otherwise have been due, the difference must be made up with the second installment.

20.1.3.3.1.1.10  (03-31-2010)
Annualized or Adjusted Seasonal Method of Determining the Required Payment

  1. A corporation may be able to lower one or more of its required deposits if its income is expected to vary during the year. In general, if a corporation establishes that either the annualized or adjusted seasonal method can reduce its required installment from what it would be if the regular method were used, the corporation may pay the lesser amount.

  2. The corporation must attach a completed Form 2220 to its return if the annualized or adjusted seasonal method of determining the payment is used.

  3. A corporation that reduces any required installment by annualizing its income, then switches to another method to determine a required deposit, must recapture 100 percent of any prior reduction in the next installment using the other method.

  4. The annualized income installment for a corporation is the excess of—
    an amount equal to the applicable percentage of the tax for the taxable year computed by placing on an annualized basis the taxable income, alternative minimum taxable income, and modified alternative minimum taxable income—

    1. for the first 3 months (2 months in the case of exempt organizations) of the taxable year, in the case of the first required installment,

    2. for the first 3 months of the taxable year, in the case of the second required installment,

    3. for the first 6 months of the taxable year, in the case of the third required installment, and

    4. for the first 9 months of the taxable year, in the case of the fourth required installment,

    over the aggregate amount of any prior required installments for the taxable year.

  5. A corporation may elect to use different annualization periods. To make this election, the corporation must complete Form 8842, Election To use Different Annualization Periods for Corporate Estimated Tax, and file it by the due date of the first installment (by the 15th day of the 4th month of the year for which the election is being made).

  6. It should be noted that the required annual payment under the annualized method does not take into consideration any tax liability incurred in the final 1 to 3 months. This means that when a disproportionately large fraction of a taxpayer's tax liability is incurred after the final annualization period, the required annual payment can be less than it would be if the annualized income installment method is not used.

  7. The amount of a required installment under the adjusted seasonal method is based on the average rate income is received during the preceding three taxable years. For the specific computation, see Form 2220 Schedule A Part I.

  8. Form 2220 Schedule A must be completed and attached to the return if the taxpayer chooses to compute the required installment amount using the Adjusted Seasonal Installment Method or using the Annualized Income Installment Method.

20.1.3.3.1.1.11  (03-31-2010)
Special Estimated Tax Payment Requirements

  1. The Economic Growth and Tax Relief Act postponed the due date of any estimated tax installment normally due on September 15, 2001, until October 1, 2001.

  2. The Jobs and Growth Tax Relief Reconciliation Act postponed the due date of 25% of the estimated tax installment normally due on September 15, 2003, until October 1, 2003.

  3. The Tax Increase Prevention & Reconciliation Act of 2005 increased the amount of the installment due in July, August, or September of 2006 to 105% of the amount that would otherwise be due, with the required amount of the succeeding installment being reduced accordingly. This special provision applies to corporations with assets of not less than one billion dollars.

20.1.3.3.1.2  (03-31-2010)
Period of Underpayment

  1. For corporations the underpayment period is determined by the number of days from the payment due date to the earlier of either:

    1. The date of payment, or

    2. The due date of the return, without regard to extensions (the 15 th day of the third month following the close of the taxable year).

  2. To determine the number of days, see either the Perpetual or Leap Year Julian Date Calendars.

  3. Timely mailing equals timely paying:

    • A payment that is mailed on or before its due date is considered made on the due date, even if it is received after the due date. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • A payment that is mailed after its due date is considered made on the date it is received by IRS.

  4. If a payment due date falls on a weekend or legal holiday, payments received the next business day are considered paid on the due date. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. The period of underpayment must be computed separately for each installment, beginning with the first installment. See Exhibit 20.1.3-5 for an example of how the period of underpayment is computed.

20.1.3.3.1.2.1  (03-31-2010)
Tax Exempt Organizations

  1. For certain tax exempt organizations with unrelated business income, the underpayment period shall be from the date the payment is due to the earlier of either:

    1. The date the payment or partial payment is received, or

    2. The due date of the return without regard to extensions (the 15th day of the fifth month following the close of the taxable year).

20.1.3.3.1.2.2  (03-31-2010)
Private Foundations

  1. For Private Foundations and Private Foundations organized as a Trust or Corporation, the underpayment period is determined by the number of days from the payment due date to the earlier of either:

    1. The date the payment or partial payment is received, or

    2. The due date of the return without regard to extensions (the 15th day of the fifth month after the close of the taxable year).

20.1.3.3.1.2.3  (03-31-2010)
Excessive Adjustment

  1. IRC section 6425 allows for an adjustment to an overpayment of corporate estimated income tax. Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, shall be filed after the last day of the taxable year, and

    1. On or before the 15th day of the third month after the close of the taxable year, and

    2. Before the day on which the corporation files its return.

  2. In the event of an excessive adjustment, IRC section 6655(h) imposes a penalty. An excessive adjustment exists if the tax liability shown on the return for the taxable year is greater than the estimated tax paid after the reduction for the adjustment. The amount subject to penalty is the lesser of:

    1. The amount of the adjustment, or

    2. The amount by which the income tax liability shown on the return for the taxable year exceeds the estimated income tax paid reduced by the amount of the adjustment.

  3. The penalty rate is the rate that applies during the underpayment period. ( See IRM 20.1.3.3.1.6.)

  4. The underpayment period, as it relates to an excessive adjustment under IRC section 6425, is from

    1. the date that the credit is allowed (the 23C date), to

    2. the return due date (without regard to extensions).

20.1.3.3.1.3  (03-31-2010)
Payment Due Dates

  1. Generally speaking, the due dates for payment of estimated tax by a corporation are the 15th day of the 4th, 6th, 9th and 12th month of the taxable year. In the case of a calendar year filer that would be April 15th, June 15 th, September 15th and December 15th.

  2. In the case of a private foundation or other exempt organization subject to the tax on unrelated business income, the due dates are the same, except that the due date of the first installment is the 15th day of the 5th month of the taxable year. In the case of a calendar year filer the first due date would be May 15th.

  3. See IRM 20.1.3.3.1.1.2. for information regarding short period returns.

20.1.3.3.1.4  (03-31-2010)
Application of Estimated Tax Payments and Credits

  1. Estimated tax payments and credits are applied in received date order to estimated tax liabilities in the order in which they arise: When one liability is satisfied, any remaining payment or credit is applied to the next succeeding liability. There are no exceptions to this rule.

20.1.3.3.1.5  (03-31-2010)
Determining the Amount of the Underpayment

  1. The amount of the underpayment is the required installment amount reduced by the available amount (if any) paid or credited on or before the due date of the installment.

    Reminder:

    If the due date of the installment falls on a Saturday, Sunday, or legal holiday, the payment is considered made on the due date if it was made on the next business day. Payments mailed on or before the due date are considered made on the due date, if received after the due date.

20.1.3.3.1.6  (03-31-2010)
Penalty Rate

  1. The estimated tax penalty rate is the underpayment interest rate as described in IRC section 6621 (Federal short-term interest rate plus three percentage points). The underpayment interest rate is determined quarterly. This means that the penalty on a $1,000 underpayment for one quarterly tax period may be different from the penalty on a $1,000 underpayment for a different quarterly tax period.

  2. The underpayment interest rate or the estimated tax penalty rate can be obtained from the Internal Revenue Bulletin, News Releases, TAX NEWS, Servicewide Electronic Research Program (SERP), and Notice 746, Information About Your Notice, Penalty and Interest.

  3. The estimated tax penalty rate is NOT compounded daily.

20.1.3.3.1.7  (03-31-2010)
Determining the Penalty Amount

  1. For each installment, the penalty is determined by multiplying:

    1. The amount of the underpayment, by

    2. The number of days the payment is late, by

    3. The applicable percentage rate.

  2. Estimated tax penalties are computed on the amount of tax reported on the original return.

    Note:

    A second (superseding) return filed on or before the due date for filing is considered the original return.

    1. If an adjustment is made to the tax of an original return before the due date (including extensions), the penalty amount may be adjusted based on the new tax amount.

    2. If an adjustment is made to the tax of an original return after the return due date including extensions, as a result of either an audit or the taxpayer filing an amended return (unless the amended return is a superseding return), the penalty amount cannot be adjusted.

  3. If a corporation did not timely make its required payments, Master File will compute the penalty unless the tax module is restricted (prior TC 170/171 or computer condition code).

  4. IRS employees with access to IDRS may use the following command codes:

    1. COMPA with definer "S" is used to compute the estimated tax penalty.

    2. PINEX (PIEST) is used to explain a computer generated estimated tax penalty computation to the taxpayer.

    Specific instructions regarding the input of both the COMPA and PINEX command codes are contained on SERP under the "IRM Supplements" tab, by first clicking on "Job Aid Book," and then on "IDRS Command Code Job Aid." The job aids also contain links to IRM 2.3.29 (COMPA), IRM 2.3.41 (PIEST), and IRM 2.4.43 (PINEX), which contain detailed information regarding the use of these command codes.

  5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Example:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    ≡ ≡

    Example:

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    ≡

    Example:

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    ≡ ≡ ≡

    Example:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

20.1.3.3.1.7.1  (03-31-2010)
Form 2220, Underpayment of Estimated Tax by Corporations

  1. Corporations may complete Form 2220 to compute, reduce or eliminate an estimated tax penalty. A corporation is required to file Form 2220 with its return if:

    1. the adjusted seasonal installment method is used; or

    2. the annualized income installment method is used; or

    3. The taxpayer is a large corporation, and is figuring its first required installment based on the prior year’s tax.

    See Instructions for Form 2220 for more information.

  2. Since the 2005 version, Form 2220 has been broken down as follows:

    1. Part I of Form 2220 is used to determine the amount of the required annual payment.

    2. Part lI is used to list the reason for filing Form 2220. Generally, one of the three reasons listed in paragraph (1) above is listed.

    3. Part III is used (in conjunction with Schedule A, as applicable) to determine the amount of any underpayment for each of the four installment periods.

    4. Part IV is used to compute any applicable penalty.

    Please note that Form 2220 provides the formula for computing the penalty, but it does not list the applicable penalty rates. The taxpayer may obtain the applicable rates from the IRS web site (www.irs.gov), or by calling 1 (800) 829-4933. IRS employees may obtain the appropriate rates from Notice 746, Information About Your Notice, Penalty and Interest.

  3. If a corporation's income varies during the tax year, it may use the Annualized Income Installment Worksheet or the Adjusted Seasonal Installment Worksheet included as Schedule A with the Form 2220.

20.1.3.3.1.7.2  (03-31-2010)
Schedule A (Form 8804), Penalty for Underpayment of Estimated Section 1446 Tax by Partnerships

  1. Partnerships that are required to withhold income tax on effectively connected income from their foreign partners use Schedule A (Form 8804) to compute their estimated tax penalty. A partnership is required to file Schedule A (Form 8804) if:

    1. the adjusted seasonal installment method; or

    2. the annualized income installment method is used.

    Schedule A (Form 8804) is not required unless the taxpayer completed either Part IV or Part V, or both. See the instructions for more information.

  2. Since the 2006 version, Schedule A (Form 8804) has been broken down as follows:

    1. Part I is used to list the reason for filing Schedule A (Form 8804). Generally, one of the two reasons in paragraph (1) above is listed.

    2. Part lI is used to determine the current year and prior year safe harbors.

    3. Part III is used (in conjunction with Part IV and/or V, as applicable) to determine the amount of any underpayment for each of the four installment periods.

    4. Part IV is used to determine the tax attributable to each installment period using the adjusted seasonal installment method.

    5. Part V is used to determine the tax attributable to each installment period using the annualized income installment method.

    6. Part VI is used to determine the amount of each required installment when either or both Part IV and V were used.

    7. Part VII is used to compute any applicable penalty.

    Please note that Schedule A (Form 8804) provides the formula for computing the penalty, but it does not list the applicable penalty rates. The taxpayer may obtain the applicable rates from the IRS web site (www.irs.gov), or by calling 1 (800) 829-4933. IRS employees may obtain the appropriate rates from Notice 746, Information About Your Notice, Penalty and Interest.

20.1.3.3.1.7.3  (03-31-2010)
Verifying Credits on Master File

  1. Credits claimed by a taxpayer on Form 2220 or on Schedule A (Form 8804) should be verified. This can be done by checking the appropriate CFOL or IDRS command codes.

  2. Compare both the dollar amounts and the received dates of payments posted in the module against payments claimed on Form 2220 or on Schedule A (Form 8804).

  3. TC 710 or TC 716 credit is a "credit elect" of an overpayment received from a prior tax period. The transaction date of the credit elect reflects the credit availability date. This date may differ from the date the taxpayer used in its computation on Form 2220. If the dates differ, verify the accuracy of our date, and explain the difference to the taxpayer if it results in a different penalty on the account.

  4. TC 660 transactions generally reflect Federal tax deposits made either using a deposit coupon, or via electronic funds transfer.

  5. Deposits are posted by IRS as estimated tax payments using the effective date reported by the Federal Depository, generally the taxpayer's bank.

  6. Discrepancies between dates recorded by the taxpayer and dates reflected on the taxpayer's account frequently arise from the taxpayer's failure to comply with the depository's rules for tax deposits:

    1. Only immediate credit items (funds already deposited and available for immediate withdrawal) are credited on the date the deposit coupon is delivered to the bank.

    2. The bank's cut-off times for making deposits have to be considered.

    3. Electronic funds transfers are generally processed one business day after the transfer is requested.

  7. TC 670 subsequent payments will be credited to a tax period as of the received date of that payment. Subsequent payments may be received via mail or via electronic funds transfer

  8. TC 610 is a payment that is received with the return payment voucher or via electronic funds transfer. This payment will post to the tax module with the date the payment was received by IRS.

20.1.3.3.1.7.4  ≡ ≡ ≡ ≡ ≡ ≡ ≡
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      Note:

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    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

20.1.3.3.2  (03-31-2010)
Adjustments after Penalty Assessment

  1. The penalty for underpayment of estimated tax by a corporation is only adjusted after initial assessment for the following reasons:

    1. The penalty was computed incorrectly.

    2. The amount or effective date of estimated tax payments or credits in the module changes.

    3. The taxpayer files a superseding return.

    4. An administrative or legislative waiver applies.

    5. The IRS misapplied a payment or credit, resulting in a penalty, and assertion of the penalty would be against equity and good conscience.

      Note:

      In every case possible, adjustment of the penalty in this case should be initiated systemically by correcting the IRS error. See next paragraph.

  2. In the case of a misapplied payment or credit, first attempt to resolve the issue by applying the payment or credit as it should have been applied.

    1. If this action would not be in the taxpayer's best interest (i.e., it would result in additional penalties and/or interest in another module or account belonging to this taxpayer), explain this to the taxpayer. Do not adjust the penalty.

    2. If the payment or credit was refunded in error, and the amount of the refund was less than $50,000, apply the payment or credit as it should have been applied, and recover the erroneous refund following erroneous refund procedures.

    3. If the payment or credit was refunded in error, and the amount of the refund was $50,000 or more, do not abate the penalty. Advise the taxpayer that the penalty is correct, since the erroneous refund was not returned by the taxpayer.

  3. There is no provision in IRC section 6655 that allows for removal of the penalty for reasonable cause, nor in the case of unusual circumstance. This applies even if assertion of the penalty under the circumstance seems inequitable and against good conscience.

  4. Penalty abatement requests generally must be in writing. However, requests to verify the accuracy of a penalty computation do not need to be in writing, even if they result in the abatement of all or part of the penalty.

    Example:

    A taxpayer contacts IRS because his tax preparation program computed a penalty of $70 because he entered an incorrect amount for prior year tax. In verifying the taxpayer's figures, the IRS contact representative determines that no penalty is due. The contact representative can abate the incorrectly assessed penalty without a written claim because he is able to verify independently that the penalty is incorrect.

  5. See IRM 20.1.3.1.5.2.1 in the case of Federally declared disaster areas.

20.1.3.3.2.1  (03-31-2010)
Evaluating Claims for Abatement or Waiver of Estimated Tax Penalties

  1. If the taxpayer provides evidence that the penalty was computed incorrectly, verify the penalty computed by the taxpayer and adjust as necessary. Evidence to be considered may include Form 2220, Schedule A, or a copy of a timely filed bankruptcy petition. See IRM 20.1.3.1.5.3.

  2. Unless the module is restricted from computing the penalty automatically, the computer will automatically recompute the penalty if the payment information in the module changes. If the module is restricted, the computer will generate CP 234 if the penalty per computer will vary from the posted penalty by $100 or more after the payment information change has posted.

  3. If the taxpayer files a superseding return, the penalty always must be manually computed and adjusted.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. For some tax periods the taxpayer may claim a waiver of the penalty. If so, the taxpayer must specify the legislative or administrative provision under which the waiver applies. The instructions for Form 2220 for the tax year in question generally would list any legislative and administrative waivers available to the taxpayer. A waiver generally only applies to a portion of the overall penalty. Care must be taken to review the instructions for computing the amount eligible before the waiver is granted.

    Note:

    Waivers pertaining to Federally declared disaster areas are built into IRS programming for generated penalties, but must be considered separately when the penalty is manually computed. See IRM 20.1.3.1.5.2.1. Provisions for a waiver were last available for taxable years that included September 11, 2001.

  5. See IRM 20.1.3.3.2(2) if the penalty is the result of a misapplied payment or refunded credit.

Exhibit 20.1.3-1 
Installment Due Dates for Individuals, Estates and Trusts Subject to IRC Section 6654

(1) The tables below reflect due dates for installments of estimated tax for individuals, estates and trusts. However, these tables do not apply to qualifying farmers or fishermen. See IRM 20.1.3.2.1.1.8.

Caution:

The information for short taxable years for individuals (paragraphs 3 & 4) are for computing a penalty only if it has been determined that a penalty applies, and no other installment due dates have been established for the short taxable year. See IRM 20.1.3.2.1.1.9.1.

(2) Please note that a penalty for any underpayment of the final required installment of estimated tax is not due if—

  1. the taxpayer files the return for the taxable year on or before the last day of the first month following the month that includes the last day of the taxable year, and

  2. the taxpayer pays in full the tax shown as due on that return.

Table 1 — Installment Due Dates for Full 12 Month Tax Years

Fiscal
or
Calendar
Year
Ending in 		Estates, Trusts & Individuals
12 Month Tax Year
1st
payment
due 		2nd
payment
due 		3rd
payment
due 		4th
payment
due
Jan. May 15 Jul. 15 Oct. 15 Feb. 15*
Feb. Jun. 15 Aug. 15 Nov. 15 Mar. 15*
Mar. Jul. 15 Sep. 15 Dec. 15 Apr. 15*
Apr. Aug. 15 Oct. 15 Jan. 15* May 15*
May Sep. 15 Nov. 15 Feb. 15* Jun. 15*
Jun. Oct. 15 Dec. 15 Mar. 15* Jul. 15*
Jul. Nov. 15 Jan. 15* Apr. 15* Aug. 15*
Aug. Dec. 15 Feb. 15* May 15* Sep. 15*
Sep. Jan. 15 Mar. 15 Jun. 15 Oct. 15
Oct. Feb. 15 Apr. 15 Jul. 15 Nov. 15
Nov. Mar. 15 May 15 Aug. 15 Dec. 15
Dec. Apr. 15 Jun. 15 Sep. 15 Jan. 15*
*Of the next calendar year.

(3) For individuals, if the taxpayer elects under IRC section 1398(d) to close the taxable year early, then two short taxable years are created: One short year ending the day before the bankruptcy petition is filed, and the other beginning on the day of the petition. The installment due dates for the two short taxable years are based on the taxpayer's usual fiscal or calendar accounting period:

  • The installment due dates for the first short taxable year are those due dates that fall within the taxable year, plus the 15th day of the first month following the close of the short taxable year.

  • The installment due dates for the second short taxable year are those due dates that fall in a month after the first month in that short taxable year.

(4) For individuals, if the taxpayer's taxable year is terminated early due to a change in accounting periods, the installment due dates remain the same as for the previous full period, except that the final installment is due on the 15th day of the first month following the close of the taxable year.

(5) The Revenue Reform Act of 1986 added IRC section 645 (later renumbered as IRC section 644 ) which required all trusts subject to IRC section 6654 to use the calendar year as their accounting period. As a result, numerous trusts were required to file returns for short taxable years in 1987 to change their accounting period.

(6) Notice 87-32 was issued by IRS to provide guidance for the payment of estimated tax for trusts with a short taxable year as a result of the required change in accounting period.

  • Table 2 provides the estimated tax installment due dates for estates and trusts (other than charitable trusts) with an initial short taxable year.

  • Table 3 provides the due dates for estates and trusts (other than charitable trusts) with a short taxable year as a result of early termination.

Table 2 — Estates & Trusts — Short Initial Year

Short
taxable
year
beginning
in 		Estates and Trusts - Short Initial Year
1st
payment
due 		2nd
payment
due 		3rd
payment
due 		Final
payment
due
Jan. Apr. 15 Jun. 15 Sep. 15 Jan. 15*
Feb. May. 15 Jul. 15 Oct. 15 Jan. 15*
Mar. Jun. 15 Aug. 17 Nov. 16 Jan. 15*
Apr. Jul. 15 Sep. 15 Dec. 15 Jan. 15*
May Aug. 17 Oct. 15 N/A Jan. 15*
Jun. Sep. 15 Nov. 16 N/A Jan. 15*
Jul. Oct. 15 Dec. 15 N/A Jan. 15*
Aug. Nov. 16 N/A N/A Jan. 15*
Sep. Dec. 15 N/A N/A Jan. 15*
Oct. N/A N/A N/A Jan. 15*
Nov. N/A N/A N/A Jan. 15*
Dec. N/A N/A N/A Jan. 15*
*Of the next calendar year.

Table 3 — Estates & Trusts — Short Final Year

Short taxable year ending in Estates and Trusts - Short Final Year
1st payment due 2nd payment due 3rd payment due Final payment due
Jan. N/A N/A N/A Feb. 15
Feb. N/A N/A N/A Mar. 15
Mar. N/A N/A N/A Apr. 15
Apr. Apr. 15 N/A N/A May 15
May Apr. 15 N/A N/A Jun. 15
Jun. Apr. 15 Jun. 15 N/A Jul. 15
Jul. Apr. 15 Jun. 15 N/A Aug. 15
Aug. Apr. 15 Jun. 15 N/A Sep. 15
Sep. Apr. 15 Jun. 15 Sep. 15 Oct. 15
Oct. Apr. 15 Jun. 15 Sep. 15 Nov. 15
Nov. Apr. 15 Jun. 15 Sep. 15 Dec. 15
Dec. Apr. 15 Jun. 15 Sep. 15 Jan. 15*
*Of the next calendar year.

Exhibit 20.1.3-2 
Installment Due dates for Corporations, Private Foundations and Charitable Trusts

Note:

The tables below reflect the due dates for corporations. To apply the tables to private foundations and charitable trusts, increase the due date of the applicable first installment by one month.

(1) Table 1 on the following pages contains the due dates for fiscal year returns, calendar year returns, and for initial short year returns. To find the due dates for a given tax year, find the row for the month in which the taxable year begins, and move across to the column for the month at the end of which the taxable year ends.

  1. The due dates for installments for fiscal year returns, calendar year returns, and initial short year returns are based on the taxable year ending month, and not on the month in which the year begins. However, see paragraph (2) below for an exception to this rule.

  2. If [based on the rule above in a) above] the first installment due date for the taxable year is earlier than the 15th day of the 4 th month in the taxable year, then the taxpayer's first required installment is due on the first due date for the taxable year, as determined under a) above, that is on or after the 15th day of the 4th month of the taxable year.

Table 1

Short or Other Year Beginning in: DUE DATES FOR FISCAL & CALENDAR YEAR RETURNS, AND INITIAL SHORT YEAR RETURNS
Taxable Year Ending Month:
Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.
Jan. None None None 4/15* 5/15 6/15 4/15
7/15 		5/15
8/15 		6/15
9/15 		4/15
7/15
10/15 		5/15
8/15
11/15 		4/15
6/15
9/15
12/15
Feb. 5/15
7/15
10/15
1/15 		None None None 5/15* 6/15 7/15 5/15
8/15 		6/15
9/15 		7/15
10/15 		5/15
8/15
11/15 		6/15
9/15
12/15
Mar. 7/15
10/15
1/15 		6/15
8/15
11/15
2/15 		None None None 6/15* 7/15 8/15 6/15
9/15 		7/15
10/15 		8/15
11/15 		6/15
9/15
12/15
Apr. 7/15
10/15
1/15 		8/15
11/15
2/15 		7/15
9/15
12/15
3/15 		None None None 7/15* 8/15 9/15 7/15
10/15 		8/15
11/15 		9/15
12/15
May 10/15
1/15 		8/15
11/15
2/15 		9/15
12/15
3/15 		8/15
10/15
1/15
4/15 		None None None 8/15* 9/15 10/15 8/15
11/15 		9/15
12/15
Jun. 10/15
1/15 		11/15
2/15 		9/15
12/15
3/15 		10/15
1/15
4/15 		9/15
11/15
2/15
5/15 		None None None 9/15* 10/15 11/15 9/15
12/15
Jul. 10/15
1/15 		11/15
2/15 		12/15
3/15 		10/15
1/15
4/15 		11/15
2/15
5/15 		10/15
12/15
3/15
6/15 		None None None 10/15* 11/15 12/15
Aug. 1/15 11/15
2/15 		12/15
3/15 		1/15
4/15 		11/15
2/15
5/15 		12/15
3/15
6/15 		11/15
1/15
4/15
7/15 		None None None 11/15* 12/15
Sep. 1/15 2/15 12/15
3/15 		1/15
4/15 		2/15
5/15 		12/15
3/15
6/15 		1/15
4/15
7/15 		12/15
2/15
5/15
8/15 		None None None 12/15*
Oct. 1/15* 2/15 3/15 1/15
4/15 		2/15
5/15 		3/15
6/15 		1/15
4/15
7/15 		2/15
5/15
8/15 		1/15
3/15
6/15
9/15 		None None None
Nov. None 2/15* 3/15 4/15 2/15
5/15 		3/15
6/15 		4/15
7/15 		2/15
5/15
8/15 		3/15
6/15
9/15 		2/15
4/15
7/15
10/15 		None None
Dec. None None 3/15* 4/15 5/15 3/15
6/15 		4/15
7/15 		5/15
8/15 		3/15
6/15
9/15 		4/15
7/15
10/15 		3/15
5/15
8/15
11/15 		None
* If the short period does not start on the first of the month, the taxable year is a period of less than 4 full calendar months, and no estimated tax payments are due.

(2) Table 2 on the following pages reflects the calendar year due dates for taxpayers that choose to make their estimated tax payments for their initial short taxable year using the calendar year schedule, and that then choose to end its taxable year early, based on a fiscal year ending month. A taxpayer that chooses to be a fiscal year taxpayer will not be charged an estimated tax penalty if—

  • the taxpayer makes estimated tax payments as if it were a calendar year taxpayer until the date it files its return; and

  • the return filed is an initial short taxable year return.

Accordingly, the due dates of the taxpayer's installment(s) are the calendar year due dates that are included in the period beginning with the 15th day of the fourth month of the short taxable year, and ending on the due date for filing the return for the short taxable year. This means that the short year must end in December or earlier within the calendar year in which the short year began. (If the short year ends in December, then the taxpayer is a calendar year filer.) To find the due dates for a given short taxable year, find the row for the month in which the short taxable year begins, and move across to the column for the month at the end of which the short taxable year ends.

Table 2

Short Year Beginning
in: 		INITIAL SHORT PERIOD RETURN (using calendar year due dates)
Short Year Ending Month:
Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.
Jan. None None None 4/15*
6/15 		4/15
7/15 		4/15
6/15
9/15 		4/15
6/15
9/15 		4/15
6/15
9/15 		4/15
6/15
10/15 		4/15
6/15
9/15
12/15 		4/15
6/15
9/15
1/15 		4/15
6/15
9/15
12/15
Feb. N/A None None None 7/15* 6/15
9/15 		6/15
9/15 		6/15
10/15 		6/15
9/15
12/15 		6/15
9/15
12/15 		6/15
9/15
1/15 		6/15
9/15
12/15
Mar. N/A None None None 6/15*
9/15 		6/15
9/15 		6/15
10/15 		6/15
9/15
12/15 		6/15
9/15
12/15 		6/15
9/15
1/15 		6/15
9/15
12/15
Apr. Not Applicable None None None 9/15* 10/15 9/15
12/15 		9/15
12/15 		9/15
1/15 		9/15
12/15
May Not Applicable None None None 10/15* 9/15
12/15 		9/15
12/15 		9/15
1/15 		9/15
12/15
Jun. Not Applicable None None None 9/15*
12/15 		9/15
12/15 		9/15
1/15 		9/15
12/15
Jul. Not Applicable None None None 12/15* 1/15 12/15
Aug. Not Applicable None None None 1/15* 12/15
Sep. Not Applicable None None None 12/15*
Oct. Not Applicable None None None
Nov. Not Applicable None None
Dec. Not Applicable None
* If the short period does not start on the first of the month, the taxable year is a period of less than 4 full calendar months, and no estimated tax payments are due.

(3) When the taxable year ends early (because of an acquisition or because of a change in accounting period), the installment due dates are the same as if the year were a full 12 month year, except that the final installment is due on the due date of the next installment after the end of the taxable year.

Exception:

If the due date of the final installment would be within 30 days after the end of the taxable year, then the due date of the final installment shall be the 15th day of the second month following the month that includes the final day of the taxable year.

Table 3 on the following pages reflects the installment due dates for early termination short year returns. To find the due dates for a given short taxable year, find the row for the beginning month for the short taxable year, and move across to the column for month that includes the final day of the taxable year.

Table 3

Fiscal Year Beginning Month: SHORT EARLY TERMINATION TAX YEAR
Tax Period Ending in:
Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.
Jan. None None None 4/15
6/15* 		4/15
7/15 		4/15
6/15
9/15 		4/15
6/15
9/15 		4/15
6/15
9/15
or**
10/15 		4/15
6/15
9/15
or**
11/15 		4/15
6/15
9/15
12/15 		4/15
6/15
9/15
12/15
or**
1/15 		4/15
6/15
9/15
12/15
or**
2/15
Feb. 5/15
7/15
10/15
1/15
or**
3/15 		None None None 5/15* 5/15
8/15 		5/15
7/15
10/15 		5/15
7/15
10/15 		5/15
7/15
10/15
or**
11/15 		5/15
7/15
10/15
or**
12/15 		5/15
7/15
10/15
1/15 		5/15
7/15
10/15
1/15
or**
2/15
Mar. 6/15
8/15
11/15
2/15
or**
3/15 		6/15
8/15
11/15
2/15
or**
4/15 		None None None 6/15* 6/15
9/15 		6/15
8/15
11/15 		6/15
8/15
11/15 		6/15
8/15
11/15
or**
12/15 		6/15
8/15
11/15
or**
1/15 		6/15
8/15
11/15
2/15
Apr. 7/15
9/15
12/15
3/15 		7/15
9/15
12/15
3/15
or**
4/15 		7/15
9/15
12/15
3/15
or**
5/15 		None None None 7/15* 7/15
10/15 		7/15
9/15
12/15 		7/15
9/15
12/15 		7/15
9/15
12/15
or**
1/15 		7/15
9/15
12/15
or**
2/15
May 8/15
10/15
1/15
or**
3/15 		8/15
10/15
1/15
4/15 		8/15
10/15
1/15
4/15
or**
5/15 		8/15
10/15
1/15
4/15
or**
6/15 		None None None 8/15* 8/15
11/15 		8/15
10/15
1/15 		8/15
10/15
1/15 		8/15
10/15
1/15
or**
2/15
Jun. 9/15
11/15
2/15
or**
3/15 		9/15
11/15
2/15
or**
4/15 		9/15
11/15
2/15
5/15 		9/15
11/15
2/15
5/15
or**
6/15 		9/15
11/15
2/15
5/15
or**
7/15 		None None None 9/15* 9/15
12/15 		9/15
11/15
2/15 		9/15
11/15
2/15
Jul. 10/15
12/15
3/15 		10/15
12/15
3/15
or**
4/15 		10/15
12/15
3/15
or**
5/15 		10/15
12/15
3/15
6/15 		10/15
12/15
3/15
6/15
or**
7/15 		10/15
12/15
3/15
6/15
or**
8/15 		None None None 10/15* 10/15
1/15 		10/15
12/15
3/15
Aug. 11/15
1/15
4/15 		11/15
1/15
4/15 		11/15
1/15
4/15
or**
5/15 		11/15
1/15
4/15
or**
6/15 		11/15
1/15
4/15
7/15 		11/15
1/15
4/15
7/15
or**
8/15 		11/15
1/15
4/15
7/15
or**
9/15 		None None None 11/15* 11/15
2/15
Sep. 12/15
3/15 		12/15
2/15
5/15 		12/15
2/15
5/15 		12/15
2/15
5/15
or**
6/15 		12/15
2/15
5/15
or**
7/15 		12/15
2/15
5/15
8/15 		12/15
2/15
5/15
8/15
or**
9/15 		12/15
2/15
5/15
8/15
or**
10/15 		None None None 12/15*
Oct. 1/15* 1/15
4/15 		1/15
3/15
6/15 		1/15
3/15
6/15 		1/15
3/15
6/15
or**
7/15 		1/15
3/15
6/15
or**
8/15 		1/15
3/15
6/15
9/15 		1/15
3/15
6/15
9/15
or**
10/15 		1/15
3/15
6/15
9/15
or**
11/15 		None None None
Nov. None 2/15* 2/15
5/15 		2/15
4/15
7/15 		2/15
4/15
7/15 		2/15
4/15
7/15
or**
8/15 		2/15
4/15
7/15
or**
9/15 		2/15
4/15
7/15
10/15 		2/15
4/15
7/15
10/15
or**
11/15 		2/15
4/15
7/15
10/15
or**
12/15 		None None
Dec. None None 3/15* 3/15
6/15 		3/15
5/15
8/15 		3/15
5/15
8/15 		3/15
5/15
8/15
or**
9/15 		3/15
5/15
8/15
or**
10/15 		3/15
5/15
8/15
11/15 		3/15
5/15
8/15
11/15
or**
12/15 		3/15
5/15
8/15
11/15
or**
1/15 		None
* If the short period does not start on the first of the month, the taxable year is a period of less than 4 full calendar months, and no estimated tax payments are due.
** If the earlier of the last two due dates is either prior to the last day of the taxable year, or more than 30 days after the last day of the taxable year, then use the earlier date. Otherwise, use the later date.

Exhibit 20.1.3-3 
Required Annual Payment

(1) The tables on the following pages list the required annual payment as a percentage of current year tax and prior year tax for tax years starting after 1986. Please note the high income exceptions to the use of prior year tax in computing the required annual payment for individuals, estates and trusts. Also note the limitations to the use of prior year tax as they apply to large corporations. See IRM 20.1.3.3.1.1.7.

INDIVIDUALS, ESTATES & TRUSTS (OTHER THAN CHARITABLE TRUSTS & PRIVATE FOUNDATIONS ORGANIZED AS A TRUST.)

Taxable Year Beginning % of Current Year Tax % of Prior Year Tax % of Prior Year Tax Under High Income Exception Rules High Income Exception Total Tax before ES Payments due
in through
1987 1987 80% 100%   No $ 500
1988 1991 90% 100%   No $ 500
1992 1993 90% 100% Form 2210, Schedule A Yes* $ 500
1994 1997 90% 100% 110% Yes** $ 500
1998 1998 90% 100%   No $ 1,000
1999 1999 90% 100% 105% Yes** $ 1,000
2000 2000 90% 100% 108.6% Yes** $ 1,000
2001 2001 90% 100% 110% Yes** $ 1,000
2002 2002 90% 100% 112% Yes** $ 1,000
2003 2008 90% 100% 110% Yes** $ 1,000
2009 2009 90% 100%
or
90%*** 		110%
or
90%*** 		Yes** $ 1,000

* The taxpayer must complete Form 2210, Schedule A, to compute the required annual payment if all of the following apply:

  • The taxpayer made estimated tax payments in any of the preceding three years, or was charged a penalty for failure to pay estimated tax in any of those years.

  • The taxpayer's current AGI is more than $75,000 ($37,500 if married filing separately).

  • The taxpayer's current modified AGI exceeds the prior year AGI by more than $40,000 ($20,000 if married filing separately).

** The taxpayer must use the percentage of prior year tax listed for the high income exception if the AGI on the prior year return is more than $150,000 ($75,000 if married filing separately).

*** Special rule for qualifying small business taxpayers. See IRM 20.1.3.2.1.1.1.

CORPORATIONS, PRIVATE FOUNDATIONS AND CHARITABLE TRUSTS

Tax Years Beginning Percentage of
after but before Prior Year Tax Current Year Tax
12/31/1986 01/01/1992 100% 90%
12/31/1991 07/01/1992 100% 93%
06/30/1992 01/01/1994 100% 97%
12/31/1993 01/01/2010 100% 100%

Exhibit 20.1.3-4 
Farmers & Fishermen

(1) Individuals, estates and trusts (other than charitable trusts), that derive 2/3 or more of their gross income in the current or previous taxable year either from farming or from fishing, are "qualifying farmers or fishermen."

(2) Qualifying farmers and fishermen are required to make only one installment, due January 15th of the year following the taxable year. The amount of the required installment is 2/3 of the tax for the taxable year, or 100% of the tax for the previous taxable year, whichever is less, and without regard to any high income limitation placed on the use of prior year tax.

(3) No estimated tax payment is required if the qualifying farmer or fisherman files the return, and pays the tax shown due on that return, by March 1st.

(4) The tables below lists the individual line items used in computing gross income, and gross income from farming or fishing. Please note that "gross income," for the purpose of determining if the taxpayer is a qualifying farmer or fisherman, is not synonymous with adjusted gross income (AGI) as listed on the tax return.

(5) Perform the following computation to determine if the taxpayer is a qualifying farmer or fisherman:

  1. Using the tables below, compute gross income and gross income from farming and fishing.

  2. Multiply gross income by two, and divide the result by three. This is 2/3 of gross income.

  3. If gross income from farming or fishing is greater than or equal to 2/3 of gross income, then the taxpayer is a qualifying farmer or fisherman.

TABLE A — GROSS INCOME FROM ALL SOURCES

Item [Only positive amounts (gains) are considered.] Form or Schedule Line
Wages, salaries tips, etc. 1040 7
Interest Income 1040 8a
Dividend Income 1040 9a
Taxable refunds, credits, or offsets of state and local income taxes 1040 10
Alimony received 1040 11
Capital Gains (Losses are not netted against gains!) 1040 12
Supplemental Gains (Form 4797) 1040 14
Taxable IRA distributions 1040 15b
Taxable pensions & annuities 1040 16b
Unemployment Compensation 1040 19
Taxable Social Security Benefits 1040 20b
Other income 1040 21
Gross receipts or sales Schedule C 7
Rents received Schedule E 3
Royalties received Schedule E 4
Net income from estates & trusts Schedule E 37
Real Estate Mortgage Investment Conduits Schedule E 39
Gross income from farming (Cash Method) Schedule F 11
Gross income from farming (Accrual Method) Schedule F 51
Gross farm rental income Form 4835 7
Distributive share of gross income from partnership or LLC treated as a partnership. Schedule K-1, Form 1065  
Pro-rata share of gross income from an S corporation Schedule K-1, Form 1120S  

TABLE B — GROSS INCOME FROM FARMING OR FISHING

Item [Only positive amounts (gains) are considered.] Form or Schedule Line
If the principal industrial activity (PIA) code on Schedule C is:
- 002246,
- 0001NN,
- 0002NN, or
- 11NNNN
where "N" is any number. 		Schedule C 7
 
Gross income from farm rental, farm partnerships, farm s-corporations, and estates and trusts operating farms. Schedule E 42  
Gross income from own farm (cash method) Schedule F 11  
Gross income from own farm (accrual method) Schedule F 51  
Net gain from the sale of animals Form 4797 var.  
Income for services as officer or crew member of a vessel while the vessel is engaged in fishing, and income for services normally performed in connection with fishing Form W-2
or
F 1099–MISC 		1
or
5 		 

TABLE C — COMPUTATION

1 Total gross income based on Table A  
2 Multiply amount on line 1 by 2  
3 Divide amount on line 2 by 3  
4 Gross farming & fishing income based on Table B  
If the amount on line 4 is greater than or equal to the amount on line 3, then the taxpayer is a qualifying farmer or fisherman.

Exhibit 20.1.3-5 
Using IDRS Command Code COMPA with Definer "S."

The tables below outline how each method would work for an individual taxpayer who has quarterly liabilities of $500 each, and who begins making bi-monthly estimated tax payments of $400 on July 1st.

Date Liability/ (Credit) Cumulative Method
From To Balance
04/15/2007 500.00 04/15/2007 06/15/2007 500.00
06/15/2007 500.00 06/15/2007 07/01/2007 1,000.00
07/01/2007 —400.00 07/01/2007 09/01/2007 600.00
09/01/2007 —400.00 09/01/2007 09/15/2007 200.00
09/15/2007 500.00 09/15/2007 11/01/2007 700.00
11/01/2007 —400.00 11/01/2007 01/01/2008 300.00
01/01/2008 —400.00 01/01/2008 01/15/2008 —100.00
01/15/2008 500.00 01/15/2008 03/01/2008 400.00
03/01/2008 —400.00 03/01/2008 04/15/2008 0.00

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Date Liability/ (Credit) Separate Method
From To Amount
04/15/2007 500.00 04/15/2007 07/01/2007 500.00
07/01/2007 —400.00 07/01/2007 09/01/2007 100.00
09/01/2007 —100.00      
    From To Amount
06/15/2007 500.00 06/15/2007 09/01/2007 500.00
09/01/2007 —300.00 09/01/2007 11/01/2007 200.00
11/01/2007 —200.00      
    From To Amount
09/15/2007 500.00 09/15/2007 11/01/2007 500.00
11/01/2007 —200.00 11/01/2007 01/01/2008 300.00
01/01/2008 —300.00      
    From To Amount
01/01/2008 —100.00 01/01/2008 01/15/2008 —100.00
01/15/2008 500.00 01/15/2008 03/01/2008 400.00
03/01/2008 —400.00      
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