Updating Estimated Income Tax Regulations Under Section 6654, 52299-52302 [05-17449]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 70, Number 170 (Friday, September 2, 2005)]
[Rules and Regulations]
[Pages 52299-52302]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-17449]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9224]
RIN 1545-BD17


Updating Estimated Income Tax Regulations Under Section 6654

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations relating to certain 
changes made to the law by the Tax Reform Act of 1984. These final 
regulations are necessary to update, clarify, and reorganize the rules 
and procedures for making payments of estimated income

[[Page 52300]]

tax by individuals. These final regulations do not impose any new 
requirements for taxpayers.

DATES: Effective Date: These final regulations are effective September 
2, 2005.

FOR FURTHER INFORMATION CONTACT: Tatiana Belenkaya of the Office of 
Associate Chief Counsel (Procedure and Administration), (202) 622-4910 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to 26 CFR part 1. Section 412 of 
the Tax Reform Act of 1984, Public Law 98-369 (98 Stat. 792), repealed 
section 6015 of the Internal Revenue Code (Code), which required 
individuals to file declarations of estimated income tax. Public Law 
98-369 (98 Stat. 792) is effective for taxable years beginning after 
December 31, 1984; however, individual taxpayers still must pay 
estimated tax in quarterly installments under section 6654 of the Code.

Explanation of Provisions

    In general, section 6654(a) of the Code provides that in the case 
of any underpayment of estimated tax by an individual, there shall be 
added to the tax under chapter 1 and the tax under chapter 2 for the 
taxable year an amount determined by applying (1) the underpayment rate 
established under section 6621, (2) to the amount of the underpayment, 
(3) for the period of the underpayment. Section 6654(m) authorizes the 
Secretary to prescribe such regulations as may be necessary to carry 
out the purposes of section 6654.
    Prior to its repeal in 1984, section 6015 of the Code, and 
Sec. Sec.  1.6015(a)-1 through 1.6015(j)-1 of the Income Tax 
Regulations, provided rules for making declarations of estimated income 
tax by individuals. Section 6015 of the Code was repealed for taxable 
years beginning after December 31, 1984. The repeal of section 6015 
rendered Sec. Sec.  1.6015(a)-1 through 1.6015(j)-1 obsolete, except to 
the extent that portions of these sections provide guidance still 
relevant to the payment of estimated tax under section 6654.
    These final regulations remove Sec. Sec.  1.6015(a)-1 through 
1.6015(j)-1, revise Sec. Sec.  1.6654-2 and 1.6654-3, and add 
Sec. Sec.  1.6654-5 and 1.6654-6. Removing the obsolete declaration of 
estimated income tax regulations and revising the current estimated 
income tax regulations will clarify the estimated income tax 
regulations under section 6654 of the Code. Removal of Sec. Sec.  
1.6015(a)-1 through 1.6015(j)-1 also alleviates any confusion under the 
current section 6015 regulations, which address relief from joint and 
several liability for an individual who has made a joint return. Adding 
Sec. Sec.  1.6654-5 and 1.6654-6 will provide additional instructions 
for determining estimated tax payments and additional guidance for 
nonresident alien individuals required to make estimated tax payments.

Special Analyses

    Because these regulations are interpretative and generally re-
codify, under an existing statute, existing rules promulgated under a 
prior statute, notice and public comment procedures are not required 
pursuant to 5 U.S.C. 553(b)(A) and (B), and a delayed effective date is 
not required pursuant to 5 U.S.C. 553(d)(2) and (3). Because no notice 
of proposed rulemaking is required, the provisions of the Regulatory 
Flexibility Act, 5 U.S.C. 601 (et seq.) do not apply. Further, because 
this Treasury decision is not a significant regulatory action for 
purposes of Executive Order 12866, a regulatory assessment is not 
required. Pursuant to section 7805(f) of the Code, these regulations 
were submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on their impact on small business.

Drafting Information

    The principal author of these regulations is Tatiana Belenkaya, 
Office of Associate Chief Counsel (Procedure and Administration), 
Administrative Provisions and Judicial Practice Division.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *


Sec. Sec.  1.6015(a)-1 through 1.6015(j)-1  [Removed]

0
Par. 2. Sections 1.6015(a)-1 through 1.6015(j)-1 are removed.

0
Par. 3. Section 1.6654-2 is amended by:
0
1. Revising the last sentence of paragraph (e)(1)(ii).
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2. Adding paragraphs (e)(5), (e)(6), and (e)(7).
    The revision and additions read as follows:


Sec.  1.6654-2  Exceptions to imposition of the addition to the tax in 
the case of individuals.

* * * * *
    (e) * * *
    (1) * * *
    (ii) * * * For rules with respect to the allocation of joint 
payments of estimated tax, see Sec.  1.6654-2(e)(5).
* * * * *
    (5) Joint payments of estimated tax--(i) In general. A husband and 
wife may make a joint payment of estimated tax even though they are not 
living together. However, a joint payment of estimated tax may not be 
made if the husband and wife are separated under a decree of divorce or 
of separate maintenance. A joint payment of estimated tax may not be 
made if the taxpayer's spouse is a nonresident alien (including a 
nonresident alien who is a bona fide resident of Puerto Rico or a 
possession to which section 931 applies during the entire taxable 
year), unless an election is in effect for the taxable year under 
section 6013(g) or (h) and the regulations. In addition, a joint 
payment of estimated tax may not be made if the taxpayer's spouse has a 
taxable year different from that of the taxpayer. If a joint payment of 
estimated tax is made, the amount estimated as the income tax imposed 
by chapter 1 of the Internal Revenue Code must be computed on the 
aggregate estimated taxable income of the spouses (see section 
6013(d)(3) and Sec.  1.2-1), whereas, if applicable, the amount 
estimated as the self-employment tax imposed by chapter 2 of the 
Internal Revenue Code must be computed on the separate estimated self-
employment income of each spouse. See sections 1401 and 1402 and Sec.  
1.6017-1(b)(1). The liability with respect to the estimated tax, in the 
case of a joint payment, shall be joint and several.
    (ii) Application to separate returns. (A) Although a husband and 
wife may make a joint payment of estimated tax, they, nevertheless, can 
file separate returns. If they make a joint payment of estimated tax 
and file separate returns for the same taxable year with respect to 
which the joint payment was made, the payment made on account of the 
estimated tax for that taxable year may be treated as a payment on 
account of the tax liability of either the husband or wife for the 
taxable year, or may be divided between them in such manner as they may 
agree.
    (B) In the event the husband and wife fail to agree to a division 
of the estimated tax payment, such payment

[[Page 52301]]

shall be allocated between them in accordance with the following rule. 
The portion of such payment to be allocated to a taxpayer shall be that 
portion of the aggregate of all such payments as the amount of tax 
imposed by chapter 1 of the Internal Revenue Code shown on the separate 
return of the taxpayer (plus, if applicable, the amount of tax imposed 
by chapter 2 of the Internal Revenue Code shown on the return of the 
taxpayer) bears to the sum of the taxes imposed by chapter 1 of the 
Internal Revenue Code shown on the separate returns of the taxpayer and 
the spouse (plus, if applicable, the sum of the taxes imposed by 
chapter 2 of the Internal Revenue Code shown on the separate returns of 
the taxpayer and the spouse).
    (6) Example. The rule described in paragraph (e)(5) of this section 
may be illustrated by the following example:

    Example. (i) H and W make a joint payment of estimated tax of 
$19,500 for the taxable year. H and W subsequently file separate 
returns for the taxable year showing tax imposed by chapter 1 of the 
Internal Revenue Code in the amount of $11,500 and $8,000, 
respectively. In addition, H's return shows a tax imposed by chapter 
2 of the Internal Revenue Code in the amount of $500. H and W fail 
to agree to a division of the estimated tax paid. The amount of the 
aggregate estimated tax payments allocated to H is determined as 
follows:
(A) Chapter 1 tax shown on H's return--$11,500
(B) Plus: Amount of tax imposed by chapter 2 shown on H's return--
$500
(C) Total taxes imposed by chapter 1 and by chapter 2 shown on H's 
return--$12,000
(D) Amount of tax imposed by chapter 1 shown on W's return--$8,000
(E) Total taxes imposed by chapter 1 and by chapter 2 on both H's 
and W's--$20,000 returns
(F) Proportion of taxes shown on H's return to total amount--
($12,000/$20,000) 60% of taxes shown on both H's and W's returns
(G) Amount of estimated tax payments allocated to H (60% of 
$19,500)--$11,700
    (ii) Accordingly, H's return would show a balance due in the 
amount of $300 ($12,000 taxes shown less $11,700 estimated tax 
allocated).
    (7) Death of spouse. (i) A joint payment of estimated tax may not 
be made after the death of either the husband or wife. However, if it 
is reasonable for a surviving spouse to assume that there will be filed 
a joint return for himself and the deceased spouse for his taxable year 
and the last taxable year of the deceased spouse, he may, in making a 
separate payment of estimated tax for his taxable year which includes 
the period comprising such last taxable year of his spouse, estimate 
the amount of the tax imposed by chapter 1 of the Internal Revenue Code 
on his and his spouse's taxable income on an aggregate basis and 
compute his estimated tax with respect to chapter 1 tax in the same 
manner as though a joint return had been filed.
    (ii) If a husband and wife make a joint payment of estimated tax 
and thereafter one spouse dies, no further payments of joint estimated 
tax liability are required from the estate of the decedent. The 
surviving spouse, however, shall be liable for the payment of any 
subsequent installments of the joint estimated tax. For the purpose of 
making an amended payment of estimated tax by the surviving spouse, and 
the allocation of payments made pursuant to a joint payment of 
estimated tax between the surviving spouse and the legal representative 
of the decedent in the event a joint return is not filed, the payment 
of estimated tax may be divided between the decedent and the surviving 
spouse in such proportion as the surviving spouse and the legal 
representative of the decedent may agree.
    (iii) If the surviving spouse and the legal representative of the 
decedent fail to agree to a division of a payment, such payment shall 
be allocated in accordance with the following rule. The portion of such 
payment to be allocated to the surviving spouse shall be that portion 
of the aggregate amount of such payments as the amount of tax imposed 
by chapter 1 of the Internal Revenue Code shown on the separate return 
of the surviving spouse (plus, if applicable, the amount of tax imposed 
by chapter 2 of the Internal Revenue Code shown on the return of the 
surviving spouse) bears to the sum imposed by chapter 1 of the Internal 
Revenue Code shown on the separate returns of the surviving spouse and 
of the decedent (plus, if applicable, the sum of the taxes imposed by 
chapter 2 of the Internal Revenue Code shown on the returns of the 
surviving spouse and of the decedent); and the balance of such payments 
shall be allocated to the decedent. This rule may be illustrated by 
analogizing the surviving spouse described in this rule to H in the 
example contained in paragraph (e)(6) of this section and the decedent 
in this rule to W in that example.

0
Par. 4. Section 1.6654-3 is amended by revising paragraph (a) to read 
as follows:


Sec.  1.6654-3  Short taxable years of individuals.

    (a) In general. The provisions of section 6654, with certain 
modifications relating to the application of section 6654(d), which are 
explained in paragraph (b) of this section, are applicable in the case 
of a short taxable year.
* * * * *


Sec.  1.6654-5  [Redesignated as Sec.  1.6654-7]

0
Par. 5. Section 1.6654-5 is redesignated as Sec.  1.6654-7.
0
Par. 6. New Sec.  1.6654-5 is added to read as follows:


Sec.  1.6654-5  Payments of estimated tax.

    (a) In general. A payment of estimated tax by an individual shall 
be determined on Form 1040-ES. For the purpose of determining the 
estimated tax, the amount of gross income which the taxpayer can 
reasonably expect to receive or accrue, depending upon the method of 
accounting upon which taxable income is computed, and the amount of the 
estimated allowable deductions and credits to be taken into account in 
computing the amount of estimated tax, shall be determined upon the 
basis of the facts and circumstances existing at the time prescribed 
for determining the estimated tax, as well as those reasonably to be 
anticipated for the taxable year. If, therefore, the taxpayer is 
employed at the date prescribed for making an estimated tax payment at 
a given wage or salary, the taxpayer should presume, in the absence of 
circumstances indicating the contrary, for the purpose of the estimated 
tax payment that such employment will continue to the end of the 
taxable year at the wage or salary received by the taxpayer as of such 
date. In the case of income other than wages and salary, the regularity 
in the payment of income, such as dividends, interest, rents, 
royalties, and income arising from estates and trusts is a factor to be 
taken into consideration. Thus, if the taxpayer owns shares of stock in 
a corporation, and dividends have been paid regularly for several years 
upon the stock, the taxpayer should, in the absence of information 
indicating a change in the dividend policy, include the prospective 
dividends from the corporation for the taxable year as well as those 
actually received in such year prior to determining the estimated tax. 
In the case of a taxpayer engaged in business on his own account, there 
shall be made an estimate of gross income and deductions and credits in 
the light of the best available information affecting the trade, 
business, or profession.
    (b) Computation of estimated tax. In computing the estimated tax 
the taxpayer should take into account the taxes, credits, and other 
amounts listed in Sec.  1.6654-1(a)(4).

0
Par. 7. Section 1.6654-6 is added to read as follows:

[[Page 52302]]

Sec.  1.6654-6  Nonresident alien individuals.

    (a) In general. A nonresident alien individual is required to make 
a payment of estimated tax if that individual's gross income meets the 
requirements of section 6654 and Sec.  1.6654-1. In making the 
determination under section 6654 as to whether the amount of the gross 
income of a nonresident alien individual is such as to require making a 
payment of estimated income tax, only the filing status relating to a 
single individual (other than a head of household) or to a married 
individual not entitled to file a joint return shall apply, unless an 
election is in effect 1 for the taxable year under section 6013(g) or 
(h) and the regulations.
    (b) Determination of gross income. To determine the gross income of 
a nonresident alien individual who is not, or does not expect to be, a 
bona fide resident of Puerto Rico or a possession to which section 931 
applies during the entire taxable year, see section 872 and Sec. Sec.  
1.872-1 and 1.872-2. To determine the gross income of a nonresident 
alien individual who is, or expects to be, a bona fide resident of 
Puerto Rico or a possession to which section 931 applies during the 
entire taxable year, see section 876 and the regulations. For rules for 
determining whether an individual is a bona fide resident of a United 
States possession (including Puerto Rico), see section 937 and the 
regulations.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: August 21, 2005.
Eric Solomon,
Acting Deputy Assistant Secretary of the Treasury.
[FR Doc. 05-17449 Filed 9-1-05; 8:45 am]
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