Corporate Estimated Tax, 73393-73413 [05-23872]
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Federal Register / Vol. 70, No. 237 / Monday, December 12, 2005 / Proposed Rules
and –300F series airplanes. The
proposed AD would have required a
one-time operational test of the pilots’
seat locks and the seat tracks to ensure
that the seats lock in position and the
seat tracks are aligned correctly; and realignment of the seat tracks, if
necessary. Since the proposed AD was
issued, we have received new data that
the affected airplanes are included in
the applicability of an existing AD that
addresses the unsafe condition.
Accordingly, the proposed AD is
withdrawn.
ADDRESSES: You may examine the AD
docket on the Internet at https://
dms.dot.gov, or in person at the Docket
Management Facility office between 9
a.m. and 5 p.m., Monday through
Friday, except Federal holidays. The
Docket Management Facility office
(telephone (800) 647–5227) is located on
the plaza level of the Nassif Building at
the U.S. Department of Transportation,
400 Seventh Street, SW., room PL–401,
Washington, DC. This docket number is
FAA–2005–21880; the directorate
identifier for this docket is 2004–NM–
216–AD.
FOR FURTHER INFORMATION CONTACT: Sue
Rosanske, Aerospace Engineer, Cabin
Safety and Environmental Systems
Branch, ANM–150S, FAA, Seattle
Aircraft Certification Office, 1601 Lind
Avenue, SW., Renton, Washington
98055–4056; telephone (425) 917–6448;
fax (425) 917–6590.
SUPPLEMENTARY INFORMATION:
Discussion
We proposed to amend part 39 of the
Federal Aviation Regulations (14 CFR
part 39) with a notice of proposed
rulemaking (NPRM) for a new AD for
certain Boeing Model 767–300 and
–300F series airplanes. That NPRM was
published in the Federal Register on
July 21, 2005 (70 FR 42008). The NPRM
would have required a one-time
operational test of the pilots’ seat locks
and the seat tracks to ensure that the
seats lock in position and the seat tracks
are aligned correctly; and re-alignment
of the seat tracks, if necessary. The
NPRM resulted from reports indicating
that a pilot’s seat slid from the forward
to the aft-most position during
acceleration and take-off. The proposed
actions were intended to prevent
uncommanded movement of the pilots’
seats during acceleration and take-off of
the airplane, and consequent reduced
controllability of the airplane.
Actions Since NPRM Was Issued
Since we issued the NPRM, we have
determined that the affected Boeing
Model 767–300 and –300F series
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airplanes, variable numbers (V/Ns)
VK145, VL941, VN968, VW714, and
VW715, are already included in the
applicability of existing AD 98–03–10,
amendment 39–10302 (63 FR 5725,
February 4, 1998). We have further
determined that, since the identified
unsafe condition is being adequately
addressed on these five affected
airplanes by existing AD 98–03–10, it is
unnecessary to provide further
rulemaking at this time.
Comments
We provided the public the
opportunity to participate in the
development of this AD. We have
considered the comments received.
Request To Remove Certain Airplanes
From the Applicability
Two commenters request that we
remove certain airplanes from the
applicability of the NPRM. One
commenter operates the affected
airplane having V/N VL914, which
corresponds to line number (L/N) 637.
(We infer the commenter meant to
reference V/N VL941.) A second
commenter operates affected airplanes
having V/Ns VW714 and VW715, which
correspond to L/Ns 638 and 640,
respectively. Both commenters state that
their affected airplanes are included in
the applicability of AD 98–03–10, which
is applicable to certain Model 737, 747,
757, and 767 airplanes, having certain
line numbers; equipped with nonpowered IPECO pilots’ seats. Of the
affected Model 767 airplanes, AD 98–
03–10 is applicable to L/Ns 1 through
642 inclusive.
As discussed previously, we agree
with the commenter’s request.
FAA’s Conclusions
Upon further consideration, we have
determined that the five Model 767–300
and –300F series airplanes, which were
added to the effectivity of Boeing
Special Attention Service Bulletin 767–
25–0244, Revision 2, dated September 2,
2004, are included in the applicability
of an existing AD that addresses the
unsafe condition. Accordingly, the
NPRM is withdrawn.
Withdrawal of the NPRM does not
preclude the FAA from issuing another
related action or commit the FAA to any
course of action in the future.
Regulatory Impact
Since this action only withdraws an
NPRM, it is neither a proposed nor a
final rule and therefore is not covered
under Executive Order 12866, the
Regulatory Flexibility Act, or DOT
Regulatory Policies and Procedures (44
FR 11034, February 26, 1979).
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73393
List of Subjects in 14 CFR Part 39
Air transportation, Aircraft, Aviation
safety, Safety.
The Withdrawal
Accordingly, we withdraw the NPRM,
Docket No. FAA–2005–21880,
Directorate Identifier 2004–NM–216–
AD, which was published in the Federal
Register on July 21, 2005 (70 FR 42008).
Issued in Renton, Washington, on
December 6, 2005.
Kevin M. Mullin,
Acting Manager, Transport Airplane
Directorate, Aircraft Certification Service.
[FR Doc. 05–23905 Filed 12–9–05; 8:45 am]
BILLING CODE 4910–13–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
[REG–107722–00]
RIN 1545–AY22
Corporate Estimated Tax
Internal Revenue Service (IRS),
Treasury.
ACTION: Partial withdrawal of previous
proposed rules, notice of proposed
rulemaking, and notice of public
hearing.
AGENCY:
SUMMARY: This document withdraws
proposed regulations relating to
corporate estimated taxes. This
document also contains new proposed
regulations that provide guidance to
corporations with respect to estimated
tax requirements. These proposed
regulations generally affect corporate
taxpayers who are required to make
estimated tax payments. These proposed
amendments reflect changes to the law
since 1984. This document also
provides notice of a public hearing on
these proposed regulations.
DATES: Written or electronic comments
must be received by February 22, 2006.
Outlines of topics to be discussed at the
public hearing scheduled for March 15,
2006, must be received by February 22,
2006.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–107722–00), room
5203, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be handdelivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to: CC:PA:LPD:PR (REG–107722–00),
Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue,
NW., Washington, DC, or sent
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Federal Register / Vol. 70, No. 237 / Monday, December 12, 2005 / Proposed Rules
electronically, via the IRS Internet site
at https://www.irs.gov/regs or via the
Federal eRulemaking Portal at https://
www.regulations.gov (IRS–REG–
107722–00). The public hearing will be
held in the Auditorium, Internal
Revenue Service Building, 1111
Constitution Avenue, NW., Washington,
DC.
FOR FURTHER INFORMATION CONTACT:
Concerning the proposed regulations,
Joseph P. Dewald, (202) 622–4910;
concerning the submissions of
comments, the hearing, and/or to be
placed on the building access list to
attend the hearing, Robin Jones at (202)
622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
This document withdraws §§ 1.6152–
1(a)(1), 1.6654–2(d)(1)(i), 1.6655–1,
1.6655–2, 1.6655–3, 1.6655–4, 1.6655–5,
1.6655–6, and 301.6655–1 in the notice
of proposed rulemaking (LR–228–82)
relating to corporate estimated taxes
under section 6655 that was published
in the Federal Register (49 FR 11186) on
March 26, 1984 (referred to as the 1984
proposed regulations). This document
also contains new proposed
amendments to the Income Tax
Regulations (26 CFR Part 1) and the
Procedure and Administration
Regulations (26 CFR Part 301) relating to
corporate estimated taxes under section
6425 and section 6655 of the Internal
Revenue Code. The IRS is withdrawing
the 1984 proposed regulations because
significant changes to the law since
1984 have caused them to become
outdated.
These proposed regulations reflect
changes to the law made by the Deficit
Reduction Act of 1984, Public Law 98–
369 (98 Stat. 494), the Superfund
Amendments and Reauthorization Act
of 1986, Public Law 99–499 (100 Stat.
1613), the Tax Reform Act of 1986,
Public Law 99–514 (100 Stat. 2085), the
Omnibus Budget Reconciliation Act of
1987, Public Law 100–203 (101 Stat.
1330), the Revenue Act of 1987, Public
Law 100–203 (101 Stat. 1330–382), the
Omnibus Trade and Competitiveness
Act of 1988, Public Law 100–418 (102
Stat. 1107), the Technical and
Miscellaneous Revenue Act of 1988,
Public Law 100–647 (102 Stat. 3342),
the Omnibus Budget Reconciliation Act
of 1989, Public Law 101–239 (103 Stat.
2106), the Omnibus Budget
Reconciliation Act of 1990, Public Law
101–508 (104 Stat. 1388), the Tax
Extension Act of 1991, Public Law 102–
227 (105 Stat. 1686), the Act of Feb. 7,
1992, Public Law 102–244 (106 Stat. 3),
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the Unemployment Compensation
Amendments of 1992, Public Law 102–
318 (106 Stat. 290), the Omnibus Budget
Reconciliation Act of 1993, Public Law
103–66 (107 Stat. 312), the Uruguay
Round Agreements Act of 1994, Public
Law 103–465 (108 Stat. 4809), the Small
Business Job Protection Act of 1996,
Public Law 104–188 (110 Stat. 1755),
the Taxpayer Relief Act of 1997, Public
Law 105–34 (111 Stat. 788), the Ticket
to Work and Work Incentives
Improvement Act of 1999, Public Law
106–170 (113 Stat. 1860), the
Community Renewal Tax Relief Act of
2000, Public Law 106–554 (114 Stat.
2763), the Economic Growth and Tax
Relief Reconciliation Act of 2001, Public
Law 107–16 (115 Stat. 38), the Jobs and
Growth Tax Relief Reconciliation Act of
2003, Public Law 108–27 (117 Stat.
752), and the American Jobs Creation
Act of 2004, Public Law 108–357 (118
Stat. 1418).
The existing regulations under section
6655 do not reflect significant changes
to the tax law since 1984, most notably
the enactment of the economic
performance rules under section 461(h).
Since the enactment of section 461(h),
the determination of when economic
performance must occur for taxpayers to
take a deduction into account for
purposes of computing a quarterly
estimated tax payment has been unclear,
particularly for taxpayers that compute
their quarterly estimated tax payments
using an annualization method.
In addition, the IRS and Treasury
Department have become aware of
techniques employed by taxpayers,
particularly those taxpayers computing
their estimated tax payments using an
annualization method, that reduce, if
not eliminate, estimated tax payments
for one or more installments for a
taxable year. The proposed regulations
provide rules that the IRS and Treasury
Department believe result in a more
accurate reflection of annualized
income than methods that taxpayers
may currently be employing. For
example, the proposed regulations make
it clear that taxpayers may not, for any
purpose, determine taxable income for
an annualization period or an adjusted
seasonal installment period as though
the period is a short taxable year. The
proposed regulations provide specific
rules for determining taxable income for
any annualization period, including
how section 461(h) is to be applied in
computing taxable income for any
annualization period. For example, with
respect to an item of income or gain, the
proposed regulations provide that the
item must be taken into account in
computing annualized taxable income
for a particular annualization period if
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the item is includible in computing
taxable income in accordance with
section 451 on or before the last day of
the annualization period. With respect
to an item of deduction, the proposed
regulations generally provide that an
accrual method taxpayer may take into
account a deduction in computing
annualized taxable income for a
particular annualization period only to
the extent the item is incurred under
§ 1.461–1(a)(2) on or before the last day
of the annualization period. For
purposes of determining whether a
deduction may be taken into account by
an accrual method taxpayer in
determining annualized taxable income
for a particular annualization period,
the provisions of section 170(a)(2) and
§ 1.170A–11(b) (charitable contributions
by accrual method corporations),
§ 1.461–4(d)(6)(ii) (provision of services
or property to a taxpayer), § 1.461–5
(recurring item exception), and any
other provision that has a similar effect
are not taken into account in
determining whether the item of
deduction has been incurred under
§ 1.461–1(a)(2) and is deductible in
computing annualized taxable income
for an annualization period.
Revenue Ruling 76–450 (1976–2 C.B.
444), provides that state property tax
and franchise tax are deductible from
the income for an annualization period
on the date the taxpayer accrues the
taxes under the taxpayer’s method of
accounting. Revenue Ruling 76–450 was
issued prior to the enactment of section
461(h) and does not take into account
the application of the economic
performance requirements of section
461(h) for purposes of computing an
estimated tax payment using the
annualized income installment method.
The proposed regulations address the
application of section 461(h) for
purposes of the annualized income
installment method and provide that a
taxpayer using an accrual method of
accounting cannot take a deduction into
account unless the deduction has been
incurred under § 1.461–1(a)(2) and is
otherwise deductible in computing
taxable income for the applicable
annualization period. As a result of the
rules provided in the proposed
regulations regarding the application of
section 461(h) to the annualized income
installment method, Rev. Rul. 76–450 is
no longer applicable and will be
obsolete when these regulations are
effective.
For purposes of section 404 and the
regulations, regardless of the overall
method of accounting employed by the
taxpayer, the applicable 2-, 3-, 4-, 5-,
6-, 7-, 8-, 9-, 10- or 11-month
annualization period shall not be treated
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as a short taxable year and the rules of
section 404 and the regulations shall be
applied on the basis of the taxpayer’s
taxable year for which estimated tax is
being determined. Thus, the
determination of whether a payment to
an employee is deferred compensation
under § 1.404(b)–1T shall be made by
reference to whether the payment is
received by the employee more than a
brief period of time after the last day of
the taxable year for which estimated tax
is being determined, and not the last
day of the annualization period. With
respect to contributions to qualified
plans governed by section 404 and the
regulations, in determining whether an
item is paid or incurred by the end of
an annualization period, economic
performance is satisfied only to the
extent such item is paid by the last day
of the annualization period (without
regard to section 404(a)(6)) and does
not, in combination with other such
items paid during the annualization
period, exceed the applicable deduction
limit of section 404(a) for the taxable
year. For purposes of sections 419 and
419A and the regulations, regardless of
the overall method of accounting
employed by the taxpayer, the
applicable 2-, 3-, 4-, 5-, 6-, 7-, 8-, 9-,
10-, or 11-month annualization period
shall not be treated as a short taxable
year and the rules of sections 419 and
419A and the regulations shall be
applied on the basis of the taxpayer’s
taxable year for which estimated tax is
being determined. With respect to
contributions to a welfare benefit fund
governed by sections 419 and 419A and
the regulations, in determining whether
an item is paid or incurred by the end
of an annualization period, economic
performance is satisfied only to the
extent such item is paid by the last day
of the applicable annualization period
and does not, in combination with other
such items paid during the
annualization period, exceed the
applicable deduction limit of section
419 for the taxable year.
The proposed regulations provide
guidance for annual expenses paid or
incurred at the end of the taxable year,
or after the end of the taxable year that
are deemed paid or incurred during the
taxable year. Section 1.6655–2(f)(2)(i) of
the proposed regulations provides that if
an accrual method taxpayer has a
history of incurring a specific item of
expense (or paying a specific item of
expense, in the case of a cash method
taxpayer) that, while attributable to
income earned throughout the current
taxable year, is not incurred (or paid, in
the case of a cash method taxpayer)
until the end of the taxable year or after
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the end of the current taxable year and
is deemed incurred (or paid, in the case
of a cash method taxpayer) during the
current taxable year (taking into
account, as applicable, section 170(a)(2)
and § 1.170A–11(b), section 404(a)(6),
§ 1.461–4(d)(6)(ii), § 1.461–5, and any
other provision that has a similar effect),
then the taxpayer may take into account
a proportionate part of the specific item
of expense for each annualization
period. In such case the taxpayer may
take into account a proportionate part of
the specific item of expense for each
annualization period only if the portion
of the annual expense taken into
account is determined with reasonable
accuracy and the expense is properly
deducted by the taxpayer for the current
taxable year under the taxpayer’s
method of accounting. For purposes of
§ 1.6655–2(f)(2)(i), a taxpayer has a
history of incurring or paying a specific
item of expense at the end of the taxable
year, or after the end of the taxable year
that is deemed incurred or paid during
the taxable year, if, in each of the two
taxable years immediately preceding the
current taxable year (or the immediately
preceding taxable year if the taxpayer
was not in existence for the two
preceding taxable years), the taxpayer
incurred or paid the specific item of
expense at the end of each taxable year,
or after the end of each taxable year that
was deemed incurred or paid during
such taxable year. For purposes of
§ 1.6655–2(f)(2)(i), the term ‘‘the end of
the taxable year’’ means the period
between and including the 15th and last
day of the last month of the taxable year.
The proposed regulations also provide
guidance regarding the treatment of
specific items for purposes of
computing annualized taxable income
for an annualization period. For
example, net operating loss carryovers
must be taken into account in
computing an annualized income
installment after placing the taxable
income for the annualization period on
an annualized basis, and section 481(a)
adjustments must be recognized ratably
over the applicable adjustment period.
Revenue Ruling 67–93 (1967–1 C.B.
366), provides that a taxpayer should
deduct a net operating loss (NOL)
carryover from the income for an
annualization period before annualizing
the income for that period. As
previously stated, the IRS and Treasury
Department believe that it is not
appropriate for taxpayers to determine
taxable income for an annualization
period or an adjusted seasonal
installment period as though the period
is a short taxable year. As a result, the
IRS and Treasury Department now
believe that it is a more appropriate
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73395
reflection of annualized taxable income
if a NOL carryover is deducted after
annualizing the taxable income for an
applicable annualization period or
adjusted seasonal installment period.
Accordingly, the proposed regulations
provide that a taxpayer must annualize
taxable income before taking into
account a NOL carryover and reduce the
annualized amount by the NOL
carryover. As a result, Rev. Rul. 67–93
will be obsolete when these regulations
are effective.
In addition, the proposed regulations
provide guidance on the amount of
depreciation and amortization
(depreciation) expense that a taxpayer
may take into account for an
annualization period. The proposed
regulations generally provide that a
proportionate amount of a taxpayer’s
estimated annual depreciation expense
shall be taken into account when
determining any annualized income
installment for the taxable year. In
determining the estimated annual
depreciation expense, a taxpayer may
take into account purchases, sales or
other dispositions, changes in use,
depreciation permitted by sections
168(k) and 1400L, and other similar
events that, based on all of the relevant
information available as of the last day
of the annualization period (such as
capital spending budgets, financial
statement data and projections, or
similar reports that provide evidence of
the taxpayer’s capital spending plans for
the current taxable year), the taxpayer
reasonably expects to occur during the
taxable year. As an alternative to
estimating annual depreciation expense
based on events that are reasonably
expected to occur, the proposed
regulations provide that, in general, a
taxpayer may claim for an annualization
period at least a proportionate amount
of 50 percent of the taxpayer’s estimated
depreciation expense for the current
taxable year attributable to assets that
the taxpayer had in service on the last
day of the preceding taxable year, that
remain in service on the first day of the
current taxable year, and that are subject
to the half-year convention. The
proposed regulations also provide that
an annualization period cannot be
treated as a short taxable year, including
for purposes of determining the
depreciation allowance for such
annualization period.
The proposed regulations also provide
guidance regarding short taxable years,
including the due dates for required
installments for a short taxable year
(including a taxpayer’s initial taxable
year), the computation of such
installments, and the applicable
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percentage of the annual tax due with
each installment.
Proposed Effective Date
These regulations are proposed to
apply to taxable years beginning after
the date that is 30 days after the date the
final regulations are published in the
Federal Register. Until the final
regulations become effective, taxpayers
may rely on these proposed rules for
taxable years beginning on or after the
date this notice of proposed rulemaking
is published in the Federal Register,
provided, however, that the taxpayer
applies all of these proposed rules in
determining its required installments.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a
significant regulatory action as defined
in Executive Order 12866. Therefore, a
regulatory assessment is not required.
Except with respect to § 1.6655–5,
which deals with the rules applicable to
a short taxable year, it has been
determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these
regulations, and because these
provisions do not impose a collection of
information on small businesses, the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. With respect
to § 1.6655–5, it is hereby certified that
this provision of the regulations will not
have a significant economic impact on
a substantial number of small entities.
This certification is based on the fact
that not many small businesses are
going to be subject to the short taxable
year rules because: (1) Existing small
businesses generally are not targets of
mergers and acquisitions, which result
in a short taxable year; (2) start-up small
businesses with a short taxable year of
less than four months do not have to
pay estimated taxes; and (3) start-up
small businesses with a short taxable
year of four months or more are not
likely to have taxable income that
would be subject to the corporate
estimated tax rules. Therefore, a
Regulatory Flexibility Analysis under
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f) of the Internal Revenue
Code, this notice of proposed
rulemaking will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment
on its impact on small businesses.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations,
consideration will be given to any
electronic or written comments (a
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signed original and eight (8) copies) that
are submitted timely to the IRS. The IRS
and Treasury Department request
comments on the clarity of the proposed
rules and how they can be made easier
to understand. In particular, the IRS and
Treasury Department request comments
on whether the 52–53 week taxable year
rules under § 1.6655–2(e) should be
simplified. The IRS and Treasury
Department also request comments on
whether the final regulations should
include an additional exception, similar
to the exception provided in § 1.6655–
2(f)(2)(i), that would permit a taxpayer
to take into account for an annualization
period a proportionate amount of a
specific item of expense that is
attributable to income earned
throughout the current taxable year and
is paid or incurred during the taxable
year but after the applicable
annualization period. If such an
exception is appropriate, the IRS and
Treasury Department request comments
on what specific types of expenses
would meet the requirements of the
rule, and whether the exception should
provide for any additional limitations,
such as a requirement that a minimum
percentage of the annual amount of the
expense be paid or incurred on a
particular day during the taxable year.
All comments will be available for
public inspection and copying.
A public hearing has been scheduled
for February 22, 2006, beginning at 10
a.m. in the Auditorium of the Internal
Revenue Service Building, 1111
Constitution Avenue, NW., Washington,
DC. Due to building security
procedures, visitors must enter at the
Constitution Avenue entrance. In
addition, all visitors must present photo
identification to enter the building.
Because of access restrictions, visitors
will not be admitted beyond the
immediate entrance area more than 30
minutes before the hearing starts. For
information about having your name
placed on the building access list to
attend the hearing, see the FOR FURTHER
INFORMATION CONTACT section of this
preamble.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish
to present oral comments must submit
electronic or written comments and an
outline of the topics to be discussed and
time to be devoted to each topic (a
signed original and eight (8) copies) by
February 22, 2006. A period of 10
minutes will be allotted to each person
for making comments. An agenda
showing the scheduling of the speakers
will be prepared after the deadline for
receiving outlines has passed. Copies of
the agenda will be available free of
charge at the hearing.
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Drafting Information
The principal authors of these
regulations are Robert A. Desilets, Jr.,
formerly of the Office of Associate Chief
Counsel (Procedure and
Administration), Administrative
Provisions and Judicial Practice
Division, and Joseph P. Dewald, Office
of Associate Chief Counsel (Procedure
and Administration), Administrative
Provisions and Judicial Practice
Division.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes,
Excise taxes, Gift taxes, Income taxes,
Penalties, Reporting and recordkeeping
requirements.
Partial Withdrawal of a Previous Notice
of Proposed Rulemaking
Accordingly, under the authority of
26 U.S.C. 7805, §§ 1.6152–1(a)(1),
1.6654–2(d)(1)(i), 1.6655–1, 1.6655–2,
1.6655–3, 1.6655–4, 1.6655–5, 1.6655–6,
and 301.6655–1 in the notice of
proposed rulemaking published in the
Federal Register on March 26, 1984,
(LR–228–82) (49 FR 11186) are
withdrawn.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 301
are proposed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding an entry
in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.6655–5 also issued under 26
U.S.C. 6655(i)(2). * * *
Par. 2. In § 1.56–0, the heading for
paragraph (e)(5) is added to read as
follows:
§ 1.56–0 Table of contents to § 1.56–1,
adjustment for book income of
corporations.
*
*
*
*
*
(e) * * *
(5) Effective date.
Par. 3. In § 1.56–1, paragraph (e)(4) is
revised and paragraph (e)(5) is added to
read as follows:
§ 1.56–1 Adjustment for the book income
of corporations.
*
*
*
*
*
(e) * * *
(4) Estimating the book income
adjustment for purposes of the
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estimated tax liability. See § 1.6655–7,
as issued by TD 8307 (55 FR 33671), for
special rules for estimating the
corporate alternative minimum tax book
income adjustment under the
annualization exception.
(5) Effective date. Paragraph (e)(4) of
this section is applicable for taxable
years beginning after the date that is 30
days after the date the final regulations
are published in the Federal Register.
Par. 4. In § 1.6425–2, paragraph (a) is
revised and paragraph (c) is added to
read as follows:
applying the addition to tax under
section 6655(h).
(2) For the effect of an excessive
adjustment under section 6425, see
§ 1.6655–7.
(3) This paragraph (f) is applicable to
applications for adjustments of
overpayments of estimated income tax
that are filed in taxable years beginning
after the date that is 30 days after the
date the final regulations are published
in the Federal Register.
Par. 6. Section 1.6655–0 is added to
read as follows:
§ 1.6425–2 Computation of adjustment of
overpayment of estimated tax.
§ 1.6655–0
(a) Income tax liability defined. For
purposes of §§ 1.6425–1 through
1.6425–3 and 1.6655–7, relating to
excessive adjustment, the term income
tax liability means the excess of—
(1) The sum of—
(i) The tax imposed by section 11 or
1201(a), or subchapter L of chapter 1 of
the Internal Revenue Code, whichever is
applicable; plus
(ii) The tax imposed by section 55;
over
(2) The credits against tax provided by
part IV of subchapter A of chapter 1 of
the Internal Revenue Code.
*
*
*
*
*
(c) Effective date. Paragraph (a) of this
section is applicable to applications for
adjustments of overpayments of
estimated income tax that are filed in
taxable years beginning after the date
that is 30 days after the date the final
regulations are published in the Federal
Register.
Par. 5. Section 1.6425–3 is amended
by:
1. Revising paragraphs (f)(1) and (f)(2).
2. Adding paragraph (f)(3).
The revisions and addition read as
follows:
§ 1.6425–3
Allowance of adjustments.
*
*
*
*
*
(f) Effect of adjustment. (1) For
purposes of all sections of the Internal
Revenue Code except section 6655,
relating to additions to tax for failure to
pay estimated income tax, any
adjustment under section 6425 is to be
treated as a reduction of prior estimated
tax payments as of the date the credit is
allowed or the refund is paid. For the
purpose of sections 6655(a) through (g),
(i), and (j), credit or refund of an
adjustment is to be treated as if not
made in determining whether there has
been any underpayment of estimated
income tax and, if there is an
underpayment, the period during which
the underpayment existed. However, an
excessive adjustment under section
6425 shall be taken into account in
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Table of contents.
This section lists the table of contents
for §§ 1.6655–1 through 1.6655–7.
§ 1.6655–1 Addition to the tax in the case
of a corporation.
(a) In general.
(b) Amount of underpayment.
(c) Period of the underpayment.
(d) Amount of required installment.
(e) Large corporation required to pay 100
percent of current year tax.
(1) In general.
(2) May use last year’s tax for 1st
installment.
(f) Required installment due dates.
(1) Number of required installments.
(2) Time for payment of installments.
(i) Calendar year.
(ii) Fiscal year.
(iii) Short taxable year.
(iv) Partial month.
(g) Definitions.
(h) Special rules for consolidated returns.
(i) Overpayments applied to subsequent
taxable year’s estimated tax.
(1) In general.
(2) Subsequent examinations.
(j) Examples.
(k) Effective date.
§ 1.6655–2 Annualized income installment
method.
(a) In general.
(b) Determination of annualized income
installment—In general.
(c) Special rules.
(1) Applicable percentage.
(2) Partial month.
(d) Election of different annualization
periods.
(e) 52–53 week taxable year.
(f) Determination of taxable income for an
annualization period.
(1) In general.
(2) Exceptions.
(i) Annual expenses paid or incurred at or
after the end of the taxable year.
(ii) Net operating loss carryover.
(iii) Credit carryover.
(iv) Section 481(a) adjustment.
(v) Depreciation and amortization.
(A) General rule.
(B) Short taxable years.
(vi) Member of partnership.
(3) Examples.
(g) Items that substantially affect taxable
income but cannot be determined accurately
by the installment due date.
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73397
(1) In general.
(2) Example.
(h) Events arising after installment due
date that were not reasonably foreseeable.
(1) In general.
(2) Example.
(i) Effective date.
§ 1.6655–3 Adjusted seasonal installment
method.
(a) In general.
(b) Limitation on application of section.
(c) Determination of amount.
(d) Special rules.
(1) Base period percentage.
(2) Filing month.
(3) Application of the rules related to the
annualized income installment method to the
adjusted seasonal installment method.
(e) Example.
(f) Effective date.
§ 1.6655–4 Large corporations.
(a) Large corporation defined.
(b) Testing period.
(c) Computation of taxable income during
testing period.
(1) Short taxable year.
(2) Computation of taxable income in
taxable year when there occurs a transaction
to which section 381 applies.
(d) Members of controlled group.
(1) In general.
(2) Aggregation.
(3) Allocation rule.
(4) Controlled group members.
(e) Effect on a corporation’s taxable income
of items that may be carried back or carried
over from any other taxable year.
(f) Consolidated returns. [Reserved]
(g) Example.
(h) Effective date.
§ 1.6655–5 Short taxable year.
(a) In general.
(b) Exception to payment of estimated tax.
(c) Installment due dates.
(1) In general.
(i) Taxable year of four months but less
than twelve months.
(ii) Exception.
(2) Early termination of taxable year.
(i) In general.
(ii) Exception.
(d) Amount due for required installment.
(1) In general.
(2) Tax shown on the return for the
preceding taxable year.
(3) Applicable percentage.
(e) Examples.
(f) 52 or 53 week taxable year.
(g) Use of annualized income or seasonal
installment method.
(1) In general.
(2) Computation of annualized income
installment.
(3) Annualization period for final required
installment.
(4) Examples.
(h) Preceding taxable year a short taxable
year.
(i) Effective date.
§ 1.6655–6 Methods of accounting.
(a) In general.
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(b) Exceptions.
(1) Automatic accounting method changes.
(2) Non-automatic accounting method
changes.
(c) Examples.
(d) Effective date.
§ 1.6655–7 Addition to tax on account of
excessive adjustment under section 6425.
Par. 7. Sections 1.6655–1, 1.6655–2,
and 1.6655–3 are revised to read as
follows:
§ 1.6655–1 Addition to the tax in the case
of a corporation.
(a) In general. Section 6655 imposes
an addition to the tax under chapter 1
of the Internal Revenue Code in the case
of any underpayment of estimated tax
by a corporation. An addition to tax due
to the underpayment of estimated taxes
is determined by applying the
underpayment rate established under
section 6621 to the amount of the
underpayment, for the period of the
underpayment. This addition to the tax
is in addition to any applicable criminal
penalties and is imposed whether or not
there was reasonable cause for the
underpayment.
(b) Amount of underpayment. The
amount of the underpayment for any
required installment is the excess of—
(1) The required installment; over
(2) The amount, if any, of the
installment paid on or before the last
date prescribed for such payment.
(c) Period of the underpayment. The
period of the underpayment of any
required installment runs from the date
the installment was required to be paid
to the 15th day of the 3rd month
following the close of the taxable year,
or to the date such underpayment is
paid, whichever is earlier. For purposes
of determining the period of the
underpayment—
(1) The date prescribed for payment of
any installment of estimated tax shall be
determined without regard to any
extension of time; and
(2) A payment of estimated tax will be
credited against unpaid required
installments in the order in which such
installments are required to be paid.
(d) Amount of required installment.
Except as otherwise provided in this
section and §§ 1.6655–2 through
1.6655–7, the amount of any required
installment is 25 percent of the lesser
of—
(1) 100 percent of the tax shown on
the return for the taxable year (or, if no
return is filed, 100 percent of the tax for
such year); or
(2) 100 percent of the tax shown on
the return of the corporation for the
preceding taxable year.
(3) Paragraph (d)(2) of this section
shall not apply if the preceding taxable
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year was not a taxable year of 12 months
or the corporation did not file a return
for such preceding taxable year showing
a liability for tax.
(e) Large corporation required to pay
100 percent of current year tax—(1) In
general. Except as provided in
paragraph (e)(2) of this section,
paragraph (d)(2) of this section shall not
apply in the case of a large corporation
(as defined in § 1.6655–4).
(2) May use last year’s tax for first
installment. Paragraph (e)(1) of this
section shall not apply for purposes of
determining the amount of the first
required installment for any taxable
year. Any reduction in such first
installment by reason of the preceding
sentence shall be recaptured by
increasing the amount of the next
required installment determined under
paragraph (d)(1) of this section by the
amount of such reduction and, if the
next required installment is reduced by
use of the annualized income
installment method under § 1.6655–2 or
the adjusted seasonal installment
method under § 1.6655–3, by increasing
subsequent required installments
determined under paragraph (d)(1) of
this section to the extent that the
reduction has not previously been
recaptured.
(f) Required installment due dates—
(1) Number of required installments.
Unless otherwise provided, corporations
must make 4 required installments for
each taxable year.
(2) Time for payment of
installments—(i) Calendar year. In the
case of a calendar year taxpayer, the due
dates of the required installments are as
follows:
1st—April 15
2nd—June 15
3rd—September 15
4th—December 15
(ii) Fiscal year. In the case of a
taxpayer other than a calendar year
taxpayer, the due dates of the required
installments are as follows:
1st—15th day of 4th month of the taxable
year
2nd—15th day of 6th month of the taxable
year
3rd—15th day of 9th month of the taxable
year
4th—15th day of 12th month of the taxable
year
(iii) Short taxable year. See § 1.6655–
5 for rules regarding required
installments for corporations with a
short taxable year.
(iv) Partial month. Except as
otherwise provided, for purposes of
determining the due date of any
required installment a partial month
shall be treated as a full month.
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(g) Definitions. (1) The term tax as
used in this section and §§ 1.6655–2
through 1.6655–7 means the excess of—
(i) The sum of—
(A) The tax imposed by section 11,
section 1201(a), or subchapter L of
chapter 1 of the Internal Revenue Code,
whichever is applicable;
(B) The tax imposed by section 55;
plus
(C) The tax imposed by section 887;
over
(D) The credits against tax provided
by part IV of subchapter A of chapter 1
of the Internal Revenue Code.
(ii) In the case of a foreign corporation
subject to taxation under section 11,
section 1201(a), or subchapter L of
chapter 1 of the Internal Revenue Code,
the tax imposed by section 881 shall be
treated as a tax imposed by section 11.
(iii) In the case of a partnership that
is treated, pursuant to regulations issued
under section 1446(f)(2), as a
corporation for purposes of this section,
the tax imposed by section 1446 shall be
treated as a tax imposed by section 11.
(2) For the purposes of paragraph
(d)(2) of this section, the term return for
the preceding taxable year means the
Federal income tax return for such
taxable year that is required by section
6012(a)(2). However, if an amended
Federal income tax return has been filed
before the due date for an installment,
then the term return for the preceding
taxable year means the Federal income
tax return as amended. Paragraph (d)(2)
of this section will apply without regard
to whether the taxpayer’s Federal
income tax return for the preceding
taxable year is filed in a timely manner.
(3) If the tax rates for the current
taxable year for which estimated tax is
being determined differ from the rates
applicable to the preceding taxable year,
the tax determined for the preceding
taxable year shall be recomputed using
the rates applicable to the current
taxable year.
(h) Special rules for consolidated
returns. For special rules relating to the
determination of the amount of the
underpayment in the case of a
corporation whose income is included
in a consolidated return, see § 1.1502–
5(b).
(i) Overpayments applied to
subsequent taxable year’s estimated
tax—(1) In general. If a taxpayer elects
under the provisions of sections 6402(b)
and 6513(d) and the regulations to apply
an overpayment in year one against the
estimated tax liability for year two, the
overpayment will be applied to the
required installment payments for year
two in the order due and to the extent
necessary to satisfy such installments,
similar to the manner in which an
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actual overpayment of one installment
is carried forward to the next
installment. No interest is accrued or
paid on an overpayment if the election
to apply the overpayment against
estimated tax is made.
(2) Subsequent examinations. If a
deficiency is determined in an
examination of a return for a taxable
year that originally reflected an
overpayment that was applied against
estimated tax for the succeeding taxable
year, interest on the deficiency will not
begin to accrue on an amount applied
until that amount is used to satisfy a
required estimated tax payment in such
taxable year. Regardless of whether the
taxpayer anticipated the application of
such overpayment from the prior
taxable year in calculating and paying
its required estimated tax installment
liabilities for the current taxable year,
the subsequently determined
underpayment and interest computation
thereon will not change the taxpayer’s
original election to apply the
overpayment against the estimated tax
liability of the succeeding taxable year.
Any changes to the usage of the original
overpayment from the prior taxable year
are hypothetical only and solely for the
purpose of computing deficiency
interest. Overpayment interest will not
be impacted. For further guidance, see
Rev. Rul. 99–40 (1999–2 C.B. 441), (see
§ 601.601(d)(2)(ii)(b) of this chapter).
(j) Examples. The method prescribed
in paragraphs (d) through (g) of this
section may be illustrated by the
following examples:
Example 1. X, a calendar year corporation,
estimates its tax liability for its taxable year
ending December 31, 2006, will be $85,000.
X is not a large corporation as defined in
section 6655(g)(2) and § 1.6655–4. X reported
a liability of $74,900 on its return for the
taxable year ended December 31, 2005, with
no credits against tax. X paid four
installments of estimated tax, each in the
amount of $18,725 (25 percent of $74,900),
on April 17, 2006, June 15, 2006, September
15, 2006, and December 15, 2006,
respectively. X reported a tax liability of
$88,900 on its return due March 15, 2007. X
had a $5,000 credit against tax for tax year
2006 as provided by part IV of subchapter A
of chapter 1 of the Internal Revenue Code. X
did not underpay its estimated tax for tax
year 2006 for any of the four installments,
determined as follows:
(i) Tax as defined in paragraph (g) of this
section for 2006 ($88,900¥$5,000)—$83,900
(ii) Tax as defined in paragraph (g) of this
section for 2005—74,900
(iii) 100% of the lesser of this paragraph (j),
Example 1 (i) or (ii)—74,900
(iv) Amount of estimated tax required to be
paid on or before each installment date (25%
of $74,900)—18,725
(v) Deduct amount paid on or before each
installment date—18,725
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(vi) Amount of underpayment for each
installment date—0
Example 2. (i) Facts. Y, a calendar year
corporation, estimates its tax liability for its
taxable year ending December 31, 2006, will
be $70,000. Y is not a large corporation as
defined in section 6655(g)(2) and § 1.6655–4.
Y reported a Federal income tax liability of
$90,000 for its taxable year ending December
31, 2005. Y paid no installment of estimated
tax on or before April 17, 2006, June 15,
2006, or September 15, 2006, but made a
payment of $63,000 on December 15, 2006.
On March 15, 2007, Y filed its income tax
return showing a tax of $70,000. Y had no
credits against tax for tax year 2006. Of the
$63,000 paid by Y on December 15, 2006,
$17,500 is applied to each of the first three
installments due on April 15, June 15, and
September 15, 2006, and the remaining
$10,500 is applied to the fourth installment.
Y has an underpayment of estimated tax for
each of the first three installments of $17,500
and for the fourth installment of $7,000. The
addition to tax under section 6655(a) is
computed as follows:
(A) Tax as defined in paragraph (g) of this
section for 2006—$70,000
(B) Tax as defined in paragraph (g) of this
section for 2005—90,000
(C) 100% of the lesser of this paragraph (j),
Example 2 (i)(A) or (i)(B)—70,000
(D) Amount of estimated tax required to be
paid on or before each installment date (25%
of $70,000)—17,500
(E) Amount paid on or before the first,
second, and third installment dates—0
(F) Amount paid on or before the fourth
installment date—63,000
(G) Amount of underpayment for the first,
second, and third installment dates—17,500
(H) Amount of underpayment for the
fourth installment date—7,000
(ii) Addition to tax. Assuming that neither
the annualized income installment method
nor the adjusted seasonal installment method
described in §§ 1.6655–2 and 1.6655–3
would result in a lower payment for any
installment period, and the addition to tax is
computed under section 6621(a)(2) at the rate
of 8 percent per annum for the applicable
periods of underpayment, the addition to tax
is determined as follows:
(A) First installment (underpayment period
4–16–06 through 12–15–06), computed as
244/365 × $17,500 × 8%—$936
(B) Second installment (underpayment
period 6–16–06 through 12–15–06),
computed as 183/365 × $17,500 × 8%—702
(C) Third installment (underpayment
period 9–16–06 through 12–15–06),
computed as 91/365 × $17,500 × 8%—349
(D) Fourth installment (underpayment
period 12–16–06 through 3–15–07),
computed as 90/365 × $7,000 × 8%—138
(E) Total of this paragraph (j), Example 2
(ii)(A) through (D)—2,125
(k) Effective date. This section applies
to taxable years beginning after the date
that is 30 days after the date the final
regulations are published in the Federal
Register.
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§ 1.6655–2
method.
73399
Annualized income installment
(a) In general. In the case of any
required installment, if the corporation
establishes that the annualized income
installment determined under this
section, or the adjusted seasonal
installment determined under § 1.6655–
3, is less than the amount determined
under § 1.6655–1—
(1) The amount of such required
installment shall be the annualized
income installment (or, if less, the
adjusted seasonal installment); and
(2) Any reduction in a required
installment resulting from the
application of this section will be
recaptured by increasing the amount of
the next required installment
determined under § 1.6655–1 by the
amount of such reduction (and, if the
next required installment is similarly
reduced, by increasing subsequent
required installments to the extent that
the reduction has not previously been
recaptured).
(b) Determination of annualized
income installment—In general. In the
case of any required installment, the
annualized income installment is the
excess (if any) of—
(1) The product of the applicable
percentage and the tax for the taxable
year computed by annualizing the
taxable income and alternative
minimum taxable income—
(i) For the first 3 months of the taxable
year, in the case of the first required
installment;
(ii) For the first 3 months of the
taxable year, in the case of the second
required installment;
(iii) For the first 6 months of the
taxable year in the case of the third
required installment; and
(iv) For the first 9 months of the
taxable year, in the case of the fourth
required installment; over
(2) The aggregate amount of any prior
required installments for the taxable
year.
(c) Special rules—(1) Applicable
percentage. Except as otherwise
provided in § 1.6655–5(d) with respect
to short taxable years—
In the case of the following required installments:
1st ...................................
2nd ..................................
3rd ...................................
4th ...................................
The applicable
percentage is:
25
50
75
100
(2) Partial month. Except as otherwise
provided, for purposes of paragraph (b)
of this section a partial month shall be
treated as a month.
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(d) Election of different annualization
periods. (1) If the taxpayer timely files
Form 8842, ‘‘Election to Use Different
Annualization Periods for Corporate
Estimated Tax,’’ in accordance with
section 6655(e)(2)(C)(iii), and elects
Option 1—
(i) Paragraph (b)(1)(i) of this section
will be applied by using the language ‘‘2
months’’ instead of ‘‘3 months’’;
(ii) Paragraph (b)(1)(ii) of this section
will be applied by using the language ‘‘4
months’’ instead of ‘‘3 months’’;
(iii) Paragraph (b)(1)(iii) of this section
will be applied by using the language ‘‘7
months’’ instead of ‘‘6 months’’; and
(iv) Paragraph (b)(1)(iv) of this section
will be applied by using the language
‘‘10 months’’ instead of ‘‘9 months’’.
(2) If the taxpayer timely files Form
8842, in accordance with section
6655(e)(2)(C)(iii), and elects Option 2—
(i) Paragraph (b)(1)(ii) of this section
will be applied by using the language ‘‘5
months’’ instead of ‘‘3 months’’;
(ii) Paragraph (b)(1)(iii) of this section
will be applied by using the language ‘‘8
months’’ instead of ‘‘6 months’’; and
(iii) Paragraph (b)(1)(iv) of this section
will be applied by using the language
‘‘11 months’’ instead of ‘‘9 months’’.
(e) 52–53 week taxable year. (1)
Generally, in the case of a taxpayer
whose taxable year constitutes 52 or 53
weeks in accordance with section 441(f),
the rules prescribed by § 1.441–2 shall
be applicable in determining—
(i) Whether a taxable year is a taxable
year of 12 months; and
(ii) When the 2-, 3-, 4-, 5-, 6-, 7-,
8-, 9-, 10-, or 11-month period
(whichever is applicable) commences
and ends for purposes of paragraphs
(b)(1), (d)(1) and (d)(2) of this section.
(2) If a taxpayer employs four 13-week
periods or thirteen 4-week accounting
periods and the end of any accounting
period employed by the taxpayer does
not correspond to the end of the 2-,
3-, 4-, 5-, 6-, 7-, 8-, 9-, 10-, or 11-month
period (whichever is applicable), then,
provided the taxpayer has at least one
full 4-week or 13-week accounting
period, as appropriate, within the
applicable period, annualized taxable
income for the applicable period shall
be—
(i) [(x/(y*13))*z], in the case of a
taxpayer using four 13-week periods,
if—
(A) x = Taxable income for the
number of full 13-week periods in the
applicable period;
(B) y = The number of full 13-week
periods in the applicable period; and
(C) z = The number of weeks in the
taxable year; or
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(ii) [(x/(y*4))*z], in the case of a
taxpayer using thirteen 4-week periods,
if—
(A) x = Taxable income for the full 4week periods in the applicable period;
(B) y = The number of full 4-week
periods in the applicable period; and
(C) z = The number of weeks in the
taxable year.
(3) If a taxpayer employs four 13-week
periods and the taxpayer does not have
at least one 13-week period within the
applicable 2-, 3-, 4-, 5-, 6-, 7-, 8-, 9-,
10-, or 11-month period, the taxpayer
shall be permitted to determine
annualized taxable income for the
applicable period based upon—
(i) The taxable income for the number
of weeks in the applicable period; or
(ii) The taxable income for the full 13week periods that end before the due
date of the required installment.
(4) The following examples illustrate
the rules of this paragraph (e):
Example 1. Taxpayer A, an accrual method
taxpayer, uses a 52/53 week year-end ending
on the last Friday in December and uses four
thirteen-week periods. For its year beginning
December 30, 2006, A uses the annualized
income installment method under section
6655(e)(2)(A)(i) to calculate all of its required
installments. For purposes of computing its
first and second required installments, the
first 3 months of A’s taxable year under
paragraph (b)(1)(i) of this section will end on
March 30th, the thirteenth Friday of A’s
taxable year. For purposes of its third
required installment, the first 6 months of A’s
taxable year will end on June 29th, the
twenty-sixth Friday of A’s taxable year. For
purposes of its fourth required installment,
the first 9 months of A’s taxable year will end
on September 28th, the thirty-ninth Friday of
A’s taxable year.
Example 2. Same facts as Example 1 except
that A uses thirteen four-week periods and
there are 52 weeks during A’s taxable year
beginning December 30, 2006, and ending
December 28, 2007. For purposes of
computing A’s first and second required
installments, A’s annualized taxable income
for the first three months will be the taxable
income for the first three four-week periods
of A’s taxable year (December 30, 2006,
through March 23, 2007) divided by 12
(number of full four-week periods in the first
three months (3) multiplied by 4) and
multiplied by 52 (the number of weeks in the
taxable year). For purposes of computing A’s
third required installment, A’s annualized
taxable income for the first six months will
be the taxable income for the first six fourweek periods of A’s taxable year (December
30, 2006, through June 15, 2007) divided by
24 and multiplied by 52. For purposes of
computing A’s fourth required installment,
A’s annualized taxable income for the first
nine months will be the taxable income for
the first nine four-week periods of A’s taxable
year (December 30, 2006, through September
7, 2007) divided by 36 and multiplied by 52.
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(5) The application of the annualized
income installment method is
illustrated by the following example:
Example. (i) X, a calendar year corporation,
had a taxable year of less than twelve months
for tax year 2005 and no credits against tax
for tax year 2006. X made an estimated tax
payment of $15,000 on the installment dates
of April 17, 2006, June 15, 2006, September
15, 2006, and December 15, 2006,
respectively. Assume that, under paragraph
(d)(1) of this section, X elected Option 1 by
timely filing Form 8842, in accordance with
section 6655(e)(2)(C)(iii), and determined
that its taxable income for the first 2, 4, 7 and
10 months was $25,000, $64,000, $125,000,
and $175,000 respectively. The income for
each period is annualized as follows:
$25,000 × 12/2 = $150,000
$64,000 × 12/4 = $192,000
$125,000 × 12/7 = $214,286
$175,000 × 12/10 = $210,000
(ii)(A) To determine whether the
installment payment made on April 17,
2006, equals or exceeds the amount that
would have been required to have been
paid if the estimated tax were equal to
100 percent of the tax computed on the
annualized income for the 2-month
period, the following computation is
necessary:
(1) Annualized income for the 2
month period—$150,000
(2) Tax on this paragraph (e)(5),
Example (ii)(A)(1)—41,750
(3) 100% of this paragraph (e)(5),
Example (ii)(A)(2)—41,750
(4) 25% of this paragraph (e)(5),
Example (ii)(A)(3)—10,438
(B) Because the total amount of
estimated tax that was timely paid on or
before the first installment date
($15,000) exceeds the amount required
to be paid on or before this date if the
estimated tax were 100 percent of the
tax determined by placing on an
annualized basis the taxable income for
the first 2-month period, the exception
described in paragraphs (a) and (b) of
this section applies, and no addition to
tax will be imposed for the installment
due on April 15, 2006.
(iii)(A) To determine whether the
installment payments made on or before
June 15, 2006, equal or exceed the
amount that would have been required
to have been paid if the estimated tax
were equal to 100 percent of the tax
computed on the annualized income for
the 4-month period, the following
computation is necessary:
(1) Annualized income for the 4
month period—$192,000
(2) Tax on this paragraph (e)(5),
Example (iii)(A)(1)—58,130
(3) 100% of this paragraph (e)(5),
Example (iii)(A)(2)—58,130
(4) 50% of this paragraph (e)(5),
Example (iii)(A)(3) less $10,438 (amount
due with the first installment)—18,627
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(B) Because the total amount of
estimated tax actually paid on or before
the second installment date ($19,562
($15,000 second required installment
payment plus $4,562 overpayment of
first required installment)) exceeds the
amount required to be paid on or before
this date if the estimated tax were 100
percent of the tax determined by placing
on an annualized basis the taxable
income for the first 4-month period, the
exception described in paragraphs (a)
and (b) of this section applies, and no
addition to tax will be imposed for the
installment due on June 15, 2006.
(iv)(A) To determine whether the
installment payments made on or before
September 15, 2006, equal or exceed the
amount that would have been required
to have been paid if the estimated tax
were equal to 100 percent of the tax
computed on the annualized income for
the 7-month period, the following
computation is necessary:
(1) Annualized income for the 7
month period—$214,286
(2) Tax on this paragraph (e)(5),
Example (iv)(A)(1)—66,821
(3) 100% of this paragraph (e)(5),
Example (iv)(A)(2)—66,821
(4) 75% of this paragraph (e)(5),
Example (iv)(A)(3) less $29,065 (amount
due with the first and second
installment)—21,051
(B) Because the total amount of
estimated tax actually paid on or before
the third installment date ($15,935
($15,000 third required installment
payment plus $935 overpayment of
second required installment)) does not
equal or exceed the amount required to
be paid on or before this date if the
estimated tax were 100 percent of the
tax determined by placing on an
annualized basis the taxable income for
the first 7-month period, the exception
described in paragraphs (a) and (b) of
this section does not apply, and an
addition to tax will be imposed with
respect to the underpayment of the
September 15, 2006, installment unless
another exception applies to this
installment payment.
(v)(A) To determine whether the
installment payments made on or before
December 15, 2006, equal or exceed the
amount that would have been required
to have been paid if the estimated tax
were equal to 100 percent of the tax
computed on the annualized income for
the 10-month period, the following
computation is necessary:
(1) Annualized income for the 10
month period—$210,000
(2) Tax on this paragraph (e)(5),
Example (v)(A)(1)—65,150
(3) 100% of this paragraph (e)(5),
Example (v)(A)(2)—65,150
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(4) 100% of this paragraph (e)(5),
Example (v)(A)(3) less $50,116 (amount
due with the first, second, and third
installment)—15,034
(B) Because the total amount of
estimated tax payments made on or
before the fourth installment date that is
available to be applied to the estimated
tax due for the fourth installment
($9,884 ($15,000 fourth required
installment payment less $5,116
underpayment for the third installment
of estimated tax ($21,051 third
installment of estimated tax due less
$15,935 payments available to be
applied to the third installment of
estimated tax))) does not equal or
exceed the amount required to be paid
on or before this date if the estimated
tax were 100 percent of the tax
determined by placing on an annualized
basis the taxable income for the first 10month period, the exception described
in paragraphs (a) and (b) of this section
does not apply, and an addition to tax
will be imposed with respect to the
underpayment of the December 15,
2006, installment unless another
exception applies to this installment
payment.
(vi) Assuming that no other
exceptions apply and the addition to tax
is computed under section 6621(a)(2) at
the rate of 8 percent per annum for the
applicable periods of underpayment, the
amount of the addition to tax is as
follows:
(A) First installment (no
underpayment)
(B) Second installment (no
underpayment)
(C) Third installment (underpayment
period 9–16–06 through 12–15–06),
computed as 91/365 × $5,116 × 8%—
102
(D) Fourth installment (underpayment
period 12–16–06 through 3–15–07),
computed as 90/365 × $5,150 × 8%—
102
(E) Total of this paragraph (e)(5),
Example (vi)(A) through (D)—204
(f) Determination of taxable income
for an annualization period—(1) In
general. In determining the applicability
of the exception described in paragraphs
(a) and (b) of this section (relating to the
annualization of income) and the
exception described in § 1.6655–3
(relating to annualization of income for
corporations with seasonal income), and
for purposes of computing a taxpayer’s
taxable income (and applicable tax), an
item must be taken into account in
computing a taxpayer’s taxable income
for the taxable year for which the
estimated tax is being determined, and
must be properly taken into account in
determining a taxpayer’s taxable income
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73401
(and applicable tax) for the applicable
annualization period by the last day of
such period. Generally, except as
provided in paragraph (f)(2) of this
section, for an item to be taken into
account during an annualization period,
the following must occur on or before
the last day of the applicable
annualization period (determined based
on the accounting period employed by
the taxpayer):
(i) With respect to an item of gross
income, such income is includible in
computing taxable income in
accordance with section 451 or the
appropriate provision of the Internal
Revenue Code (for example, section 453
for installment sales or section 460 for
long-term contracts).
(ii) With respect to an item of loss, the
loss must be permitted to be taken into
account under the appropriate provision
of the Internal Revenue Code.
(iii) With respect to an item of
deduction, for taxpayers using the cash
receipts and disbursements method of
accounting, the deduction must be paid
under § 1.461–1(a)(1) and otherwise
deductible in computing taxable income
for the annualization period or, for
taxpayers using an accrual method of
accounting, the deduction must be
incurred under § 1.461–1(a)(2) and
otherwise deductible in computing
taxable income for the annualization
period. In the case of an accrual method
taxpayer, the provisions of section
170(a)(2) and § 1.170A–11(b) (charitable
contributions by accrual method
corporations), § 1.461–4(d)(6)(ii)
(provision of services or property to a
taxpayer), § 1.461–5 (recurring item
exception), and any other provision that
has a similar effect can not be used in
determining whether the item of
deduction has been incurred under
§ 1.461–1(a)(2) and is otherwise
deductible for purposes of computing
taxable income for an annualization
period. For purposes of section 404 and
the regulations, regardless of the overall
method of accounting employed by the
taxpayer, the applicable 2-, 3-, 4-, 5-,
6-, 7-, 8-, 9-, 10-, or 11-month period
shall not be treated as a short taxable
year and the rules of section 404 and the
regulations shall be applied on the basis
of the taxpayer’s taxable year for which
estimated tax is being determined. Thus,
the determination of whether a payment
to an employee is deferred
compensation under § 1.404(b)–1T shall
be made by reference to whether the
payment is received by the employee
more than a brief period of time after the
last day of the taxable year for which
estimated tax is being determined and
not the last day of the applicable
annualization period. With respect to
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contributions to qualified plans
governed by section 404 and the
regulations, in determining whether an
item is paid or incurred by the end of
an annualization period, economic
performance is satisfied only to the
extent such item is paid by the last day
of the applicable annualization period
(without regard to section 404(a)(6)) and
does not, in combination with other
such items paid during the applicable
annualization period, exceed the
applicable deduction limit of section
404(a) for the taxable year. For purposes
of sections 419 and 419A and the
regulations, regardless of the overall
method of accounting employed by the
taxpayer, the applicable 2-, 3-, 4-, 5-,
6-, 7-, 8-, 9-, 10-, or 11-month period
shall not be treated as a short taxable
year and the rules of sections 419 and
419A and the regulations shall be
applied on the basis of the taxpayer’s
taxable year for which estimated tax is
being determined. With respect to
contributions to a welfare benefit fund
governed by sections 419 and 419A and
the regulations, in determining whether
an item is paid or incurred by the end
of an annualization period, economic
performance is satisfied only to the
extent such item is paid by the last day
of the applicable annualization period
and does not, in combination with other
such items paid during such
annualization period, exceed the
applicable deduction limit of section
419 for the taxable year.
(iv) With respect to depreciation and
amortization (depreciation) expense, a
taxpayer shall take into account
depreciation expense only as provided
in paragraph (f)(2)(v) of this section.
(v) With respect to any item taken into
account in computing taxable income
for the annualization period that is not
described in paragraphs (f)(1)(i), (ii),
(iii), and (iv) of this section, the item is
includible in computing taxable income
in accordance with the appropriate
provision of the Internal Revenue Code.
(vi) With respect to an item of credit,
the amounts upon which the credit is
computed must have been taken into
account in computing taxable income
for the annualization period pursuant to
paragraphs (f)(1)(i), (ii), (iii), (iv), and (v)
of this section, as applicable.
(2) Exceptions—(i) Annual expenses
paid or incurred at or after the end of
the taxable year. (A) Except as
otherwise provided in paragraphs
(f)(2)(ii) through (vi) of this section, if an
accrual method taxpayer has a history of
incurring a specific item of expense
under § 1.461–1(a)(2) (or a cash method
taxpayer has a history of paying a
specific item of expense under § 1.461–
1(a)(1)) that, while attributable to
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income earned throughout the current
taxable year, is not incurred (or paid, in
the case of a cash method taxpayer)
until the end of the taxable year, or after
the end of the current taxable year and
is deemed incurred (or paid, in the case
of a cash method taxpayer) during the
current taxable year (taking into
account, as applicable, section 170(a)(2)
and § 1.170A–11(b), section 404(a)(6),
§ 1.461–4(d)(6)(ii), § 1.461–5, and any
other provision that has a similar effect),
then the taxpayer may, in lieu of any
amount determined under paragraph
(f)(1) of this section, take into account
for the applicable annualization period
the amount of such expense properly
allocable to such period provided the
amount so allocated to such
annualization period is determinable
with reasonable accuracy and the
amount of the item so allocated is
properly deducted by the taxpayer
during the current taxable year under
the taxpayer’s method of accounting.
(B) For purposes of this paragraph
(f)(2)(i), the portion of an annual
expense item allocable to an
annualization period will be considered
to be determined with reasonable
accuracy if such item is allocated evenly
throughout the taxable year unless the
taxpayer is able to clearly demonstrate
such item is more appropriately
allocable to an annualization period by
some other method including, for
example, in proportion to the earning of
revenue, the use of property, or the
provision of services. For purposes of
this paragraph (f)(2)(i), a taxpayer has a
history of incurring or paying a specific
item of expense at the end of the taxable
year, or after the end of the taxable year
that is deemed incurred or paid during
the taxable year, if, in each of the two
taxable years immediately preceding the
current taxable year (or the immediately
preceding taxable year if the taxpayer
was not in existence for the two
preceding taxable years), the taxpayer
incurred or paid the specific item of
expense at the end of each taxable year,
or after the end of each taxable year that
was deemed incurred or paid during
such taxable year. In addition, for
purposes of this paragraph (f)(2)(i), the
term ‘‘the end of the taxable year’’
means the period between and
including the 15th and last day of the
last month of the taxable year.
(ii) Net operating loss carryover. Any
net operating loss carryover to the
current taxable year shall be taken into
account in computing an annualized
income installment only after
annualizing the taxable income for the
annualization period.
(iii) Credit carryover. Any credit
carryover to the current taxable year
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shall be taken into account in
computing an annualized income
installment only after annualizing the
taxable income for the annualization
period and computing the applicable
tax, and before applying the applicable
percentage.
(iv) Section 481(a) adjustment. (A)
Any section 481(a) adjustment required
to be recognized during the taxable year
shall be recognized ratably over the
number of months in the taxable year.
(B) With respect to a Form 3115,
‘‘Application for Change in Accounting
Method,’’ filed during the current
taxable year or a preceding taxable year,
if the change in method of accounting—
(1) Is permitted to be made with the
automatic consent of the Commissioner,
the appropriate portion of the section
481(a) adjustment determined under
paragraph (f)(2)(iv)(A) of this section
shall be taken into account in
determining an annualized income
installment if, and only if, the copy of
the Form 3115 has been mailed to the
IRS National Office on or before the last
day of the annualization period; or
(2) Requires the prior consent of the
Commissioner, the appropriate portion
of the section 481(a) adjustment
determined under paragraph (f)(2)(iv)(A)
of this section shall be taken into
account in determining an annualized
income installment if, and only if, the
consent agreement reflecting the
Commissioner’s consent to the change
in method of accounting and the
prescribed terms and conditions for
effecting such change has been signed
by the taxpayer and mailed to the IRS
National Office on or before the last day
of the annualization period.
(v) Depreciation and amortization—
(A) General rule. In determining any
annualized income installment, a
proportionate amount of the taxpayer’s
estimated annual depreciation and
amortization (depreciation) expense
shall be taken into account. For
purposes of the preceding sentence,
estimated annual depreciation expense
is the estimated depreciation expense to
be properly taken into account in
determining the taxpayer’s taxable
income for the taxable year. In
determining the estimated annual
depreciation expense, a taxpayer may
take into account purchases, sales or
other dispositions, changes in use,
depreciation deductions permitted
under sections 168(k) and 1400L(b), and
other similar events and provisions (for
example, section 179) that, based on all
the relevant information available as of
the last day of the annualization period
(such as capital spending budgets,
financial statement data and projections,
or similar reports that provide evidence
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of the taxpayer’s capital spending plans
for the current taxable year), are
reasonably expected to occur or apply
during the taxable year. For purposes of
the additional first-year depreciation
deduction under sections 168(k) and
1400L(b), only a proportionate amount
of the current year’s additional first-year
depreciation deduction to be taken into
account in determining a taxpayer’s
taxable income for the taxable year is
taken into account in computing taxable
income for an annualization period. As
an alternative to estimating annual
depreciation expense based on events
that are reasonably expected to occur, a
taxpayer may claim for an annualization
period at least a proportionate amount
of 50 percent of the taxpayer’s estimated
depreciation expense for the current
taxable year attributable to assets that a
taxpayer had in service on the last day
of the preceding taxable year, that
remain in service on the first day of the
current taxable year, and that are subject
to the half-year convention.
(B) Short taxable years. Unless the
taxable year is, or will be, a short
taxable year, in no circumstance may an
annualization period be treated as a
short taxable year for purposes of
determining the depreciation allowance
for such annualization period. If the
taxable year is, or will be (based on all
relevant information available as of the
last day of the annualization period), a
short taxable year, annual depreciation
expense shall be computed using the
rules applicable for computing
depreciation during a short taxable year
for purposes of determining the annual
depreciation expense to be allocated to
an annualization period. For this
purpose, the rules applicable for
computing depreciation during a short
taxable year shall be applied on the
basis of the date the taxable year is
expected to end based on all relevant
information available as of the last day
of the annualization period. See Rev.
Proc. 89–15 (1989–1 C.B. 816), (see
§ 601.601(d)(2)(ii)(b) of this chapter).
(vi) Member of partnership. In
determining a partner’s distributive
share of partnership items that must be
taken into account during an
annualization period, the rules set forth
in § 1.6654–2(d)(2) are applicable.
(3) Examples. The provisions of this
paragraph (f) are illustrated by the
following examples:
Example 1. Corporation A, a calendar year
taxpayer, uses an accrual method of
accounting and uses the annualized income
installment method under section
6655(e)(2)(A)(i) to calculate its first required
installment payment for its 2006 taxable year.
Consistent with its historical practice, the
board of directors of A, on or before March
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31, 2006, make a binding, irrevocable
commitment to fund a minimum
contribution of $10,000,000 to A’s qualified
retirement plan by March 15, 2007, which
fixes A’s liability to make the $10,000,000
contribution. Similarly, consistent with A’s
historical practice, A plans to remit payments
to the retirement plan of $1,000,000 on
January 2, 2007, and $9,000,000 on March 1,
2007. The $10,000,000 commitment is not
taken into account for purposes of
determining A’s first annualized income
installment, which is based on the income
and deductions from the first three months
of the taxable year, because A did not make
any payments by March 31, 2006 (and
therefore did not satisfy the economic
performance requirements of § 1.461–
4(d)(2)(iii) by March 31, 2006), in accordance
with paragraph (f)(1)(iii) of this section. The
$10,000,000 is not treated as paid on or
before March 31, 2006, under section
404(a)(6) because, pursuant to paragraph
(f)(1)(iii) of this section, the last day of the
annualization period is not to be treated as
the last day of A’s taxable year. However,
pursuant to paragraph (f)(2)(i)(A) of this
section, because A has historically incurred
a retirement plan expense during the taxable
year pursuant to section 404 that, but for the
deeming rule of section 404(a)(6), would
have been incurred after the end of the
taxable year, and because A satisfies the
other requirements of paragraph (f)(2)(i)(A) of
this section, A may take into account a
$2,500,000 retirement plan expense for
purposes of determining A’s taxable income
to be annualized in computing A’s first
annualized income installment for 2006
($10,000,000/12 × 3 = $2,500,000) unless,
pursuant to paragraph (f)(2)(i)(B) of this
section, A is able to clearly demonstrate that
the retirement plan expense is more
appropriately allocable by some other
method.
Example 2. Same facts as Example 1 except
that, consistent with its historical practice, A
remits $9,000,000 to the retirement plan on
June 30, 2006, and $1,000,000 to the
retirement plan on September 30, 2006. For
purposes of determining A’s first and second
required installments for 2006, which are
based on the income and deductions from the
first three months of the taxable year, A may
not take into account any of the retirement
plan expense because A did not make any
payments by March 31, 2006 (and therefore
did not satisfy the economic performance
requirements of § 1.461–4(d)(2)(iii) by March
31, 2006), in accordance with paragraph
(f)(1)(iii) of this section. For A’s third
required installment, which is based on the
income and deductions from the first six
months of the taxable year, A may take into
account a $9,000,000 retirement plan
expense for purposes of determining A’s
annualized taxable income because A
incurred the $9,000,000 expense by June 30,
2006. For A’s fourth required installment,
which is based on the income and
deductions from the first nine months of the
taxable year, A may take into account a
$10,000,000 retirement plan expense for
purposes of determining A’s annualized
taxable income because A incurred the
$10,000,000 retirement plan expense by
September 30, 2006.
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Example 3. Corporation B, a calendar year
taxpayer, uses an accrual method of
accounting and the annualized income
installment method under section
6655(e)(2)(A)(i) to calculate its first required
installment. In each of the three preceding
taxable years, B has paid annual bonuses on
the Friday immediately preceding December
25 to those employees of B that provided
services to B during the taxable year and
were employed by B on the date such
bonuses were paid. At the beginning of 2006,
consistent with its historical experience, B’s
board of directors pass a resolution that B
will pay cash bonuses of $6,000,000 to those
employees that have provided services to B
during 2006 and are employed by B on
December 22, 2006, the Friday immediately
preceding December 25, 2006. B plans to pay,
and does pay, the cash bonuses to eligible
employees on March 1, 2007. The bonuses,
pursuant to paragraph (f)(1)(iii) of this
section, are not treated as deferred
compensation for the taxable year or the
annualization period under § 1.404(b)–1T
because the last day of the annualization
period is not to be treated as the last day of
B’s taxable year. Because the bonuses are not
treated as deferred compensation, the
bonuses are not subject to section 404, and
instead are treated as service liabilities under
§ 1.461–4(d)(2)(i) rather than employee
benefit liabilities under § 1.461–4(d)(2)(iii).
Thus, the bonuses are incurred when all the
events have occurred that establish the fact
of the liability, the amount of the liability can
be determined with reasonable accuracy, and
the services are provided to B by B’s
employees. If B’s first required installment is
made under the provisions of section
6655(e)(1), the $6,000,000 is not taken into
account for purposes of determining B’s first
annualized income installment, which is
based on the income and deductions from the
first three months of the taxable year, because
B did not incur any liability for bonus
payments for the current taxable year by
March 31, 2006, in accordance with
paragraph (f)(1)(iii) of this section. However,
pursuant to paragraph (f)(2)(i)(A) of this
section, because B has historically incurred
a bonus expense at the end of the taxable
year, and because B satisfies the other
requirements of paragraph (f)(2)(i)(A) of this
section, B may take into account a $1,500,000
bonus expense for purposes of determining
B’s taxable income to be annualized in
computing B’s first annualized income
installment for 2006 ($6,000,000/12 × 3 =
$1,500,000) unless, pursuant to paragraph
(f)(2)(i)(B) of this section, B is able to clearly
demonstrate that the bonus expense is more
appropriately allocable by some other
method.
Example 4. Corporation C, a calendar year
taxpayer, uses an accrual method of
accounting and the annualized income
installment method under section
6655(e)(2)(A)(i) to calculate its first required
installment for its 2006 taxable year. C has
a net operating loss carryover to 2006 of
$400,000. C’s taxable income from January 1,
2006, through March 31, 2006, without
regard to any net operating loss carryover, is
$500,000. For purposes of determining C’s
first annualized income installment, C’s
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annualized taxable income is $1,600,000,
determined by placing C’s first three months
of taxable income from January 1, 2006,
through March 31, 2006, on an annualized
basis ($500,000 × 12/3 = $2,000,000) and
reducing the resulting amount of $2,000,000
by the $400,000 net operating loss carryover
to 2006.
Example 5. Corporation D, a calendar year
taxpayer, uses an accrual method of
accounting and the annualized income
installment method under section
6655(e)(2)(A)(i) to calculate all of its required
installment payments for its 2006 taxable
year. On April 15, 2005, D filed a Form 3115,
‘‘Application for Change in Accounting
Method,’’ to request the consent of the
Commissioner to change its method of
accounting for recognizing revenue. The
Commissioner consented to D’s requested
change, and D signed and mailed the consent
letter to the IRS National Office on December
15, 2005. The method change resulted in a
positive section 481(a) adjustment of
$200,000 to be taken into account over four
taxable years beginning in 2005. D’s taxable
income from January 1, 2006, through March
31, 2006, prior to any section 481(a)
adjustment, is $500,000. For purposes of
determining D’s first annualized income
installment for its 2006 taxable year, D’s
annualized taxable income is $2,050,000,
determined by placing the sum of D’s first
three months of taxable income from January
1, 2006, through March 31, 2006, ($500,000)
plus, pursuant to paragraph (f)(2)(iv) of this
section, the portion of the section 481(a)
adjustment required to be recognized during
the taxable year ($200,000/4 = $50,000) that
is attributable to the period from January 1,
2006, through March 31, 2006, ($50,000 × 3/
12 = $12,500) on an annualized basis
($512,500 × 12/3 = $2,050,000).
Example 6. Corporation E, a calendar year
taxpayer, uses an accrual method of
accounting and the annualized income
installment method under section
6655(e)(2)(A)(i) to calculate all of its required
installment payments for its 2006 taxable
year. E’s taxable income from January 1,
2006, through March 31, 2006, prior to any
section 481(a) adjustment, is $500,000. On
June 30, 2006, E filed a copy of the Form
3115 with the IRS National Office to request
a change in method of accounting that was
permitted to be made with the automatic
consent of the Commissioner and resulted in
a negative section 481(a) adjustment of
$400,000 to be taken into account entirely in
2006. For purposes of determining E’s first
annualized income installment for its 2006
taxable year, E’s annualized taxable income
is $2,000,000, determined by placing E’s first
three months of taxable income from January
1, 2006, through March 31, 2006, ($500,000)
on an annualized basis ($500,000 × 12/3 =
$2,000,000). Because E did not file the
accounting method change request until after
the last day of the annualization period, no
portion of the section 481(a) adjustment is
taken into account in computing E’s first
annualized income installment.
Example 7. Same facts as Example 6 except
that E’s taxable income from January 1, 2006,
through June 30, 2006, prior to any section
481(a) adjustment, is $800,000. For purposes
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of determining E’s third annualized income
installment for its 2006 taxable year, E’s
annualized taxable income is $1,200,000,
determined by placing the sum of E’s first six
months of taxable income from January 1,
2006, through June 30, 2006, ($800,000) less,
pursuant to paragraph (f)(2)(iv) of this
section, the portion of the 2006 section 481(a)
adjustment required to be recognized during
the taxable year that is attributable to the
period from January 1, 2006, through June 30,
2006 ($400,000 × 6/12 = $200,000) on an
annualized basis ($600,000 × 12/6 =
$1,200,000).
Example 8. Same facts as Example 7 except
that E’s request for change in method of
accounting required the prior consent of the
Commissioner and the Form 3115 was filed
with the IRS National Office on June 30,
2006. On December 10, 2006, E received the
consent of the Commissioner to change its
method of accounting. E signed and mailed
the consent letter to the IRS National Office
on December 15, 2006. For purposes of
determining E’s third annualized income
installment for its 2006 taxable year, E’s
annualized taxable income is $1,600,000,
determined by placing E’s first six months of
taxable income from January 1, 2006, through
June 30, 2006, on an annualized basis
($800,000 × 12/6 = $1,600,000). No portion
of the section 481(a) adjustment is taken into
account in computing E’s third annualized
income installment because, although E filed
the accounting method change request on or
before the last day of E’s third annualization
period, E did not receive the Commissioner’s
consent to change its method of accounting,
and E did not sign and mail the consent
agreement to the IRS National Office, on or
before the last day of E’s third annualization
period.
Example 9. Corporation F, a calendar year
taxpayer that began business on January 1,
2003, adopted an accrual method of
accounting and will use the annualized
income installment method under section
6655(e)(2)(A)(i) to calculate its first required
installment payment for its 2003 taxable year.
As of March 31, 2003, F has purchased and
placed in service $100,000 of ‘‘5-year
property,’’ as defined in section 168(e), and
anticipates purchasing and placing in service
another $100,000 of ‘‘5-year property’’ before
December 31, 2003. F does not anticipate
being subject to the mid-quarter convention
for the 2003 taxable year, does not anticipate
making any depreciation elections for this
class of property, does not anticipate making
a section 179 election, will deduct the 30%
additional first year depreciation deduction,
does not anticipate any sales or other
dispositions of depreciable property, and no
events have occurred, and, based on all
relevant information available as of the due
date of F’s first required installment, F does
not know of any event that will cause F’s
taxable year to be a short taxable year. F’s
annual depreciation expense for 2003 is
estimated to be $88,000 (total depreciation
deduction under section 168(k) of $60,000
($200,000 × 30% = $60,000) plus annual
depreciation of $28,000 (($200,000 minus
$60,000) × 20%)). For purposes of
determining F’s first annualized income
installment for its 2003 taxable year, in
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accordance with paragraph (f)(2)(v)(A) of this
section, depreciation expense of $22,000
($88,000 × 3/12 = $22,000) may be taken into
account in computing F’s January 1, 2003,
through March 31, 2003, taxable income to be
annualized. Under paragraph (f)(2)(v)(B) of
this section, F may not consider its first
annualization period to be a short taxable
year for purposes of determining the
depreciation allowance for such
annualization period.
Example 10. Corporation G, a calendar year
taxpayer that began business on January 5,
2004, adopted an accrual method of
accounting and will use the annualized
income installment method under section
6655(e)(2)(A)(i) to calculate its first required
installment payment for its 2005 taxable year.
On January 5, 2004, G purchased and placed
in service an asset that cost $30,000, qualifies
as ‘‘5-year property’’ as defined in section
168(e), is eligible for the 50% additional first
year depreciation deduction under section
168(k), and is subject to the half-year
convention. G will deduct the 50%
additional first year depreciation deduction
with respect to the ‘‘5-year property.’’ For tax
year 2004, G takes a depreciation deduction
under section 168(k) of $18,000 ($15,000
($30,000 × 50% = $15,000) plus annual
depreciation of $3,000 ($15,000 × 20% =
$3,000)). G does not anticipate being subject
to the mid-quarter convention for the 2004
taxable year, does not anticipate making any
depreciation elections for this class of
property, does not anticipate making a
section 179 election, will deduct the 50%
additional first year depreciation deduction,
does not anticipate any sales or other
dispositions of depreciable property, and no
events have occurred, and, based on all
relevant information available as of the due
date of G’s first required installment, G does
not know of any event that will cause G’s
taxable year to be a short taxable year. G’s
annual depreciation expense for 2005 is
estimated to be $4,800 ($15,000 × 32% =
$4,800). For purposes of determining G’s first
annualized income installment for its 2005
taxable year, in accordance with paragraph
(f)(2)(v)(A) of this section, depreciation
expense of $1,200 ($4,800 × 3/12 = $1,200)
may be taken into account in computing G’s
January 1, 2005, through March 31, 2005,
taxable income to be annualized. As an
alternative to estimating annual depreciation
expense based on events that are reasonably
expected to occur, depreciation expense of at
least $600 ($4,800 × 50% × 3/12 = $600) may
be taken into account in computing G’s
January 1, 2005, through March 31, 2005,
taxable income to be annualized. Under
paragraph (f)(2)(v)(B) of this section, G may
not consider its first annualization period to
be a short taxable year for purposes of
determining the depreciation allowance for
such annualization period.
Example 11. Corporation H, a calendar
year taxpayer, uses an accrual method of
accounting and the annualized income
installment method under section
6655(e)(2)(A)(i) to calculate all of its required
installment payments for its 2006 taxable
year. H has owned real property in State Y
since 2002 and has used the real property in
its trade or business. H’s method of
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accounting for real estate taxes is to deduct
the taxes on the lien date, subject to the
recurring item exception of § 1.461–5. Based
on historical practice for the past five years,
for the 2006 calendar year State Y imposes
a lien for real estate taxes on real property
owned in State Y on March 15, 2006, with
90% of the tax due on June 30, 2006, and the
remaining 10% of the tax due on June 29,
2007. Based on the value of H’s real property
in State Y, H’s real estate tax liability lien
imposed on March 15, 2006, is $100,000. H
pays the first 90% of this liability on June 30,
2006, and the remaining 10% on June 29,
2007. Under paragraph (f)(1)(iii) of this
section, the $100,000 real estate tax liability
is not taken into account for purposes of
determining H’s first annualized income
installment, which is based on the income
and deductions from the first three months
of the taxable year, because economic
performance with respect to the real estate
tax liability did not occur by March 31, 2006.
However, pursuant to paragraph (f)(2)(i)(A) of
this section, because H has historically
incurred a real estate tax expense after the
end of the taxable year and the real estate tax
expense was deemed incurred in 2006
pursuant to § 1.461–5, and because H
satisfies the other requirements of paragraph
(f)(2)(i)(A) of this section, a $2,500 real estate
tax expense may be taken into account for
purposes of determining H’s taxable income
to be annualized in computing H’s first
annualized income installment ($10,000/12 ×
3 = $2,500) unless, pursuant to paragraph
(f)(2)(i)(B) of this section, H is able to clearly
demonstrate that the real estate tax expense
is more appropriately allocable by some other
method.
Example 12. Same facts as Example 11,
except that H is computing its third required
installment payment for H’s 2006 taxable
year. Pursuant to paragraph (f)(1)(iii) of this
section, H may take into account $90,000
($100,000 real estate tax liability × 90% paid
on June 30, 2006) for purposes of
determining the taxable income to be
annualized in computing H’s third
annualized income installment because
economic performance with respect to
$90,000 of the real estate tax liability
occurred by June 30, 2006. In addition,
pursuant to paragraph (f)(2)(i)(A) of this
section, because H has historically incurred
a real estate tax expense after the end of the
taxable year and the real estate tax expense
was deemed incurred in 2006 pursuant to
§ 1.461–5, and because H satisfies the other
requirements of paragraph (f)(2)(i)(A) of this
section, a $5,000 real estate tax expense also
may be taken into account for purposes of
determining H’s taxable income to be
annualized in computing H’s third
annualized income installment ($10,000/12 ×
6 = $5,000) unless, pursuant to paragraph
(f)(2)(i)(B) of this section, H is able to clearly
demonstrate that $10,000 of the real estate
tax expense is more appropriately allocable
by some other method. Therefore, pursuant
to paragraphs (f)(1)(iii) and (f)(2)(i)(A) of this
section, H may take into account $95,000 of
the real estate tax liability for purposes of
computing the third required installment
payment for H’s 2006 taxable year.
Example 13. Same facts as Example 11,
except that H pays 90% of the real estate tax
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liability on June 30, 2006, and the remaining
10% of the real estate tax liability on
November 30, 2006. Under paragraph
(f)(1)(iii) of this section, the $100,000 real
estate tax liability is not taken into account
for purposes of determining H’s first
annualized income installment, which is
based on the income and deductions from the
first three months of the taxable year, because
economic performance with respect to the
real estate tax liability did not occur by
March 31, 2006. In addition, although H has
a history of incurring a real estate tax
expense after the end of the taxable year that
is deemed incurred during the taxable year,
H does not meet the requirements of
paragraph (f)(2)(i)(A) of this section in order
to take a real estate tax expense into account
for purposes of determining H’s first
annualized income installment because H
does not incur a real estate tax at the end of
the current taxable year or after the end of
the current taxable year that will be deemed
incurred during the current taxable year.
Example 14. Same facts as Example 13
except that H is computing its third required
installment payment for H’s 2006 taxable
year. Pursuant to paragraph (f)(1)(iii) of this
section, H may take into account $90,000
($100,000 real estate tax liability × 90% paid
on June 30, 2006) for purposes of
determining the taxable income to be
annualized in computing H’s third
annualized income installment because
economic performance with respect to
$90,000 of the real estate tax liability
occurred by June 30, 2006.
Example 15. Corporation I, a calendar year
taxpayer, uses an accrual method of
accounting and the annualized income
installment method under section
6655(e)(2)(A)(i) to calculate all of its required
installment payments for its 2006 taxable
year. As of December 31, 2005, I had a
$1,000,000 account receivable due from Z
related to the sale of goods from I to Z during
2005. I has traditionally incurred bad debt
expense for worthless accounts receivable
and, as of January 1, 2006, I projects that it
will have a bad debt expense of $1,600,000
under section 166 and the regulations for its
calendar year 2006. On March 31, 2006, I
determined that its receivable from Z was
totally worthless under section 166 and the
regulations. No other receivables were
determined to be worthless between January
1, 2006, and March 31, 2006. In accordance
with paragraph (f)(1)(ii) of this section, a
$1,000,000 bad debt write-off is taken into
account for purposes of determining the
taxable income to be annualized in
computing I’s first annualized income
installment.
Example 16. Same facts as Example 15
except that I determines that its receivable
from Z was totally worthless under section
166 and the regulations on April 10, 2006. As
of March 31, 2006, I had not determined that
any receivables were worthless under section
166 and the regulations. In accordance with
paragraph (f)(1)(ii) of this section, the
$1,000,000 bad debt expense attributable to
the receivable from Z is not taken into
account for purposes of determining the
taxable income to be annualized in
computing I’s first annualized income
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73405
installment, which is based on the income
and deductions from the first three months
of the taxable year, because the receivable
from Z became totally worthless after the last
day of I’s annualization period. Furthermore,
I may not take the bad debt expense into
account for purposes of determining the
taxable income to be annualized in
computing I’s first annualized income
installment because the receivable from Z
does not meet the requirements of paragraph
(f)(2)(i) of this section.
Example 17. Corporation J, a calendar year
taxpayer, uses an accrual method of
accounting and the annualized income
installment method under section
6655(e)(2)(A)(i) to calculate its first required
installment payment for its 2006 taxable year.
J projects its annualized tax for its 2006
taxable year, based on annualizing J’s taxable
income for its first annualization period from
January 1, 2006, through March 31, 2006, to
be $1,500,000 before reduction for any
credits. J has an unused credit for increasing
research activities from 2005 of $500,000 that
is carried over to 2006. For purposes of
determining J’s first annualized income
installment, J’s annualized tax for 2006 is
$1,000,000, determined as the tax for the
taxable year computed by placing on an
annualized basis J’s taxable income from its
first annualization period from January 1,
2006, through March 31, 2006, ($1,500,000)
reduced by the $500,000 credit carryover
from 2005.
Example 18. Corporation K, a calendar year
taxpayer, uses an accrual method of
accounting and the annualized income
installment method under section
6655(e)(2)(A)(i) to calculate its first required
installment payment for its 2006 taxable year.
K projects its annualized tax for its 2006
taxable year, based on annualizing K’s
taxable income for its first annualization
period from January 1, 2006, through March
31, 2006, to be $2,000,000 before reduction
for any credits. K has historically earned a
credit for increasing research activities and,
for 2006, K estimates that it will earn a credit
for increasing research activities under
section 41 of $1,200,000. However, pursuant
to paragraph (f)(1)(vi) of this section, if K
were to annualize all components involved
in computing the current year credit based on
K’s activity from January 1, 2006, through
March 31, 2006, K would generate a credit of
$1,600,000 for 2006. For purposes of
determining K’s first annualized income
installment, K’s annualized tax for 2006 is
$400,000, determined as the tax for the 2006
taxable year ($2,000,000) computed by
placing on an annualized basis K’s taxable
income from its first annualization period
January 1, 2006, through March 31, 2006,
reduced by a $1,600,000 current year credit
from increasing research activities.
Example 19. Same facts as Example 18
except that K does not begin any research
activities until April 3, 2006, and will not
incur any research expenses described in
paragraph (f)(2)(i) of this section. As a result,
if K were to annualize all components
involved in computing the current year credit
based on K’s activity from January 1, 2006,
through March 31, 2006, K would generate
no section 41 research credit for purposes of
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determining its first annualized income
installment. Pursuant to paragraph (f)(1)(vi)
of this section, K can not take into account
any credit for its first annualization period
because K did not incur the credit by the last
day of the first annualization period.
Accordingly, for purposes of determining K’s
first annualized income installment, K’s
annualized tax for its first annualization
period January 1, 2006, through March 31,
2006, is $2,000,000.
Example 20. Corporation L, a calendar year
taxpayer, uses an accrual method of
accounting and the annualized income
installment method under section
6655(e)(2)(A)(i) to calculate its first required
installment payment for its 2006 taxable year.
L has licensed technology from Corporation
M for the past five years. Pursuant to the
license agreement, L pays a license fee to M
equal to $.01 for every dollar of gross receipts
earned by L. For 2006, L projects gross
receipts of $200,000,000, of which
$100,000,000 is earned by March 31, 2006,
and no portion of L’s license fee expense is
described in paragraph (f)(2)(i) of this
section. Pursuant to paragraph (f)(1)(iii) of
this section, a license fee expense of
$1,000,000 ($100,000,000 × $.01) is incurred
by March 31, 2006, and may be taken into
account for purposes of determining the
taxable income to be annualized in
computing L’s first annualized income
installment.
Example 21. Same facts as Example 20
except that L does not earn any gross receipts
by March 31, 2006. In accordance with
paragraph (f)(1)(iii) of this section, because
the license fee expense was not incurred
under § 1.461–1(a)(2) by the last day of the
annualization period, no license fee expense
is taken into account for purposes of
determining the taxable income to be
annualized in computing L’s first annualized
income installment, which is based on the
income and deductions from the first three
months of the taxable year.
Example 22. Corporation N is a calendar
year taxpayer that produces and sells candy
bars. N uses an accrual method of accounting
and the annualized income installment
method under section 6655(e)(2)(A)(i) to
calculate all of its required installment
payments for its 2007 taxable year. N
annually conducts, and will conduct for 2007
and 2008, a contest for its customers whereby
N awards, on a quarterly basis, a cash prize
of $100,000, $200,000, $300,000, and
$400,000 to the first, second, third, and
fourth quarter winners, respectively. Winners
are announced on the last day of each
calendar quarter and the prize is payable on
the last day of the month following the
announcement of the winner. N uses the
recurring item exception of section 461(h)
and the regulations with respect to its
liability to the prize winner. On December
31, 2006, N announced its fourth quarter
winner and remitted payment of $400,000 to
the winner on January 31, 2007. Although the
contest liability is incurred in accordance
with § 1.461–4(g)(4) on January 31, 2007, at
the time payment is made to the award
winner, N may not take such item into
account in computing N’s first annualized
income installment for 2007 because,
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pursuant to the recurring item exception, the
$400,000 is deductible in determining N’s
2006 taxable income and is not taken into
account in determining N’s taxable income
for 2007, as required pursuant to paragraph
(f)(1) of this section. However, because N has
historically incurred an annual prize expense
of $400,000 that is described in paragraph
(f)(2)(i)(A) of this section, $100,000 may be
taken into account for purposes of
determining the taxable income to be
annualized in computing N’s first annualized
income installment for N’s 2007 taxable year
based on the $400,000 liability N will incur
for the 2007 taxable year when N makes the
payment in January of 2008 to the 2007
fourth quarter winner ($400,000/12 × 3 =
$100,000), unless, pursuant to paragraph
(f)(2)(i)(B) of this section, N is able to clearly
demonstrate that the annual prize expense is
more appropriately allocable by some other
method.
(g) Items that substantially affect
taxable income but cannot be
determined accurately by the
installment due date—(1) In general. In
determining the applicability of the
annualization exceptions described in
paragraphs (a) and (b) of this section
and § 1.6655–3, reasonable estimates
may be made from existing data for
items that substantially affect income if
the amount of such items cannot be
determined accurately by the
installment due date. Examples of these
items are the inflation index for
taxpayers using the dollar-value LIFO
(last-in, first-out) inventory method,
intercompany adjustments for taxpayers
that file consolidated returns, and the
liquidation of a LIFO layer at the
installment date that the taxpayer
reasonably believes will be replaced at
the end of the year.
(2) Example. The following example
illustrates the rules of this paragraph (g):
Example. Corporation X accounts for its
inventory using the dollar-value LIFO
method of accounting. If, when computing its
first annualized income installment, no
reliable inflation index exists for the period
January 1, 2006, through March 31, 2006, X
may interpolate from an available inflation
index for the same months in the previous
year to calculate its cost of goods sold.
(h) Events arising after installment
due date that were not reasonably
foreseeable—(1) In general. Events
arising subsequent to an installment due
date that cause the taxpayer’s
computation of its taxable income for a
prior installment period to be
understated will not result in a
recomputation of its taxable income for
the prior installment period. The
preceding sentence applies only if,
based on all the facts and circumstances
as of the due date of an installment
payment, it was not reasonably
foreseeable that these subsequent events
would occur.
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(2) Example. The following example
illustrates the rules of this paragraph
(h):
Example. Assume that Congress enacts
retroactively effective legislation that causes
the taxable income for the applicable 2-,
3-, 4-, 5-, 6-, 7-;, 8-, 9-, 10- or 11-month
period to be understated. This event, which
occurs after the applicable installment due
date and was not reasonably foreseeable at
the time the installment payment was made,
will not result in a recomputation of a
corporation’s taxable income for the
applicable installment period because such
an event was not reasonably foreseeable.
(i) Effective date. This section applies
to taxable years beginning after the date
that is 30 days after the date the final
regulations are published in the Federal
Register.
§ 1.6655–3
method.
Adjusted seasonal installment
(a) In general. In the case of any
required installment, the amount of the
adjusted seasonal installment is the
excess (if any) of—
(1) 100 percent of the amount
determined under paragraph (c) of this
section; over
(2) The aggregate amount of all prior
required installments for the taxable
year.
(b) Limitation on application of
section. This section shall apply only if
the base period percentage (as defined
in section 6655(e)(3)(D)(i) and paragraph
(d)(1) of this section) for any six
consecutive months of the taxable year
equals or exceeds seventy percent.
(c) Determination of amount. The
amount determined under this section
for any installment will be determined
in the following manner—
(1) Take the taxable income for all
months during the taxable year
preceding the filing month;
(2) Divide such amount by the base
period percentage for all months during
the taxable year preceding the filing
month;
(3) Determine the tax on the amount
determined under paragraph (c)(2) of
this section; and
(4) Multiply the tax computed under
paragraph (c)(3) of this section by the
base period percentage for the filing
month and all months during the
taxable year preceding the filing month.
(d) Special rules—(1) Base period
percentage. The base period percentage
for any period of months shall be the
average percent that the taxable income
for the corresponding months in each of
the three preceding taxable years bears
to the taxable income for the three
preceding taxable years.
(2) Filing month. The term filing
month means the month in which the
installment is required to be paid.
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(3) Application of the rules related to
the annualized income installment
method to the adjusted seasonal
installment method. The rules
governing the computation of taxable
income (and resulting tax) for purposes
of determining any required installment
payment of estimated tax under the
annualized income installment method
under § 1.6655–2 shall apply to the
computation of taxable income (and
resulting tax) for purposes of
determining any required installment
payment of estimated tax under the
adjusted seasonal installment method.
(e) Example. The provisions of this
section may be illustrated by the
following example:
Example. (i) X, a corporation that reports
on a calendar year basis, expected that it
would have an estimated tax liability of
$1,200,000 for its taxable year ending
December 31, 2006. On its 2005 tax return,
X reported a tax liability of $652,800. X paid
four installments of estimated tax, each in the
amount of $250,000, $250,000, $250,000, and
$450,000 on April 17, 2006, June 15, 2006,
September 15, 2006, and December 15, 2006,
respectively. X reported a tax liability of
$1,152,600 on its return due March 15, 2007,
with no credits against tax. Under the general
January
2003:
$100,000
2004:
200,000
2005:
410,000
2006:
600,000
(I) Amount of estimated tax required to be
paid on or before the third installment (25%
of $1,152,600)—288,150
(J) Deduct amount paid on or before the
due date of the third installment less amount
applied towards the first and second
installments under the general rule of section
6655(b) ($250,000 paid in each of the first,
second, and third installments less this
paragraph (e), Example (i)(C) less this
paragraph (e), Example (i)(F))—173,700
(K) Amount of underpayment for the third
installment date—114,450
(L) Amount of estimated tax required to be
paid on or before the fourth installment (25%
of $1,152,600)—288,150
(M) Deduct amount paid on or before the
due date of the fourth installment less
amount applied towards the first, second,
and third installments under the general rule
of section 6655(b) ($250,000 paid in each of
the first, second, and third installments plus
$450,000 paid in the fourth installment less
this paragraph (e), Example (i)(C) less this
paragraph (e), Example (i)(F) less this
paragraph (e), Example (i)(I))—335,550
(N) Amount of overpaid estimated tax for
the fourth installment date—47,400
(ii) X wants to determine if it qualifies for
the adjusted seasonal installment method. X
determines that its monthly taxable income
for the preceding three taxable years and for
the current taxable year 2006 is as follows:
February
March
April
May
June
July
August
September
October
November
December
$90,000
$80,000
$70,000
$60,000
$20,000
$10,000
$10,000
$10,000
$10,000
$10,000
$10,000
170,000
170,000
130,000
125,000
45,000
21,000
19,000
20,000
20,000
20,000
20,000
350,000
330,000
270,000
240,000
80,000
40,000
40,000
40,000
40,000
40,000
40,000
680,000
650,000
560,000
460,000
170,000
70,000
60,000
50,000
40,000
30,000
20,000
(iii) X must initially determine if its base
period percentage for the same 6 consecutive
months of the 3 preceding taxable years
equals or exceeds 70 percent (see section
6655(e)(3) and paragraphs (b) and (c) of this
section). By using its taxable income for the
first 6 months of 2003, 2004, and 2005, X
qualifies for the adjusted seasonal
installment method because its base period
percentage is 87.5 percent (which exceeds 70
percent) computed as follows:
(A) Taxable income for first 6 months of
2003—$420,000
(B) Total taxable income for 2003—480,000
(C) Divide this paragraph (e), Example
(iii)(A) by this paragraph (e), Example
(iii)(B)—.875
(D) Taxable income for first 6 months of
2004—840,000
(E) Total taxable income for 2004—960,000
(F) Divide this paragraph (e), Example
(iii)(D) by this paragraph (e), Example
(iii)(E)—.875
(G) Taxable income for first 6 months of
2005—1,680,000
(H) Total taxable income for 2005—
1,920,000
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provision of section 6655(b) and section
6655(d), there was an underpayment in the
amount of $76,300 for the second installment
through September 15, 2006, and $114,450
for the third installment through December
15, 2006, determined as follows:
(A) Tax as defined in section 6655(g)—
$1,152,600
(B) 100% of this paragraph (e), Example
(i)(A)—1,152,600
(C) Amount of estimated tax required to be
paid on or before the first installment (25%
of $652,800)—163,200
(D) Deduct amount timely paid on or
before the first installment due date under
the general rule of section 6655(b)—250,000
(E) Amount of overpaid estimated tax for
the first installment date—86,800
(F) Amount of estimated tax required to be
paid on or before the second installment
(25% of $1,152,600 plus the recapture
amount under section 6655(d)(2)(B) of
$124,950 (25% of $1,152,600 less 163,200))—
413,100
(G) Deduct amount paid on or before the
due date of the second installment less
amount applied towards the first installment
under the general rule of section 6655(b)
($250,000 paid in each of the first and second
installments less this paragraph (e), Example
(i)(C))—336,800
(H) Amount of underpayment for the
second installment date—76,300
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(I) Divide this paragraph (e), Example
(iii)(G) by this paragraph (e), Example
(iii)(H)—.875
(J) Add this paragraph (e), Example (iii)(C),
(F), and (I)—2.625
(K) Divide this paragraph (e), Example
(iii)(J) by 3—.875
(iv) To determine the amount of the first
installment under the rules of section
6655(e)(3) and paragraph (a) of this section,
the following computation is necessary:
(A) Taxable income for first 3 months of
2006—$1,930,000
(B) Taxable income for first 3 months of
2003 ($270,000) divided by total taxable
income for 2003 ($480,000)—.5625
(C) Taxable income for first 3 months of
2004 ($540,000) divided by total taxable
income for 2004 ($960,000)—.5625
(D) Taxable income for first 3 months of
2005 ($1,090,000) divided by total taxable
income for 2005 ($1,920,000)—.5677
(E) Add this paragraph (e), Example (iv)(B),
(C), and (D) and divide by 3—.5642
(F) Divide this paragraph (e), Example
(iv)(A) by this paragraph (e), Example
(iv)(E)—3,420,773
(G) Determine the tax on this paragraph (e),
Example (iv)(F)—1,163,049
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(H) Taxable income for first 4 months of
2003 ($340,000) divided by total taxable
income for 2003 ($480,000)—.7083
(I) Taxable income for first 4 months of
2004 ($670,000) divided by total taxable
income for 2004 ($960,000)—.6979
(J) Taxable income for first 4 months of
2005 ($1,360,000) divided by total taxable
income for 2005 (1,920,000)—.7083
(K) Add this paragraph (e), Example
(iv)(H), (I), and (J) and divide by 3—.7048
(L) Multiply this paragraph (e), Example
(iv)(G) by this paragraph (e), Example
(iv)(K)—819,717
(M) 100% of this paragraph (e), Example
(iv)(L)—819,717
(N) Amount of all prior required
installments for 2006—0
(O) Amount of adjusted seasonal
installment for the first installment payment
(this paragraph (e), Example (iv)(M) less this
paragraph (e), Example (iv)(N))—819,717
(v) To determine the amount of the second
installment under the rules of section
6655(e)(3) and paragraph (a) of this section,
the following computation is necessary:
(A) Taxable income for first 5 months of
2006—$2,950,000
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(B) Taxable income for first 5 months of
2003 ($400,000) divided by total taxable
income for 2003 ($480,000)—.8333
(C) Taxable income for first 5 months of
2004 ($795,000) divided by total taxable
income for 2004 ($960,000)—.8281
(D) Taxable income for first 5 months of
2005 ($1,600,000) divided by total taxable
income for 2005 ($1,920,000)—.8333
(E) Add this paragraph (e), Example (v)(B),
(C), and (D) and divide by 3—.8316
(F) Divide this paragraph (e), Example
(v)(A) by this paragraph (e), Example (v)(E)—
3,547,379
(G) Determine the tax on this paragraph (e),
Example (v)(F)—1,206,109
(H) Taxable income for first 6 months of
2003 ($420,000) divided by total taxable
income for 2003 ($480,000)—.875
(I) Taxable income for first 6 months of
2004 ($840,000) divided by total taxable
income for 2004 ($960,000)—.875
(J) Taxable income for first 6 months of
2005 ($1,680,000) divided by total taxable
income for 2005 ($1,920,000)—.875
(K) Add this paragraph (e), Example (v)(H),
(I), and (J) and divide by 3—.875
(L) Multiply this paragraph (e), Example
(v)(G) by this paragraph (e), Example (v)(K)—
1,055,345
(M) 100% of this paragraph (e), Example
(v)(L)—1,055,345
(N) Amount of all prior required
installments for 2006—163,200
(O) Amount of adjusted seasonal
installment for the second installment
payment (this paragraph (e), Example (v)(M)
less this paragraph (e), Example (v)(N))—
892,145
(vi) To determine the amount of the third
installment under the rules of section
6655(e)(3) and paragraph (a) of this section,
the following computation is necessary:
(A) Taxable income for first 8 months of
2006—$3,250,000
(B) Taxable income for first 8 months of
2003 ($440,000) divided by total taxable
income for 2003 ($480,000)—.9167
(C) Taxable income for first 8 months of
2004 ($880,000) divided by total taxable
income for 2004 ($960,000)—.9167
(D) Taxable income for first 8 months of
2005 ($1,760,000) divided by total taxable
income for 2005 ($1,920,000)—.9167
(E) Add this paragraph (e), Example (vi)(B),
(C), and (D) and divide by 3—.9167
(F) Divide this paragraph (e), Example
(vi)(A) by this paragraph (vi)(E)—3,545,326
(G) Determine the tax on this paragraph (e),
Example (vi)(F)—1,205,411
(H) Taxable income for first 9 months of
2003 ($450,000) divided by total taxable
income for 2003 ($480,000)—.9375
(I) Taxable income for first 9 months of
2004 ($900,000) divided by total taxable
income for 2004 ($960,000)—.9375
(J) Taxable income for first 9 months of
2005 ($1,800,000) divided by total taxable
income for 2005 ($1,920,000)—.9375
(K) Add this paragraph (e), Example
(vi)(H), (I), and (J) and divide by 3—.9375
(L) Multiply this paragraph (e), Example
(vi)(G) by this paragraph (e), Example
(vi)(K)—1,130,073
(M) 100% of this paragraph (e), Example
(vi)(L)—1,130,073
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(N) Amount of all prior required
installments for 2006—576,300
(O) Amount of adjusted seasonal
installment for the third installment payment
(this paragraph (e), Example (vi)(M) less this
paragraph (e), Example (vi)(N))—553,773
(vii) To determine the amount of the fourth
installment under the rules of section
6655(e)(3) and paragraph (a) of this section,
the following computation is necessary:
(A) Taxable income for first 11 months of
2006—$3,370,000
(B) Taxable income for first 11 months of
2003 ($470,000) divided by total taxable
income for 2003 ($480,000)—.9792
(C) Taxable income for first 11 months of
2004 ($940,000) divided by total taxable
income for 2004 ($960,000)—.9792
(D) Taxable income for first 11 months of
2005 ($1,880,000) divided by total taxable
income for 2005 ($1,920,000)—.9792
(E) Add this paragraph (e), Example
(vii)(B), (C), and (D) and divided by 3—.9792
(F) Divide this paragraph (e), Example
(vii)(A) by this paragraph (e), Example
(vii)(E)—3,441,585
(G) Determine the tax on this paragraph (e),
Example (vii)(F)—1,170,139
(H) Taxable income for first 12 months of
2003 ($480,000) divided by total taxable
income for 2003 ($480,000)—1.0000
(I) Taxable income for first 12 months of
2004 ($960,000) divided by total taxable
income for 2004 ($960,000)—1.0000
(J) Taxable income for first 12 months of
2005 ($1,920,000) divided by total taxable
income for 2005 ($1,920,000)—1.0000
(K) Add this paragraph (e), Example
(vii)(H), (I), and (J) and divide by 3—1.0000
(L) Multiply this paragraph (e), Example
(vii)(G) by this paragraph (e), Example
(vi)(K)—1,170,139
(M) 100% of this paragraph (e), Example
(vii)(L)—1,170,139
(N) Amount of all prior required
installments for 2006—864,450
(O) Amount of adjusted seasonal
installment for the fourth installment
payment (this paragraph (e), Example
(vii)(M) less this paragraph (e), Example
(vii)(N))—305,689
(viii) Because the total amount of each
required estimated tax payment determined
under section 6655(e)(3) and paragraph (a) of
this section exceeds the amount of each
required estimated tax payment determined
under section 6655(d) and § 1.6655–1(d) and
(e), the exception described in section
6655(e) and this section does not apply and
the addition to the tax with respect to the
underpayment for the June 15, 2006, and
September 15, 2006, installments will be
imposed unless another exception (for
example, see section 6655(e)(2)) applies with
respect to these installments.
(f) Effective date. This section applies
to taxable years beginning after the date
that is 30 days after the date the final
regulations are published in the Federal
Register.
Par. 8. Section 1.6655–4 is added to
read as follows:
§ 1.6655–4
Large corporations.
(a) Large corporation defined. The
term large corporation means any
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corporation (or a predecessor
corporation) that had taxable income of
at least $1,000,000 for any taxable year
during the testing period. For purposes
of this section, a predecessor
corporation is the distributor or
transferor corporation in a transaction to
which section 381 (relating to
carryovers in certain corporate
acquisitions) applies.
(b) Testing period. For purposes of
paragraph (a) of this section, the term
testing period means the 3 taxable years
immediately preceding the taxable year
for which estimated tax is being
determined (the current taxable year) or,
if less, the number of taxable years the
taxpayer has been in existence.
(c) Computation of taxable income
during testing period—(1) Short taxable
year. In the case of a corporation (or
predecessor corporation) that had a
short taxable year during the testing
period, for purposes of determining
whether the $1,000,000 amount referred
to in paragraph (a) of this section is
equaled or exceeded, the taxable income
for the short taxable year is computed
by—
(i) Multiplying the taxable income for
the short taxable year by 12; and
(ii) Dividing the resulting amount by
the number of months in the short
taxable year.
(2) Computation of taxable income in
taxable year when there occurs a
transaction to which section 381
applies. (i) For purposes of determining
whether an acquiring corporation had
taxable income of $1,000,000 or more
for a taxable year in which there occurs
a transaction to which section 381
applies, the acquiring corporation’s
taxable income will be the sum of—
(A) The taxable income of the
acquiring corporation for its taxable
year; plus
(B) The taxable income of the
distributor or transferor corporation for
that portion of the acquiring
corporation’s taxable year up to and
including the date of distribution or
transfer (as defined in § 1.381(b)–1(b)).
(ii) For purposes of determining
whether a transferor or distributor
corporation had taxable income of
$1,000,000 or more for a taxable year in
which there occurs a transaction to
which section 381 applies, the
distributor or transferor corporation’s
taxable income shall be reduced by the
amount of its taxable income for that
portion of its taxable year corresponding
to the acquiring corporation’s taxable
year up to and including the date of
distribution or transfer (as defined in
§ 1.381(b)–1(b)).
(d) Members of controlled group—(1)
In general. For purposes of applying
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paragraph (a) of this section, the taxable
income of members of a controlled
group of corporations (as defined in
section 1563(a)) must be aggregated for
each year of the testing period. The
provisions of this section shall not
apply to a controlled group for any
taxable year in which the aggregate
taxable income of the members of the
controlled group is less than $1,000,000.
(2) Aggregation. For purposes of
paragraph (d)(1) of this section, a
taxable loss of any member of the
controlled group for a taxable year
during the testing period is not taken
into account.
(3) Allocation rule. If the aggregate
taxable income of members of a
controlled group computed pursuant to
paragraph (d)(1) of this section exceeds
$1,000,000 during the testing period, the
$1,000,000 amount that is relevant for
purposes of determining, under
paragraph (a)(1) of this section, whether
a corporation is a large corporation shall
be divided equally among the
component members of such group
(including component members
excluded pursuant to paragraph (d)(2) of
this section) unless all of such
component members consent to an
apportionment plan providing for an
alternative allocation of such amount.
The procedure for making and filing this
plan will be the same as the procedure
used for making and filing an
apportionment plan under section 1561.
See section 1561 and the regulations.
(4) Controlled group members. (i) In
the case of any corporation that was a
member of a controlled group of
corporations at any time during the
testing period but is not a member of
such group during the taxable year
involved, the taxable income of the
former member for the testing period is
determined as if such corporation were
not a member of a group at any time
during that period. With respect to the
controlled group, the taxable income of
its former member will not be taken into
account in determining such group’s
taxable income for any taxable year
during the testing period for purposes of
applying paragraph (a)(1) of this section.
(ii) For purposes of paragraph (d)(4)(i)
of this section, the determination of
whether a corporation is a member of a
controlled group during the testing
period is based on whether the
corporation was a member of the
controlled group on the last day of the
month preceding the due date of the
required installment.
(e) Effect on a corporation’s taxable
income of items that may be carried
back or carried over from any other
taxable year. In determining whether a
corporation (or predecessor corporation)
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is a large corporation for its current
taxable year, items that could offset
taxable income during a taxable year
included in the testing period (for
example, those described in sections
172 and 1212) are not to be taken into
account and the taxable income of a
corporation for any taxable year during
the testing period shall be determined
without regard to items carried back or
carried over from any other taxable year.
(f) Consolidated returns. [Reserved].
(g) Example. The provisions of this
section may be illustrated by the
following example:
Example. Y Corporation and Z Corporation
are calendar year taxpayers. In 2006, Z
acquires all of the assets of Y in a transaction
to which section 381 applies. Z’s taxable
income for both 2004 and 2005 was less than
$1,000,000. Y’s taxable income for 2006 is
determined under paragraph (c)(2) of this
section to be $300,000 for that portion of the
acquiring corporation’s taxable year up to
and including the date of transfer. Z’s taxable
income for 2006 is $800,000. Under the
provisions of paragraph (c)(2) of this section,
Z’s 2006 taxable income for purposes of
determining whether it is a large corporation
for taxable year 2007 is $1,100,000 ($800,000
+ $300,000). Thus, Z is a large corporation for
the 2007 taxable year. In addition, if Z’s 2006
taxable income, as determined under
paragraph (c)(2) of this section, had been less
than $1,000,000 but Y’s taxable income in
2004 or 2005 had been $1,000,000 or more,
Z would be a large corporation for taxable
year 2007 because Y is a predecessor
corporation.
(h) Effective date. This section applies
to taxable years beginning after the date
that is 30 days after the date the final
regulations are published in the Federal
Register.
§ 1.6655–7
[Removed]
Par. 9. Section 1.6655–7 is removed.
§ 1.6655–5
[Redesignated as § 1.6655–7]
Par. 10. Section 1.6655–5 is
redesignated as § 1.6655–7.
Par. 11. Sections 1.6655–5 and
1.6655–6 are added to read as follows:
§ 1.6655–5
Short taxable year.
(a) In general. Except as otherwise
provided in this section, the provisions
of section 6655 and the regulations are
applicable in the case of a short taxable
year (including an initial taxable year)
for which a payment of estimated tax is
required to be made.
(b) Exception to payment of estimated
tax. In the case of a short taxable year,
no payment of estimated tax is required
if—
(1) The short taxable year is a period
of less than 4 full calendar months; or
(2) The tax shown on the return for
such taxable year (or, if no return is
filed, the tax) is less than $500.
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73409
(c) Installment due dates—(1) In
general—(i) Taxable year of four months
but less than twelve months. Except as
otherwise provided, in the case of a
short taxable year, if such year results in
a taxable year of four or more full
calendar months but less than twelve
full calendar months, the due dates
prescribed in § 1.6655–1(f)(2) shall
apply.
(ii) Exception. If the date determined
under paragraph (c)(1)(i) of this section
for the first required installment due
during the taxpayer’s short taxable year
is earlier than the 15th day of the fourth
month of the taxpayer’s short taxable
year, the taxpayer’s first required
installment shall be due on the first due
date otherwise determined under
paragraph (c)(1)(i) of this section that is
on or after the 15th day of the fourth
month of the short taxable year.
(2) Early termination of taxable year—
(i) In general. Except as provided in
paragraph (c)(2)(ii) of this section, 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 shall be the date
that would have been the due date of
the next required installment if the
event that gave rise to the short taxable
year had not occurred.
(ii) Exception. If the date determined
under paragraph (c)(2)(i) of this section
is within thirty days of the last day of
the short taxable year, the due date for
the final required installment shall be
the fifteenth day of the second month
following the month that includes the
last day of the short taxable year.
(d) Amount due for required
installment—(1) In general. The amount
due for any required installment
determined under section
6655(d)(1)(B)(i) for a short taxable year
shall be 100% of the required annual
payment for the short taxable year
divided by the number of required
installments due (as determined under
this section) for the short taxable year.
(2) Tax shown on the return for the
preceding taxable year. If the current
taxable year is a short taxable year, the
amount due for any required installment
determined under section
6655(d)(1)(B)(ii) shall be determined in
the following manner—
(i) Take 100% of the tax shown on the
return of the corporation for the
preceding taxable year;
(ii) Multiply such amount by the
number of full calendar months in the
current short taxable year and divide by
12; and
(iii) Divide the amount determined
under paragraph (d)(2)(ii) of this section
by the number of required installments
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due (as determined under this section)
for the current short taxable year.
(3) Applicable percentage. In the case
of any required installment determined
under section 6655(e), the applicable
percentage under section
6655(e)(2)(B)(ii) shall be—
(i) 25%, 50%, 75%, and 100% for the
first, second, third, and fourth (last)
required installments, respectively, if
the taxpayer will have four required
installments due for the short taxable
year;
(ii) 33.33%, 66.67%, and 100% for the
first, second, and third (last) required
installments, respectively, if the
taxpayer will have three required
installments due for the short taxable
year;
(iii) 50% and 100% for the first and
second (last) required installments,
respectively, if the taxpayer will have
two required installments due for the
short taxable year; or
(iv) 100% for the first (and last)
required installment if the taxpayer will
have one required installment for the
short taxable year.
(e) Examples. The following examples
illustrate the rules of this section:
Example 1. A corporation is a calendar
year taxpayer that was acquired by B
corporation on April 16, 2007, resulting in A
having a short taxable year from January 1
through April 16, 2007. Because A has a
taxable year of less than four full calendar
months, no estimated tax payments are
required by A for the short taxable year.
Example 2. B corporation began business
on January 10, 2007, and adopted a calendar
year as its taxable year. B computes its
required installments based on 100 percent of
the tax shown on the return for the taxable
year in accordance with section
6655(d)(1)(B)(i). Pursuant to § 1.6655–
1(f)(2)(i), the due dates of B’s required
installments for B’s initial taxable year from
January 10, 2007, through December 31,
2007, are April 15, 2007, June 15, 2007,
September 15, 2007, and December 15, 2007.
However, because the due dates for the first,
third, and fourth required installments fall on
a weekend, B’s required installment
payments will be timely if paid on or before
the first business day following the actual
due date of the required installments, that is,
April 16, 2007, September 17, 2007, and
December 17, 2007, respectively, for the first,
third, and fourth required installments.
Pursuant to paragraph (d)(1) of this section,
the amount due with each required
installment is 25% of the required annual
payment for B’s first required installment,
50% of the required annual payment for B’s
second required installment, 75% of the
required annual payment for B’s third
required installment, and 100% of the
required annual payment for B’s fourth
required installment.
Example 3. Corporation C began business
on February 12, 2007, and adopted a calendar
year as its taxable year. C computes its
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required installments based on 100 percent of
the tax shown on the return for the taxable
year in accordance with section
6655(d)(1)(B)(i). Pursuant to § 1.6655–
1(f)(2)(i), the due dates of C’s required
installments for C’s initial taxable year from
February 12, 2007, through December 31,
2007, are April 15, 2007, June 15, 2007,
September 15, 2007, and December 15, 2007.
However, in accordance with paragraph
(c)(1)(ii) of this section, C’s first required
installment is due June 15, 2007, because
April 15, 2007, is earlier than the fifteenth
day of the fourth month of C’s taxable year.
As a result, C’s second required installment
is due September 15, 2007, and C’s third (and
last) installment is due December 15, 2007.
However, because the due dates for the
second and third (and last) required
installments fall on a weekend, C’s required
installment payments will be timely if paid
on or before the first business day following
the actual due date of the required
installments, that is, September 17, 2007, and
December 17, 2007, respectively, for the
second and third (and last) required
installments. Pursuant to paragraph (d)(1) of
this section, the amount due with each
required installment is 33.33% of the
required annual payment for C’s first
required installment, 66.67% of the required
annual payment for C’s second required
installment, and 100% of the required annual
payment for C’s third (and last) required
installment.
Example 4. Same facts as Example 3 except
C began business on April 10, 2007. In
accordance with paragraph (c)(1)(ii) of this
section, C’s first required installment is due
September 15, 2007, because April 15, 2007,
and June 15, 2007, are earlier than the
fifteenth day of the fourth month of C’s
taxable year. As a result, C’s second (and last)
required installment is due December 15,
2007. However, because the due dates for the
first and second (and last) required
installments fall on a weekend, C’s required
installment payments will be timely if paid
on or before the first business day following
the actual due date of the required
installments, that is, September 17, 2007, and
December 17, 2007, respectively, for the first
and second (and last) required installments.
Pursuant to paragraph (d)(1) of this section,
the amount due with each required
installment is 50% of the required annual
payment for C’s first required installment,
and 100% of the required annual payment for
C’s second (and last) required installment.
Example 5. D corporation began business
on February 12, 2007, and adopted a fiscal
year ending October 31 as its taxable year. D
computes its required installments based on
100 percent of the tax shown on the return
for the taxable year in accordance with
section 6655(d)(1)(B)(i). Pursuant to
§ 1.6655–1(f)(2)(ii), the due dates of D’s
required installments for D’s initial taxable
year from February 12, 2007, through October
31, 2007, are February 15, 2007, April 15,
2007, July 15, 2007, and October 15, 2007.
However, in accordance with paragraph
(c)(1)(ii) of this section, D’s first required
installment is due July 15, 2007, because
February 15, 2007, and April 15, 2007, are
earlier than the fifteenth day of the fourth
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month of D’s taxable year. As a result, D’s
second (and last) installment is due October
15, 2007. However, because the due date for
the first required installment falls on a
weekend, D’s first required installment
payment will be timely if paid on or before
the first business day following the actual
due date of the required installment, that is,
July 16, 2007. Pursuant to paragraph (d)(1) of
this section, the amount due with each
required installment is 50% of the required
annual payment for D’s first required
installment, and 100% of the required annual
payment for D’s second (and last) required
installment.
Example 6. Same facts as Example 5 except
D corporation began business on May 10,
2007. In accordance with paragraph (c)(1)(ii)
of this section, D’s first (and last) installment
is due October 15, 2007, because July 15,
2007, is earlier than the fifteenth day of the
fourth month of D’s taxable year. Pursuant to
paragraph (d)(1) of this section, the amount
due with D’s required installment is 100% of
the required annual payment, computed as
100% divided by the number of required
installments due for the short taxable year.
Example 7. E corporation is a calendar year
taxpayer that computes its required
installments based on 100 percent of the tax
shown on the return for the taxable year in
accordance with section 6655(d)(1)(B)(i). E
computes its 2007 required installments
based on a projected 2007 total tax liability
of $600,000. On July 31, 2007, E is acquired
by F corporation resulting in E having a short
taxable year from January 1, 2007, through
July 31, 2007. E determines that its total tax
liability for the short period is $350,000. The
due dates for E’s first and second required
installments are April 15, 2007, and June 15,
2007, respectively. However, because the due
date for the first required installment falls on
a weekend, E’s first required installment
payment will be timely if paid on or before
the first business day following the actual
due date of the required installment, that is,
April 16, 2007. Pursuant to section
6655(d)(1)(A), E paid $150,000 with each
required installment. Pursuant to paragraph
(c)(2) of this section, E’s third (and last)
required installment of estimated tax is due
on September 15, 2007, and the percentage
of the required annual payment due with
such installment is 100% pursuant to
paragraph (d)(1) of this section. However,
because the due date for the third (and last)
required installment falls on a weekend, E’s
third (and last) required installment payment
will be timely if paid on or before the first
business day following the actual due date of
the required installment, that is, September
17, 2007. Accordingly, E is required to pay
$50,000 with its final required installment on
September 17, 2007 ($350,000 total tax
liability for the short taxable year less prior
installment payments of $300,000).
Example 8. Same facts as Example 7 except
that E is acquired by F corporation on August
31, 2007. Pursuant to paragraph (c)(2)(ii) of
this section, E’s third (and last) required
installment of estimated tax is due on
October 15, 2007, because September 15,
2007, the date that would have been the due
date of E’s next required installment if F’s
acquisition of E had not occurred, is within
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thirty days of the last day of E’s short taxable
year, and 100% of the required annual
payment is due with such installment.
Example 9. F corporation is a calendar year
taxpayer that computes its required
installments based on 100 percent of the tax
shown on the return for the taxable year in
accordance with section 6655(d)(1)(B)(i). F
computes its 2007 estimated tax payments
based on a projected 2007 total tax liability
of $900,000. On December 3, 2007, F is
acquired by G corporation resulting in F
having a short taxable year from January 1,
2007, through December 3, 2007. F
determined its total tax liability for the short
period to be $800,000. The due dates for F’s
first, second, and third required installments
are April 15, 2007, June 15, 2007, and
September 15, 2007, respectively. However,
because the due dates for the first and third
required installments fall on a weekend, F’s
required installment payments will be timely
if paid on or before the first business day
following the actual due date of the required
installments, that is, April 16, 2007, and
September 17, 2007, respectively, for the first
and third required installments. Pursuant to
section 6655(d)(1)(A), F paid $225,000 with
each required installment. Pursuant to
paragraph (c)(2)(ii) of this section, F’s fourth
(and last) required installment of estimated
tax is due on February 15, 2008, and the
percentage of the required annual payment
due with such installment is 100% pursuant
to paragraph (d)(1) of this section.
Accordingly, F is required to pay $125,000
with its final required installment due
February 15, 2008 ($800,000 total tax liability
for the short taxable year less prior
installment payments of $675,000).
Example 10. G corporation, a calendar year
taxpayer, reported a tax liability of $75,000
on its return for the taxable year ending
December 31, 2006, and is not a large
corporation as defined in section 6655(g). On
July 31, 2007, G makes a final distribution of
its assets, in connection with a plan of
complete liquidation, resulting in a short
taxable year from January 1, 2007, through
July 31, 2007. To satisfy the requirements of
the exception described in section
6655(d)(1)(B)(ii) for payments determined by
reference to the tax shown on the return of
the corporation for the preceding taxable
year, pursuant to paragraph (d)(2) of this
section, G must pay in a proportionate
amount of its 2006 tax liability based on the
number of months in the current taxable
year. Accordingly, G must pay $43,750
($75,000 × 7⁄12) through payments of
estimated tax payments in 2007, with
$14,583 due on April 15, 2007, June 15, 2007,
and September 15, 2007. However, because
the due dates for the first and third required
installments fall on a weekend, G’s required
installment payments will be timely if paid
on or before the first business day following
the actual due date of the required
installments, that is, April 16, 2007, and
September 17, 2007, respectively, for the first
and third required installments.
Example 11. Same facts as Example 10
except that G makes a final distribution of its
assets, in connection with a plan of complete
liquidation, on October 1, 2007, resulting in
a short taxable year from January 1, 2007,
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through October 1, 2007. To satisfy the
requirements of the exception described in
section 6655(d)(1)(B)(ii), G must pay $56,250
($75,000 × 9⁄12) through payments of
estimated tax in 2007, with $14,063 due on
April 15, 2007, June 15, 2007, September 15,
2007, and December 15, 2007, respectively.
However, because the due dates for the first,
third, and fourth required installments fall on
a weekend, G’s required installment
payments will be timely if paid on or before
the first business day following the actual
due date of the required installments, that is,
April 16, 2007, September 17, 2007, and
December 17, 2007, respectively, for the first,
third, and fourth required installments.
Example 12. H corporation began business
on February 15, 2007, and adopted a calendar
year. H computes its required installments
based on 100 percent of the tax shown on the
return for the taxable year in accordance with
section 6655(d)(1)(B)(i). H estimated at the
beginning of its short taxable year that its
estimated tax liability for short taxable year
February 15, 2007, through December 31,
2007, would be $180,000. H paid its first
required installment of estimated tax of
$60,000 on June 15, 2007, its second required
installment of estimated tax of $60,000 on
September 17, 2007, and its third (and last)
required installment of estimated tax of
$60,000 on December 17, 2007 ($180,000
total estimated tax liability for the short
taxable year less prior installment payments
of $120,000). H reported a tax liability of
$240,000 on its return for the short period
February 15, 2007, through December 31,
2007, with no credits against tax. There was
an underpayment in the amount of $20,000
on the first installment date through
September 15, 2007, $40,000 on the second
installment date through December 15, 2007,
and $60,000 on the third (and last)
installment date through March 15, 2008,
determined as follows:
(i) Tax as defined in section
6655(d)(1)(B)(i)—$240,000
(ii) 100% of this paragraph (e), Example 12
(i)—240,000
(iii) Amount of estimated tax required to be
paid by the first installment date (33.33% of
$240,000)—80,000
(iv) Amount of estimated tax required to be
paid by the second installment date (66.67%
of $240,000 less $80,000 (amount due with
first installment))—80,000
(v) Amount of estimated tax required to be
paid by the third installment date (100% of
$240,000 less $160,000 (amount due with
first and second installment))—80,000
(vi) Deduct amount paid on or before the
first installment date—60,000
(vii) Amount of underpayment for the first
installment date (this paragraph (e), Example
12 (iii) minus this paragraph (e), Example 12
(vi))—20,000
(viii) Deduct amount available for the
second installment date ($60,000 second
installment payment less this paragraph (e),
Example 12 (vii) applied towards the first
installment underpayment)—40,000
(ix) Amount of underpayment for the
second installment date (this paragraph (e),
Example 12 (iv) minus this paragraph (e),
Example 12 (viii))—40,000
(x) Deduct amount available for the third
installment date ($60,000 third installment
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73411
payment less this paragraph (e), Example 12
(ix) applied towards the second installment
underpayment)—20,000
(xi) Amount of underpayment for the third
installment date (this paragraph (e), Example
12 (v) minus this paragraph (e), Example 12
(x))—60,000
(f) 52 or 53 week taxable year. For
purposes of this section a taxable year
of 52 or 53 weeks shall be deemed a
period of 12 months in the case of a
corporation that computes its taxable
income in accordance with the election
permitted by section 441(f).
(g) Use of annualized income or
seasonal installment method—(1) In
general. Regardless of the annual
accounting period used by a corporation
(for example, calendar year, fiscal year)
the taxpayer may use the method
described in § 1.6655–2 (annualized
income installment method) or
§ 1.6655–3 (adjusted seasonal
installment method) to compute its
required installments of estimated tax
when the current taxable year is a short
taxable year.
(2) Computation of annualized
income installment. To the extent a
short taxable year includes an
annualization period elected by the
taxpayer, the taxpayer shall compute its
annualized income installment by
determining the tax on the basis of such
annualized income for the annualization
period multiplied by the number of
months in the short taxable year divided
by 12.
(3) Annualization period for final
required installment. For purposes of
determining the final required
installment (as described in paragraph
(c)(2) of this section) for a short taxable
year, annualized taxable income shall be
determined by placing on an annualized
basis the taxable income for the last
complete annualization period that
occurs within the short taxable year.
(4) Examples. The provisions of
paragraph (g) of this section may be
illustrated by the following examples:
Example 1. X corporation began business
on February 12, 2007, and adopted a calendar
year as its taxable year. X adopts an accrual
method of accounting and uses the
annualized income installment method
under section 6655(e)(2)(A)(i) to calculate all
of its required installment payments for its
2007 taxable year. Pursuant to § 1.6655–
1(f)(2)(i), the due dates of X’s required
installments for X’s initial taxable year from
February 12, 2007, through December 31,
2007, are April 15, 2007, June 15, 2007,
September 15, 2007, and December 15, 2007.
However, in accordance with paragraph
(c)(1)(ii) of this section, X’s first required
installment is due June 15, 2007. As a result,
X’s second required installment is due
September 15, 2007, and X’s third (and last)
required installment is due December 15,
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2007. However, because the due dates for the
third and fourth required installments fall on
a weekend, X’s required installment
payments will be timely if paid on or before
the first business day following the actual
due date of the required installments, that is,
September 17, 2007, and December 17, 2007,
respectively, for the third and fourth required
installments. The amount of X’s first and
second required installments are each based
on annualizing X’s taxable income from
February 12, 2007, through April 30, 2007,
(the first three months of X’s taxable year)
and X’s third (and last) required installment
is based on annualizing X’s taxable income
from February 12, 2007, through July 31,
2007 (the first six months of X’s taxable year).
Because X will have three required
installments due for its short taxable year,
pursuant to paragraph (d)(3)(ii) of this
section, the applicable percentage is 33.33%
for X’s first required installment, 66.67% for
X’s second required installment, and 100%
for X’s third (and last) required installment.
Example 2. Y, a calendar year corporation,
made a final distribution of its assets, in
connection with a plan of complete
liquidation, on August 1, 2007. Y filed a
timely election to use the alternative
annualization periods described under
section 6655(e)(2)(C)(i) and determined that
its taxable income for the first 2, 4 and 7
months of the taxable year was $25,000,
$50,000 and $140,000. The due dates for Y’s
required installments for its short taxable
year January 1, 2007, through August 1, 2007,
are April 15, 2007, June 15, 2007, and
September 15, 2007. However, because the
due dates for the first and third required
installments fall on a weekend, Y’s required
installment payments will be timely if paid
on or before the first business day following
the actual due date of the required
installments, that is, April 16, 2007, and
September 17, 2007, respectively, for the first
and third required installments. Y made
installment payments of $10,000, $10,000,
and $20,000, respectively, on April 16, 2007,
June 15, 2007, and September 17, 2007. The
taxable income for each period is annualized
as follows:
$25,000 × 12⁄2 = $150,000
$50,000 × 12⁄4 = $150,000
$140,000 × 12⁄7 = $240,000
(i)(A) To determine whether the first
required installment equals or exceeds the
amount that would have been required to
have been paid if the estimated tax were
equal to one hundred percent of the tax
computed on the annualized income for the
2-month period taking into account the
number of months in the short taxable year,
the following computation is necessary:
(1) Annualized income for the 2-month
period—$150,000
(2) Tax on this paragraph (g)(4), Example
2 (i)(A)(1)—39,250
(3) Tax determined under this paragraph
(g)(4), Example 2 (i)(A)(2) multiplied by 7
(the number of months in the short taxable
year) divided by 12—22,896
(4) 100% of this paragraph (g)(4), Example
2 (i)(A)(3)—22,896
(5) 33.33% of this paragraph (g)(4),
Example 2 (i)(A)(4)—7,631
(B) Because the total amount of estimated
tax that is timely paid on or before the first
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installment date ($10,000) exceeds the
amount required to be paid on or before this
date if the estimated tax were one hundred
percent of the tax determined by placing on
an annualized basis the taxable income for
the first 2-month period taking into account
the number of months in the short taxable
year, the exception described in § 1.6655–2(a)
applies and no addition to tax will be
imposed for the installment due on April 15,
2007.
(ii)(A) To determine whether the required
installments made on or before June 15, 2007,
equal or exceed the amount that would have
been required to have been paid if the
estimated tax were equal to one hundred
percent of the tax computed on the
annualized income for the 4-month period
taking into account the number of months in
the short taxable year, the following
computation is necessary:
(1) Annualized income for the 4-month
period—$150,000
(2) Tax on this paragraph (g)(4), Example
2 (ii)(A)(1)—39,250
(3) Tax determined under this paragraph
(g)(4), Example 2 (ii)(A)(2) multiplied by 7
(the number of months in the short taxable
year) divided by 12—22,896
(4) 100% of this paragraph (g)(4), Example
2 (ii)(A)(3)—22,896
(5) 66.67% of this paragraph (g)(4),
Example 2 (ii) (A)(4) less $7,631 (amount due
with first installment)—7,631
(B) Because the total amount of estimated
tax available to apply towards the amount
due for the second installment ($12,369
($10,000 paid on the second installment date
plus $2,369 overpayment of the first
installment)) exceeds the amount required to
be paid on or before this date if the estimated
tax were one hundred percent of the tax
determined by placing on an annualized
basis the taxable income for the first 4-month
period for the taxable year taking into
account the number of months in the short
taxable year, the exception described in
§ 1.6655–2(a) applies and no addition to tax
will be imposed for the installment due on
June 15, 2007.
(iii)(A) Pursuant to paragraph (c) and (d) of
this section, the final required installment is
due by September 15, 2007, and the
applicable percentage due for the final
required installment is 100%. However,
because the due date for the final required
installment falls on a weekend, Y’s final
required installment payment will be timely
if paid on or before the first business day
following the actual due date of the required
installment, that is, September 17, 2007. To
determine whether the installment payments
made on or before September 17, 2007, equal
or exceed the amount that would have been
required to have been paid if the estimated
tax were equal to one hundred percent of the
tax computed on the annualized income for
the 7-month period taking into account the
number of months in the short taxable year,
the following computation is necessary:
(1) Annualized income for the 7-month
period—$240,000
(2) Tax on this paragraph (g)(4), Example
2 (iii)(A)(1)—56,100
(3) Tax determined under this paragraph
(g)(4), Example 2 (iii)(A)(2) multiplied by 7
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(the number of months in the short taxable
year) divided by 12—32,725
(4) 100% of this paragraph (g)(4), Example
2 (iii)(A)(3)—32,725
(5) 100% of this paragraph (g)(4), Example
2 (iii)(A)(4) less $15,262 (amount due with
first and second installment)—17,463
(B) Because the total amount of estimated
tax available to apply towards the amount
due for the final installment ($24,738
($20,000 that is timely paid on the third
installment date plus $4,738 overpayment of
the second installment)) exceeds the amount
required to be paid on or before this date if
the estimated tax were one hundred percent
of the tax determined by placing on an
annualized basis the taxable income for the
first 7-month period for the taxable year
taking into account the number of months in
the short taxable year, the exception
described in § 1.6655–2(a) applies and no
addition to tax will be imposed for the final
installment due on September 15, 2007.
(h) Preceding taxable year a short
taxable year. If the preceding taxable
year referred to in section 6655(d)(1)
was a short taxable year, the tax
computed on the basis of the facts
shown on the return for such preceding
year, for purposes of determining the
applicability of the exception described
in section 6655(d)(2), shall be the tax
computed on the annual basis in the
manner described in section 443(b)(1)
(prior to the reduction of the tax liability
in the manner described in the last
sentence).
(i) Effective date. This section applies
to taxable years beginning after the date
that is 30 days after the date the final
regulations are published in the Federal
Register.
§ 1.6655–6
Methods of accounting.
(a) In general. In computing any
required installment, a corporation must
use the methods of accounting used in
computing taxable income for the
taxable year for which estimated tax is
being determined (the current taxable
year).
(b) Exceptions—(1) Automatic
accounting method changes. If a
taxpayer is making a change in method
of accounting for the current taxable
year that is permitted to be made with
the automatic consent of the
Commissioner, the new method of
accounting shall be used in determining
any required installment if, and only if,
the copy of the Form 3115, ‘‘Application
for Change in Accounting Method,’’ has
been mailed to the IRS National Office
on or before the last day of the
annualization period.
(2) Non-automatic accounting method
changes. If a taxpayer is making a
change in method of accounting for the
current taxable year that requires the
prior consent of the Commissioner, the
new method of accounting shall be used
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in determining any required installment
if, and only if, the consent agreement
reflecting the Commissioner’s consent to
the change in method of accounting and
the prescribed terms and conditions for
effecting such change has been signed
by the taxpayer and mailed to the IRS
National Office on or before the last day
of the annualization period.
(c) Examples. The following examples
illustrate the rules of this section:
Example 1. X corporation, a calendar year
taxpayer, uses an accrual method of
accounting and the annualization method
under section 6655(e)(2)(A)(i) to calculate its
2006 required installments. X receives
advance payments each taxable year with
respect to agreements for the sale of goods
properly includible in X’s inventory. The
advance payments received by X qualify for
deferral under § 1.451–5(c). Although X is
eligible to defer the advance payments in
accordance with § 1.451–5(c), X’s method of
accounting with respect to the advance
payments is to include the advance payments
in income when received. If, as of the last
day of the annualization period, X’s method
of accounting for advance payments is to
include the advance payments in income
when received, and the requirements of
paragraph (b)(1) or (b)(2) of this section, as
applicable, are not met, then X must use that
method of accounting for purposes of
computing such required installment.
Example 2. Y corporation, a calendar year
taxpayer, uses an accrual method of
accounting and the annualization method
under section 6655(e)(2)(A)(i) to calculate its
2006 required installments. Y computes its
annual taxable income by deducting its
liability for state income taxes in the taxable
year the taxes are paid, without regard to the
recurring item exception of section 461(h)
and the regulations. If, as of the last day of
the annualization period, Y’s method of
accounting for state income taxes is to deduct
such taxes in the taxable year the taxes are
paid without regard to the recurring item
exception, and the requirements of paragraph
(b)(1) or (b)(2) of this section, as applicable,
are not met, then Y must use that method of
accounting for purposes of computing such
required installment.
(d) Effective date. This section applies
to taxable years beginning after the date
that is 30 days after the date the final
regulations are published in the Federal
Register.
Par. 12. Newly designated § 1.6655–7
is revised to read as follows:
§ 1.6655–7 Addition to tax on account of
excessive adjustment under section 6425.
(a) Section 6655(h) imposes an
addition to the tax under chapter 1 of
the Internal Revenue Code in the case of
any excessive amount (as defined in
paragraph (c) of this section) of an
adjustment under section 6425 that is
made before the 15th day of the third
month following the close of a taxable
year beginning after December 31, 1967.
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This addition to tax is imposed whether
or not there was reasonable cause for an
excessive adjustment.
(b) If the amount of an adjustment
under section 6425 is excessive, there
shall be added to the tax under chapter
1 of the Internal Revenue Code for the
taxable year an amount determined at
the annual rate referred to in the
regulations under section 6621 upon the
excessive amount from the date on
which the credit is allowed or refund
paid to the 15th day of the third month
following the close of the taxable year.
A refund is paid on the date it is
allowed under section 6407.
(c) The excessive amount is equal to
the lesser of the amount of the
adjustment or the amount by which—
(1) The income tax liability (as
defined in section 6425(c)) for the
taxable year, as shown on the return for
the taxable year; exceeds
(2) The estimated income tax paid
during the taxable year, reduced by the
amount of the adjustment.
(d) The computation of the addition to
the tax imposed by section 6425 is made
independent of, and does not affect the
computation of, any addition to the tax
that a corporation may otherwise owe
for an underpayment of an installment
of estimated tax.
(e) The following example illustrates
the rules of this section:
Example. (i) Corporation X, a calendar year
taxpayer, had an underpayment as defined in
section 6655(b), for its fourth installment of
estimated tax that was due on December 15,
2006, in the amount of $10,000. On January
2, 2007, X filed an application for adjustment
of overpayment of estimated income tax for
2006 in the amount of $20,000.
(ii) On February 16, 2007, the IRS, in
response to the application, refunded
$20,000 to X. On March 15, 2007, X filed its
2006 tax return and made a payment in
settlement of its total tax liability. Assuming
that the addition to tax is computed under
section 6621(a)(2) at a rate of 8% per annum
for the applicable periods of underpayment,
under section 6655(a), X is subject to an
addition to tax in the amount of $197 (90/365
× $10,000 × 8%) on account of X’s December
15, 2006, underpayment. Under section
6655(h), X is subject to an addition to tax in
the amount of $118 (27/365 × $20,000 × 8%)
on account of X’s excessive adjustment under
section 6425. In determining the amount of
the addition to tax under section 6655(a) for
failure to pay estimated income tax, the
excessive adjustment under section 6425 is
not taken into account.
(f) An adjustment is generally to be
treated as a reduction of estimated
income tax paid as of the date of the
adjustment. However, for purposes of
§ 1.6655–1 through § 1.6655–6, the
adjustment is to be treated as if not
made in determining whether there has
been any underpayment of estimated
PO 00000
Frm 00023
Fmt 4702
Sfmt 4702
73413
income tax and, if there is an
underpayment, the period during which
the underpayment existed.
(g) This section applies to taxable
years beginning after the date that is 30
days after the date the final regulations
are published in the Federal Register.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 13. The authority citation for part
301 continues to read, in part, as
follows:
Authority: 26 U.S.C. 7805 * * *
Par. 14. Section 301.6655–1 is revised
to read as follows:
§ 301.6655–1 Failure by corporation to pay
estimated income tax.
(a) For regulations under section
6655, see §§ 1.6655–1 through 1.6655–7
of this chapter.
(b) This section applies to taxable
years beginning after the date that is 30
days after the date the final regulations
are published in the Federal Register.
Mark E. Matthews,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. 05–23872 Filed 12–7–05; 8:45 am]
BILLING CODE 4830–01–P
EQUAL EMPLOYMENT OPPORTUNITY
COMMISSION
29 CFR Part 1611
Privacy Act Fee Schedule
Equal Employment
Opportunity Commission.
ACTION: Notice of proposed rulemaking.
AGENCY:
SUMMARY: The Equal Employment
Opportunity Commission (EEOC or the
Commission) is seeking comments on
proposed revisions to its Privacy Act fee
schedule. The proposed schedule of fees
conforms to EEOC’s Freedom of
Information Act (FOIA) fee schedule
which was recently updated (70 FR
57510 of October 3, 2005).
DATES: The agency must receive
comments on or before January 11,
2006.
Written comments should
be submitted to Stephen Llewellyn,
Acting Executive Officer, Executive
Secretariat, Equal Employment
Opportunity Commission, 1801 L Street,
NW., Washington, DC 20507. As a
convenience to commenters, the
Executive Secretariat will accept
comments of six pages or less
transmitted by facsimile (‘‘fax’’)
machine. The telephone number of the
ADDRESSES:
E:\FR\FM\12DEP1.SGM
12DEP1
Agencies
[Federal Register Volume 70, Number 237 (Monday, December 12, 2005)]
[Proposed Rules]
[Pages 73393-73413]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-23872]
=======================================================================
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
[REG-107722-00]
RIN 1545-AY22
Corporate Estimated Tax
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Partial withdrawal of previous proposed rules, notice of
proposed rulemaking, and notice of public hearing.
-----------------------------------------------------------------------
SUMMARY: This document withdraws proposed regulations relating to
corporate estimated taxes. This document also contains new proposed
regulations that provide guidance to corporations with respect to
estimated tax requirements. These proposed regulations generally affect
corporate taxpayers who are required to make estimated tax payments.
These proposed amendments reflect changes to the law since 1984. This
document also provides notice of a public hearing on these proposed
regulations.
DATES: Written or electronic comments must be received by February 22,
2006. Outlines of topics to be discussed at the public hearing
scheduled for March 15, 2006, must be received by February 22, 2006.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-107722-00), room
5203, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-
107722-00), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue, NW., Washington, DC, or sent
[[Page 73394]]
electronically, via the IRS Internet site at https://www.irs.gov/regs or
via the Federal eRulemaking Portal at https://www.regulations.gov (IRS-
REG-107722-00). The public hearing will be held in the Auditorium,
Internal Revenue Service Building, 1111 Constitution Avenue, NW.,
Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Joseph P. Dewald, (202) 622-4910; concerning the submissions of
comments, the hearing, and/or to be placed on the building access list
to attend the hearing, Robin Jones at (202) 622-7180 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of Provisions
This document withdraws Sec. Sec. 1.6152-1(a)(1), 1.6654-
2(d)(1)(i), 1.6655-1, 1.6655-2, 1.6655-3, 1.6655-4, 1.6655-5, 1.6655-6,
and 301.6655-1 in the notice of proposed rulemaking (LR-228-82)
relating to corporate estimated taxes under section 6655 that was
published in the Federal Register (49 FR 11186) on March 26, 1984
(referred to as the 1984 proposed regulations). This document also
contains new proposed amendments to the Income Tax Regulations (26 CFR
Part 1) and the Procedure and Administration Regulations (26 CFR Part
301) relating to corporate estimated taxes under section 6425 and
section 6655 of the Internal Revenue Code. The IRS is withdrawing the
1984 proposed regulations because significant changes to the law since
1984 have caused them to become outdated.
These proposed regulations reflect changes to the law made by the
Deficit Reduction Act of 1984, Public Law 98-369 (98 Stat. 494), the
Superfund Amendments and Reauthorization Act of 1986, Public Law 99-499
(100 Stat. 1613), the Tax Reform Act of 1986, Public Law 99-514 (100
Stat. 2085), the Omnibus Budget Reconciliation Act of 1987, Public Law
100-203 (101 Stat. 1330), the Revenue Act of 1987, Public Law 100-203
(101 Stat. 1330-382), the Omnibus Trade and Competitiveness Act of
1988, Public Law 100-418 (102 Stat. 1107), the Technical and
Miscellaneous Revenue Act of 1988, Public Law 100-647 (102 Stat. 3342),
the Omnibus Budget Reconciliation Act of 1989, Public Law 101-239 (103
Stat. 2106), the Omnibus Budget Reconciliation Act of 1990, Public Law
101-508 (104 Stat. 1388), the Tax Extension Act of 1991, Public Law
102-227 (105 Stat. 1686), the Act of Feb. 7, 1992, Public Law 102-244
(106 Stat. 3), the Unemployment Compensation Amendments of 1992, Public
Law 102-318 (106 Stat. 290), the Omnibus Budget Reconciliation Act of
1993, Public Law 103-66 (107 Stat. 312), the Uruguay Round Agreements
Act of 1994, Public Law 103-465 (108 Stat. 4809), the Small Business
Job Protection Act of 1996, Public Law 104-188 (110 Stat. 1755), the
Taxpayer Relief Act of 1997, Public Law 105-34 (111 Stat. 788), the
Ticket to Work and Work Incentives Improvement Act of 1999, Public Law
106-170 (113 Stat. 1860), the Community Renewal Tax Relief Act of 2000,
Public Law 106-554 (114 Stat. 2763), the Economic Growth and Tax Relief
Reconciliation Act of 2001, Public Law 107-16 (115 Stat. 38), the Jobs
and Growth Tax Relief Reconciliation Act of 2003, Public Law 108-27
(117 Stat. 752), and the American Jobs Creation Act of 2004, Public Law
108-357 (118 Stat. 1418).
The existing regulations under section 6655 do not reflect
significant changes to the tax law since 1984, most notably the
enactment of the economic performance rules under section 461(h). Since
the enactment of section 461(h), the determination of when economic
performance must occur for taxpayers to take a deduction into account
for purposes of computing a quarterly estimated tax payment has been
unclear, particularly for taxpayers that compute their quarterly
estimated tax payments using an annualization method.
In addition, the IRS and Treasury Department have become aware of
techniques employed by taxpayers, particularly those taxpayers
computing their estimated tax payments using an annualization method,
that reduce, if not eliminate, estimated tax payments for one or more
installments for a taxable year. The proposed regulations provide rules
that the IRS and Treasury Department believe result in a more accurate
reflection of annualized income than methods that taxpayers may
currently be employing. For example, the proposed regulations make it
clear that taxpayers may not, for any purpose, determine taxable income
for an annualization period or an adjusted seasonal installment period
as though the period is a short taxable year. The proposed regulations
provide specific rules for determining taxable income for any
annualization period, including how section 461(h) is to be applied in
computing taxable income for any annualization period. For example,
with respect to an item of income or gain, the proposed regulations
provide that the item must be taken into account in computing
annualized taxable income for a particular annualization period if the
item is includible in computing taxable income in accordance with
section 451 on or before the last day of the annualization period. With
respect to an item of deduction, the proposed regulations generally
provide that an accrual method taxpayer may take into account a
deduction in computing annualized taxable income for a particular
annualization period only to the extent the item is incurred under
Sec. 1.461-1(a)(2) on or before the last day of the annualization
period. For purposes of determining whether a deduction may be taken
into account by an accrual method taxpayer in determining annualized
taxable income for a particular annualization period, the provisions of
section 170(a)(2) and Sec. 1.170A-11(b) (charitable contributions by
accrual method corporations), Sec. 1.461-4(d)(6)(ii) (provision of
services or property to a taxpayer), Sec. 1.461-5 (recurring item
exception), and any other provision that has a similar effect are not
taken into account in determining whether the item of deduction has
been incurred under Sec. 1.461-1(a)(2) and is deductible in computing
annualized taxable income for an annualization period.
Revenue Ruling 76-450 (1976-2 C.B. 444), provides that state
property tax and franchise tax are deductible from the income for an
annualization period on the date the taxpayer accrues the taxes under
the taxpayer's method of accounting. Revenue Ruling 76-450 was issued
prior to the enactment of section 461(h) and does not take into account
the application of the economic performance requirements of section
461(h) for purposes of computing an estimated tax payment using the
annualized income installment method. The proposed regulations address
the application of section 461(h) for purposes of the annualized income
installment method and provide that a taxpayer using an accrual method
of accounting cannot take a deduction into account unless the deduction
has been incurred under Sec. 1.461-1(a)(2) and is otherwise deductible
in computing taxable income for the applicable annualization period. As
a result of the rules provided in the proposed regulations regarding
the application of section 461(h) to the annualized income installment
method, Rev. Rul. 76-450 is no longer applicable and will be obsolete
when these regulations are effective.
For purposes of section 404 and the regulations, regardless of the
overall method of accounting employed by the taxpayer, the applicable
2-, 3-, 4-, 5-, 6-, 7-, 8-, 9-, 10- or 11-month annualization period
shall not be treated
[[Page 73395]]
as a short taxable year and the rules of section 404 and the
regulations shall be applied on the basis of the taxpayer's taxable
year for which estimated tax is being determined. Thus, the
determination of whether a payment to an employee is deferred
compensation under Sec. 1.404(b)-1T shall be made by reference to
whether the payment is received by the employee more than a brief
period of time after the last day of the taxable year for which
estimated tax is being determined, and not the last day of the
annualization period. With respect to contributions to qualified plans
governed by section 404 and the regulations, in determining whether an
item is paid or incurred by the end of an annualization period,
economic performance is satisfied only to the extent such item is paid
by the last day of the annualization period (without regard to section
404(a)(6)) and does not, in combination with other such items paid
during the annualization period, exceed the applicable deduction limit
of section 404(a) for the taxable year. For purposes of sections 419
and 419A and the regulations, regardless of the overall method of
accounting employed by the taxpayer, the applicable 2-, 3-, 4-, 5-, 6-,
7-, 8-, 9-, 10-, or 11-month annualization period shall not be treated
as a short taxable year and the rules of sections 419 and 419A and the
regulations shall be applied on the basis of the taxpayer's taxable
year for which estimated tax is being determined. With respect to
contributions to a welfare benefit fund governed by sections 419 and
419A and the regulations, in determining whether an item is paid or
incurred by the end of an annualization period, economic performance is
satisfied only to the extent such item is paid by the last day of the
applicable annualization period and does not, in combination with other
such items paid during the annualization period, exceed the applicable
deduction limit of section 419 for the taxable year.
The proposed regulations provide guidance for annual expenses paid
or incurred at the end of the taxable year, or after the end of the
taxable year that are deemed paid or incurred during the taxable year.
Section 1.6655-2(f)(2)(i) of the proposed regulations provides that if
an accrual method taxpayer has a history of incurring a specific item
of expense (or paying a specific item of expense, in the case of a cash
method taxpayer) that, while attributable to income earned throughout
the current taxable year, is not incurred (or paid, in the case of a
cash method taxpayer) until the end of the taxable year or after the
end of the current taxable year and is deemed incurred (or paid, in the
case of a cash method taxpayer) during the current taxable year (taking
into account, as applicable, section 170(a)(2) and Sec. 1.170A-11(b),
section 404(a)(6), Sec. 1.461-4(d)(6)(ii), Sec. 1.461-5, and any
other provision that has a similar effect), then the taxpayer may take
into account a proportionate part of the specific item of expense for
each annualization period. In such case the taxpayer may take into
account a proportionate part of the specific item of expense for each
annualization period only if the portion of the annual expense taken
into account is determined with reasonable accuracy and the expense is
properly deducted by the taxpayer for the current taxable year under
the taxpayer's method of accounting. For purposes of Sec. 1.6655-
2(f)(2)(i), a taxpayer has a history of incurring or paying a specific
item of expense at the end of the taxable year, or after the end of the
taxable year that is deemed incurred or paid during the taxable year,
if, in each of the two taxable years immediately preceding the current
taxable year (or the immediately preceding taxable year if the taxpayer
was not in existence for the two preceding taxable years), the taxpayer
incurred or paid the specific item of expense at the end of each
taxable year, or after the end of each taxable year that was deemed
incurred or paid during such taxable year. For purposes of Sec.
1.6655-2(f)(2)(i), the term ``the end of the taxable year'' means the
period between and including the 15th and last day of the last month of
the taxable year.
The proposed regulations also provide guidance regarding the
treatment of specific items for purposes of computing annualized
taxable income for an annualization period. For example, net operating
loss carryovers must be taken into account in computing an annualized
income installment after placing the taxable income for the
annualization period on an annualized basis, and section 481(a)
adjustments must be recognized ratably over the applicable adjustment
period.
Revenue Ruling 67-93 (1967-1 C.B. 366), provides that a taxpayer
should deduct a net operating loss (NOL) carryover from the income for
an annualization period before annualizing the income for that period.
As previously stated, the IRS and Treasury Department believe that it
is not appropriate for taxpayers to determine taxable income for an
annualization period or an adjusted seasonal installment period as
though the period is a short taxable year. As a result, the IRS and
Treasury Department now believe that it is a more appropriate
reflection of annualized taxable income if a NOL carryover is deducted
after annualizing the taxable income for an applicable annualization
period or adjusted seasonal installment period. Accordingly, the
proposed regulations provide that a taxpayer must annualize taxable
income before taking into account a NOL carryover and reduce the
annualized amount by the NOL carryover. As a result, Rev. Rul. 67-93
will be obsolete when these regulations are effective.
In addition, the proposed regulations provide guidance on the
amount of depreciation and amortization (depreciation) expense that a
taxpayer may take into account for an annualization period. The
proposed regulations generally provide that a proportionate amount of a
taxpayer's estimated annual depreciation expense shall be taken into
account when determining any annualized income installment for the
taxable year. In determining the estimated annual depreciation expense,
a taxpayer may take into account purchases, sales or other
dispositions, changes in use, depreciation permitted by sections 168(k)
and 1400L, and other similar events that, based on all of the relevant
information available as of the last day of the annualization period
(such as capital spending budgets, financial statement data and
projections, or similar reports that provide evidence of the taxpayer's
capital spending plans for the current taxable year), the taxpayer
reasonably expects to occur during the taxable year. As an alternative
to estimating annual depreciation expense based on events that are
reasonably expected to occur, the proposed regulations provide that, in
general, a taxpayer may claim for an annualization period at least a
proportionate amount of 50 percent of the taxpayer's estimated
depreciation expense for the current taxable year attributable to
assets that the taxpayer had in service on the last day of the
preceding taxable year, that remain in service on the first day of the
current taxable year, and that are subject to the half-year convention.
The proposed regulations also provide that an annualization period
cannot be treated as a short taxable year, including for purposes of
determining the depreciation allowance for such annualization period.
The proposed regulations also provide guidance regarding short
taxable years, including the due dates for required installments for a
short taxable year (including a taxpayer's initial taxable year), the
computation of such installments, and the applicable
[[Page 73396]]
percentage of the annual tax due with each installment.
Proposed Effective Date
These regulations are proposed to apply to taxable years beginning
after the date that is 30 days after the date the final regulations are
published in the Federal Register. Until the final regulations become
effective, taxpayers may rely on these proposed rules for taxable years
beginning on or after the date this notice of proposed rulemaking is
published in the Federal Register, provided, however, that the taxpayer
applies all of these proposed rules in determining its required
installments.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. Except with
respect to Sec. 1.6655-5, which deals with the rules applicable to a
short taxable year, it has been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to
these regulations, and because these provisions do not impose a
collection of information on small businesses, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does not apply. With respect to
Sec. 1.6655-5, it is hereby certified that this provision of the
regulations will not have a significant economic impact on a
substantial number of small entities. This certification is based on
the fact that not many small businesses are going to be subject to the
short taxable year rules because: (1) Existing small businesses
generally are not targets of mergers and acquisitions, which result in
a short taxable year; (2) start-up small businesses with a short
taxable year of less than four months do not have to pay estimated
taxes; and (3) start-up small businesses with a short taxable year of
four months or more are not likely to have taxable income that would be
subject to the corporate estimated tax rules. Therefore, a Regulatory
Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to section 7805(f) of the Internal
Revenue Code, this notice of proposed rulemaking will be submitted to
the Chief Counsel for Advocacy of the Small Business Administration for
comment on its impact on small businesses.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any electronic or written comments (a
signed original and eight (8) copies) that are submitted timely to the
IRS. The IRS and Treasury Department request comments on the clarity of
the proposed rules and how they can be made easier to understand. In
particular, the IRS and Treasury Department request comments on whether
the 52-53 week taxable year rules under Sec. 1.6655-2(e) should be
simplified. The IRS and Treasury Department also request comments on
whether the final regulations should include an additional exception,
similar to the exception provided in Sec. 1.6655-2(f)(2)(i), that
would permit a taxpayer to take into account for an annualization
period a proportionate amount of a specific item of expense that is
attributable to income earned throughout the current taxable year and
is paid or incurred during the taxable year but after the applicable
annualization period. If such an exception is appropriate, the IRS and
Treasury Department request comments on what specific types of expenses
would meet the requirements of the rule, and whether the exception
should provide for any additional limitations, such as a requirement
that a minimum percentage of the annual amount of the expense be paid
or incurred on a particular day during the taxable year. All comments
will be available for public inspection and copying.
A public hearing has been scheduled for February 22, 2006,
beginning at 10 a.m. in the Auditorium of the Internal Revenue Service
Building, 1111 Constitution Avenue, NW., Washington, DC. Due to
building security procedures, visitors must enter at the Constitution
Avenue entrance. In addition, all visitors must present photo
identification to enter the building. Because of access restrictions,
visitors will not be admitted beyond the immediate entrance area more
than 30 minutes before the hearing starts. For information about having
your name placed on the building access list to attend the hearing, see
the FOR FURTHER INFORMATION CONTACT section of this preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments must submit electronic or written
comments and an outline of the topics to be discussed and time to be
devoted to each topic (a signed original and eight (8) copies) by
February 22, 2006. A period of 10 minutes will be allotted to each
person for making comments. An agenda showing the scheduling of the
speakers will be prepared after the deadline for receiving outlines has
passed. Copies of the agenda will be available free of charge at the
hearing.
Drafting Information
The principal authors of these regulations are Robert A. Desilets,
Jr., formerly of the Office of Associate Chief Counsel (Procedure and
Administration), Administrative Provisions and Judicial Practice
Division, and Joseph P. Dewald, Office of Associate Chief Counsel
(Procedure and Administration), Administrative Provisions and Judicial
Practice Division.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
Partial Withdrawal of a Previous Notice of Proposed Rulemaking
Accordingly, under the authority of 26 U.S.C. 7805, Sec. Sec.
1.6152-1(a)(1), 1.6654-2(d)(1)(i), 1.6655-1, 1.6655-2, 1.6655-3,
1.6655-4, 1.6655-5, 1.6655-6, and 301.6655-1 in the notice of proposed
rulemaking published in the Federal Register on March 26, 1984, (LR-
228-82) (49 FR 11186) are withdrawn.
Proposed Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 301 are proposed to be amended as
follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by adding
an entry in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.6655-5 also issued under 26 U.S.C. 6655(i)(2). * * *
Par. 2. In Sec. 1.56-0, the heading for paragraph (e)(5) is added
to read as follows:
Sec. 1.56-0 Table of contents to Sec. 1.56-1, adjustment for book
income of corporations.
* * * * *
(e) * * *
(5) Effective date.
Par. 3. In Sec. 1.56-1, paragraph (e)(4) is revised and paragraph
(e)(5) is added to read as follows:
Sec. 1.56-1 Adjustment for the book income of corporations.
* * * * *
(e) * * *
(4) Estimating the book income adjustment for purposes of the
[[Page 73397]]
estimated tax liability. See Sec. 1.6655-7, as issued by TD 8307 (55
FR 33671), for special rules for estimating the corporate alternative
minimum tax book income adjustment under the annualization exception.
(5) Effective date. Paragraph (e)(4) of this section is applicable
for taxable years beginning after the date that is 30 days after the
date the final regulations are published in the Federal Register.
Par. 4. In Sec. 1.6425-2, paragraph (a) is revised and paragraph
(c) is added to read as follows:
Sec. 1.6425-2 Computation of adjustment of overpayment of estimated
tax.
(a) Income tax liability defined. For purposes of Sec. Sec.
1.6425-1 through 1.6425-3 and 1.6655-7, relating to excessive
adjustment, the term income tax liability means the excess of--
(1) The sum of--
(i) The tax imposed by section 11 or 1201(a), or subchapter L of
chapter 1 of the Internal Revenue Code, whichever is applicable; plus
(ii) The tax imposed by section 55; over
(2) The credits against tax provided by part IV of subchapter A of
chapter 1 of the Internal Revenue Code.
* * * * *
(c) Effective date. Paragraph (a) of this section is applicable to
applications for adjustments of overpayments of estimated income tax
that are filed in taxable years beginning after the date that is 30
days after the date the final regulations are published in the Federal
Register.
Par. 5. Section 1.6425-3 is amended by:
1. Revising paragraphs (f)(1) and (f)(2).
2. Adding paragraph (f)(3).
The revisions and addition read as follows:
Sec. 1.6425-3 Allowance of adjustments.
* * * * *
(f) Effect of adjustment. (1) For purposes of all sections of the
Internal Revenue Code except section 6655, relating to additions to tax
for failure to pay estimated income tax, any adjustment under section
6425 is to be treated as a reduction of prior estimated tax payments as
of the date the credit is allowed or the refund is paid. For the
purpose of sections 6655(a) through (g), (i), and (j), credit or refund
of an adjustment is to be treated as if not made in determining whether
there has been any underpayment of estimated income tax and, if there
is an underpayment, the period during which the underpayment existed.
However, an excessive adjustment under section 6425 shall be taken into
account in applying the addition to tax under section 6655(h).
(2) For the effect of an excessive adjustment under section 6425,
see Sec. 1.6655-7.
(3) This paragraph (f) is applicable to applications for
adjustments of overpayments of estimated income tax that are filed in
taxable years beginning after the date that is 30 days after the date
the final regulations are published in the Federal Register.
Par. 6. Section 1.6655-0 is added to read as follows:
Sec. 1.6655-0 Table of contents.
This section lists the table of contents for Sec. Sec. 1.6655-1
through 1.6655-7.
Sec. 1.6655-1 Addition to the tax in the case of a corporation.
(a) In general.
(b) Amount of underpayment.
(c) Period of the underpayment.
(d) Amount of required installment.
(e) Large corporation required to pay 100 percent of current
year tax.
(1) In general.
(2) May use last year's tax for 1st installment.
(f) Required installment due dates.
(1) Number of required installments.
(2) Time for payment of installments.
(i) Calendar year.
(ii) Fiscal year.
(iii) Short taxable year.
(iv) Partial month.
(g) Definitions.
(h) Special rules for consolidated returns.
(i) Overpayments applied to subsequent taxable year's estimated
tax.
(1) In general.
(2) Subsequent examinations.
(j) Examples.
(k) Effective date.
Sec. 1.6655-2 Annualized income installment method.
(a) In general.
(b) Determination of annualized income installment--In general.
(c) Special rules.
(1) Applicable percentage.
(2) Partial month.
(d) Election of different annualization periods.
(e) 52-53 week taxable year.
(f) Determination of taxable income for an annualization period.
(1) In general.
(2) Exceptions.
(i) Annual expenses paid or incurred at or after the end of the
taxable year.
(ii) Net operating loss carryover.
(iii) Credit carryover.
(iv) Section 481(a) adjustment.
(v) Depreciation and amortization.
(A) General rule.
(B) Short taxable years.
(vi) Member of partnership.
(3) Examples.
(g) Items that substantially affect taxable income but cannot be
determined accurately by the installment due date.
(1) In general.
(2) Example.
(h) Events arising after installment due date that were not
reasonably foreseeable.
(1) In general.
(2) Example.
(i) Effective date.
Sec. 1.6655-3 Adjusted seasonal installment method.
(a) In general.
(b) Limitation on application of section.
(c) Determination of amount.
(d) Special rules.
(1) Base period percentage.
(2) Filing month.
(3) Application of the rules related to the annualized income
installment method to the adjusted seasonal installment method.
(e) Example.
(f) Effective date.
Sec. 1.6655-4 Large corporations.
(a) Large corporation defined.
(b) Testing period.
(c) Computation of taxable income during testing period.
(1) Short taxable year.
(2) Computation of taxable income in taxable year when there
occurs a transaction to which section 381 applies.
(d) Members of controlled group.
(1) In general.
(2) Aggregation.
(3) Allocation rule.
(4) Controlled group members.
(e) Effect on a corporation's taxable income of items that may
be carried back or carried over from any other taxable year.
(f) Consolidated returns. [Reserved]
(g) Example.
(h) Effective date.
Sec. 1.6655-5 Short taxable year.
(a) In general.
(b) Exception to payment of estimated tax.
(c) Installment due dates.
(1) In general.
(i) Taxable year of four months but less than twelve months.
(ii) Exception.
(2) Early termination of taxable year.
(i) In general.
(ii) Exception.
(d) Amount due for required installment.
(1) In general.
(2) Tax shown on the return for the preceding taxable year.
(3) Applicable percentage.
(e) Examples.
(f) 52 or 53 week taxable year.
(g) Use of annualized income or seasonal installment method.
(1) In general.
(2) Computation of annualized income installment.
(3) Annualization period for final required installment.
(4) Examples.
(h) Preceding taxable year a short taxable year.
(i) Effective date.
Sec. 1.6655-6 Methods of accounting.
(a) In general.
[[Page 73398]]
(b) Exceptions.
(1) Automatic accounting method changes.
(2) Non-automatic accounting method changes.
(c) Examples.
(d) Effective date.
Sec. 1.6655-7 Addition to tax on account of excessive adjustment
under section 6425.
Par. 7. Sections 1.6655-1, 1.6655-2, and 1.6655-3 are revised to
read as follows:
Sec. 1.6655-1 Addition to the tax in the case of a corporation.
(a) In general. Section 6655 imposes an addition to the tax under
chapter 1 of the Internal Revenue Code in the case of any underpayment
of estimated tax by a corporation. An addition to tax due to the
underpayment of estimated taxes is determined by applying the
underpayment rate established under section 6621 to the amount of the
underpayment, for the period of the underpayment. This addition to the
tax is in addition to any applicable criminal penalties and is imposed
whether or not there was reasonable cause for the underpayment.
(b) Amount of underpayment. The amount of the underpayment for any
required installment is the excess of--
(1) The required installment; over
(2) The amount, if any, of the installment paid on or before the
last date prescribed for such payment.
(c) Period of the underpayment. The period of the underpayment of
any required installment runs from the date the installment was
required to be paid to the 15th day of the 3rd month following the
close of the taxable year, or to the date such underpayment is paid,
whichever is earlier. For purposes of determining the period of the
underpayment--
(1) The date prescribed for payment of any installment of estimated
tax shall be determined without regard to any extension of time; and
(2) A payment of estimated tax will be credited against unpaid
required installments in the order in which such installments are
required to be paid.
(d) Amount of required installment. Except as otherwise provided in
this section and Sec. Sec. 1.6655-2 through 1.6655-7, the amount of
any required installment is 25 percent of the lesser of--
(1) 100 percent of the tax shown on the return for the taxable year
(or, if no return is filed, 100 percent of the tax for such year); or
(2) 100 percent of the tax shown on the return of the corporation
for the preceding taxable year.
(3) Paragraph (d)(2) of this section shall not apply if the
preceding taxable year was not a taxable year of 12 months or the
corporation did not file a return for such preceding taxable year
showing a liability for tax.
(e) Large corporation required to pay 100 percent of current year
tax--(1) In general. Except as provided in paragraph (e)(2) of this
section, paragraph (d)(2) of this section shall not apply in the case
of a large corporation (as defined in Sec. 1.6655-4).
(2) May use last year's tax for first installment. Paragraph (e)(1)
of this section shall not apply for purposes of determining the amount
of the first required installment for any taxable year. Any reduction
in such first installment by reason of the preceding sentence shall be
recaptured by increasing the amount of the next required installment
determined under paragraph (d)(1) of this section by the amount of such
reduction and, if the next required installment is reduced by use of
the annualized income installment method under Sec. 1.6655-2 or the
adjusted seasonal installment method under Sec. 1.6655-3, by
increasing subsequent required installments determined under paragraph
(d)(1) of this section to the extent that the reduction has not
previously been recaptured.
(f) Required installment due dates--(1) Number of required
installments. Unless otherwise provided, corporations must make 4
required installments for each taxable year.
(2) Time for payment of installments--(i) Calendar year. In the
case of a calendar year taxpayer, the due dates of the required
installments are as follows:
1st--April 15
2nd--June 15
3rd--September 15
4th--December 15
(ii) Fiscal year. In the case of a taxpayer other than a calendar
year taxpayer, the due dates of the required installments are as
follows:
1st--15th day of 4th month of the taxable year
2nd--15th day of 6th month of the taxable year
3rd--15th day of 9th month of the taxable year
4th--15th day of 12th month of the taxable year
(iii) Short taxable year. See Sec. 1.6655-5 for rules regarding
required installments for corporations with a short taxable year.
(iv) Partial month. Except as otherwise provided, for purposes of
determining the due date of any required installment a partial month
shall be treated as a full month.
(g) Definitions. (1) The term tax as used in this section and
Sec. Sec. 1.6655-2 through 1.6655-7 means the excess of--
(i) The sum of--
(A) The tax imposed by section 11, section 1201(a), or subchapter L
of chapter 1 of the Internal Revenue Code, whichever is applicable;
(B) The tax imposed by section 55; plus
(C) The tax imposed by section 887; over
(D) The credits against tax provided by part IV of subchapter A of
chapter 1 of the Internal Revenue Code.
(ii) In the case of a foreign corporation subject to taxation under
section 11, section 1201(a), or subchapter L of chapter 1 of the
Internal Revenue Code, the tax imposed by section 881 shall be treated
as a tax imposed by section 11.
(iii) In the case of a partnership that is treated, pursuant to
regulations issued under section 1446(f)(2), as a corporation for
purposes of this section, the tax imposed by section 1446 shall be
treated as a tax imposed by section 11.
(2) For the purposes of paragraph (d)(2) of this section, the term
return for the preceding taxable year means the Federal income tax
return for such taxable year that is required by section 6012(a)(2).
However, if an amended Federal income tax return has been filed before
the due date for an installment, then the term return for the preceding
taxable year means the Federal income tax return as amended. Paragraph
(d)(2) of this section will apply without regard to whether the
taxpayer's Federal income tax return for the preceding taxable year is
filed in a timely manner.
(3) If the tax rates for the current taxable year for which
estimated tax is being determined differ from the rates applicable to
the preceding taxable year, the tax determined for the preceding
taxable year shall be recomputed using the rates applicable to the
current taxable year.
(h) Special rules for consolidated returns. For special rules
relating to the determination of the amount of the underpayment in the
case of a corporation whose income is included in a consolidated
return, see Sec. 1.1502-5(b).
(i) Overpayments applied to subsequent taxable year's estimated
tax--(1) In general. If a taxpayer elects under the provisions of
sections 6402(b) and 6513(d) and the regulations to apply an
overpayment in year one against the estimated tax liability for year
two, the overpayment will be applied to the required installment
payments for year two in the order due and to the extent necessary to
satisfy such installments, similar to the manner in which an
[[Page 73399]]
actual overpayment of one installment is carried forward to the next
installment. No interest is accrued or paid on an overpayment if the
election to apply the overpayment against estimated tax is made.
(2) Subsequent examinations. If a deficiency is determined in an
examination of a return for a taxable year that originally reflected an
overpayment that was applied against estimated tax for the succeeding
taxable year, interest on the deficiency will not begin to accrue on an
amount applied until that amount is used to satisfy a required
estimated tax payment in such taxable year. Regardless of whether the
taxpayer anticipated the application of such overpayment from the prior
taxable year in calculating and paying its required estimated tax
installment liabilities for the current taxable year, the subsequently
determined underpayment and interest computation thereon will not
change the taxpayer's original election to apply the overpayment
against the estimated tax liability of the succeeding taxable year. Any
changes to the usage of the original overpayment from the prior taxable
year are hypothetical only and solely for the purpose of computing
deficiency interest. Overpayment interest will not be impacted. For
further guidance, see Rev. Rul. 99-40 (1999-2 C.B. 441), (see Sec.
601.601(d)(2)(ii)(b) of this chapter).
(j) Examples. The method prescribed in paragraphs (d) through (g)
of this section may be illustrated by the following examples:
Example 1. X, a calendar year corporation, estimates its tax
liability for its taxable year ending December 31, 2006, will be
$85,000. X is not a large corporation as defined in section
6655(g)(2) and Sec. 1.6655-4. X reported a liability of $74,900 on
its return for the taxable year ended December 31, 2005, with no
credits against tax. X paid four installments of estimated tax, each
in the amount of $18,725 (25 percent of $74,900), on April 17, 2006,
June 15, 2006, September 15, 2006, and December 15, 2006,
respectively. X reported a tax liability of $88,900 on its return
due March 15, 2007. X had a $5,000 credit against tax for tax year
2006 as provided by part IV of subchapter A of chapter 1 of the
Internal Revenue Code. X did not underpay its estimated tax for tax
year 2006 for any of the four installments, determined as follows:
(i) Tax as defined in paragraph (g) of this section for 2006
($88,900-$5,000)--$83,900
(ii) Tax as defined in paragraph (g) of this section for 2005--
74,900
(iii) 100% of the lesser of this paragraph (j), Example 1 (i) or
(ii)--74,900
(iv) Amount of estimated tax required to be paid on or before
each installment date (25% of $74,900)--18,725
(v) Deduct amount paid on or before each installment date--
18,725
(vi) Amount of underpayment for each installment date--0
Example 2. (i) Facts. Y, a calendar year corporation, estimates
its tax liability for its taxable year ending December 31, 2006,
will be $70,000. Y is not a large corporation as defined in section
6655(g)(2) and Sec. 1.6655-4. Y reported a Federal income tax
liability of $90,000 for its taxable year ending December 31, 2005.
Y paid no installment of estimated tax on or before April 17, 2006,
June 15, 2006, or September 15, 2006, but made a payment of $63,000
on December 15, 2006. On March 15, 2007, Y filed its income tax
return showing a tax of $70,000. Y had no credits against tax for
tax year 2006. Of the $63,000 paid by Y on December 15, 2006,
$17,500 is applied to each of the first three installments due on
April 15, June 15, and September 15, 2006, and the remaining $10,500
is applied to the fourth installment. Y has an underpayment of
estimated tax for each of the first three installments of $17,500
and for the fourth installment of $7,000. The addition to tax under
section 6655(a) is computed as follows:
(A) Tax as defined in paragraph (g) of this section for 2006--
$70,000
(B) Tax as defined in paragraph (g) of this section for 2005--
90,000
(C) 100% of the lesser of this paragraph (j), Example 2 (i)(A)
or (i)(B)--70,000
(D) Amount of estimated tax required to be paid on or before
each installment date (25% of $70,000)--17,500
(E) Amount paid on or before the first, second, and third
installment dates--0
(F) Amount paid on or before the fourth installment date--63,000
(G) Amount of underpayment for the first, second, and third
installment dates--17,500
(H) Amount of underpayment for the fourth installment date--
7,000
(ii) Addition to tax. Assuming that neither the annualized
income installment method nor the adjusted seasonal installment
method described in Sec. Sec. 1.6655-2 and 1.6655-3 would result in
a lower payment for any installment period, and the addition to tax
is computed under section 6621(a)(2) at the rate of 8 percent per
annum for the applicable periods of underpayment, the addition to
tax is determined as follows:
(A) First installment (underpayment period 4-16-06 through 12-
15-06), computed as 244/365 x $17,500 x 8%--$936
(B) Second installment (underpayment period 6-16-06 through 12-
15-06), computed as 183/365 x $17,500 x 8%--702
(C) Third installment (underpayment period 9-16-06 through 12-
15-06), computed as 91/365 x $17,500 x 8%--349
(D) Fourth installment (underpayment period 12-16-06 through 3-
15-07), computed as 90/365 x $7,000 x 8%--138
(E) Total of this paragraph (j), Example 2 (ii)(A) through (D)--
2,125
(k) Effective date. This section applies to taxable years beginning
after the date that is 30 days after the date the final regulations are
published in the Federal Register.
Sec. 1.6655-2 Annualized income installment method.
(a) In general. In the case of any required installment, if the
corporation establishes that the annualized income installment
determined under this section, or the adjusted seasonal installment
determined under Sec. 1.6655-3, is less than the amount determined
under Sec. 1.6655-1--
(1) The amount of such required installment shall be the annualized
income installment (or, if less, the adjusted seasonal installment);
and
(2) Any reduction in a required installment resulting from the
application of this section will be recaptured by increasing the amount
of the next required installment determined under Sec. 1.6655-1 by the
amount of such reduction (and, if the next required installment is
similarly reduced, by increasing subsequent required installments to
the extent that the reduction has not previously been recaptured).
(b) Determination of annualized income installment--In general. In
the case of any required installment, the annualized income installment
is the excess (if any) of--
(1) The product of the applicable percentage and the tax for the
taxable year computed by annualizing the taxable income and alternative
minimum taxable income--
(i) For the first 3 months of the taxable year, in the case of the
first required installment;
(ii) For the first 3 months of the taxable year, in the case of the
second required installment;
(iii) For the first 6 months of the taxable year in the case of the
third required installment; and
(iv) For the first 9 months of the taxable year, in the case of the
fourth required installment; over
(2) The aggregate amount of any prior required installments for the
taxable year.
(c) Special rules--(1) Applicable percentage. Except as otherwise
provided in Sec. 1.6655-5(d) with respect to short taxable years--
------------------------------------------------------------------------
The applicable
In the case of the following required installments: percentage is:
------------------------------------------------------------------------
1st.................................................. 25
2nd.................................................. 50
3rd.................................................. 75
4th.................................................. 100
------------------------------------------------------------------------
(2) Partial month. Except as otherwise provided, for purposes of
paragraph (b) of this section a partial month shall be treated as a
month.
[[Page 73400]]
(d) Election of different annualization periods. (1) If the
taxpayer timely files Form 8842, ``Election to Use Different
Annualization Periods for Corporate Estimated Tax,'' in accordance with
section 6655(e)(2)(C)(iii), and elects Option 1--
(i) Paragraph (b)(1)(i) of this section will be applied by using
the language ``2 months'' instead of ``3 months'';
(ii) Paragraph (b)(1)(ii) of this section will be applied by using
the language ``4 months'' instead of ``3 months'';
(iii) Paragraph (b)(1)(iii) of this section will be applied by
using the language ``7 months'' instead of ``6 months''; and
(iv) Paragraph (b)(1)(iv) of this section will be applied by using
the language ``10 months'' instead of ``9 months''.
(2) If the taxpayer timely files Form 8842, in accordance with
section 6655(e)(2)(C)(iii), and elects Option 2--
(i) Paragraph (b)(1)(ii) of this section will be applied by using
the language ``5 months'' instead of ``3 months'';
(ii) Paragraph (b)(1)(iii) of this section will be applied by using
the language ``8 months'' instead of ``6 months''; and
(iii) Paragraph (b)(1)(iv) of this section will be applied by using
the language ``11 months'' instead of ``9 months''.
(e) 52-53 week taxable year. (1) Generally, in the case of a
taxpayer whose taxable year constitutes 52 or 53 weeks in accordance
with section 441(f), the rules prescribed by Sec. 1.441-2 shall be
applicable in determining--
(i) Whether a taxable year is a taxable year of 12 months; and
(ii) When the 2-, 3-, 4-, 5-, 6-, 7-, 8-, 9-, 10-, or 11-month
period (whichever is applicable) commences and ends for purposes of
paragraphs (b)(1), (d)(1) and (d)(2) of this section.
(2) If a taxpayer employs four 13-week periods or thirteen 4-week
accounting periods and the end of any accounting period employed by the
taxpayer does not correspond to the end of the 2-, 3-, 4-, 5-, 6-, 7-,
8-, 9-, 10-, or 11-month period (whichever is applicable), then,
provided the taxpayer has at least one full 4-week or 13-week
accounting period, as appropriate, within the applicable period,
annualized taxable income for the applicable period shall be--
(i) [(x/(y*13))*z], in the case of a taxpayer using four 13-week
periods, if--
(A) x = Taxable income for the number of full 13-week periods in
the applicable period;
(B) y = The number of full 13-week periods in the applicable
period; and
(C) z = The number of weeks in the taxable year; or
(ii) [(x/(y*4))*z], in the case of a taxpayer using thirteen 4-week
periods, if--
(A) x = Taxable income for the full 4-week periods in the
applicable period;
(B) y = The number of full 4-week periods in the applicable period;
and
(C) z = The number of weeks in the taxable year.
(3) If a taxpayer employs four 13-week periods and the taxpayer
does not have at least one 13-week period within the applicable 2-, 3-,
4-, 5-, 6-, 7-, 8-, 9-, 10-, or 11-month period, the taxpayer shall be
permitted to determine annualized taxable income for the applicable
period based upon--
(i) The taxable income for the number of weeks in the applicable
period; or
(ii) The taxable income for the full 13-week periods that end
before the due date of the required installment.
(4) The following examples illustrate the rules of this paragraph
(e):
Example 1. Taxpayer A, an accrual method taxpayer, uses a 52/53
week year-end ending on the last Friday in December and uses four
thirteen-week periods. For its year beginning December 30, 2006, A
uses the annualized income installment method under section
6655(e)(2)(A)(i) to calculate all of its required installments. For
purposes of computing its first and second required installments,
the first 3 months of A's taxable year under paragraph (b)(1)(i) of
this section will end on March 30th, the thirteenth Friday of A's
taxable year. For purposes of its third required installment, the
first 6 months of A's taxable year will end on June 29th, the
twenty-sixth Friday of A's taxable year. For purposes of its fourth
required installment, the first 9 months of A's taxable year will
end on September 28th, the thirty-ninth Friday of A's taxable year.
Example 2. Same facts as Example 1 except that A uses thirteen
four-week periods and there are 52 weeks during A's taxable year
beginning December 30, 2006, and ending December 28, 2007. For
purposes of computing A's first and second required installments,
A's annualized taxable income for the first three months will be the
taxable income for the first three four-week periods of A's taxable
year (December 30, 2006, through March 23, 2007) divided by 12
(number of full four-week periods in the first three months (3)
multiplied by 4) and multiplied by 52 (the number of weeks in the
taxable year). For purposes of computing A's third required
installment, A's annualized taxable income for the first six months
will be the taxable income for the first six four-week periods of
A's taxable year (December 30, 2006, through June 15, 2007) divided
by 24 and multiplied by 52. For purposes of computing A's fourth
required installment, A's annualized taxable income for the first
nine months will be the taxable income for the first nine four-week
periods of A's taxable year (December 30, 2006, through September 7,
2007) divided by 36 and multiplied by 52.
(5) The application of the annualized income installment method is
illustrated by the following example:
Example. (i) X, a calendar year corporation, had a taxable year
of less than twelve months for tax year 2005 and no credits against
tax for tax year 2006. X made an estimated tax payment of $15,000 on
the installment dates of April 17, 2006, June 15, 2006, September
15, 2006, and December 15, 2006, respectively. Assume that, under
paragraph (d)(1) of this section, X elected Option 1 by timely
filing Form 8842, in accordance with section 6655(e)(2)(C)(iii), and
determined that its taxable income for the first 2, 4, 7 and 10
months was $25,000, $64,000, $125,000, and $175,000 respectively.
The income for each period is annualized as follows:
$25,000 x 12/2 = $150,000
$64,000 x 12/4 = $192,000
$125,000 x 12/7 = $214,286
$175,000 x 12/10 = $210,000
(ii)(A) To determine whether the installment payment made on April
17, 2006, equals or exceeds the amount that would have been required to
have been paid if the estimated tax were equal to 100 percent of the
tax computed on the annualized income for the 2-month period, the
following computation is necessary:
(1) Annualized income for the 2 month period--$150,000
(2) Tax on this paragraph (e)(5), Example (ii)(A)(1)--41,750
(3) 100% of this paragraph (e)(5), Example (ii)(A)(2)--41,750
(4) 25% of this paragraph (e)(5), Example (ii)(A)(3)--10,438
(B) Because the total amount of estimated tax that was timely paid
on or before the first installment date ($15,000) exceeds the amount
required to be paid on or before this date if the estimated tax were
100 percent of the tax determined by placing on an annualized basis the
taxable income for the first 2-month period, the exception described in
paragraphs (a) and (b) of this section applies, and no addition to tax
will be imposed for the installment due on April 15, 2006.
(iii)(A) To determine whether the installment payments made on or
before June 15, 2006, equal or exceed the amount that would have been
required to have been paid if the estimated tax were equal to 100
percent of the tax computed on the annualized income for the 4-month
period, the following computation is necessary:
(1) Annualized income for the 4 month period--$192,000
(2) Tax on this paragraph (e)(5), Example (iii)(A)(1)--58,130
(3) 100% of this paragraph (e)(5), Example (iii)(A)(2)--58,130
(4) 50% of this paragraph (e)(5), Example (iii)(A)(3) less $10,438
(amount due with the first installment)--18,627
[[Page 73401]]
(B) Because the total amount of estimated tax actually paid on or
before the second installment date ($19,562 ($15,000 second required
installment payment plus $4,562 overpayment of first required
installment)) exceeds the amount required to be paid on or before this
date if the estimated tax were 100 percent of the tax determined by
placing on an annualized basis the taxable income for the first 4-month
period, the exception described in paragraphs (a) and (b) of this
section applies, and no addition to tax will be imposed for the
installment due on June 15, 2006.
(iv)(A) To determine whether the installment payments made on or
before September 15, 2006, equal or exceed the amount that would have
been required to have been paid if the estimated tax were equal to 100
percent of the tax computed on the annualized income for the 7-month
period, the following computation is necessary:
(1) Annualized income for the 7 month period--$214,286
(2) Tax on this paragraph (e)(5), Example (iv)(A)(1)--66,821
(3) 100% of this paragraph (e)(5), Example (iv)(A)(2)--66,821
(4) 75% of this paragraph (e)(5), Example (iv)(A)(3) less $29,065
(amount due with the first and second installment)--21,051
(B) Because the total amount of estimated tax actually paid on or
before the third installment date ($15,935 ($15,000 third required
installment payment plus $935 overpayment of second required
installment)) does not equal or exceed the amount required to be paid
on or before this date if the estimated tax were 100 percent of the tax
determined by placing on an annualized basis the taxable income for the
first 7-month period, the exception described in paragraphs (a) and (b)
of this section does not apply, and an addition to tax will be imposed
with respect to the underpayment of the September 15, 2006, installment
unless another exception applies to this installment payment.
(v)(A) To determine whether the installment payments made on or
before December 15, 2006, equal or exceed the amount that would have
been required to have been paid if the estimated tax were equal to 100
percent of the tax computed on the annualized income for the 10-month
period, the following computation is necessary:
(1) Annualized income for the 10 month period--$210,000
(2) Tax on this paragraph (e)(5), Example (v)(A)(1)--65,150
(3) 100% of this paragraph (e)(5), Example (v)(A)(2)--65,150
(4) 100% of this paragraph (e)(5), Example (v)(A)(3) less $50,116
(amount due with the first, second, and third installment)--15,034
(B) Because the total amount of estimated tax payments made on or
before the fourth installment date that is available to be applied to
the estimated tax due for the fourth installment ($9,884 ($15,000
fourth required installment payment less $5,116 underpayment for the
third installment of estimated tax ($21,051 third installment of
estimated tax due less $15,935 payments available to be applied to the
third installment of estimated tax))) does not equal or exceed the
amount required to be paid on or before this date if the estimated tax
were 100 percent of the tax determined by placing on an annualized
basis the taxable income for the first 10-month period, the exception
described in paragraphs (a) and (b) of this section does not apply, and
an addition to tax will be imposed with respect to the underpayment of
the December 15, 2006, installment unless another exception applies to
this installment payment.
(vi) Assuming that no other exceptions apply and the addition to
tax is computed under section 6621(a)(2) at the rate of 8 percent per
annum for the applicable periods of underpayment, the amount of the
addition to tax is as follows:
(A) First installment (no underpayment)
(B) Second installment (no underpayment)
(C) Third installment (underpayment period 9-16-06 through 12-15-
06), computed as 91/365 x $5,116 x 8%--102
(D) Fourth installment (underpayment period 12-16-06 through 3-15-
07), computed as 90/365 x $5,150 x 8%--102
(E) Total of this paragraph (e)(5), Example (vi)(A) through (D)--
204
(f) Determination of taxable income for an annualization period--
(1) In general. In determining the applicability of the exception
described in paragraphs (a) and (b) of this section (relating to the
annualization of income) and the exception described in Sec. 1.6655-3
(relating to annualization of income for corporations with seasonal
income), and for purposes of computing a taxpayer's taxable income (and
applicable tax), an item must be taken into account in computing a
taxpayer's taxable income for the taxable year for which the estimated
tax is being determined, and must be properly taken into account in
determining a taxpayer's taxable income (and applicable tax) for the
applicable annualization period by the last day of such period.
Generally, except as provided in paragraph (f)(2) of this section, for
an item to be taken into account during an annualization period, the
following must occur on or before the last day of the applicable
annualization period (determined based on the accounting period
employed by the taxpayer):
(i) With respect to an item of gross income, such income is
includible in computing taxable income in accordance with section 451
or the appropriate provision of the Internal Revenue Code (for example,
section 453 for installment sales or section 460 for long-term
contracts).
(ii) With respect to an item of loss, the loss must be permitted to
be taken into account under the appropriate provision of the Internal
Revenue Code.
(iii) With respect to an item of deduction, for taxpayers using the
cash receipts and disbursements method of accounting, the deduction
must be paid under Sec. 1.461-1(a)(1) and otherwise deductible in
computing taxable income for the annualization period or, for taxpayers
using an accrual method of accounting, the deduction must be incurred
under Sec. 1.461-1(a)(2) and otherwise deductible in computing taxable
income for the annualization period. In the case of an accrual method
taxpayer, the provisions of section 170(a)(2) and Sec. 1.170A-11(b)
(charitable contributions by accrual method corporations), Sec. 1.461-
4(d)(6)(ii) (provision of services or property to a taxpayer), Sec.
1.461-5 (recurring item exception), and any other provision that has a
similar effect can not be used in determining whether the item of
deduction has been incurred under Sec. 1.461-1(a)(2) and is otherwise
deductible for purposes of computing taxable income for an
annualization period. For purposes of section 404 and the regulations,
regardless of the overall method of accounting employed by the
taxpayer, the applicable 2-, 3-, 4-, 5-, 6-, 7-, 8-, 9-, 10-, or 11-
month period shall not be treated as a short taxable year and the rules
of section 404 and the regulations shall be applied on the basis of the
taxpayer's taxable year for which estimated tax is being determined.
Thus, the determination of whether a payment to an employee is deferred
compensation under Sec. 1.404(b)-1T shall be made by reference to
whether the payment is received by the employee more than a brief
period of time after the last day of the taxable year for which
estimated tax is being determined and not the last day of the
applicable annualization period. With respect to
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contributions to qualified plans governed by section 404 and the
regulations, in determining whether an item is paid or incurred by the
end of an annualization period, economic performance is satisfied only
to the extent such item is paid by the last day of the applicable
annualization period (without regard to section 404(a)(6)) and does
not, in combination with other such items paid during the applicable
annualization period, exceed the applicable deduction limit of section
404(a) for the taxable year. For purposes of sections 419 and 419A and
the regulations, regardless of the overall method of accounting
employed by the taxpayer, the applicable 2-, 3-, 4-, 5-, 6-, 7-, 8-, 9-
, 10-, or 11-month period shall not be treated as a short taxable year
and the rules of sections 419 and 419A and the regulations shall be
applied on the basis of the taxpayer's taxable year for which estimated
tax is being determined. With respect to contributions to a welfare
benefit fund governed by sections 419 and 419A and the regulations, in
determining whether an item is paid or incurred by the end of an
annualization period, economic performance is satisfied only to the
extent such item is paid by the last day of the applicable
annualization period and does not, in combination with other such items
paid during such annualization period, exceed the applicable deduction
limit of section 419 for the taxable year.
(iv) With respect to depreciation and amortization (depreciation)
expense, a taxpayer shall take into account depreciation expense only
as provided in paragraph (f)(2)(v) of this section.
(v) With respect to any item taken into account in computing
taxable income for the annualization period that is not described in
paragraphs (f)(1)(i), (ii), (iii), and (iv) of this section, the item
is includible in computing taxable income in accordance with the
appropriate provision of the Internal Revenue Code.
(vi) With respect to an item of credit, the amounts upon which the
credit is computed must have been taken into account in computing
taxable income for the annualization period pursuant to paragraphs
(f)(1)(i), (ii), (iii), (iv), and (v) of this section, as applicable.
(2) Exceptions--(i) Annual expenses paid or incurred at or after
the end of the taxable year. (A) Except as otherwise provided in
paragraphs (f)(2)(ii) through (vi) of this section, if an accrual
method taxpayer has a history of incurring a specific item of expense
under Sec. 1.461-1(a)(2) (or a cash method taxpayer has a history of
paying a specific item of expense under Sec. 1.461-1(a)(1)) that,
while attributable to income earned throughout the current taxable
year, is not incurred (or paid, in the case of a cash method taxpayer)
until the end of the taxable year, or after the end of the current
taxable year and is deemed incurred (or paid, in the case of a cash
method taxpayer) during the current taxable year (taking into account,
as applicable, section 170(a)(2) and Sec. 1.170A-11(b), section
404(a)(6), Sec. 1.461-4(d)(6)(ii), Sec. 1.46