Exception 3--annualization method: The taxpayer paid through withholding and/or timely estimates an amount equal to 90% of the current-year tax computed based on annualization
of actual year-to-date income for each quarter of the year (Sec.
Occasionally we list multiple extra items--such as financial planning, a yearend tax planning meeting, additional services in connection with the sale of rental property, researching cost basis of mutual funds sold, calculation of S corporation basis, preparation of the next year's estimated taxes, prior years' income annualization
for estimated tax penalty reduction, alternative minimum tax credit calculation or any of a few dozen other items.
Other TEI representatives agreed that such a safe harbor would be better than the annualization
method, which is the only safe harbor available to corporations now and which is extraordinarily complicated.
F and C's 20X2 estimated payments Period Exception 1 Annualization
Difference Required installment method (but not less installment (*) installment than -0-) First $13,200 $ 5,000 $8,200 $ 5,000 Second 13,200 7,500 5,700 7,500 Third 13,200 55,000 -0- 27,100 ([dagger]) Fourth 13,200 36,000 -0- 13,200 $ 52,800 (*) Lesser of (1) amount per annualization
method or (2) Exception 1 amount plus prior-period difference.
This letter responds to Acting Assistant Secretary Fields's and your request for TEI's comments on the annualization
rules for corporate estimated tax payments under section 6655 of the Internal Revenue Code.
For those subject to the new rules, an additional annualization
Although the annualization
method is intended as a safe harbor for computing quarterly installments, in practice the new regulations leave some questions unanswered, casting uncertainty on how "safe" the safe harbor is.
School districts that choose to offer the annualization
election to their teachers do not need to make any changes prior to 2008, and their employees will not be subject to additional taxes under Sec.
The tax adviser would need to determine whether the use of the initial loss in the personal returns through the S election outweighs the extra corporate tax costs that might be incurred because of the tax rate annualization
requirement accompanying midyear conversions to C status.
Absent a first-quarter election to use different annualization
periods, each required payment is generally due by the 15th day of the 4th, 6th, 9th, and 12th month of each fiscal year.
For an individual using the annualization
method, the quarterly payments must be at least 90% of the tax due determined by annualizing taxable income for "the months in the taxable year ending before the due date of the installment" (Sec.