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IRS Provides Guidance On Estimated Corporate Tax Payments

by Mike Godfrey, Tax-News.com, Washington

09 December 2005


The US Treasury Department and the IRS on Wednesday issued proposed regulations that provide guidance for corporations to compute their estimated tax liabilities.

Corporations are generally required to remit their annual tax liability during the taxable year in quarterly installments. The quarterly installments generally can be based on a pro rata portion of the corporation's estimated annual tax liability. Alternatively, the quarterly installments can be based on the corporation's annualized taxable income (the taxable income for a specific period of months that is extrapolated into an annual amount) or the corporation's adjusted seasonal taxable income.

The proposed regulations replace existing proposed regulations that were issued in 1984. Those regulations do not provide adequate guidance on how a corporation must determine the amount due with each required installment.

In addition, those regulations do not reflect significant changes to the tax law since 1984, most notably the enactment of the economic performance rules. As a result, the IRS and Treasury Department have become aware of techniques employed by some firms, particularly those 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 current re-proposed regulations provide extensive guidance on how to determine the amount due with each quarterly installment, whether based on the corporation's estimated annual tax liability or the corporation's annualized or adjusted seasonal taxable income, as well as rules for computing estimated tax during a short taxable year.

The Treasury Department and IRS request comments on the rules contained in the proposed regulations and any additional guidance that should be provided in the final regulations.


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