Zero Estimated Tax C Corp

[buzzardbreath]

C Corp client reported taxable income for the year just ended, after three years of reporting losses. There was NOL, but the income absorbed it, and still had significant taxable income left over.

Just received a notice from IRS calculating an estimated tax penalty. The company had not had any tax liability for years, and accordingly had not paid estimated tax for the year in question. By seeking relief, I am finding out that having zero tax liability for the prior year does not generate relief on the 2220. Plain language in TTB also reveals that the prior years' tax liability may be used to calculate the estimated tax, BUT NOT IF THE PRIOR YEAR LIABILITY IS ZERO.

Am I reading this correctly? This seems bizarre. I can enter a SINGLE DOLLAR in prior year liability on Form 2220, and the penalty calculation is eliminated.

If I'm whining, it's with good cause. This is absurd.

Comments?

[Maribeth]

There's no safe harbor for a corporation that had no tax liability for the prior year. You might be able to get the penalty reduced by using the annualized method especially if most of the income was earned towards the end of the year.

[buzzardbreath]

Sad Conclusion

Thanks Maribeth. Not many comments because not a lot to say that would help anything, I suppose.

There is some relief in the annualization calculation on the 2220. By all rational thinking there shouldn't be ANY requirement if there was no liability the previous year.

[Jiggers]

I had the same situation. I never thought about it. It was a small penalty and my software didn't automatically calculate the penalty which meant that my client received a letter from the IRS.

Since then, I remind all corporations in the last month of their fiscal year that an estimate is due if their corporation is showing a profit. And the estimate is due by the 15th of the last month and not the 15th of the following month, as 1040 filers.