Treasury issues final regs covering corporate estimated taxes
The U.S. Treasury and the IRS have issued final regulations regarding rules for corporate estimated tax payments. The regulations are effective for companies with tax years beginning after September 6, 2007.
The regulations provide an update to the proposed regulations for IRS Section 6655 that were issued in December, 2005. Several changes to the proposed regulations have been adopted.
Some of the changes incorporated into the final regulations include:
A recapture of tax is not considered to be a tax for purposes of calculating estimated taxes.
The regulations reinstate language that permits a taxpayer to calculate the required annual estimated payment based on 100 percent of the tax shown on the preceding year’s return.
In the situation where an amended tax return is filed, calculations of estimated tax based on the preceding year's tax should take the amended tax into account, but that amended tax is only effective for estimated payments made after the amended tax return is filed.
Corporations annualizing income for purposes of estimated tax calculation must apply special rules to certain non-recurring deductions such as real property tax deductions, employee and independent contractor bonus compensation deductions, and deferred compensation deductions under Section 404. Items such as these must be allocated in a reasonably accurate manner.
For purposes of annualization, the final regulations treat a NOL deduction as an extraordinary item that is treated as occurring on the first day of the taxable year and is taken into account after annualization.
Because a credit carryover is based on annualized components, the final regulations provide that a credit carryover must be taken into account after determining the annualized tax and before taking into account the applicable percentage for the annualization period.
The final regulations provide a general rule that permits taxpayers to estimate their annual depreciation expense and include a proportionate amount of such expense for annualization purposes. The final regulations also provide that, in determining the estimated annual depreciation expense, a taxpayer may take into account purchases, sales or other dispositions, changes in use, additional first-year depreciation deductions, and other similar events and provisions 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 of the taxpayer’s capital spending plans for the current taxable year), are reasonably expected to occur or apply during the taxable year.
Specific rules for calculating estimated taxes apply to corporations with 52/53 week fiscal years and corporations with short tax years.
You can read the complete text of the new regulations.