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.

    You may like these other stories...

    IRS must take oath on Lerner emails: judgeMackenzie Weinger of Politico reported on Thursday that a federal judge ordered the IRS to explain under oath how it lost emails connected to Lois Lerner, the ex-IRS official at the...
    The Republican-controlled House of Representatives passed a bill on Friday morning that would permanently extend the bonus depreciation tax break for businesses.The measure, HR 4718, which was crafted by Representative Pat...
    The Republican-led House of Representatives is expected to pass a bill this week that would permanently extend the bonus depreciation tax break. But don’t expect President Obama to sign it.The Obama administration said...

    Upcoming CPE Webinars

    Jul 16
    Hand off work to others with finesse and success. Kristen Rampe, CPA will share how to ensure delegated work is properly handled from start to finish in this content-rich one hour webinar.
    Jul 17
    This webcast will cover the preparation of the statement of cash flows and focus on accounting and disclosure policies for other important issues described below.
    Jul 23
    We can’t deny a great divide exists between the expectations and workplace needs of Baby Boomers and Millennials. To create thriving organizational performance, we need to shift the way in which we groom future leaders.
    Jul 24
    In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.