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Federal Register / Vol. 70, No.

237 / Monday, December 12, 2005 / Proposed Rules 73393

and –300F series airplanes. The airplanes, variable numbers (V/Ns) List of Subjects in 14 CFR Part 39
proposed AD would have required a VK145, VL941, VN968, VW714, and Air transportation, Aircraft, Aviation
one-time operational test of the pilots’ VW715, are already included in the safety, Safety.
seat locks and the seat tracks to ensure applicability of existing AD 98–03–10,
that the seats lock in position and the amendment 39–10302 (63 FR 5725, The Withdrawal
seat tracks are aligned correctly; and re- February 4, 1998). We have further Accordingly, we withdraw the NPRM,
alignment of the seat tracks, if determined that, since the identified Docket No. FAA–2005–21880,
necessary. Since the proposed AD was unsafe condition is being adequately Directorate Identifier 2004–NM–216–
issued, we have received new data that addressed on these five affected AD, which was published in the Federal
the affected airplanes are included in airplanes by existing AD 98–03–10, it is Register on July 21, 2005 (70 FR 42008).
the applicability of an existing AD that unnecessary to provide further
Issued in Renton, Washington, on
addresses the unsafe condition. rulemaking at this time.
December 6, 2005.
Accordingly, the proposed AD is
Comments Kevin M. Mullin,
withdrawn.
We provided the public the Acting Manager, Transport Airplane
ADDRESSES: You may examine the AD Directorate, Aircraft Certification Service.
opportunity to participate in the
docket on the Internet at http:// [FR Doc. 05–23905 Filed 12–9–05; 8:45 am]
development of this AD. We have
dms.dot.gov, or in person at the Docket
considered the comments received. BILLING CODE 4910–13–P
Management Facility office between 9
a.m. and 5 p.m., Monday through Request To Remove Certain Airplanes
Friday, except Federal holidays. The From the Applicability
DEPARTMENT OF THE TREASURY
Docket Management Facility office Two commenters request that we
(telephone (800) 647–5227) is located on remove certain airplanes from the Internal Revenue Service
the plaza level of the Nassif Building at applicability of the NPRM. One
the U.S. Department of Transportation, commenter operates the affected 26 CFR Parts 1 and 301
400 Seventh Street, SW., room PL–401, airplane having V/N VL914, which
Washington, DC. This docket number is [REG–107722–00]
corresponds to line number (L/N) 637.
FAA–2005–21880; the directorate (We infer the commenter meant to RIN 1545–AY22
identifier for this docket is 2004–NM– reference V/N VL941.) A second
216–AD. commenter operates affected airplanes Corporate Estimated Tax
FOR FURTHER INFORMATION CONTACT: Sue having V/Ns VW714 and VW715, which AGENCY: Internal Revenue Service (IRS),
Rosanske, Aerospace Engineer, Cabin correspond to L/Ns 638 and 640, Treasury.
Safety and Environmental Systems respectively. Both commenters state that
Branch, ANM–150S, FAA, Seattle ACTION: Partial withdrawal of previous
their affected airplanes are included in proposed rules, notice of proposed
Aircraft Certification Office, 1601 Lind the applicability of AD 98–03–10, which
Avenue, SW., Renton, Washington rulemaking, and notice of public
is applicable to certain Model 737, 747, hearing.
98055–4056; telephone (425) 917–6448; 757, and 767 airplanes, having certain
fax (425) 917–6590. line numbers; equipped with non- SUMMARY: This document withdraws
SUPPLEMENTARY INFORMATION: powered IPECO pilots’ seats. Of the proposed regulations relating to
Discussion affected Model 767 airplanes, AD 98– corporate estimated taxes. This
03–10 is applicable to L/Ns 1 through document also contains new proposed
We proposed to amend part 39 of the 642 inclusive. regulations that provide guidance to
Federal Aviation Regulations (14 CFR As discussed previously, we agree corporations with respect to estimated
part 39) with a notice of proposed with the commenter’s request. tax requirements. These proposed
rulemaking (NPRM) for a new AD for regulations generally affect corporate
certain Boeing Model 767–300 and FAA’s Conclusions
taxpayers who are required to make
–300F series airplanes. That NPRM was Upon further consideration, we have estimated tax payments. These proposed
published in the Federal Register on determined that the five Model 767–300 amendments reflect changes to the law
July 21, 2005 (70 FR 42008). The NPRM and –300F series airplanes, which were since 1984. This document also
would have required a one-time added to the effectivity of Boeing provides notice of a public hearing on
operational test of the pilots’ seat locks Special Attention Service Bulletin 767– these proposed regulations.
and the seat tracks to ensure that the 25–0244, Revision 2, dated September 2,
seats lock in position and the seat tracks DATES: Written or electronic comments
2004, are included in the applicability
are aligned correctly; and re-alignment of an existing AD that addresses the must be received by February 22, 2006.
of the seat tracks, if necessary. The unsafe condition. Accordingly, the Outlines of topics to be discussed at the
NPRM resulted from reports indicating NPRM is withdrawn. public hearing scheduled for March 15,
that a pilot’s seat slid from the forward Withdrawal of the NPRM does not 2006, must be received by February 22,
to the aft-most position during preclude the FAA from issuing another 2006.
acceleration and take-off. The proposed related action or commit the FAA to any ADDRESSES: Send submissions to:
actions were intended to prevent course of action in the future. CC:PA:LPD:PR (REG–107722–00), room
uncommanded movement of the pilots’ 5203, Internal Revenue Service, POB
Regulatory Impact 7604, Ben Franklin Station, Washington,
seats during acceleration and take-off of
the airplane, and consequent reduced Since this action only withdraws an DC 20044. Submissions may be hand-
controllability of the airplane. NPRM, it is neither a proposed nor a delivered Monday through Friday
final rule and therefore is not covered between the hours of 8 a.m. and 4 p.m.
Actions Since NPRM Was Issued under Executive Order 12866, the to: CC:PA:LPD:PR (REG–107722–00),
Since we issued the NPRM, we have Regulatory Flexibility Act, or DOT Courier’s Desk, Internal Revenue
determined that the affected Boeing Regulatory Policies and Procedures (44 Service, 1111 Constitution Avenue,
Model 767–300 and –300F series FR 11034, February 26, 1979). NW., Washington, DC, or sent

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73394 Federal Register / Vol. 70, No. 237 / Monday, December 12, 2005 / Proposed Rules

electronically, via the IRS Internet site the Unemployment Compensation the item is includible in computing
at http://www.irs.gov/regs or via the Amendments of 1992, Public Law 102– taxable income in accordance with
Federal eRulemaking Portal at http:// 318 (106 Stat. 290), the Omnibus Budget section 451 on or before the last day of
www.regulations.gov (IRS–REG– Reconciliation Act of 1993, Public Law the annualization period. With respect
107722–00). The public hearing will be 103–66 (107 Stat. 312), the Uruguay to an item of deduction, the proposed
held in the Auditorium, Internal Round Agreements Act of 1994, Public regulations generally provide that an
Revenue Service Building, 1111 Law 103–465 (108 Stat. 4809), the Small accrual method taxpayer may take into
Constitution Avenue, NW., Washington, Business Job Protection Act of 1996, account a deduction in computing
DC. Public Law 104–188 (110 Stat. 1755), annualized taxable income for a
FOR FURTHER INFORMATION CONTACT: the Taxpayer Relief Act of 1997, Public particular annualization period only to
Concerning the proposed regulations, Law 105–34 (111 Stat. 788), the Ticket the extent the item is incurred under
Joseph P. Dewald, (202) 622–4910; to Work and Work Incentives § 1.461–1(a)(2) on or before the last day
concerning the submissions of Improvement Act of 1999, Public Law of the annualization period. For
comments, the hearing, and/or to be 106–170 (113 Stat. 1860), the purposes of determining whether a
placed on the building access list to Community Renewal Tax Relief Act of deduction may be taken into account by
attend the hearing, Robin Jones at (202) 2000, Public Law 106–554 (114 Stat. an accrual method taxpayer in
622–7180 (not toll-free numbers). 2763), the Economic Growth and Tax determining annualized taxable income
Relief Reconciliation Act of 2001, Public for a particular annualization period,
SUPPLEMENTARY INFORMATION:
Law 107–16 (115 Stat. 38), the Jobs and the provisions of section 170(a)(2) and
Background and Explanation of Growth Tax Relief Reconciliation Act of § 1.170A–11(b) (charitable contributions
Provisions 2003, Public Law 108–27 (117 Stat. by accrual method corporations),
This document withdraws §§ 1.6152– 752), and the American Jobs Creation § 1.461–4(d)(6)(ii) (provision of services
1(a)(1), 1.6654–2(d)(1)(i), 1.6655–1, Act of 2004, Public Law 108–357 (118 or property to a taxpayer), § 1.461–5
Stat. 1418). (recurring item exception), and any
1.6655–2, 1.6655–3, 1.6655–4, 1.6655–5,
The existing regulations under section other provision that has a similar effect
1.6655–6, and 301.6655–1 in the notice
6655 do not reflect significant changes are not taken into account in
of proposed rulemaking (LR–228–82) to the tax law since 1984, most notably determining whether the item of
relating to corporate estimated taxes the enactment of the economic deduction has been incurred under
under section 6655 that was published performance rules under section 461(h). § 1.461–1(a)(2) and is deductible in
in the Federal Register (49 FR 11186) on Since the enactment of section 461(h), computing annualized taxable income
March 26, 1984 (referred to as the 1984 the determination of when economic for an annualization period.
proposed regulations). This document performance must occur for taxpayers to Revenue Ruling 76–450 (1976–2 C.B.
also contains new proposed take a deduction into account for 444), provides that state property tax
amendments to the Income Tax purposes of computing a quarterly and franchise tax are deductible from
Regulations (26 CFR Part 1) and the estimated tax payment has been unclear, the income for an annualization period
Procedure and Administration particularly for taxpayers that compute on the date the taxpayer accrues the
Regulations (26 CFR Part 301) relating to their quarterly estimated tax payments taxes under the taxpayer’s method of
corporate estimated taxes under section using an annualization method. accounting. Revenue Ruling 76–450 was
6425 and section 6655 of the Internal In addition, the IRS and Treasury issued prior to the enactment of section
Revenue Code. The IRS is withdrawing Department have become aware of 461(h) and does not take into account
the 1984 proposed regulations because techniques employed by taxpayers, the application of the economic
significant changes to the law since particularly those taxpayers computing performance requirements of section
1984 have caused them to become their estimated tax payments using an 461(h) for purposes of computing an
outdated. annualization method, that reduce, if estimated tax payment using the
These proposed regulations reflect not eliminate, estimated tax payments annualized income installment method.
changes to the law made by the Deficit for one or more installments for a The proposed regulations address the
Reduction Act of 1984, Public Law 98– taxable year. The proposed regulations application of section 461(h) for
369 (98 Stat. 494), the Superfund provide rules that the IRS and Treasury purposes of the annualized income
Amendments and Reauthorization Act Department believe result in a more installment method and provide that a
of 1986, Public Law 99–499 (100 Stat. accurate reflection of annualized taxpayer using an accrual method of
1613), the Tax Reform Act of 1986, income than methods that taxpayers accounting cannot take a deduction into
Public Law 99–514 (100 Stat. 2085), the may currently be employing. For account unless the deduction has been
Omnibus Budget Reconciliation Act of example, the proposed regulations make incurred under § 1.461–1(a)(2) and is
1987, Public Law 100–203 (101 Stat. it clear that taxpayers may not, for any otherwise deductible in computing
1330), the Revenue Act of 1987, Public purpose, determine taxable income for taxable income for the applicable
Law 100–203 (101 Stat. 1330–382), the an annualization period or an adjusted annualization period. As a result of the
Omnibus Trade and Competitiveness seasonal installment period as though rules provided in the proposed
Act of 1988, Public Law 100–418 (102 the period is a short taxable year. The regulations regarding the application of
Stat. 1107), the Technical and proposed regulations provide specific section 461(h) to the annualized income
Miscellaneous Revenue Act of 1988, rules for determining taxable income for installment method, Rev. Rul. 76–450 is
Public Law 100–647 (102 Stat. 3342), any annualization period, including no longer applicable and will be
the Omnibus Budget Reconciliation Act how section 461(h) is to be applied in obsolete when these regulations are
of 1989, Public Law 101–239 (103 Stat. computing taxable income for any effective.
2106), the Omnibus Budget annualization period. For example, with For purposes of section 404 and the
Reconciliation Act of 1990, Public Law respect to an item of income or gain, the regulations, regardless of the overall
101–508 (104 Stat. 1388), the Tax proposed regulations provide that the method of accounting employed by the
Extension Act of 1991, Public Law 102– item must be taken into account in taxpayer, the applicable 2-, 3-, 4-, 5-,
227 (105 Stat. 1686), the Act of Feb. 7, computing annualized taxable income 6-, 7-, 8-, 9-, 10- or 11-month
1992, Public Law 102–244 (106 Stat. 3), for a particular annualization period if annualization period shall not be treated

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Federal Register / Vol. 70, No. 237 / Monday, December 12, 2005 / Proposed Rules 73395

as a short taxable year and the rules of the end of the current taxable year and reflection of annualized taxable income
section 404 and the regulations shall be is deemed incurred (or paid, in the case if a NOL carryover is deducted after
applied on the basis of the taxpayer’s of a cash method taxpayer) during the annualizing the taxable income for an
taxable year for which estimated tax is current taxable year (taking into applicable annualization period or
being determined. Thus, the account, as applicable, section 170(a)(2) adjusted seasonal installment period.
determination of whether a payment to and § 1.170A–11(b), section 404(a)(6), Accordingly, the proposed regulations
an employee is deferred compensation § 1.461–4(d)(6)(ii), § 1.461–5, and any provide that a taxpayer must annualize
under § 1.404(b)–1T shall be made by other provision that has a similar effect), taxable income before taking into
reference to whether the payment is then the taxpayer may take into account account a NOL carryover and reduce the
received by the employee more than a a proportionate part of the specific item annualized amount by the NOL
brief period of time after the last day of of expense for each annualization carryover. As a result, Rev. Rul. 67–93
the taxable year for which estimated tax period. In such case the taxpayer may will be obsolete when these regulations
is being determined, and not the last take into account a proportionate part of are effective.
day of the annualization period. With the specific item of expense for each In addition, the proposed regulations
respect to contributions to qualified annualization period only if the portion provide guidance on the amount of
plans governed by section 404 and the of the annual expense taken into depreciation and amortization
regulations, in determining whether an account is determined with reasonable (depreciation) expense that a taxpayer
item is paid or incurred by the end of accuracy and the expense is properly may take into account for an
an annualization period, economic deducted by the taxpayer for the current annualization period. The proposed
performance is satisfied only to the taxable year under the taxpayer’s regulations generally provide that a
extent such item is paid by the last day method of accounting. For purposes of proportionate amount of a taxpayer’s
of the annualization period (without § 1.6655–2(f)(2)(i), a taxpayer has a estimated annual depreciation expense
regard to section 404(a)(6)) and does history of incurring or paying a specific shall be taken into account when
not, in combination with other such item of expense at the end of the taxable determining any annualized income
items paid during the annualization year, or after the end of the taxable year installment for the taxable year. In
period, exceed the applicable deduction that is deemed incurred or paid during determining the estimated annual
limit of section 404(a) for the taxable the taxable year, if, in each of the two depreciation expense, a taxpayer may
year. For purposes of sections 419 and taxable years immediately preceding the take into account purchases, sales or
419A and the regulations, regardless of current taxable year (or the immediately other dispositions, changes in use,
the overall method of accounting preceding taxable year if the taxpayer depreciation permitted by sections
employed by the taxpayer, the was not in existence for the two 168(k) and 1400L, and other similar
applicable 2-, 3-, 4-, 5-, 6-, 7-, 8-, 9-, preceding taxable years), the taxpayer events that, based on all of the relevant
10-, or 11-month annualization period incurred or paid the specific item of information available as of the last day
shall not be treated as a short taxable expense at the end of each taxable year, of the annualization period (such as
year and the rules of sections 419 and or after the end of each taxable year that capital spending budgets, financial
419A and the regulations shall be was deemed incurred or paid during statement data and projections, or
applied on the basis of the taxpayer’s such taxable year. For purposes of
similar reports that provide evidence of
taxable year for which estimated tax is § 1.6655–2(f)(2)(i), the term ‘‘the end of
the taxpayer’s capital spending plans for
being determined. With respect to the taxable year’’ means the period
the current taxable year), the taxpayer
contributions to a welfare benefit fund between and including the 15th and last
reasonably expects to occur during the
governed by sections 419 and 419A and day of the last month of the taxable year.
The proposed regulations also provide taxable year. As an alternative to
the regulations, in determining whether estimating annual depreciation expense
guidance regarding the treatment of
an item is paid or incurred by the end based on events that are reasonably
specific items for purposes of
of an annualization period, economic expected to occur, the proposed
computing annualized taxable income
performance is satisfied only to the regulations provide that, in general, a
for an annualization period. For
extent such item is paid by the last day taxpayer may claim for an annualization
example, net operating loss carryovers
of the applicable annualization period period at least a proportionate amount
must be taken into account in
and does not, in combination with other computing an annualized income of 50 percent of the taxpayer’s estimated
such items paid during the installment after placing the taxable depreciation expense for the current
annualization period, exceed the income for the annualization period on taxable year attributable to assets that
applicable deduction limit of section an annualized basis, and section 481(a) the taxpayer had in service on the last
419 for the taxable year. adjustments must be recognized ratably day of the preceding taxable year, that
The proposed regulations provide over the applicable adjustment period. remain in service on the first day of the
guidance for annual expenses paid or Revenue Ruling 67–93 (1967–1 C.B. current taxable year, and that are subject
incurred at the end of the taxable year, 366), provides that a taxpayer should to the half-year convention. The
or after the end of the taxable year that deduct a net operating loss (NOL) proposed regulations also provide that
are deemed paid or incurred during the carryover from the income for an an annualization period cannot be
taxable year. Section 1.6655–2(f)(2)(i) of annualization period before annualizing treated as a short taxable year, including
the proposed regulations provides that if the income for that period. As for purposes of determining the
an accrual method taxpayer has a previously stated, the IRS and Treasury depreciation allowance for such
history of incurring a specific item of Department believe that it is not annualization period.
expense (or paying a specific item of appropriate for taxpayers to determine The proposed regulations also provide
expense, in the case of a cash method taxable income for an annualization guidance regarding short taxable years,
taxpayer) that, while attributable to period or an adjusted seasonal including the due dates for required
income earned throughout the current installment period as though the period installments for a short taxable year
taxable year, is not incurred (or paid, in is a short taxable year. As a result, the (including a taxpayer’s initial taxable
the case of a cash method taxpayer) IRS and Treasury Department now year), the computation of such
until the end of the taxable year or after believe that it is a more appropriate installments, and the applicable

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73396 Federal Register / Vol. 70, No. 237 / Monday, December 12, 2005 / Proposed Rules

percentage of the annual tax due with signed original and eight (8) copies) that Drafting Information
each installment. are submitted timely to the IRS. The IRS The principal authors of these
and Treasury Department request regulations are Robert A. Desilets, Jr.,
Proposed Effective Date
comments on the clarity of the proposed formerly of the Office of Associate Chief
These regulations are proposed to rules and how they can be made easier Counsel (Procedure and
apply to taxable years beginning after to understand. In particular, the IRS and Administration), Administrative
the date that is 30 days after the date the Treasury Department request comments
final regulations are published in the Provisions and Judicial Practice
on whether the 52–53 week taxable year Division, and Joseph P. Dewald, Office
Federal Register. Until the final rules under § 1.6655–2(e) should be
regulations become effective, taxpayers of Associate Chief Counsel (Procedure
simplified. The IRS and Treasury and Administration), Administrative
may rely on these proposed rules for Department also request comments on
taxable years beginning on or after the Provisions and Judicial Practice
whether the final regulations should Division.
date this notice of proposed rulemaking include an additional exception, similar
is published in the Federal Register, to the exception provided in § 1.6655– List of Subjects
provided, however, that the taxpayer 2(f)(2)(i), that would permit a taxpayer
applies all of these proposed rules in 26 CFR Part 1
to take into account for an annualization
determining its required installments. period a proportionate amount of a Income taxes, Reporting and
specific item of expense that is recordkeeping requirements.
Special Analyses
attributable to income earned 26 CFR Part 301
It has been determined that this notice throughout the current taxable year and
of proposed rulemaking is not a is paid or incurred during the taxable Employment taxes, Estate taxes,
significant regulatory action as defined year but after the applicable Excise taxes, Gift taxes, Income taxes,
in Executive Order 12866. Therefore, a annualization period. If such an Penalties, Reporting and recordkeeping
regulatory assessment is not required. exception is appropriate, the IRS and requirements.
Except with respect to § 1.6655–5, Treasury Department request comments
which deals with the rules applicable to Partial Withdrawal of a Previous Notice
on what specific types of expenses of Proposed Rulemaking
a short taxable year, it has been would meet the requirements of the
determined that section 553(b) of the rule, and whether the exception should Accordingly, under the authority of
Administrative Procedure Act (5 U.S.C. provide for any additional limitations, 26 U.S.C. 7805, §§ 1.6152–1(a)(1),
chapter 5) does not apply to these such as a requirement that a minimum 1.6654–2(d)(1)(i), 1.6655–1, 1.6655–2,
regulations, and because these percentage of the annual amount of the 1.6655–3, 1.6655–4, 1.6655–5, 1.6655–6,
provisions do not impose a collection of expense be paid or incurred on a and 301.6655–1 in the notice of
information on small businesses, the particular day during the taxable year. proposed rulemaking published in the
Regulatory Flexibility Act (5 U.S.C. All comments will be available for Federal Register on March 26, 1984,
chapter 6) does not apply. With respect public inspection and copying. (LR–228–82) (49 FR 11186) are
to § 1.6655–5, it is hereby certified that A public hearing has been scheduled withdrawn.
this provision of the regulations will not for February 22, 2006, beginning at 10 Proposed Amendments to the
have a significant economic impact on a.m. in the Auditorium of the Internal Regulations
a substantial number of small entities. Revenue Service Building, 1111
This certification is based on the fact Constitution Avenue, NW., Washington, Accordingly, 26 CFR parts 1 and 301
that not many small businesses are DC. Due to building security are proposed to be amended as follows:
going to be subject to the short taxable procedures, visitors must enter at the PART 1—INCOME TAXES
year rules because: (1) Existing small Constitution Avenue entrance. In
businesses generally are not targets of addition, all visitors must present photo Paragraph 1. The authority citation
mergers and acquisitions, which result identification to enter the building. for part 1 is amended by adding an entry
in a short taxable year; (2) start-up small Because of access restrictions, visitors in numerical order to read as follows:
businesses with a short taxable year of will not be admitted beyond the Authority: 26 U.S.C. 7805 * * *
less than four months do not have to immediate entrance area more than 30
pay estimated taxes; and (3) start-up Section 1.6655–5 also issued under 26
minutes before the hearing starts. For
U.S.C. 6655(i)(2). * * *
small businesses with a short taxable information about having your name
year of four months or more are not placed on the building access list to Par. 2. In § 1.56–0, the heading for
likely to have taxable income that attend the hearing, see the FOR FURTHER paragraph (e)(5) is added to read as
would be subject to the corporate INFORMATION CONTACT section of this follows:
estimated tax rules. Therefore, a preamble. § 1.56–0 Table of contents to § 1.56–1,
Regulatory Flexibility Analysis under The rules of 26 CFR 601.601(a)(3) adjustment for book income of
the Regulatory Flexibility Act (5 U.S.C. apply to the hearing. Persons who wish corporations.
chapter 6) is not required. Pursuant to to present oral comments must submit
electronic or written comments and an * * * * *
section 7805(f) of the Internal Revenue (e) * * *
Code, this notice of proposed outline of the topics to be discussed and (5) Effective date.
rulemaking will be submitted to the time to be devoted to each topic (a Par. 3. In § 1.56–1, paragraph (e)(4) is
Chief Counsel for Advocacy of the Small signed original and eight (8) copies) by revised and paragraph (e)(5) is added to
Business Administration for comment February 22, 2006. A period of 10 read as follows:
on its impact on small businesses. minutes will be allotted to each person
for making comments. An agenda § 1.56–1 Adjustment for the book income
Comments and Public Hearing showing the scheduling of the speakers of corporations.
Before these proposed regulations are will be prepared after the deadline for * * * * *
adopted as final regulations, receiving outlines has passed. Copies of (e) * * *
consideration will be given to any the agenda will be available free of (4) Estimating the book income
electronic or written comments (a charge at the hearing. adjustment for purposes of the

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Federal Register / Vol. 70, No. 237 / Monday, December 12, 2005 / Proposed Rules 73397

estimated tax liability. See § 1.6655–7, applying the addition to tax under (1) In general.
as issued by TD 8307 (55 FR 33671), for section 6655(h). (2) Example.
special rules for estimating the (2) For the effect of an excessive (h) Events arising after installment due
adjustment under section 6425, see date that were not reasonably foreseeable.
corporate alternative minimum tax book (1) In general.
income adjustment under the § 1.6655–7. (2) Example.
annualization exception. (3) This paragraph (f) is applicable to (i) Effective date.
(5) Effective date. Paragraph (e)(4) of applications for adjustments of
this section is applicable for taxable overpayments of estimated income tax § 1.6655–3 Adjusted seasonal installment
years beginning after the date that is 30 that are filed in taxable years beginning method.
days after the date the final regulations after the date that is 30 days after the (a) In general.
are published in the Federal Register. date the final regulations are published (b) Limitation on application of section.
Par. 4. In § 1.6425–2, paragraph (a) is in the Federal Register. (c) Determination of amount.
revised and paragraph (c) is added to Par. 6. Section 1.6655–0 is added to (d) Special rules.
read as follows: read as follows: (1) Base period percentage.
(2) Filing month.
§ 1.6425–2 Computation of adjustment of § 1.6655–0 Table of contents. (3) Application of the rules related to the
overpayment of estimated tax. This section lists the table of contents annualized income installment method to the
(a) Income tax liability defined. For for §§ 1.6655–1 through 1.6655–7. adjusted seasonal installment method.
(e) Example.
purposes of §§ 1.6425–1 through
§ 1.6655–1 Addition to the tax in the case (f) Effective date.
1.6425–3 and 1.6655–7, relating to of a corporation.
excessive adjustment, the term income § 1.6655–4 Large corporations.
tax liability means the excess of— (a) In general.
(1) The sum of— (b) Amount of underpayment. (a) Large corporation defined.
(c) Period of the underpayment. (b) Testing period.
(i) The tax imposed by section 11 or
(d) Amount of required installment. (c) Computation of taxable income during
1201(a), or subchapter L of chapter 1 of testing period.
(e) Large corporation required to pay 100
the Internal Revenue Code, whichever is percent of current year tax. (1) Short taxable year.
applicable; plus (1) In general. (2) Computation of taxable income in
(ii) The tax imposed by section 55; (2) May use last year’s tax for 1st taxable year when there occurs a transaction
over installment. to which section 381 applies.
(2) The credits against tax provided by (f) Required installment due dates. (d) Members of controlled group.
part IV of subchapter A of chapter 1 of (1) Number of required installments. (1) In general.
(2) Time for payment of installments. (2) Aggregation.
the Internal Revenue Code.
(i) Calendar year. (3) Allocation rule.
* * * * * (ii) Fiscal year. (4) Controlled group members.
(c) Effective date. Paragraph (a) of this (iii) Short taxable year. (e) Effect on a corporation’s taxable income
section is applicable to applications for (iv) Partial month. of items that may be carried back or carried
adjustments of overpayments of (g) Definitions. over from any other taxable year.
estimated income tax that are filed in (h) Special rules for consolidated returns. (f) Consolidated returns. [Reserved]
(i) Overpayments applied to subsequent (g) Example.
taxable years beginning after the date
taxable year’s estimated tax. (h) Effective date.
that is 30 days after the date the final
regulations are published in the Federal (1) In general.
(2) Subsequent examinations. § 1.6655–5 Short taxable year.
Register. (j) Examples.
Par. 5. Section 1.6425–3 is amended (a) In general.
(k) Effective date. (b) Exception to payment of estimated tax.
by: (c) Installment due dates.
1. Revising paragraphs (f)(1) and (f)(2). § 1.6655–2 Annualized income installment (1) In general.
2. Adding paragraph (f)(3). method. (i) Taxable year of four months but less
The revisions and addition read as than twelve months.
(a) In general.
follows: (b) Determination of annualized income (ii) Exception.
installment—In general. (2) Early termination of taxable year.
§ 1.6425–3 Allowance of adjustments. (i) In general.
(c) Special rules.
* * * * * (1) Applicable percentage. (ii) Exception.
(f) Effect of adjustment. (1) For (d) Amount due for required installment.
(2) Partial month.
purposes of all sections of the Internal (1) In general.
(d) Election of different annualization
(2) Tax shown on the return for the
Revenue Code except section 6655, periods.
preceding taxable year.
relating to additions to tax for failure to (e) 52–53 week taxable year.
(3) Applicable percentage.
pay estimated income tax, any (f) Determination of taxable income for an
(e) Examples.
adjustment under section 6425 is to be annualization period.
(f) 52 or 53 week taxable year.
(1) In general.
treated as a reduction of prior estimated (2) Exceptions.
(g) Use of annualized income or seasonal
tax payments as of the date the credit is installment method.
(i) Annual expenses paid or incurred at or
allowed or the refund is paid. For the (1) In general.
after the end of the taxable year. (2) Computation of annualized income
purpose of sections 6655(a) through (g), (ii) Net operating loss carryover. installment.
(i), and (j), credit or refund of an (iii) Credit carryover. (3) Annualization period for final required
adjustment is to be treated as if not (iv) Section 481(a) adjustment. installment.
made in determining whether there has (v) Depreciation and amortization. (4) Examples.
been any underpayment of estimated (A) General rule. (h) Preceding taxable year a short taxable
(B) Short taxable years.
income tax and, if there is an (vi) Member of partnership.
year.
underpayment, the period during which (i) Effective date.
(3) Examples.
the underpayment existed. However, an (g) Items that substantially affect taxable
excessive adjustment under section income but cannot be determined accurately § 1.6655–6 Methods of accounting.
6425 shall be taken into account in by the installment due date. (a) In general.

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(b) Exceptions. year was not a taxable year of 12 months (g) Definitions. (1) The term tax as
(1) Automatic accounting method changes. or the corporation did not file a return used in this section and §§ 1.6655–2
(2) Non-automatic accounting method for such preceding taxable year showing through 1.6655–7 means the excess of—
changes. (i) The sum of—
(c) Examples.
a liability for tax.
(e) Large corporation required to pay (A) The tax imposed by section 11,
(d) Effective date.
100 percent of current year tax—(1) In section 1201(a), or subchapter L of
§ 1.6655–7 Addition to tax on account of general. Except as provided in chapter 1 of the Internal Revenue Code,
excessive adjustment under section 6425. paragraph (e)(2) of this section, whichever is applicable;
paragraph (d)(2) of this section shall not (B) The tax imposed by section 55;
Par. 7. Sections 1.6655–1, 1.6655–2, apply in the case of a large corporation plus
and 1.6655–3 are revised to read as (as defined in § 1.6655–4). (C) The tax imposed by section 887;
follows: (2) May use last year’s tax for first over
installment. Paragraph (e)(1) of this (D) The credits against tax provided
§ 1.6655–1 Addition to the tax in the case by part IV of subchapter A of chapter 1
of a corporation. section shall not apply for purposes of
determining the amount of the first of the Internal Revenue Code.
(a) In general. Section 6655 imposes (ii) In the case of a foreign corporation
an addition to the tax under chapter 1 required installment for any taxable
year. Any reduction in such first subject to taxation under section 11,
of the Internal Revenue Code in the case section 1201(a), or subchapter L of
of any underpayment of estimated tax installment by reason of the preceding
sentence shall be recaptured by chapter 1 of the Internal Revenue Code,
by a corporation. An addition to tax due the tax imposed by section 881 shall be
to the underpayment of estimated taxes increasing the amount of the next
required installment determined under treated as a tax imposed by section 11.
is determined by applying the (iii) In the case of a partnership that
underpayment rate established under paragraph (d)(1) of this section by the
is treated, pursuant to regulations issued
section 6621 to the amount of the amount of such reduction and, if the
under section 1446(f)(2), as a
underpayment, for the period of the next required installment is reduced by
corporation for purposes of this section,
underpayment. This addition to the tax use of the annualized income
the tax imposed by section 1446 shall be
is in addition to any applicable criminal installment method under § 1.6655–2 or
treated as a tax imposed by section 11.
penalties and is imposed whether or not the adjusted seasonal installment
(2) For the purposes of paragraph
there was reasonable cause for the method under § 1.6655–3, by increasing
(d)(2) of this section, the term return for
underpayment. subsequent required installments
the preceding taxable year means the
(b) Amount of underpayment. The determined under paragraph (d)(1) of
Federal income tax return for such
amount of the underpayment for any this section to the extent that the
taxable year that is required by section
required installment is the excess of— reduction has not previously been
6012(a)(2). However, if an amended
(1) The required installment; over recaptured.
Federal income tax return has been filed
(2) The amount, if any, of the (f) Required installment due dates—
installment paid on or before the last before the due date for an installment,
(1) Number of required installments.
date prescribed for such payment. then the term return for the preceding
Unless otherwise provided, corporations
(c) Period of the underpayment. The taxable year means the Federal income
must make 4 required installments for
period of the underpayment of any tax return as amended. Paragraph (d)(2)
each taxable year.
required installment runs from the date of this section will apply without regard
(2) Time for payment of
the installment was required to be paid to whether the taxpayer’s Federal
installments—(i) Calendar year. In the
to the 15th day of the 3rd month income tax return for the preceding
case of a calendar year taxpayer, the due
following the close of the taxable year, taxable year is filed in a timely manner.
dates of the required installments are as
or to the date such underpayment is (3) If the tax rates for the current
follows:
paid, whichever is earlier. For purposes taxable year for which estimated tax is
1st—April 15 being determined differ from the rates
of determining the period of the 2nd—June 15
underpayment— applicable to the preceding taxable year,
3rd—September 15 the tax determined for the preceding
(1) The date prescribed for payment of 4th—December 15
any installment of estimated tax shall be taxable year shall be recomputed using
determined without regard to any (ii) Fiscal year. In the case of a the rates applicable to the current
extension of time; and taxpayer other than a calendar year taxable year.
(2) A payment of estimated tax will be taxpayer, the due dates of the required (h) Special rules for consolidated
credited against unpaid required installments are as follows: returns. For special rules relating to the
installments in the order in which such 1st—15th day of 4th month of the taxable determination of the amount of the
installments are required to be paid. year underpayment in the case of a
(d) Amount of required installment. 2nd—15th day of 6th month of the taxable corporation whose income is included
Except as otherwise provided in this year in a consolidated return, see § 1.1502–
section and §§ 1.6655–2 through 3rd—15th day of 9th month of the taxable 5(b).
1.6655–7, the amount of any required year (i) Overpayments applied to
4th—15th day of 12th month of the taxable subsequent taxable year’s estimated
installment is 25 percent of the lesser year
of— tax—(1) In general. If a taxpayer elects
(1) 100 percent of the tax shown on (iii) Short taxable year. See § 1.6655– under the provisions of sections 6402(b)
the return for the taxable year (or, if no 5 for rules regarding required and 6513(d) and the regulations to apply
return is filed, 100 percent of the tax for installments for corporations with a an overpayment in year one against the
such year); or short taxable year. estimated tax liability for year two, the
(2) 100 percent of the tax shown on (iv) Partial month. Except as overpayment will be applied to the
the return of the corporation for the otherwise provided, for purposes of required installment payments for year
preceding taxable year. determining the due date of any two in the order due and to the extent
(3) Paragraph (d)(2) of this section required installment a partial month necessary to satisfy such installments,
shall not apply if the preceding taxable shall be treated as a full month. similar to the manner in which an

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actual overpayment of one installment (vi) Amount of underpayment for each § 1.6655–2 Annualized income installment
is carried forward to the next installment date—0 method.
installment. No interest is accrued or Example 2. (i) Facts. Y, a calendar year (a) In general. In the case of any
paid on an overpayment if the election corporation, estimates its tax liability for its required installment, if the corporation
to apply the overpayment against taxable year ending December 31, 2006, will establishes that the annualized income
estimated tax is made. be $70,000. Y is not a large corporation as
installment determined under this
defined in section 6655(g)(2) and § 1.6655–4.
(2) Subsequent examinations. If a section, or the adjusted seasonal
Y reported a Federal income tax liability of
deficiency is determined in an installment determined under § 1.6655–
$90,000 for its taxable year ending December
examination of a return for a taxable 31, 2005. Y paid no installment of estimated 3, is less than the amount determined
year that originally reflected an tax on or before April 17, 2006, June 15, under § 1.6655–1—
overpayment that was applied against 2006, or September 15, 2006, but made a (1) The amount of such required
estimated tax for the succeeding taxable payment of $63,000 on December 15, 2006. installment shall be the annualized
year, interest on the deficiency will not On March 15, 2007, Y filed its income tax income installment (or, if less, the
begin to accrue on an amount applied return showing a tax of $70,000. Y had no adjusted seasonal installment); and
until that amount is used to satisfy a credits against tax for tax year 2006. Of the (2) Any reduction in a required
required estimated tax payment in such $63,000 paid by Y on December 15, 2006, installment resulting from the
taxable year. Regardless of whether the $17,500 is applied to each of the first three application of this section will be
taxpayer anticipated the application of installments due on April 15, June 15, and recaptured by increasing the amount of
such overpayment from the prior September 15, 2006, and the remaining the next required installment
taxable year in calculating and paying $10,500 is applied to the fourth installment. determined under § 1.6655–1 by the
its required estimated tax installment Y has an underpayment of estimated tax for
amount of such reduction (and, if the
liabilities for the current taxable year, each of the first three installments of $17,500
and for the fourth installment of $7,000. The
next required installment is similarly
the subsequently determined reduced, by increasing subsequent
addition to tax under section 6655(a) is
underpayment and interest computation computed as follows: required installments to the extent that
thereon will not change the taxpayer’s (A) Tax as defined in paragraph (g) of this the reduction has not previously been
original election to apply the section for 2006—$70,000 recaptured).
overpayment against the estimated tax (B) Tax as defined in paragraph (g) of this (b) Determination of annualized
liability of the succeeding taxable year. section for 2005—90,000 income installment—In general. In the
Any changes to the usage of the original (C) 100% of the lesser of this paragraph (j), case of any required installment, the
overpayment from the prior taxable year Example 2 (i)(A) or (i)(B)—70,000 annualized income installment is the
are hypothetical only and solely for the (D) Amount of estimated tax required to be excess (if any) of—
purpose of computing deficiency paid on or before each installment date (25% (1) The product of the applicable
interest. Overpayment interest will not of $70,000)—17,500
percentage and the tax for the taxable
be impacted. For further guidance, see (E) Amount paid on or before the first,
second, and third installment dates—0
year computed by annualizing the
Rev. Rul. 99–40 (1999–2 C.B. 441), (see taxable income and alternative
(F) Amount paid on or before the fourth
§ 601.601(d)(2)(ii)(b) of this chapter). minimum taxable income—
installment date—63,000
(j) Examples. The method prescribed (i) For the first 3 months of the taxable
(G) Amount of underpayment for the first,
in paragraphs (d) through (g) of this second, and third installment dates—17,500 year, in the case of the first required
section may be illustrated by the (H) Amount of underpayment for the installment;
following examples: fourth installment date—7,000 (ii) For the first 3 months of the
Example 1. X, a calendar year corporation, (ii) Addition to tax. Assuming that neither taxable year, in the case of the second
estimates its tax liability for its taxable year the annualized income installment method required installment;
ending December 31, 2006, will be $85,000. nor the adjusted seasonal installment method (iii) For the first 6 months of the
X is not a large corporation as defined in described in §§ 1.6655–2 and 1.6655–3 taxable year in the case of the third
section 6655(g)(2) and § 1.6655–4. X reported would result in a lower payment for any required installment; and
a liability of $74,900 on its return for the installment period, and the addition to tax is
taxable year ended December 31, 2005, with (iv) For the first 9 months of the
computed under section 6621(a)(2) at the rate
no credits against tax. X paid four of 8 percent per annum for the applicable taxable year, in the case of the fourth
installments of estimated tax, each in the periods of underpayment, the addition to tax required installment; over
amount of $18,725 (25 percent of $74,900), is determined as follows: (2) The aggregate amount of any prior
on April 17, 2006, June 15, 2006, September (A) First installment (underpayment period required installments for the taxable
15, 2006, and December 15, 2006, 4–16–06 through 12–15–06), computed as year.
respectively. X reported a tax liability of 244/365 × $17,500 × 8%—$936 (c) Special rules—(1) Applicable
$88,900 on its return due March 15, 2007. X (B) Second installment (underpayment percentage. Except as otherwise
had a $5,000 credit against tax for tax year period 6–16–06 through 12–15–06),
2006 as provided by part IV of subchapter A
provided in § 1.6655–5(d) with respect
computed as 183/365 × $17,500 × 8%—702 to short taxable years—
of chapter 1 of the Internal Revenue Code. X (C) Third installment (underpayment
did not underpay its estimated tax for tax period 9–16–06 through 12–15–06),
year 2006 for any of the four installments, In the case of the fol-
computed as 91/365 × $17,500 × 8%—349 The applicable
determined as follows: lowing required install- percentage is:
(D) Fourth installment (underpayment ments:
(i) Tax as defined in paragraph (g) of this
period 12–16–06 through 3–15–07),
section for 2006 ($88,900¥$5,000)—$83,900
(ii) Tax as defined in paragraph (g) of this computed as 90/365 × $7,000 × 8%—138 1st ................................... 25
(E) Total of this paragraph (j), Example 2 2nd .................................. 50
section for 2005—74,900 3rd ................................... 75
(iii) 100% of the lesser of this paragraph (j), (ii)(A) through (D)—2,125
4th ................................... 100
Example 1 (i) or (ii)—74,900
(iv) Amount of estimated tax required to be
(k) Effective date. This section applies
paid on or before each installment date (25% to taxable years beginning after the date (2) Partial month. Except as otherwise
of $74,900)—18,725 that is 30 days after the date the final provided, for purposes of paragraph (b)
(v) Deduct amount paid on or before each regulations are published in the Federal of this section a partial month shall be
installment date—18,725 Register. treated as a month.

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(d) Election of different annualization (ii) [(x/(y*4))*z], in the case of a (5) The application of the annualized
periods. (1) If the taxpayer timely files taxpayer using thirteen 4-week periods, income installment method is
Form 8842, ‘‘Election to Use Different if— illustrated by the following example:
Annualization Periods for Corporate (A) x = Taxable income for the full 4- Example. (i) X, a calendar year corporation,
Estimated Tax,’’ in accordance with week periods in the applicable period; had a taxable year of less than twelve months
section 6655(e)(2)(C)(iii), and elects (B) y = The number of full 4-week for tax year 2005 and no credits against tax
Option 1— periods in the applicable period; and for tax year 2006. X made an estimated tax
(i) Paragraph (b)(1)(i) of this section payment of $15,000 on the installment dates
will be applied by using the language ‘‘2 (C) z = The number of weeks in the of April 17, 2006, June 15, 2006, September
months’’ instead of ‘‘3 months’’; taxable year. 15, 2006, and December 15, 2006,
(3) If a taxpayer employs four 13-week respectively. Assume that, under paragraph
(ii) Paragraph (b)(1)(ii) of this section
periods and the taxpayer does not have (d)(1) of this section, X elected Option 1 by
will be applied by using the language ‘‘4 timely filing Form 8842, in accordance with
months’’ instead of ‘‘3 months’’; at least one 13-week period within the section 6655(e)(2)(C)(iii), and determined
(iii) Paragraph (b)(1)(iii) of this section applicable 2-, 3-, 4-, 5-, 6-, 7-, 8-, 9-, that its taxable income for the first 2, 4, 7 and
will be applied by using the language ‘‘7 10-, or 11-month period, the taxpayer 10 months was $25,000, $64,000, $125,000,
months’’ instead of ‘‘6 months’’; and shall be permitted to determine and $175,000 respectively. The income for
(iv) Paragraph (b)(1)(iv) of this section annualized taxable income for the each period is annualized as follows:
will be applied by using the language applicable period based upon— $25,000 × 12/2 = $150,000
‘‘10 months’’ instead of ‘‘9 months’’. (i) The taxable income for the number $64,000 × 12/4 = $192,000
(2) If the taxpayer timely files Form of weeks in the applicable period; or $125,000 × 12/7 = $214,286
8842, in accordance with section $175,000 × 12/10 = $210,000
(ii) The taxable income for the full 13-
6655(e)(2)(C)(iii), and elects Option 2— week periods that end before the due (ii)(A) To determine whether the
(i) Paragraph (b)(1)(ii) of this section date of the required installment. installment payment made on April 17,
will be applied by using the language ‘‘5 2006, equals or exceeds the amount that
(4) The following examples illustrate would have been required to have been
months’’ instead of ‘‘3 months’’; the rules of this paragraph (e):
(ii) Paragraph (b)(1)(iii) of this section paid if the estimated tax were equal to
will be applied by using the language ‘‘8 Example 1. Taxpayer A, an accrual method 100 percent of the tax computed on the
taxpayer, uses a 52/53 week year-end ending annualized income for the 2-month
months’’ instead of ‘‘6 months’’; and
on the last Friday in December and uses four period, the following computation is
(iii) Paragraph (b)(1)(iv) of this section thirteen-week periods. For its year beginning
will be applied by using the language necessary:
December 30, 2006, A uses the annualized
‘‘11 months’’ instead of ‘‘9 months’’. (1) Annualized income for the 2
income installment method under section
(e) 52–53 week taxable year. (1) 6655(e)(2)(A)(i) to calculate all of its required month period—$150,000
Generally, in the case of a taxpayer installments. For purposes of computing its (2) Tax on this paragraph (e)(5),
whose taxable year constitutes 52 or 53 first and second required installments, the Example (ii)(A)(1)—41,750
weeks in accordance with section 441(f), first 3 months of A’s taxable year under (3) 100% of this paragraph (e)(5),
the rules prescribed by § 1.441–2 shall paragraph (b)(1)(i) of this section will end on Example (ii)(A)(2)—41,750
March 30th, the thirteenth Friday of A’s (4) 25% of this paragraph (e)(5),
be applicable in determining—
taxable year. For purposes of its third Example (ii)(A)(3)—10,438
(i) Whether a taxable year is a taxable required installment, the first 6 months of A’s (B) Because the total amount of
year of 12 months; and taxable year will end on June 29th, the estimated tax that was timely paid on or
(ii) When the 2-, 3-, 4-, 5-, 6-, 7-, twenty-sixth Friday of A’s taxable year. For before the first installment date
8-, 9-, 10-, or 11-month period purposes of its fourth required installment, ($15,000) exceeds the amount required
(whichever is applicable) commences the first 9 months of A’s taxable year will end
to be paid on or before this date if the
and ends for purposes of paragraphs on September 28th, the thirty-ninth Friday of
A’s taxable year. estimated tax were 100 percent of the
(b)(1), (d)(1) and (d)(2) of this section. tax determined by placing on an
(2) If a taxpayer employs four 13-week Example 2. Same facts as Example 1 except
that A uses thirteen four-week periods and annualized basis the taxable income for
periods or thirteen 4-week accounting there are 52 weeks during A’s taxable year the first 2-month period, the exception
periods and the end of any accounting beginning December 30, 2006, and ending described in paragraphs (a) and (b) of
period employed by the taxpayer does December 28, 2007. For purposes of this section applies, and no addition to
not correspond to the end of the 2-, computing A’s first and second required tax will be imposed for the installment
3-, 4-, 5-, 6-, 7-, 8-, 9-, 10-, or 11-month installments, A’s annualized taxable income due on April 15, 2006.
period (whichever is applicable), then, for the first three months will be the taxable (iii)(A) To determine whether the
provided the taxpayer has at least one income for the first three four-week periods
of A’s taxable year (December 30, 2006,
installment payments made on or before
full 4-week or 13-week accounting June 15, 2006, equal or exceed the
period, as appropriate, within the through March 23, 2007) divided by 12
(number of full four-week periods in the first amount that would have been required
applicable period, annualized taxable three months (3) multiplied by 4) and to have been paid if the estimated tax
income for the applicable period shall multiplied by 52 (the number of weeks in the were equal to 100 percent of the tax
be— taxable year). For purposes of computing A’s computed on the annualized income for
(i) [(x/(y*13))*z], in the case of a third required installment, A’s annualized the 4-month period, the following
taxpayer using four 13-week periods, taxable income for the first six months will computation is necessary:
if— be the taxable income for the first six four- (1) Annualized income for the 4
(A) x = Taxable income for the week periods of A’s taxable year (December
month period—$192,000
number of full 13-week periods in the 30, 2006, through June 15, 2007) divided by
(2) Tax on this paragraph (e)(5),
applicable period; 24 and multiplied by 52. For purposes of
computing A’s fourth required installment, Example (iii)(A)(1)—58,130
(B) y = The number of full 13-week A’s annualized taxable income for the first (3) 100% of this paragraph (e)(5),
periods in the applicable period; and nine months will be the taxable income for Example (iii)(A)(2)—58,130
(C) z = The number of weeks in the the first nine four-week periods of A’s taxable (4) 50% of this paragraph (e)(5),
taxable year; or year (December 30, 2006, through September Example (iii)(A)(3) less $10,438 (amount
7, 2007) divided by 36 and multiplied by 52. due with the first installment)—18,627

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(B) Because the total amount of (4) 100% of this paragraph (e)(5), (and applicable tax) for the applicable
estimated tax actually paid on or before Example (v)(A)(3) less $50,116 (amount annualization period by the last day of
the second installment date ($19,562 due with the first, second, and third such period. Generally, except as
($15,000 second required installment installment)—15,034 provided in paragraph (f)(2) of this
payment plus $4,562 overpayment of (B) Because the total amount of section, for an item to be taken into
first required installment)) exceeds the estimated tax payments made on or account during an annualization period,
amount required to be paid on or before before the fourth installment date that is the following must occur on or before
this date if the estimated tax were 100 available to be applied to the estimated the last day of the applicable
percent of the tax determined by placing tax due for the fourth installment annualization period (determined based
on an annualized basis the taxable ($9,884 ($15,000 fourth required on the accounting period employed by
income for the first 4-month period, the installment payment less $5,116 the taxpayer):
exception described in paragraphs (a) underpayment for the third installment (i) With respect to an item of gross
and (b) of this section applies, and no of estimated tax ($21,051 third income, such income is includible in
addition to tax will be imposed for the installment of estimated tax due less computing taxable income in
installment due on June 15, 2006. $15,935 payments available to be accordance with section 451 or the
(iv)(A) To determine whether the applied to the third installment of appropriate provision of the Internal
installment payments made on or before estimated tax))) does not equal or Revenue Code (for example, section 453
September 15, 2006, equal or exceed the exceed the amount required to be paid for installment sales or section 460 for
amount that would have been required on or before this date if the estimated long-term contracts).
to have been paid if the estimated tax tax were 100 percent of the tax (ii) With respect to an item of loss, the
were equal to 100 percent of the tax determined by placing on an annualized loss must be permitted to be taken into
computed on the annualized income for basis the taxable income for the first 10- account under the appropriate provision
the 7-month period, the following month period, the exception described of the Internal Revenue Code.
in paragraphs (a) and (b) of this section (iii) With respect to an item of
computation is necessary:
does not apply, and an addition to tax deduction, for taxpayers using the cash
(1) Annualized income for the 7
will be imposed with respect to the receipts and disbursements method of
month period—$214,286
underpayment of the December 15, accounting, the deduction must be paid
(2) Tax on this paragraph (e)(5),
under § 1.461–1(a)(1) and otherwise
Example (iv)(A)(1)—66,821 2006, installment unless another
deductible in computing taxable income
(3) 100% of this paragraph (e)(5), exception applies to this installment
for the annualization period or, for
Example (iv)(A)(2)—66,821 payment.
taxpayers using an accrual method of
(4) 75% of this paragraph (e)(5), (vi) Assuming that no other
accounting, the deduction must be
Example (iv)(A)(3) less $29,065 (amount exceptions apply and the addition to tax
incurred under § 1.461–1(a)(2) and
due with the first and second is computed under section 6621(a)(2) at
otherwise deductible in computing
installment)—21,051 the rate of 8 percent per annum for the
taxable income for the annualization
(B) Because the total amount of applicable periods of underpayment, the
period. In the case of an accrual method
estimated tax actually paid on or before amount of the addition to tax is as
taxpayer, the provisions of section
the third installment date ($15,935 follows:
170(a)(2) and § 1.170A–11(b) (charitable
($15,000 third required installment (A) First installment (no
contributions by accrual method
payment plus $935 overpayment of underpayment)
corporations), § 1.461–4(d)(6)(ii)
second required installment)) does not (B) Second installment (no
(provision of services or property to a
equal or exceed the amount required to underpayment)
taxpayer), § 1.461–5 (recurring item
be paid on or before this date if the (C) Third installment (underpayment
exception), and any other provision that
estimated tax were 100 percent of the period 9–16–06 through 12–15–06),
has a similar effect can not be used in
tax determined by placing on an computed as 91/365 × $5,116 × 8%—
determining whether the item of
annualized basis the taxable income for 102
deduction has been incurred under
the first 7-month period, the exception (D) Fourth installment (underpayment
§ 1.461–1(a)(2) and is otherwise
described in paragraphs (a) and (b) of period 12–16–06 through 3–15–07),
deductible for purposes of computing
this section does not apply, and an computed as 90/365 × $5,150 × 8%—
taxable income for an annualization
addition to tax will be imposed with 102
period. For purposes of section 404 and
respect to the underpayment of the (E) Total of this paragraph (e)(5),
the regulations, regardless of the overall
September 15, 2006, installment unless Example (vi)(A) through (D)—204
method of accounting employed by the
another exception applies to this (f) Determination of taxable income taxpayer, the applicable 2-, 3-, 4-, 5-,
installment payment. for an annualization period—(1) In 6-, 7-, 8-, 9-, 10-, or 11-month period
(v)(A) To determine whether the general. In determining the applicability shall not be treated as a short taxable
installment payments made on or before of the exception described in paragraphs year and the rules of section 404 and the
December 15, 2006, equal or exceed the (a) and (b) of this section (relating to the regulations shall be applied on the basis
amount that would have been required annualization of income) and the of the taxpayer’s taxable year for which
to have been paid if the estimated tax exception described in § 1.6655–3 estimated tax is being determined. Thus,
were equal to 100 percent of the tax (relating to annualization of income for the determination of whether a payment
computed on the annualized income for corporations with seasonal income), and to an employee is deferred
the 10-month period, the following for purposes of computing a taxpayer’s compensation under § 1.404(b)–1T shall
computation is necessary: taxable income (and applicable tax), an be made by reference to whether the
(1) Annualized income for the 10 item must be taken into account in payment is received by the employee
month period—$210,000 computing a taxpayer’s taxable income more than a brief period of time after the
(2) Tax on this paragraph (e)(5), for the taxable year for which the last day of the taxable year for which
Example (v)(A)(1)—65,150 estimated tax is being determined, and estimated tax is being determined and
(3) 100% of this paragraph (e)(5), must be properly taken into account in not the last day of the applicable
Example (v)(A)(2)—65,150 determining a taxpayer’s taxable income annualization period. With respect to

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contributions to qualified plans income earned throughout the current shall be taken into account in
governed by section 404 and the taxable year, is not incurred (or paid, in computing an annualized income
regulations, in determining whether an the case of a cash method taxpayer) installment only after annualizing the
item is paid or incurred by the end of until the end of the taxable year, or after taxable income for the annualization
an annualization period, economic the end of the current taxable year and period and computing the applicable
performance is satisfied only to the is deemed incurred (or paid, in the case tax, and before applying the applicable
extent such item is paid by the last day of a cash method taxpayer) during the percentage.
of the applicable annualization period current taxable year (taking into (iv) Section 481(a) adjustment. (A)
(without regard to section 404(a)(6)) and account, as applicable, section 170(a)(2) Any section 481(a) adjustment required
does not, in combination with other and § 1.170A–11(b), section 404(a)(6), to be recognized during the taxable year
such items paid during the applicable § 1.461–4(d)(6)(ii), § 1.461–5, and any shall be recognized ratably over the
annualization period, exceed the other provision that has a similar effect), number of months in the taxable year.
applicable deduction limit of section then the taxpayer may, in lieu of any (B) With respect to a Form 3115,
404(a) for the taxable year. For purposes amount determined under paragraph ‘‘Application for Change in Accounting
of sections 419 and 419A and the (f)(1) of this section, take into account Method,’’ filed during the current
regulations, regardless of the overall for the applicable annualization period taxable year or a preceding taxable year,
method of accounting employed by the the amount of such expense properly if the change in method of accounting—
taxpayer, the applicable 2-, 3-, 4-, 5-, allocable to such period provided the (1) Is permitted to be made with the
6-, 7-, 8-, 9-, 10-, or 11-month period amount so allocated to such automatic consent of the Commissioner,
shall not be treated as a short taxable annualization period is determinable the appropriate portion of the section
year and the rules of sections 419 and with reasonable accuracy and the 481(a) adjustment determined under
419A and the regulations shall be amount of the item so allocated is paragraph (f)(2)(iv)(A) of this section
applied on the basis of the taxpayer’s properly deducted by the taxpayer shall be taken into account in
taxable year for which estimated tax is during the current taxable year under determining an annualized income
being determined. With respect to the taxpayer’s method of accounting. installment if, and only if, the copy of
contributions to a welfare benefit fund (B) For purposes of this paragraph the Form 3115 has been mailed to the
governed by sections 419 and 419A and (f)(2)(i), the portion of an annual IRS National Office on or before the last
the regulations, in determining whether expense item allocable to an day of the annualization period; or
an item is paid or incurred by the end annualization period will be considered (2) Requires the prior consent of the
of an annualization period, economic to be determined with reasonable Commissioner, the appropriate portion
performance is satisfied only to the accuracy if such item is allocated evenly of the section 481(a) adjustment
extent such item is paid by the last day throughout the taxable year unless the determined under paragraph (f)(2)(iv)(A)
of the applicable annualization period taxpayer is able to clearly demonstrate of this section shall be taken into
and does not, in combination with other such item is more appropriately account in determining an annualized
such items paid during such allocable to an annualization period by income installment if, and only if, the
annualization period, exceed the some other method including, for consent agreement reflecting the
applicable deduction limit of section example, in proportion to the earning of Commissioner’s consent to the change
419 for the taxable year. revenue, the use of property, or the in method of accounting and the
(iv) With respect to depreciation and provision of services. For purposes of prescribed terms and conditions for
amortization (depreciation) expense, a this paragraph (f)(2)(i), a taxpayer has a effecting such change has been signed
taxpayer shall take into account history of incurring or paying a specific by the taxpayer and mailed to the IRS
depreciation expense only as provided item of expense at the end of the taxable National Office on or before the last day
in paragraph (f)(2)(v) of this section. year, or after the end of the taxable year of the annualization period.
(v) With respect to any item taken into that is deemed incurred or paid during (v) Depreciation and amortization—
account in computing taxable income the taxable year, if, in each of the two (A) General rule. In determining any
for the annualization period that is not taxable years immediately preceding the annualized income installment, a
described in paragraphs (f)(1)(i), (ii), current taxable year (or the immediately proportionate amount of the taxpayer’s
(iii), and (iv) of this section, the item is preceding taxable year if the taxpayer estimated annual depreciation and
includible in computing taxable income was not in existence for the two amortization (depreciation) expense
in accordance with the appropriate preceding taxable years), the taxpayer shall be taken into account. For
provision of the Internal Revenue Code. incurred or paid the specific item of purposes of the preceding sentence,
(vi) With respect to an item of credit, expense at the end of each taxable year, estimated annual depreciation expense
the amounts upon which the credit is or after the end of each taxable year that is the estimated depreciation expense to
computed must have been taken into was deemed incurred or paid during be properly taken into account in
account in computing taxable income such taxable year. In addition, for determining the taxpayer’s taxable
for the annualization period pursuant to purposes of this paragraph (f)(2)(i), the income for the taxable year. In
paragraphs (f)(1)(i), (ii), (iii), (iv), and (v) term ‘‘the end of the taxable year’’ determining the estimated annual
of this section, as applicable. means the period between and depreciation expense, a taxpayer may
(2) Exceptions—(i) Annual expenses including the 15th and last day of the take into account purchases, sales or
paid or incurred at or after the end of last month of the taxable year. other dispositions, changes in use,
the taxable year. (A) Except as (ii) Net operating loss carryover. Any depreciation deductions permitted
otherwise provided in paragraphs net operating loss carryover to the under sections 168(k) and 1400L(b), and
(f)(2)(ii) through (vi) of this section, if an current taxable year shall be taken into other similar events and provisions (for
accrual method taxpayer has a history of account in computing an annualized example, section 179) that, based on all
incurring a specific item of expense income installment only after the relevant information available as of
under § 1.461–1(a)(2) (or a cash method annualizing the taxable income for the the last day of the annualization period
taxpayer has a history of paying a annualization period. (such as capital spending budgets,
specific item of expense under § 1.461– (iii) Credit carryover. Any credit financial statement data and projections,
1(a)(1)) that, while attributable to carryover to the current taxable year or similar reports that provide evidence

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of the taxpayer’s capital spending plans 31, 2006, make a binding, irrevocable Example 3. Corporation B, a calendar year
for the current taxable year), are commitment to fund a minimum taxpayer, uses an accrual method of
reasonably expected to occur or apply contribution of $10,000,000 to A’s qualified accounting and the annualized income
retirement plan by March 15, 2007, which installment method under section
during the taxable year. For purposes of fixes A’s liability to make the $10,000,000 6655(e)(2)(A)(i) to calculate its first required
the additional first-year depreciation contribution. Similarly, consistent with A’s installment. In each of the three preceding
deduction under sections 168(k) and historical practice, A plans to remit payments taxable years, B has paid annual bonuses on
1400L(b), only a proportionate amount to the retirement plan of $1,000,000 on the Friday immediately preceding December
of the current year’s additional first-year January 2, 2007, and $9,000,000 on March 1, 25 to those employees of B that provided
depreciation deduction to be taken into 2007. The $10,000,000 commitment is not services to B during the taxable year and
account in determining a taxpayer’s taken into account for purposes of were employed by B on the date such
determining A’s first annualized income bonuses were paid. At the beginning of 2006,
taxable income for the taxable year is
installment, which is based on the income consistent with its historical experience, B’s
taken into account in computing taxable and deductions from the first three months board of directors pass a resolution that B
income for an annualization period. As of the taxable year, because A did not make will pay cash bonuses of $6,000,000 to those
an alternative to estimating annual any payments by March 31, 2006 (and employees that have provided services to B
depreciation expense based on events therefore did not satisfy the economic during 2006 and are employed by B on
that are reasonably expected to occur, a performance requirements of § 1.461– December 22, 2006, the Friday immediately
taxpayer may claim for an annualization 4(d)(2)(iii) by March 31, 2006), in accordance preceding December 25, 2006. B plans to pay,
period at least a proportionate amount with paragraph (f)(1)(iii) of this section. The and does pay, the cash bonuses to eligible
$10,000,000 is not treated as paid on or employees on March 1, 2007. The bonuses,
of 50 percent of the taxpayer’s estimated before March 31, 2006, under section
depreciation expense for the current pursuant to paragraph (f)(1)(iii) of this
404(a)(6) because, pursuant to paragraph section, are not treated as deferred
taxable year attributable to assets that a (f)(1)(iii) of this section, the last day of the compensation for the taxable year or the
taxpayer had in service on the last day annualization period is not to be treated as annualization period under § 1.404(b)–1T
of the preceding taxable year, that the last day of A’s taxable year. However, because the last day of the annualization
remain in service on the first day of the pursuant to paragraph (f)(2)(i)(A) of this period is not to be treated as the last day of
current taxable year, and that are subject section, because A has historically incurred B’s taxable year. Because the bonuses are not
a retirement plan expense during the taxable treated as deferred compensation, the
to the half-year convention. year pursuant to section 404 that, but for the
(B) Short taxable years. Unless the bonuses are not subject to section 404, and
deeming rule of section 404(a)(6), would instead are treated as service liabilities under
taxable year is, or will be, a short have been incurred after the end of the
taxable year, in no circumstance may an § 1.461–4(d)(2)(i) rather than employee
taxable year, and because A satisfies the
benefit liabilities under § 1.461–4(d)(2)(iii).
annualization period be treated as a other requirements of paragraph (f)(2)(i)(A) of
Thus, the bonuses are incurred when all the
short taxable year for purposes of this section, A may take into account a
events have occurred that establish the fact
determining the depreciation allowance $2,500,000 retirement plan expense for
of the liability, the amount of the liability can
for such annualization period. If the purposes of determining A’s taxable income
to be annualized in computing A’s first be determined with reasonable accuracy, and
taxable year is, or will be (based on all the services are provided to B by B’s
annualized income installment for 2006
relevant information available as of the ($10,000,000/12 × 3 = $2,500,000) unless, employees. If B’s first required installment is
last day of the annualization period), a pursuant to paragraph (f)(2)(i)(B) of this made under the provisions of section
short taxable year, annual depreciation section, A is able to clearly demonstrate that 6655(e)(1), the $6,000,000 is not taken into
expense shall be computed using the the retirement plan expense is more account for purposes of determining B’s first
appropriately allocable by some other annualized income installment, which is
rules applicable for computing
method. based on the income and deductions from the
depreciation during a short taxable year first three months of the taxable year, because
for purposes of determining the annual Example 2. Same facts as Example 1 except
that, consistent with its historical practice, A B did not incur any liability for bonus
depreciation expense to be allocated to payments for the current taxable year by
remits $9,000,000 to the retirement plan on
an annualization period. For this June 30, 2006, and $1,000,000 to the March 31, 2006, in accordance with
purpose, the rules applicable for retirement plan on September 30, 2006. For paragraph (f)(1)(iii) of this section. However,
computing depreciation during a short purposes of determining A’s first and second pursuant to paragraph (f)(2)(i)(A) of this
taxable year shall be applied on the required installments for 2006, which are section, because B has historically incurred
basis of the date the taxable year is based on the income and deductions from the a bonus expense at the end of the taxable
first three months of the taxable year, A may year, and because B satisfies the other
expected to end based on all relevant
not take into account any of the retirement requirements of paragraph (f)(2)(i)(A) of this
information available as of the last day section, B may take into account a $1,500,000
plan expense because A did not make any
of the annualization period. See Rev. bonus expense for purposes of determining
payments by March 31, 2006 (and therefore
Proc. 89–15 (1989–1 C.B. 816), (see did not satisfy the economic performance B’s taxable income to be annualized in
§ 601.601(d)(2)(ii)(b) of this chapter). requirements of § 1.461–4(d)(2)(iii) by March computing B’s first annualized income
(vi) Member of partnership. In 31, 2006), in accordance with paragraph installment for 2006 ($6,000,000/12 × 3 =
determining a partner’s distributive (f)(1)(iii) of this section. For A’s third $1,500,000) unless, pursuant to paragraph
share of partnership items that must be required installment, which is based on the (f)(2)(i)(B) of this section, B is able to clearly
taken into account during an income and deductions from the first six demonstrate that the bonus expense is more
annualization period, the rules set forth months of the taxable year, A may take into appropriately allocable by some other
account a $9,000,000 retirement plan method.
in § 1.6654–2(d)(2) are applicable.
expense for purposes of determining A’s Example 4. Corporation C, a calendar year
(3) Examples. The provisions of this taxpayer, uses an accrual method of
annualized taxable income because A
paragraph (f) are illustrated by the incurred the $9,000,000 expense by June 30, accounting and the annualized income
following examples: 2006. For A’s fourth required installment, installment method under section
Example 1. Corporation A, a calendar year which is based on the income and 6655(e)(2)(A)(i) to calculate its first required
taxpayer, uses an accrual method of deductions from the first nine months of the installment for its 2006 taxable year. C has
accounting and uses the annualized income taxable year, A may take into account a a net operating loss carryover to 2006 of
installment method under section $10,000,000 retirement plan expense for $400,000. C’s taxable income from January 1,
6655(e)(2)(A)(i) to calculate its first required purposes of determining A’s annualized 2006, through March 31, 2006, without
installment payment for its 2006 taxable year. taxable income because A incurred the regard to any net operating loss carryover, is
Consistent with its historical practice, the $10,000,000 retirement plan expense by $500,000. For purposes of determining C’s
board of directors of A, on or before March September 30, 2006. first annualized income installment, C’s

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annualized taxable income is $1,600,000, of determining E’s third annualized income accordance with paragraph (f)(2)(v)(A) of this
determined by placing C’s first three months installment for its 2006 taxable year, E’s section, depreciation expense of $22,000
of taxable income from January 1, 2006, annualized taxable income is $1,200,000, ($88,000 × 3/12 = $22,000) may be taken into
through March 31, 2006, on an annualized determined by placing the sum of E’s first six account in computing F’s January 1, 2003,
basis ($500,000 × 12/3 = $2,000,000) and months of taxable income from January 1, through March 31, 2003, taxable income to be
reducing the resulting amount of $2,000,000 2006, through June 30, 2006, ($800,000) less, annualized. Under paragraph (f)(2)(v)(B) of
by the $400,000 net operating loss carryover pursuant to paragraph (f)(2)(iv) of this this section, F may not consider its first
to 2006. section, the portion of the 2006 section 481(a) annualization period to be a short taxable
Example 5. Corporation D, a calendar year adjustment required to be recognized during year for purposes of determining the
taxpayer, uses an accrual method of the taxable year that is attributable to the depreciation allowance for such
accounting and the annualized income period from January 1, 2006, through June 30, annualization period.
installment method under section 2006 ($400,000 × 6/12 = $200,000) on an Example 10. Corporation G, a calendar year
6655(e)(2)(A)(i) to calculate all of its required annualized basis ($600,000 × 12/6 = taxpayer that began business on January 5,
installment payments for its 2006 taxable $1,200,000). 2004, adopted an accrual method of
year. On April 15, 2005, D filed a Form 3115, Example 8. Same facts as Example 7 except accounting and will use the annualized
‘‘Application for Change in Accounting that E’s request for change in method of income installment method under section
Method,’’ to request the consent of the accounting required the prior consent of the 6655(e)(2)(A)(i) to calculate its first required
Commissioner to change its method of Commissioner and the Form 3115 was filed installment payment for its 2005 taxable year.
accounting for recognizing revenue. The with the IRS National Office on June 30, On January 5, 2004, G purchased and placed
Commissioner consented to D’s requested 2006. On December 10, 2006, E received the in service an asset that cost $30,000, qualifies
change, and D signed and mailed the consent consent of the Commissioner to change its as ‘‘5-year property’’ as defined in section
letter to the IRS National Office on December method of accounting. E signed and mailed 168(e), is eligible for the 50% additional first
15, 2005. The method change resulted in a the consent letter to the IRS National Office year depreciation deduction under section
positive section 481(a) adjustment of on December 15, 2006. For purposes of 168(k), and is subject to the half-year
$200,000 to be taken into account over four determining E’s third annualized income convention. G will deduct the 50%
taxable years beginning in 2005. D’s taxable installment for its 2006 taxable year, E’s additional first year depreciation deduction
income from January 1, 2006, through March annualized taxable income is $1,600,000, with respect to the ‘‘5-year property.’’ For tax
31, 2006, prior to any section 481(a) determined by placing E’s first six months of year 2004, G takes a depreciation deduction
adjustment, is $500,000. For purposes of taxable income from January 1, 2006, through under section 168(k) of $18,000 ($15,000
determining D’s first annualized income June 30, 2006, on an annualized basis ($30,000 × 50% = $15,000) plus annual
installment for its 2006 taxable year, D’s ($800,000 × 12/6 = $1,600,000). No portion depreciation of $3,000 ($15,000 × 20% =
annualized taxable income is $2,050,000, of the section 481(a) adjustment is taken into $3,000)). G does not anticipate being subject
determined by placing the sum of D’s first account in computing E’s third annualized to the mid-quarter convention for the 2004
three months of taxable income from January income installment because, although E filed taxable year, does not anticipate making any
1, 2006, through March 31, 2006, ($500,000) the accounting method change request on or depreciation elections for this class of
plus, pursuant to paragraph (f)(2)(iv) of this before the last day of E’s third annualization property, does not anticipate making a
section, the portion of the section 481(a) period, E did not receive the Commissioner’s section 179 election, will deduct the 50%
adjustment required to be recognized during consent to change its method of accounting, additional first year depreciation deduction,
the taxable year ($200,000/4 = $50,000) that and E did not sign and mail the consent does not anticipate any sales or other
is attributable to the period from January 1, agreement to the IRS National Office, on or dispositions of depreciable property, and no
2006, through March 31, 2006, ($50,000 × 3/ before the last day of E’s third annualization events have occurred, and, based on all
12 = $12,500) on an annualized basis period. relevant information available as of the due
($512,500 × 12/3 = $2,050,000). Example 9. Corporation F, a calendar year date of G’s first required installment, G does
Example 6. Corporation E, a calendar year taxpayer that began business on January 1, not know of any event that will cause G’s
taxpayer, uses an accrual method of 2003, adopted an accrual method of taxable year to be a short taxable year. G’s
accounting and the annualized income accounting and will use the annualized annual depreciation expense for 2005 is
installment method under section income installment method under section estimated to be $4,800 ($15,000 × 32% =
6655(e)(2)(A)(i) to calculate all of its required 6655(e)(2)(A)(i) to calculate its first required $4,800). For purposes of determining G’s first
installment payments for its 2006 taxable installment payment for its 2003 taxable year. annualized income installment for its 2005
year. E’s taxable income from January 1, As of March 31, 2003, F has purchased and taxable year, in accordance with paragraph
2006, through March 31, 2006, prior to any placed in service $100,000 of ‘‘5-year (f)(2)(v)(A) of this section, depreciation
section 481(a) adjustment, is $500,000. On property,’’ as defined in section 168(e), and expense of $1,200 ($4,800 × 3/12 = $1,200)
June 30, 2006, E filed a copy of the Form anticipates purchasing and placing in service may be taken into account in computing G’s
3115 with the IRS National Office to request another $100,000 of ‘‘5-year property’’ before January 1, 2005, through March 31, 2005,
a change in method of accounting that was December 31, 2003. F does not anticipate taxable income to be annualized. As an
permitted to be made with the automatic being subject to the mid-quarter convention alternative to estimating annual depreciation
consent of the Commissioner and resulted in for the 2003 taxable year, does not anticipate expense based on events that are reasonably
a negative section 481(a) adjustment of making any depreciation elections for this expected to occur, depreciation expense of at
$400,000 to be taken into account entirely in class of property, does not anticipate making least $600 ($4,800 × 50% × 3/12 = $600) may
2006. For purposes of determining E’s first a section 179 election, will deduct the 30% be taken into account in computing G’s
annualized income installment for its 2006 additional first year depreciation deduction, January 1, 2005, through March 31, 2005,
taxable year, E’s annualized taxable income does not anticipate any sales or other taxable income to be annualized. Under
is $2,000,000, determined by placing E’s first dispositions of depreciable property, and no paragraph (f)(2)(v)(B) of this section, G may
three months of taxable income from January events have occurred, and, based on all not consider its first annualization period to
1, 2006, through March 31, 2006, ($500,000) relevant information available as of the due be a short taxable year for purposes of
on an annualized basis ($500,000 × 12/3 = date of F’s first required installment, F does determining the depreciation allowance for
$2,000,000). Because E did not file the not know of any event that will cause F’s such annualization period.
accounting method change request until after taxable year to be a short taxable year. F’s Example 11. Corporation H, a calendar
the last day of the annualization period, no annual depreciation expense for 2003 is year taxpayer, uses an accrual method of
portion of the section 481(a) adjustment is estimated to be $88,000 (total depreciation accounting and the annualized income
taken into account in computing E’s first deduction under section 168(k) of $60,000 installment method under section
annualized income installment. ($200,000 × 30% = $60,000) plus annual 6655(e)(2)(A)(i) to calculate all of its required
Example 7. Same facts as Example 6 except depreciation of $28,000 (($200,000 minus installment payments for its 2006 taxable
that E’s taxable income from January 1, 2006, $60,000) × 20%)). For purposes of year. H has owned real property in State Y
through June 30, 2006, prior to any section determining F’s first annualized income since 2002 and has used the real property in
481(a) adjustment, is $800,000. For purposes installment for its 2003 taxable year, in its trade or business. H’s method of

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accounting for real estate taxes is to deduct liability on June 30, 2006, and the remaining installment, which is based on the income
the taxes on the lien date, subject to the 10% of the real estate tax liability on and deductions from the first three months
recurring item exception of § 1.461–5. Based November 30, 2006. Under paragraph of the taxable year, because the receivable
on historical practice for the past five years, (f)(1)(iii) of this section, the $100,000 real from Z became totally worthless after the last
for the 2006 calendar year State Y imposes estate tax liability is not taken into account day of I’s annualization period. Furthermore,
a lien for real estate taxes on real property for purposes of determining H’s first I may not take the bad debt expense into
owned in State Y on March 15, 2006, with annualized income installment, which is account for purposes of determining the
90% of the tax due on June 30, 2006, and the based on the income and deductions from the taxable income to be annualized in
remaining 10% of the tax due on June 29, first three months of the taxable year, because computing I’s first annualized income
2007. Based on the value of H’s real property economic performance with respect to the installment because the receivable from Z
in State Y, H’s real estate tax liability lien real estate tax liability did not occur by does not meet the requirements of paragraph
imposed on March 15, 2006, is $100,000. H March 31, 2006. In addition, although H has (f)(2)(i) of this section.
pays the first 90% of this liability on June 30, a history of incurring a real estate tax Example 17. Corporation J, a calendar year
2006, and the remaining 10% on June 29, expense after the end of the taxable year that taxpayer, uses an accrual method of
2007. Under paragraph (f)(1)(iii) of this is deemed incurred during the taxable year, accounting and the annualized income
section, the $100,000 real estate tax liability H does not meet the requirements of installment method under section
is not taken into account for purposes of paragraph (f)(2)(i)(A) of this section in order 6655(e)(2)(A)(i) to calculate its first required
determining H’s first annualized income to take a real estate tax expense into account installment payment for its 2006 taxable year.
installment, which is based on the income for purposes of determining H’s first J projects its annualized tax for its 2006
and deductions from the first three months annualized income installment because H taxable year, based on annualizing J’s taxable
of the taxable year, because economic does not incur a real estate tax at the end of income for its first annualization period from
performance with respect to the real estate the current taxable year or after the end of January 1, 2006, through March 31, 2006, to
tax liability did not occur by March 31, 2006. the current taxable year that will be deemed be $1,500,000 before reduction for any
However, pursuant to paragraph (f)(2)(i)(A) of incurred during the current taxable year. credits. J has an unused credit for increasing
this section, because H has historically Example 14. Same facts as Example 13 research activities from 2005 of $500,000 that
incurred a real estate tax expense after the except that H is computing its third required is carried over to 2006. For purposes of
end of the taxable year and the real estate tax installment payment for H’s 2006 taxable determining J’s first annualized income
expense was deemed incurred in 2006 year. Pursuant to paragraph (f)(1)(iii) of this installment, J’s annualized tax for 2006 is
pursuant to § 1.461–5, and because H section, H may take into account $90,000 $1,000,000, determined as the tax for the
satisfies the other requirements of paragraph ($100,000 real estate tax liability × 90% paid taxable year computed by placing on an
(f)(2)(i)(A) of this section, a $2,500 real estate on June 30, 2006) for purposes of annualized basis J’s taxable income from its
tax expense may be taken into account for
determining the taxable income to be first annualization period from January 1,
purposes of determining H’s taxable income
annualized in computing H’s third 2006, through March 31, 2006, ($1,500,000)
to be annualized in computing H’s first
annualized income installment because reduced by the $500,000 credit carryover
annualized income installment ($10,000/12 ×
economic performance with respect to from 2005.
3 = $2,500) unless, pursuant to paragraph
$90,000 of the real estate tax liability Example 18. Corporation K, a calendar year
(f)(2)(i)(B) of this section, H is able to clearly
demonstrate that the real estate tax expense occurred by June 30, 2006. taxpayer, uses an accrual method of
is more appropriately allocable by some other Example 15. Corporation I, a calendar year accounting and the annualized income
method. taxpayer, uses an accrual method of installment method under section
Example 12. Same facts as Example 11, accounting and the annualized income 6655(e)(2)(A)(i) to calculate its first required
except that H is computing its third required installment method under section installment payment for its 2006 taxable year.
installment payment for H’s 2006 taxable 6655(e)(2)(A)(i) to calculate all of its required K projects its annualized tax for its 2006
year. Pursuant to paragraph (f)(1)(iii) of this installment payments for its 2006 taxable taxable year, based on annualizing K’s
section, H may take into account $90,000 year. As of December 31, 2005, I had a taxable income for its first annualization
($100,000 real estate tax liability × 90% paid $1,000,000 account receivable due from Z period from January 1, 2006, through March
on June 30, 2006) for purposes of related to the sale of goods from I to Z during 31, 2006, to be $2,000,000 before reduction
determining the taxable income to be 2005. I has traditionally incurred bad debt for any credits. K has historically earned a
annualized in computing H’s third expense for worthless accounts receivable credit for increasing research activities and,
annualized income installment because and, as of January 1, 2006, I projects that it for 2006, K estimates that it will earn a credit
economic performance with respect to will have a bad debt expense of $1,600,000 for increasing research activities under
$90,000 of the real estate tax liability under section 166 and the regulations for its section 41 of $1,200,000. However, pursuant
occurred by June 30, 2006. In addition, calendar year 2006. On March 31, 2006, I to paragraph (f)(1)(vi) of this section, if K
pursuant to paragraph (f)(2)(i)(A) of this determined that its receivable from Z was were to annualize all components involved
section, because H has historically incurred totally worthless under section 166 and the in computing the current year credit based on
a real estate tax expense after the end of the regulations. No other receivables were K’s activity from January 1, 2006, through
taxable year and the real estate tax expense determined to be worthless between January March 31, 2006, K would generate a credit of
was deemed incurred in 2006 pursuant to 1, 2006, and March 31, 2006. In accordance $1,600,000 for 2006. For purposes of
§ 1.461–5, and because H satisfies the other with paragraph (f)(1)(ii) of this section, a determining K’s first annualized income
requirements of paragraph (f)(2)(i)(A) of this $1,000,000 bad debt write-off is taken into installment, K’s annualized tax for 2006 is
section, a $5,000 real estate tax expense also account for purposes of determining the $400,000, determined as the tax for the 2006
may be taken into account for purposes of taxable income to be annualized in taxable year ($2,000,000) computed by
determining H’s taxable income to be computing I’s first annualized income placing on an annualized basis K’s taxable
annualized in computing H’s third installment. income from its first annualization period
annualized income installment ($10,000/12 × Example 16. Same facts as Example 15 January 1, 2006, through March 31, 2006,
6 = $5,000) unless, pursuant to paragraph except that I determines that its receivable reduced by a $1,600,000 current year credit
(f)(2)(i)(B) of this section, H is able to clearly from Z was totally worthless under section from increasing research activities.
demonstrate that $10,000 of the real estate 166 and the regulations on April 10, 2006. As Example 19. Same facts as Example 18
tax expense is more appropriately allocable of March 31, 2006, I had not determined that except that K does not begin any research
by some other method. Therefore, pursuant any receivables were worthless under section activities until April 3, 2006, and will not
to paragraphs (f)(1)(iii) and (f)(2)(i)(A) of this 166 and the regulations. In accordance with incur any research expenses described in
section, H may take into account $95,000 of paragraph (f)(1)(ii) of this section, the paragraph (f)(2)(i) of this section. As a result,
the real estate tax liability for purposes of $1,000,000 bad debt expense attributable to if K were to annualize all components
computing the third required installment the receivable from Z is not taken into involved in computing the current year credit
payment for H’s 2006 taxable year. account for purposes of determining the based on K’s activity from January 1, 2006,
Example 13. Same facts as Example 11, taxable income to be annualized in through March 31, 2006, K would generate
except that H pays 90% of the real estate tax computing I’s first annualized income no section 41 research credit for purposes of

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determining its first annualized income pursuant to the recurring item exception, the (2) Example. The following example
installment. Pursuant to paragraph (f)(1)(vi) $400,000 is deductible in determining N’s illustrates the rules of this paragraph
of this section, K can not take into account 2006 taxable income and is not taken into (h):
any credit for its first annualization period account in determining N’s taxable income Example. Assume that Congress enacts
because K did not incur the credit by the last for 2007, as required pursuant to paragraph retroactively effective legislation that causes
day of the first annualization period. (f)(1) of this section. However, because N has the taxable income for the applicable 2-,
Accordingly, for purposes of determining K’s historically incurred an annual prize expense
3-, 4-, 5-, 6-, 7-;, 8-, 9-, 10- or 11-month
first annualized income installment, K’s of $400,000 that is described in paragraph
period to be understated. This event, which
annualized tax for its first annualization (f)(2)(i)(A) of this section, $100,000 may be
occurs after the applicable installment due
period January 1, 2006, through March 31, taken into account for purposes of
date and was not reasonably foreseeable at
2006, is $2,000,000. determining the taxable income to be
annualized in computing N’s first annualized the time the installment payment was made,
Example 20. Corporation L, a calendar year
income installment for N’s 2007 taxable year will not result in a recomputation of a
taxpayer, uses an accrual method of
based on the $400,000 liability N will incur corporation’s taxable income for the
accounting and the annualized income
for the 2007 taxable year when N makes the applicable installment period because such
installment method under section
payment in January of 2008 to the 2007 an event was not reasonably foreseeable.
6655(e)(2)(A)(i) to calculate its first required
installment payment for its 2006 taxable year. fourth quarter winner ($400,000/12 × 3 = (i) Effective date. This section applies
L has licensed technology from Corporation $100,000), unless, pursuant to paragraph to taxable years beginning after the date
M for the past five years. Pursuant to the (f)(2)(i)(B) of this section, N is able to clearly that is 30 days after the date the final
license agreement, L pays a license fee to M demonstrate that the annual prize expense is
more appropriately allocable by some other
regulations are published in the Federal
equal to $.01 for every dollar of gross receipts
method. Register.
earned by L. For 2006, L projects gross
receipts of $200,000,000, of which (g) Items that substantially affect § 1.6655–3 Adjusted seasonal installment
$100,000,000 is earned by March 31, 2006, taxable income but cannot be method.
and no portion of L’s license fee expense is
determined accurately by the (a) In general. In the case of any
described in paragraph (f)(2)(i) of this
section. Pursuant to paragraph (f)(1)(iii) of installment due date—(1) In general. In required installment, the amount of the
this section, a license fee expense of determining the applicability of the adjusted seasonal installment is the
$1,000,000 ($100,000,000 × $.01) is incurred annualization exceptions described in excess (if any) of—
by March 31, 2006, and may be taken into paragraphs (a) and (b) of this section (1) 100 percent of the amount
account for purposes of determining the and § 1.6655–3, reasonable estimates determined under paragraph (c) of this
taxable income to be annualized in may be made from existing data for section; over
computing L’s first annualized income items that substantially affect income if (2) The aggregate amount of all prior
installment. the amount of such items cannot be required installments for the taxable
Example 21. Same facts as Example 20 year.
determined accurately by the
except that L does not earn any gross receipts (b) Limitation on application of
by March 31, 2006. In accordance with installment due date. Examples of these
paragraph (f)(1)(iii) of this section, because items are the inflation index for section. This section shall apply only if
the license fee expense was not incurred taxpayers using the dollar-value LIFO the base period percentage (as defined
under § 1.461–1(a)(2) by the last day of the (last-in, first-out) inventory method, in section 6655(e)(3)(D)(i) and paragraph
annualization period, no license fee expense intercompany adjustments for taxpayers (d)(1) of this section) for any six
is taken into account for purposes of that file consolidated returns, and the consecutive months of the taxable year
determining the taxable income to be liquidation of a LIFO layer at the equals or exceeds seventy percent.
annualized in computing L’s first annualized installment date that the taxpayer (c) Determination of amount. The
income installment, which is based on the amount determined under this section
reasonably believes will be replaced at
income and deductions from the first three for any installment will be determined
months of the taxable year. the end of the year.
(2) Example. The following example in the following manner—
Example 22. Corporation N is a calendar
year taxpayer that produces and sells candy illustrates the rules of this paragraph (g): (1) Take the taxable income for all
bars. N uses an accrual method of accounting Example. Corporation X accounts for its months during the taxable year
and the annualized income installment inventory using the dollar-value LIFO preceding the filing month;
method under section 6655(e)(2)(A)(i) to method of accounting. If, when computing its (2) Divide such amount by the base
calculate all of its required installment first annualized income installment, no period percentage for all months during
payments for its 2007 taxable year. N reliable inflation index exists for the period the taxable year preceding the filing
annually conducts, and will conduct for 2007 January 1, 2006, through March 31, 2006, X month;
and 2008, a contest for its customers whereby may interpolate from an available inflation (3) Determine the tax on the amount
N awards, on a quarterly basis, a cash prize index for the same months in the previous determined under paragraph (c)(2) of
of $100,000, $200,000, $300,000, and year to calculate its cost of goods sold.
this section; and
$400,000 to the first, second, third, and (h) Events arising after installment (4) Multiply the tax computed under
fourth quarter winners, respectively. Winners due date that were not reasonably
are announced on the last day of each
paragraph (c)(3) of this section by the
calendar quarter and the prize is payable on
foreseeable—(1) In general. Events base period percentage for the filing
the last day of the month following the arising subsequent to an installment due month and all months during the
announcement of the winner. N uses the date that cause the taxpayer’s taxable year preceding the filing month.
recurring item exception of section 461(h) computation of its taxable income for a (d) Special rules—(1) Base period
and the regulations with respect to its prior installment period to be percentage. The base period percentage
liability to the prize winner. On December understated will not result in a for any period of months shall be the
31, 2006, N announced its fourth quarter recomputation of its taxable income for average percent that the taxable income
winner and remitted payment of $400,000 to the prior installment period. The for the corresponding months in each of
the winner on January 31, 2007. Although the preceding sentence applies only if, the three preceding taxable years bears
contest liability is incurred in accordance
with § 1.461–4(g)(4) on January 31, 2007, at
based on all the facts and circumstances to the taxable income for the three
the time payment is made to the award as of the due date of an installment preceding taxable years.
winner, N may not take such item into payment, it was not reasonably (2) Filing month. The term filing
account in computing N’s first annualized foreseeable that these subsequent events month means the month in which the
income installment for 2007 because, would occur. installment is required to be paid.

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(3) Application of the rules related to provision of section 6655(b) and section (I) Amount of estimated tax required to be
the annualized income installment 6655(d), there was an underpayment in the paid on or before the third installment (25%
method to the adjusted seasonal amount of $76,300 for the second installment of $1,152,600)—288,150
installment method. The rules through September 15, 2006, and $114,450 (J) Deduct amount paid on or before the
for the third installment through December due date of the third installment less amount
governing the computation of taxable
15, 2006, determined as follows: applied towards the first and second
income (and resulting tax) for purposes (A) Tax as defined in section 6655(g)— installments under the general rule of section
of determining any required installment $1,152,600 6655(b) ($250,000 paid in each of the first,
payment of estimated tax under the (B) 100% of this paragraph (e), Example second, and third installments less this
annualized income installment method (i)(A)—1,152,600 paragraph (e), Example (i)(C) less this
under § 1.6655–2 shall apply to the (C) Amount of estimated tax required to be paragraph (e), Example (i)(F))—173,700
computation of taxable income (and paid on or before the first installment (25% (K) Amount of underpayment for the third
resulting tax) for purposes of of $652,800)—163,200 installment date—114,450
determining any required installment (D) Deduct amount timely paid on or (L) Amount of estimated tax required to be
payment of estimated tax under the before the first installment due date under paid on or before the fourth installment (25%
the general rule of section 6655(b)—250,000 of $1,152,600)—288,150
adjusted seasonal installment method.
(E) Amount of overpaid estimated tax for (M) Deduct amount paid on or before the
(e) Example. The provisions of this the first installment date—86,800 due date of the fourth installment less
section may be illustrated by the (F) Amount of estimated tax required to be amount applied towards the first, second,
following example: paid on or before the second installment and third installments under the general rule
Example. (i) X, a corporation that reports (25% of $1,152,600 plus the recapture of section 6655(b) ($250,000 paid in each of
on a calendar year basis, expected that it amount under section 6655(d)(2)(B) of the first, second, and third installments plus
would have an estimated tax liability of $124,950 (25% of $1,152,600 less 163,200))— $450,000 paid in the fourth installment less
$1,200,000 for its taxable year ending 413,100 this paragraph (e), Example (i)(C) less this
December 31, 2006. On its 2005 tax return, (G) Deduct amount paid on or before the paragraph (e), Example (i)(F) less this
X reported a tax liability of $652,800. X paid due date of the second installment less paragraph (e), Example (i)(I))—335,550
four installments of estimated tax, each in the amount applied towards the first installment (N) Amount of overpaid estimated tax for
amount of $250,000, $250,000, $250,000, and under the general rule of section 6655(b) the fourth installment date—47,400
$450,000 on April 17, 2006, June 15, 2006, ($250,000 paid in each of the first and second (ii) X wants to determine if it qualifies for
September 15, 2006, and December 15, 2006, installments less this paragraph (e), Example the adjusted seasonal installment method. X
respectively. X reported a tax liability of (i)(C))—336,800 determines that its monthly taxable income
$1,152,600 on its return due March 15, 2007, (H) Amount of underpayment for the for the preceding three taxable years and for
with no credits against tax. Under the general second installment date—76,300 the current taxable year 2006 is as follows:

January February March April May June July August September October November December

2003:
$100,000 $90,000 $80,000 $70,000 $60,000 $20,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
2004:
200,000 170,000 170,000 130,000 125,000 45,000 21,000 19,000 20,000 20,000 20,000 20,000
2005:
410,000 350,000 330,000 270,000 240,000 80,000 40,000 40,000 40,000 40,000 40,000 40,000
2006:
600,000 680,000 650,000 560,000 460,000 170,000 70,000 60,000 50,000 40,000 30,000 20,000

(iii) X must initially determine if its base (I) Divide this paragraph (e), Example (H) Taxable income for first 4 months of
period percentage for the same 6 consecutive (iii)(G) by this paragraph (e), Example 2003 ($340,000) divided by total taxable
months of the 3 preceding taxable years (iii)(H)—.875 income for 2003 ($480,000)—.7083
equals or exceeds 70 percent (see section (J) Add this paragraph (e), Example (iii)(C), (I) Taxable income for first 4 months of
6655(e)(3) and paragraphs (b) and (c) of this (F), and (I)—2.625 2004 ($670,000) divided by total taxable
section). By using its taxable income for the (K) Divide this paragraph (e), Example income for 2004 ($960,000)—.6979
(iii)(J) by 3—.875 (J) Taxable income for first 4 months of
first 6 months of 2003, 2004, and 2005, X
(iv) To determine the amount of the first 2005 ($1,360,000) divided by total taxable
qualifies for the adjusted seasonal installment under the rules of section
installment method because its base period income for 2005 (1,920,000)—.7083
6655(e)(3) and paragraph (a) of this section, (K) Add this paragraph (e), Example
percentage is 87.5 percent (which exceeds 70 the following computation is necessary:
percent) computed as follows: (iv)(H), (I), and (J) and divide by 3—.7048
(A) Taxable income for first 3 months of
(A) Taxable income for first 6 months of (L) Multiply this paragraph (e), Example
2006—$1,930,000
2003—$420,000 (B) Taxable income for first 3 months of (iv)(G) by this paragraph (e), Example
(B) Total taxable income for 2003—480,000 2003 ($270,000) divided by total taxable (iv)(K)—819,717
income for 2003 ($480,000)—.5625 (M) 100% of this paragraph (e), Example
(C) Divide this paragraph (e), Example
(C) Taxable income for first 3 months of (iv)(L)—819,717
(iii)(A) by this paragraph (e), Example
2004 ($540,000) divided by total taxable (N) Amount of all prior required
(iii)(B)—.875
income for 2004 ($960,000)—.5625 installments for 2006—0
(D) Taxable income for first 6 months of (O) Amount of adjusted seasonal
2004—840,000 (D) Taxable income for first 3 months of
2005 ($1,090,000) divided by total taxable installment for the first installment payment
(E) Total taxable income for 2004—960,000 (this paragraph (e), Example (iv)(M) less this
income for 2005 ($1,920,000)—.5677
(F) Divide this paragraph (e), Example (E) Add this paragraph (e), Example (iv)(B), paragraph (e), Example (iv)(N))—819,717
(iii)(D) by this paragraph (e), Example (C), and (D) and divide by 3—.5642 (v) To determine the amount of the second
(iii)(E)—.875 (F) Divide this paragraph (e), Example installment under the rules of section
(G) Taxable income for first 6 months of (iv)(A) by this paragraph (e), Example 6655(e)(3) and paragraph (a) of this section,
2005—1,680,000 (iv)(E)—3,420,773 the following computation is necessary:
(H) Total taxable income for 2005— (G) Determine the tax on this paragraph (e), (A) Taxable income for first 5 months of
1,920,000 Example (iv)(F)—1,163,049 2006—$2,950,000

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(B) Taxable income for first 5 months of (N) Amount of all prior required corporation (or a predecessor
2003 ($400,000) divided by total taxable installments for 2006—576,300 corporation) that had taxable income of
income for 2003 ($480,000)—.8333 (O) Amount of adjusted seasonal at least $1,000,000 for any taxable year
(C) Taxable income for first 5 months of installment for the third installment payment
during the testing period. For purposes
2004 ($795,000) divided by total taxable (this paragraph (e), Example (vi)(M) less this
income for 2004 ($960,000)—.8281 paragraph (e), Example (vi)(N))—553,773 of this section, a predecessor
(D) Taxable income for first 5 months of (vii) To determine the amount of the fourth corporation is the distributor or
2005 ($1,600,000) divided by total taxable installment under the rules of section transferor corporation in a transaction to
income for 2005 ($1,920,000)—.8333 6655(e)(3) and paragraph (a) of this section, which section 381 (relating to
(E) Add this paragraph (e), Example (v)(B), the following computation is necessary: carryovers in certain corporate
(C), and (D) and divide by 3—.8316 (A) Taxable income for first 11 months of acquisitions) applies.
(F) Divide this paragraph (e), Example 2006—$3,370,000 (b) Testing period. For purposes of
(v)(A) by this paragraph (e), Example (v)(E)— (B) Taxable income for first 11 months of paragraph (a) of this section, the term
3,547,379 2003 ($470,000) divided by total taxable
income for 2003 ($480,000)—.9792 testing period means the 3 taxable years
(G) Determine the tax on this paragraph (e),
Example (v)(F)—1,206,109 (C) Taxable income for first 11 months of immediately preceding the taxable year
(H) Taxable income for first 6 months of 2004 ($940,000) divided by total taxable for which estimated tax is being
2003 ($420,000) divided by total taxable income for 2004 ($960,000)—.9792 determined (the current taxable year) or,
income for 2003 ($480,000)—.875 (D) Taxable income for first 11 months of if less, the number of taxable years the
(I) Taxable income for first 6 months of 2005 ($1,880,000) divided by total taxable taxpayer has been in existence.
2004 ($840,000) divided by total taxable income for 2005 ($1,920,000)—.9792 (c) Computation of taxable income
income for 2004 ($960,000)—.875 (E) Add this paragraph (e), Example during testing period—(1) Short taxable
(J) Taxable income for first 6 months of (vii)(B), (C), and (D) and divided by 3—.9792
(F) Divide this paragraph (e), Example year. In the case of a corporation (or
2005 ($1,680,000) divided by total taxable predecessor corporation) that had a
income for 2005 ($1,920,000)—.875 (vii)(A) by this paragraph (e), Example
(K) Add this paragraph (e), Example (v)(H), (vii)(E)—3,441,585 short taxable year during the testing
(I), and (J) and divide by 3—.875 (G) Determine the tax on this paragraph (e), period, for purposes of determining
(L) Multiply this paragraph (e), Example Example (vii)(F)—1,170,139 whether the $1,000,000 amount referred
(v)(G) by this paragraph (e), Example (v)(K)— (H) Taxable income for first 12 months of to in paragraph (a) of this section is
1,055,345 2003 ($480,000) divided by total taxable equaled or exceeded, the taxable income
income for 2003 ($480,000)—1.0000
(M) 100% of this paragraph (e), Example
(I) Taxable income for first 12 months of
for the short taxable year is computed
(v)(L)—1,055,345 by—
2004 ($960,000) divided by total taxable
(N) Amount of all prior required (i) Multiplying the taxable income for
income for 2004 ($960,000)—1.0000
installments for 2006—163,200 the short taxable year by 12; and
(J) Taxable income for first 12 months of
(O) Amount of adjusted seasonal (ii) Dividing the resulting amount by
2005 ($1,920,000) divided by total taxable
installment for the second installment income for 2005 ($1,920,000)—1.0000 the number of months in the short
payment (this paragraph (e), Example (v)(M) (K) Add this paragraph (e), Example
less this paragraph (e), Example (v)(N))—
taxable year.
(vii)(H), (I), and (J) and divide by 3—1.0000 (2) Computation of taxable income in
892,145 (L) Multiply this paragraph (e), Example
(vi) To determine the amount of the third taxable year when there occurs a
(vii)(G) by this paragraph (e), Example
installment under the rules of section transaction to which section 381
(vi)(K)—1,170,139
6655(e)(3) and paragraph (a) of this section, (M) 100% of this paragraph (e), Example applies. (i) For purposes of determining
the following computation is necessary: (vii)(L)—1,170,139 whether an acquiring corporation had
(A) Taxable income for first 8 months of (N) Amount of all prior required taxable income of $1,000,000 or more
2006—$3,250,000 installments for 2006—864,450 for a taxable year in which there occurs
(B) Taxable income for first 8 months of (O) Amount of adjusted seasonal a transaction to which section 381
2003 ($440,000) divided by total taxable installment for the fourth installment applies, the acquiring corporation’s
income for 2003 ($480,000)—.9167 payment (this paragraph (e), Example
(C) Taxable income for first 8 months of taxable income will be the sum of—
(vii)(M) less this paragraph (e), Example
2004 ($880,000) divided by total taxable (A) The taxable income of the
(vii)(N))—305,689
income for 2004 ($960,000)—.9167 (viii) Because the total amount of each acquiring corporation for its taxable
(D) Taxable income for first 8 months of required estimated tax payment determined year; plus
2005 ($1,760,000) divided by total taxable under section 6655(e)(3) and paragraph (a) of (B) The taxable income of the
income for 2005 ($1,920,000)—.9167 this section exceeds the amount of each distributor or transferor corporation for
(E) Add this paragraph (e), Example (vi)(B), required estimated tax payment determined that portion of the acquiring
(C), and (D) and divide by 3—.9167 under section 6655(d) and § 1.6655–1(d) and corporation’s taxable year up to and
(F) Divide this paragraph (e), Example (e), the exception described in section including the date of distribution or
(vi)(A) by this paragraph (vi)(E)—3,545,326 6655(e) and this section does not apply and
transfer (as defined in § 1.381(b)–1(b)).
(G) Determine the tax on this paragraph (e), the addition to the tax with respect to the
underpayment for the June 15, 2006, and
(ii) For purposes of determining
Example (vi)(F)—1,205,411
(H) Taxable income for first 9 months of September 15, 2006, installments will be whether a transferor or distributor
2003 ($450,000) divided by total taxable imposed unless another exception (for corporation had taxable income of
income for 2003 ($480,000)—.9375 example, see section 6655(e)(2)) applies with $1,000,000 or more for a taxable year in
(I) Taxable income for first 9 months of respect to these installments. which there occurs a transaction to
2004 ($900,000) divided by total taxable (f) Effective date. This section applies which section 381 applies, the
income for 2004 ($960,000)—.9375 to taxable years beginning after the date distributor or transferor corporation’s
(J) Taxable income for first 9 months of taxable income shall be reduced by the
2005 ($1,800,000) divided by total taxable
that is 30 days after the date the final
regulations are published in the Federal amount of its taxable income for that
income for 2005 ($1,920,000)—.9375 portion of its taxable year corresponding
(K) Add this paragraph (e), Example Register.
(vi)(H), (I), and (J) and divide by 3—.9375 Par. 8. Section 1.6655–4 is added to to the acquiring corporation’s taxable
(L) Multiply this paragraph (e), Example read as follows: year up to and including the date of
(vi)(G) by this paragraph (e), Example distribution or transfer (as defined in
(vi)(K)—1,130,073 § 1.6655–4 Large corporations. § 1.381(b)–1(b)).
(M) 100% of this paragraph (e), Example (a) Large corporation defined. The (d) Members of controlled group—(1)
(vi)(L)—1,130,073 term large corporation means any In general. For purposes of applying

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paragraph (a) of this section, the taxable is a large corporation for its current (c) Installment due dates—(1) In
income of members of a controlled taxable year, items that could offset general—(i) Taxable year of four months
group of corporations (as defined in taxable income during a taxable year but less than twelve months. Except as
section 1563(a)) must be aggregated for included in the testing period (for otherwise provided, in the case of a
each year of the testing period. The example, those described in sections short taxable year, if such year results in
provisions of this section shall not 172 and 1212) are not to be taken into a taxable year of four or more full
apply to a controlled group for any account and the taxable income of a calendar months but less than twelve
taxable year in which the aggregate corporation for any taxable year during full calendar months, the due dates
taxable income of the members of the the testing period shall be determined prescribed in § 1.6655–1(f)(2) shall
controlled group is less than $1,000,000. without regard to items carried back or apply.
(2) Aggregation. For purposes of carried over from any other taxable year. (ii) Exception. If the date determined
paragraph (d)(1) of this section, a (f) Consolidated returns. [Reserved]. under paragraph (c)(1)(i) of this section
taxable loss of any member of the (g) Example. The provisions of this for the first required installment due
controlled group for a taxable year section may be illustrated by the during the taxpayer’s short taxable year
during the testing period is not taken following example: is earlier than the 15th day of the fourth
into account. Example. Y Corporation and Z Corporation month of the taxpayer’s short taxable
(3) Allocation rule. If the aggregate are calendar year taxpayers. In 2006, Z year, the taxpayer’s first required
taxable income of members of a acquires all of the assets of Y in a transaction installment shall be due on the first due
controlled group computed pursuant to to which section 381 applies. Z’s taxable date otherwise determined under
paragraph (d)(1) of this section exceeds income for both 2004 and 2005 was less than paragraph (c)(1)(i) of this section that is
$1,000,000 during the testing period, the $1,000,000. Y’s taxable income for 2006 is on or after the 15th day of the fourth
$1,000,000 amount that is relevant for determined under paragraph (c)(2) of this
month of the short taxable year.
purposes of determining, under section to be $300,000 for that portion of the
acquiring corporation’s taxable year up to (2) Early termination of taxable year—
paragraph (a)(1) of this section, whether (i) In general. Except as provided in
a corporation is a large corporation shall and including the date of transfer. Z’s taxable
income for 2006 is $800,000. Under the paragraph (c)(2)(ii) of this section, if a
be divided equally among the taxable year ends early (for example, as
provisions of paragraph (c)(2) of this section,
component members of such group Z’s 2006 taxable income for purposes of a result of an acquisition or a change in
(including component members determining whether it is a large corporation taxable year), the due date for the final
excluded pursuant to paragraph (d)(2) of for taxable year 2007 is $1,100,000 ($800,000 required installment shall be the date
this section) unless all of such + $300,000). Thus, Z is a large corporation for that would have been the due date of
component members consent to an the 2007 taxable year. In addition, if Z’s 2006
the next required installment if the
apportionment plan providing for an taxable income, as determined under
paragraph (c)(2) of this section, had been less event that gave rise to the short taxable
alternative allocation of such amount.
than $1,000,000 but Y’s taxable income in year had not occurred.
The procedure for making and filing this
plan will be the same as the procedure 2004 or 2005 had been $1,000,000 or more, (ii) Exception. If the date determined
used for making and filing an Z would be a large corporation for taxable under paragraph (c)(2)(i) of this section
year 2007 because Y is a predecessor is within thirty days of the last day of
apportionment plan under section 1561. corporation.
See section 1561 and the regulations. the short taxable year, the due date for
(4) Controlled group members. (i) In (h) Effective date. This section applies the final required installment shall be
the case of any corporation that was a to taxable years beginning after the date the fifteenth day of the second month
member of a controlled group of that is 30 days after the date the final following the month that includes the
corporations at any time during the regulations are published in the Federal last day of the short taxable year.
testing period but is not a member of Register. (d) Amount due for required
such group during the taxable year installment—(1) In general. The amount
§ 1.6655–7 [Removed] due for any required installment
involved, the taxable income of the
former member for the testing period is Par. 9. Section 1.6655–7 is removed. determined under section
determined as if such corporation were § 1.6655–5 [Redesignated as § 1.6655–7]
6655(d)(1)(B)(i) for a short taxable year
not a member of a group at any time shall be 100% of the required annual
Par. 10. Section 1.6655–5 is payment for the short taxable year
during that period. With respect to the redesignated as § 1.6655–7.
controlled group, the taxable income of divided by the number of required
Par. 11. Sections 1.6655–5 and
its former member will not be taken into installments due (as determined under
1.6655–6 are added to read as follows:
account in determining such group’s this section) for the short taxable year.
taxable income for any taxable year § 1.6655–5 Short taxable year. (2) Tax shown on the return for the
during the testing period for purposes of (a) In general. Except as otherwise preceding taxable year. If the current
applying paragraph (a)(1) of this section. provided in this section, the provisions taxable year is a short taxable year, the
(ii) For purposes of paragraph (d)(4)(i) of section 6655 and the regulations are amount due for any required installment
of this section, the determination of applicable in the case of a short taxable determined under section
whether a corporation is a member of a year (including an initial taxable year) 6655(d)(1)(B)(ii) shall be determined in
controlled group during the testing for which a payment of estimated tax is the following manner—
period is based on whether the required to be made. (i) Take 100% of the tax shown on the
corporation was a member of the (b) Exception to payment of estimated return of the corporation for the
controlled group on the last day of the tax. In the case of a short taxable year, preceding taxable year;
month preceding the due date of the no payment of estimated tax is required (ii) Multiply such amount by the
required installment. if— number of full calendar months in the
(e) Effect on a corporation’s taxable (1) The short taxable year is a period current short taxable year and divide by
income of items that may be carried of less than 4 full calendar months; or 12; and
back or carried over from any other (2) The tax shown on the return for (iii) Divide the amount determined
taxable year. In determining whether a such taxable year (or, if no return is under paragraph (d)(2)(ii) of this section
corporation (or predecessor corporation) filed, the tax) is less than $500. by the number of required installments

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due (as determined under this section) required installments based on 100 percent of month of D’s taxable year. As a result, D’s
for the current short taxable year. the tax shown on the return for the taxable second (and last) installment is due October
(3) Applicable percentage. In the case year in accordance with section 15, 2007. However, because the due date for
6655(d)(1)(B)(i). Pursuant to § 1.6655– the first required installment falls on a
of any required installment determined
1(f)(2)(i), the due dates of C’s required weekend, D’s first required installment
under section 6655(e), the applicable installments for C’s initial taxable year from payment will be timely if paid on or before
percentage under section February 12, 2007, through December 31, the first business day following the actual
6655(e)(2)(B)(ii) shall be— 2007, are April 15, 2007, June 15, 2007, due date of the required installment, that is,
(i) 25%, 50%, 75%, and 100% for the September 15, 2007, and December 15, 2007. July 16, 2007. Pursuant to paragraph (d)(1) of
first, second, third, and fourth (last) However, in accordance with paragraph this section, the amount due with each
required installments, respectively, if (c)(1)(ii) of this section, C’s first required required installment is 50% of the required
the taxpayer will have four required installment is due June 15, 2007, because annual payment for D’s first required
April 15, 2007, is earlier than the fifteenth installment, and 100% of the required annual
installments due for the short taxable
day of the fourth month of C’s taxable year. payment for D’s second (and last) required
year; As a result, C’s second required installment installment.
(ii) 33.33%, 66.67%, and 100% for the is due September 15, 2007, and C’s third (and Example 6. Same facts as Example 5 except
first, second, and third (last) required last) installment is due December 15, 2007. D corporation began business on May 10,
installments, respectively, if the However, because the due dates for the 2007. In accordance with paragraph (c)(1)(ii)
taxpayer will have three required second and third (and last) required of this section, D’s first (and last) installment
installments due for the short taxable installments fall on a weekend, C’s required is due October 15, 2007, because July 15,
year; installment payments will be timely if paid 2007, is earlier than the fifteenth day of the
(iii) 50% and 100% for the first and on or before the first business day following fourth month of D’s taxable year. Pursuant to
the actual due date of the required paragraph (d)(1) of this section, the amount
second (last) required installments, installments, that is, September 17, 2007, and due with D’s required installment is 100% of
respectively, if the taxpayer will have December 17, 2007, respectively, for the the required annual payment, computed as
two required installments due for the second and third (and last) required 100% divided by the number of required
short taxable year; or installments. Pursuant to paragraph (d)(1) of installments due for the short taxable year.
(iv) 100% for the first (and last) this section, the amount due with each Example 7. E corporation is a calendar year
required installment if the taxpayer will required installment is 33.33% of the taxpayer that computes its required
have one required installment for the required annual payment for C’s first installments based on 100 percent of the tax
short taxable year. required installment, 66.67% of the required shown on the return for the taxable year in
(e) Examples. The following examples annual payment for C’s second required accordance with section 6655(d)(1)(B)(i). E
installment, and 100% of the required annual computes its 2007 required installments
illustrate the rules of this section: payment for C’s third (and last) required based on a projected 2007 total tax liability
Example 1. A corporation is a calendar installment. of $600,000. On July 31, 2007, E is acquired
year taxpayer that was acquired by B Example 4. Same facts as Example 3 except by F corporation resulting in E having a short
corporation on April 16, 2007, resulting in A C began business on April 10, 2007. In taxable year from January 1, 2007, through
having a short taxable year from January 1 accordance with paragraph (c)(1)(ii) of this July 31, 2007. E determines that its total tax
through April 16, 2007. Because A has a section, C’s first required installment is due liability for the short period is $350,000. The
taxable year of less than four full calendar September 15, 2007, because April 15, 2007, due dates for E’s first and second required
months, no estimated tax payments are and June 15, 2007, are earlier than the installments are April 15, 2007, and June 15,
required by A for the short taxable year. fifteenth day of the fourth month of C’s 2007, respectively. However, because the due
Example 2. B corporation began business taxable year. As a result, C’s second (and last) date for the first required installment falls on
on January 10, 2007, and adopted a calendar required installment is due December 15, a weekend, E’s first required installment
year as its taxable year. B computes its 2007. However, because the due dates for the payment will be timely if paid on or before
required installments based on 100 percent of first and second (and last) required the first business day following the actual
the tax shown on the return for the taxable installments fall on a weekend, C’s required due date of the required installment, that is,
year in accordance with section installment payments will be timely if paid April 16, 2007. Pursuant to section
6655(d)(1)(B)(i). Pursuant to § 1.6655– on or before the first business day following 6655(d)(1)(A), E paid $150,000 with each
1(f)(2)(i), the due dates of B’s required the actual due date of the required required installment. Pursuant to paragraph
installments for B’s initial taxable year from installments, that is, September 17, 2007, and (c)(2) of this section, E’s third (and last)
January 10, 2007, through December 31, December 17, 2007, respectively, for the first required installment of estimated tax is due
2007, are April 15, 2007, June 15, 2007, and second (and last) required installments. on September 15, 2007, and the percentage
September 15, 2007, and December 15, 2007. Pursuant to paragraph (d)(1) of this section, of the required annual payment due with
However, because the due dates for the first, the amount due with each required such installment is 100% pursuant to
third, and fourth required installments fall on installment is 50% of the required annual paragraph (d)(1) of this section. However,
a weekend, B’s required installment payment for C’s first required installment, because the due date for the third (and last)
payments will be timely if paid on or before and 100% of the required annual payment for required installment falls on a weekend, E’s
the first business day following the actual C’s second (and last) required installment. third (and last) required installment payment
due date of the required installments, that is, Example 5. D corporation began business will be timely if paid on or before the first
April 16, 2007, September 17, 2007, and on February 12, 2007, and adopted a fiscal business day following the actual due date of
December 17, 2007, respectively, for the first, year ending October 31 as its taxable year. D the required installment, that is, September
third, and fourth required installments. computes its required installments based on 17, 2007. Accordingly, E is required to pay
Pursuant to paragraph (d)(1) of this section, 100 percent of the tax shown on the return $50,000 with its final required installment on
the amount due with each required for the taxable year in accordance with September 17, 2007 ($350,000 total tax
installment is 25% of the required annual section 6655(d)(1)(B)(i). Pursuant to liability for the short taxable year less prior
payment for B’s first required installment, § 1.6655–1(f)(2)(ii), the due dates of D’s installment payments of $300,000).
50% of the required annual payment for B’s required installments for D’s initial taxable Example 8. Same facts as Example 7 except
second required installment, 75% of the year from February 12, 2007, through October that E is acquired by F corporation on August
required annual payment for B’s third 31, 2007, are February 15, 2007, April 15, 31, 2007. Pursuant to paragraph (c)(2)(ii) of
required installment, and 100% of the 2007, July 15, 2007, and October 15, 2007. this section, E’s third (and last) required
required annual payment for B’s fourth However, in accordance with paragraph installment of estimated tax is due on
required installment. (c)(1)(ii) of this section, D’s first required October 15, 2007, because September 15,
Example 3. Corporation C began business installment is due July 15, 2007, because 2007, the date that would have been the due
on February 12, 2007, and adopted a calendar February 15, 2007, and April 15, 2007, are date of E’s next required installment if F’s
year as its taxable year. C computes its earlier than the fifteenth day of the fourth acquisition of E had not occurred, is within

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thirty days of the last day of E’s short taxable through October 1, 2007. To satisfy the payment less this paragraph (e), Example 12
year, and 100% of the required annual requirements of the exception described in (ix) applied towards the second installment
payment is due with such installment. section 6655(d)(1)(B)(ii), G must pay $56,250 underpayment)—20,000
Example 9. F corporation is a calendar year ($75,000 × 9⁄12) through payments of (xi) Amount of underpayment for the third
taxpayer that computes its required estimated tax in 2007, with $14,063 due on installment date (this paragraph (e), Example
installments based on 100 percent of the tax April 15, 2007, June 15, 2007, September 15, 12 (v) minus this paragraph (e), Example 12
shown on the return for the taxable year in 2007, and December 15, 2007, respectively. (x))—60,000
accordance with section 6655(d)(1)(B)(i). F However, because the due dates for the first,
computes its 2007 estimated tax payments third, and fourth required installments fall on (f) 52 or 53 week taxable year. For
based on a projected 2007 total tax liability a weekend, G’s required installment purposes of this section a taxable year
of $900,000. On December 3, 2007, F is payments will be timely if paid on or before of 52 or 53 weeks shall be deemed a
acquired by G corporation resulting in F the first business day following the actual period of 12 months in the case of a
having a short taxable year from January 1, due date of the required installments, that is, corporation that computes its taxable
2007, through December 3, 2007. F April 16, 2007, September 17, 2007, and income in accordance with the election
determined its total tax liability for the short December 17, 2007, respectively, for the first,
third, and fourth required installments.
permitted by section 441(f).
period to be $800,000. The due dates for F’s
first, second, and third required installments Example 12. H corporation began business (g) Use of annualized income or
are April 15, 2007, June 15, 2007, and on February 15, 2007, and adopted a calendar seasonal installment method—(1) In
September 15, 2007, respectively. However, year. H computes its required installments general. Regardless of the annual
because the due dates for the first and third based on 100 percent of the tax shown on the accounting period used by a corporation
required installments fall on a weekend, F’s return for the taxable year in accordance with (for example, calendar year, fiscal year)
required installment payments will be timely section 6655(d)(1)(B)(i). H estimated at the the taxpayer may use the method
if paid on or before the first business day beginning of its short taxable year that its
estimated tax liability for short taxable year
described in § 1.6655–2 (annualized
following the actual due date of the required income installment method) or
installments, that is, April 16, 2007, and February 15, 2007, through December 31,
2007, would be $180,000. H paid its first § 1.6655–3 (adjusted seasonal
September 17, 2007, respectively, for the first
and third required installments. Pursuant to required installment of estimated tax of installment method) to compute its
section 6655(d)(1)(A), F paid $225,000 with $60,000 on June 15, 2007, its second required required installments of estimated tax
each required installment. Pursuant to installment of estimated tax of $60,000 on when the current taxable year is a short
paragraph (c)(2)(ii) of this section, F’s fourth September 17, 2007, and its third (and last) taxable year.
required installment of estimated tax of (2) Computation of annualized
(and last) required installment of estimated
$60,000 on December 17, 2007 ($180,000
tax is due on February 15, 2008, and the income installment. To the extent a
total estimated tax liability for the short
percentage of the required annual payment short taxable year includes an
taxable year less prior installment payments
due with such installment is 100% pursuant annualization period elected by the
of $120,000). H reported a tax liability of
to paragraph (d)(1) of this section. taxpayer, the taxpayer shall compute its
$240,000 on its return for the short period
Accordingly, F is required to pay $125,000 February 15, 2007, through December 31,
with its final required installment due
annualized income installment by
2007, with no credits against tax. There was determining the tax on the basis of such
February 15, 2008 ($800,000 total tax liability an underpayment in the amount of $20,000
for the short taxable year less prior annualized income for the annualization
on the first installment date through
installment payments of $675,000). period multiplied by the number of
September 15, 2007, $40,000 on the second
Example 10. G corporation, a calendar year installment date through December 15, 2007, months in the short taxable year divided
taxpayer, reported a tax liability of $75,000 and $60,000 on the third (and last) by 12.
on its return for the taxable year ending installment date through March 15, 2008, (3) Annualization period for final
December 31, 2006, and is not a large determined as follows: required installment. For purposes of
corporation as defined in section 6655(g). On (i) Tax as defined in section determining the final required
July 31, 2007, G makes a final distribution of 6655(d)(1)(B)(i)—$240,000
its assets, in connection with a plan of
installment (as described in paragraph
(ii) 100% of this paragraph (e), Example 12 (c)(2) of this section) for a short taxable
complete liquidation, resulting in a short (i)—240,000
taxable year from January 1, 2007, through year, annualized taxable income shall be
(iii) Amount of estimated tax required to be
July 31, 2007. To satisfy the requirements of paid by the first installment date (33.33% of determined by placing on an annualized
the exception described in section $240,000)—80,000 basis the taxable income for the last
6655(d)(1)(B)(ii) for payments determined by (iv) Amount of estimated tax required to be complete annualization period that
reference to the tax shown on the return of paid by the second installment date (66.67% occurs within the short taxable year.
the corporation for the preceding taxable of $240,000 less $80,000 (amount due with (4) Examples. The provisions of
year, pursuant to paragraph (d)(2) of this first installment))—80,000 paragraph (g) of this section may be
section, G must pay in a proportionate (v) Amount of estimated tax required to be
amount of its 2006 tax liability based on the
illustrated by the following examples:
paid by the third installment date (100% of
number of months in the current taxable $240,000 less $160,000 (amount due with Example 1. X corporation began business
year. Accordingly, G must pay $43,750 first and second installment))—80,000 on February 12, 2007, and adopted a calendar
($75,000 × 7⁄12) through payments of (vi) Deduct amount paid on or before the year as its taxable year. X adopts an accrual
estimated tax payments in 2007, with first installment date—60,000 method of accounting and uses the
$14,583 due on April 15, 2007, June 15, 2007, (vii) Amount of underpayment for the first annualized income installment method
and September 15, 2007. However, because installment date (this paragraph (e), Example under section 6655(e)(2)(A)(i) to calculate all
the due dates for the first and third required 12 (iii) minus this paragraph (e), Example 12 of its required installment payments for its
installments fall on a weekend, G’s required (vi))—20,000 2007 taxable year. Pursuant to § 1.6655–
installment payments will be timely if paid (viii) Deduct amount available for the 1(f)(2)(i), the due dates of X’s required
on or before the first business day following second installment date ($60,000 second installments for X’s initial taxable year from
the actual due date of the required installment payment less this paragraph (e), February 12, 2007, through December 31,
installments, that is, April 16, 2007, and Example 12 (vii) applied towards the first 2007, are April 15, 2007, June 15, 2007,
September 17, 2007, respectively, for the first installment underpayment)—40,000 September 15, 2007, and December 15, 2007.
and third required installments. (ix) Amount of underpayment for the However, in accordance with paragraph
Example 11. Same facts as Example 10 second installment date (this paragraph (e), (c)(1)(ii) of this section, X’s first required
except that G makes a final distribution of its Example 12 (iv) minus this paragraph (e), installment is due June 15, 2007. As a result,
assets, in connection with a plan of complete Example 12 (viii))—40,000 X’s second required installment is due
liquidation, on October 1, 2007, resulting in (x) Deduct amount available for the third September 15, 2007, and X’s third (and last)
a short taxable year from January 1, 2007, installment date ($60,000 third installment required installment is due December 15,

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2007. However, because the due dates for the installment date ($10,000) exceeds the (the number of months in the short taxable
third and fourth required installments fall on amount required to be paid on or before this year) divided by 12—32,725
a weekend, X’s required installment date if the estimated tax were one hundred (4) 100% of this paragraph (g)(4), Example
payments will be timely if paid on or before percent of the tax determined by placing on 2 (iii)(A)(3)—32,725
the first business day following the actual an annualized basis the taxable income for (5) 100% of this paragraph (g)(4), Example
due date of the required installments, that is, the first 2-month period taking into account 2 (iii)(A)(4) less $15,262 (amount due with
September 17, 2007, and December 17, 2007, the number of months in the short taxable first and second installment)—17,463
respectively, for the third and fourth required year, the exception described in § 1.6655–2(a) (B) Because the total amount of estimated
installments. The amount of X’s first and applies and no addition to tax will be tax available to apply towards the amount
second required installments are each based imposed for the installment due on April 15, due for the final installment ($24,738
on annualizing X’s taxable income from 2007. ($20,000 that is timely paid on the third
February 12, 2007, through April 30, 2007, (ii)(A) To determine whether the required installment date plus $4,738 overpayment of
(the first three months of X’s taxable year) installments made on or before June 15, 2007, the second installment)) exceeds the amount
and X’s third (and last) required installment equal or exceed the amount that would have required to be paid on or before this date if
is based on annualizing X’s taxable income been required to have been paid if the the estimated tax were one hundred percent
from February 12, 2007, through July 31, estimated tax were equal to one hundred of the tax determined by placing on an
2007 (the first six months of X’s taxable year). percent of the tax computed on the annualized basis the taxable income for the
Because X will have three required annualized income for the 4-month period first 7-month period for the taxable year
installments due for its short taxable year, taking into account the number of months in taking into account the number of months in
pursuant to paragraph (d)(3)(ii) of this the short taxable year, the following the short taxable year, the exception
section, the applicable percentage is 33.33% computation is necessary: described in § 1.6655–2(a) applies and no
for X’s first required installment, 66.67% for (1) Annualized income for the 4-month addition to tax will be imposed for the final
X’s second required installment, and 100% period—$150,000 installment due on September 15, 2007.
for X’s third (and last) required installment. (2) Tax on this paragraph (g)(4), Example
Example 2. Y, a calendar year corporation, (h) Preceding taxable year a short
2 (ii)(A)(1)—39,250
made a final distribution of its assets, in taxable year. If the preceding taxable
(3) Tax determined under this paragraph
connection with a plan of complete (g)(4), Example 2 (ii)(A)(2) multiplied by 7 year referred to in section 6655(d)(1)
liquidation, on August 1, 2007. Y filed a (the number of months in the short taxable was a short taxable year, the tax
timely election to use the alternative year) divided by 12—22,896 computed on the basis of the facts
annualization periods described under (4) 100% of this paragraph (g)(4), Example shown on the return for such preceding
section 6655(e)(2)(C)(i) and determined that
2 (ii)(A)(3)—22,896 year, for purposes of determining the
its taxable income for the first 2, 4 and 7
(5) 66.67% of this paragraph (g)(4), applicability of the exception described
months of the taxable year was $25,000,
Example 2 (ii) (A)(4) less $7,631 (amount due in section 6655(d)(2), shall be the tax
$50,000 and $140,000. The due dates for Y’s
with first installment)—7,631 computed on the annual basis in the
required installments for its short taxable
(B) Because the total amount of estimated
year January 1, 2007, through August 1, 2007, manner described in section 443(b)(1)
are April 15, 2007, June 15, 2007, and tax available to apply towards the amount
due for the second installment ($12,369 (prior to the reduction of the tax liability
September 15, 2007. However, because the in the manner described in the last
due dates for the first and third required ($10,000 paid on the second installment date
plus $2,369 overpayment of the first sentence).
installments fall on a weekend, Y’s required
installment)) exceeds the amount required to (i) Effective date. This section applies
installment payments will be timely if paid
on or before the first business day following be paid on or before this date if the estimated to taxable years beginning after the date
the actual due date of the required tax were one hundred percent of the tax that is 30 days after the date the final
installments, that is, April 16, 2007, and determined by placing on an annualized regulations are published in the Federal
September 17, 2007, respectively, for the first basis the taxable income for the first 4-month Register.
and third required installments. Y made period for the taxable year taking into
installment payments of $10,000, $10,000, account the number of months in the short § 1.6655–6 Methods of accounting.
and $20,000, respectively, on April 16, 2007, taxable year, the exception described in (a) In general. In computing any
June 15, 2007, and September 17, 2007. The § 1.6655–2(a) applies and no addition to tax required installment, a corporation must
taxable income for each period is annualized will be imposed for the installment due on
June 15, 2007.
use the methods of accounting used in
as follows:
(iii)(A) Pursuant to paragraph (c) and (d) of computing taxable income for the
$25,000 × 12⁄2 = $150,000 taxable year for which estimated tax is
$50,000 × 12⁄4 = $150,000 this section, the final required installment is
$140,000 × 12⁄7 = $240,000 due by September 15, 2007, and the being determined (the current taxable
applicable percentage due for the final year).
(i)(A) To determine whether the first
required installment equals or exceeds the required installment is 100%. However, (b) Exceptions—(1) Automatic
amount that would have been required to because the due date for the final required accounting method changes. If a
have been paid if the estimated tax were installment falls on a weekend, Y’s final taxpayer is making a change in method
equal to one hundred percent of the tax required installment payment will be timely of accounting for the current taxable
computed on the annualized income for the if paid on or before the first business day year that is permitted to be made with
2-month period taking into account the following the actual due date of the required
installment, that is, September 17, 2007. To
the automatic consent of the
number of months in the short taxable year, Commissioner, the new method of
the following computation is necessary: determine whether the installment payments
made on or before September 17, 2007, equal accounting shall be used in determining
(1) Annualized income for the 2-month
period—$150,000 or exceed the amount that would have been any required installment if, and only if,
(2) Tax on this paragraph (g)(4), Example required to have been paid if the estimated the copy of the Form 3115, ‘‘Application
2 (i)(A)(1)—39,250 tax were equal to one hundred percent of the for Change in Accounting Method,’’ has
(3) Tax determined under this paragraph tax computed on the annualized income for been mailed to the IRS National Office
(g)(4), Example 2 (i)(A)(2) multiplied by 7 the 7-month period taking into account the on or before the last day of the
(the number of months in the short taxable number of months in the short taxable year, annualization period.
year) divided by 12—22,896 the following computation is necessary: (2) Non-automatic accounting method
(4) 100% of this paragraph (g)(4), Example (1) Annualized income for the 7-month
period—$240,000
changes. If a taxpayer is making a
2 (i)(A)(3)—22,896
(5) 33.33% of this paragraph (g)(4), (2) Tax on this paragraph (g)(4), Example change in method of accounting for the
Example 2 (i)(A)(4)—7,631 2 (iii)(A)(1)—56,100 current taxable year that requires the
(B) Because the total amount of estimated (3) Tax determined under this paragraph prior consent of the Commissioner, the
tax that is timely paid on or before the first (g)(4), Example 2 (iii)(A)(2) multiplied by 7 new method of accounting shall be used

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Federal Register / Vol. 70, No. 237 / Monday, December 12, 2005 / Proposed Rules 73413

in determining any required installment This addition to tax is imposed whether income tax and, if there is an
if, and only if, the consent agreement or not there was reasonable cause for an underpayment, the period during which
reflecting the Commissioner’s consent to excessive adjustment. the underpayment existed.
the change in method of accounting and (b) If the amount of an adjustment (g) This section applies to taxable
the prescribed terms and conditions for under section 6425 is excessive, there years beginning after the date that is 30
effecting such change has been signed shall be added to the tax under chapter days after the date the final regulations
by the taxpayer and mailed to the IRS 1 of the Internal Revenue Code for the are published in the Federal Register.
National Office on or before the last day taxable year an amount determined at
of the annualization period. the annual rate referred to in the PART 301—PROCEDURE AND
(c) Examples. The following examples regulations under section 6621 upon the ADMINISTRATION
illustrate the rules of this section: excessive amount from the date on
Par. 13. The authority citation for part
Example 1. X corporation, a calendar year which the credit is allowed or refund
301 continues to read, in part, as
taxpayer, uses an accrual method of paid to the 15th day of the third month
follows:
accounting and the annualization method following the close of the taxable year.
under section 6655(e)(2)(A)(i) to calculate its A refund is paid on the date it is Authority: 26 U.S.C. 7805 * * *
2006 required installments. X receives allowed under section 6407. Par. 14. Section 301.6655–1 is revised
advance payments each taxable year with (c) The excessive amount is equal to to read as follows:
respect to agreements for the sale of goods the lesser of the amount of the
properly includible in X’s inventory. The adjustment or the amount by which— § 301.6655–1 Failure by corporation to pay
advance payments received by X qualify for (1) The income tax liability (as estimated income tax.
deferral under § 1.451–5(c). Although X is (a) For regulations under section
eligible to defer the advance payments in
defined in section 6425(c)) for the
taxable year, as shown on the return for 6655, see §§ 1.6655–1 through 1.6655–7
accordance with § 1.451–5(c), X’s method of
accounting with respect to the advance the taxable year; exceeds of this chapter.
payments is to include the advance payments (2) The estimated income tax paid (b) This section applies to taxable
in income when received. If, as of the last during the taxable year, reduced by the years beginning after the date that is 30
day of the annualization period, X’s method amount of the adjustment. days after the date the final regulations
of accounting for advance payments is to (d) The computation of the addition to are published in the Federal Register.
include the advance payments in income the tax imposed by section 6425 is made
when received, and the requirements of Mark E. Matthews,
independent of, and does not affect the
paragraph (b)(1) or (b)(2) of this section, as computation of, any addition to the tax Deputy Commissioner for Services and
applicable, are not met, then X must use that Enforcement.
that a corporation may otherwise owe
method of accounting for purposes of [FR Doc. 05–23872 Filed 12–7–05; 8:45 am]
computing such required installment.
for an underpayment of an installment
of estimated tax. BILLING CODE 4830–01–P
Example 2. Y corporation, a calendar year
taxpayer, uses an accrual method of (e) The following example illustrates
accounting and the annualization method the rules of this section:
under section 6655(e)(2)(A)(i) to calculate its Example. (i) Corporation X, a calendar year EQUAL EMPLOYMENT OPPORTUNITY
2006 required installments. Y computes its taxpayer, had an underpayment as defined in COMMISSION
annual taxable income by deducting its section 6655(b), for its fourth installment of
liability for state income taxes in the taxable estimated tax that was due on December 15, 29 CFR Part 1611
year the taxes are paid, without regard to the 2006, in the amount of $10,000. On January
recurring item exception of section 461(h) 2, 2007, X filed an application for adjustment Privacy Act Fee Schedule
and the regulations. If, as of the last day of of overpayment of estimated income tax for
the annualization period, Y’s method of 2006 in the amount of $20,000. AGENCY: Equal Employment
accounting for state income taxes is to deduct (ii) On February 16, 2007, the IRS, in Opportunity Commission.
such taxes in the taxable year the taxes are response to the application, refunded ACTION: Notice of proposed rulemaking.
paid without regard to the recurring item $20,000 to X. On March 15, 2007, X filed its
exception, and the requirements of paragraph 2006 tax return and made a payment in SUMMARY: The Equal Employment
(b)(1) or (b)(2) of this section, as applicable, settlement of its total tax liability. Assuming Opportunity Commission (EEOC or the
are not met, then Y must use that method of that the addition to tax is computed under Commission) is seeking comments on
accounting for purposes of computing such section 6621(a)(2) at a rate of 8% per annum
proposed revisions to its Privacy Act fee
required installment. for the applicable periods of underpayment,
under section 6655(a), X is subject to an schedule. The proposed schedule of fees
(d) Effective date. This section applies addition to tax in the amount of $197 (90/365 conforms to EEOC’s Freedom of
to taxable years beginning after the date × $10,000 × 8%) on account of X’s December Information Act (FOIA) fee schedule
that is 30 days after the date the final 15, 2006, underpayment. Under section which was recently updated (70 FR
regulations are published in the Federal 6655(h), X is subject to an addition to tax in 57510 of October 3, 2005).
Register. the amount of $118 (27/365 × $20,000 × 8%) DATES: The agency must receive
Par. 12. Newly designated § 1.6655–7 on account of X’s excessive adjustment under
comments on or before January 11,
is revised to read as follows: section 6425. In determining the amount of
the addition to tax under section 6655(a) for 2006.
§ 1.6655–7 Addition to tax on account of failure to pay estimated income tax, the ADDRESSES: Written comments should
excessive adjustment under section 6425. excessive adjustment under section 6425 is be submitted to Stephen Llewellyn,
(a) Section 6655(h) imposes an not taken into account. Acting Executive Officer, Executive
addition to the tax under chapter 1 of (f) An adjustment is generally to be Secretariat, Equal Employment
the Internal Revenue Code in the case of treated as a reduction of estimated Opportunity Commission, 1801 L Street,
any excessive amount (as defined in income tax paid as of the date of the NW., Washington, DC 20507. As a
paragraph (c) of this section) of an adjustment. However, for purposes of convenience to commenters, the
adjustment under section 6425 that is § 1.6655–1 through § 1.6655–6, the Executive Secretariat will accept
made before the 15th day of the third adjustment is to be treated as if not comments of six pages or less
month following the close of a taxable made in determining whether there has transmitted by facsimile (‘‘fax’’)
year beginning after December 31, 1967. been any underpayment of estimated machine. The telephone number of the

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