Estimated quarterly income taxes for a corporation were not paid. What is the penalty amount? Is there any way to reduce the penalty?
If the corporation does not pay a required installment of estimated tax by its due date, it may be subject to a penalty. The penalty is figured separately for each installment due date. The corporation may owe a penalty for an earlier due date, even if it paid enough tax later to make up the underpayment. This is true even if the corporation is due a refund when its return is filed.
Use Form 2220 (PDF), Underpayment of Estimated Tax by Corporations, to determine if a corporation is subject to the penalty for underpayment of estimated tax and, if so, the amount of the penalty.
If the corporation is charged a penalty, the amount of the penalty depends on the following three factors:
- The amount of the underpayment.
- The period during which the underpayment was due and unpaid.
- An interest rate that is published quarterly by the IRS in the Internal Revenue Bulletin.
The penalty may be waived by IRS on a case-by-case basis if the failure to make estimated payments was caused by a casualty, disaster, or other unusual circumstance.
For more information, refer to Publication 542 (PDF), Corporations and the Instructions for Form 2220
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Is an S-Corporation required to pay quarterly estimated tax?
Generally, the corporation must make estimated tax payments for the following taxes if the total of these taxes is $500 or more:
- the tax on certain capital gains,
- the tax on built-in gains,
- the excess net passive income tax, and
- the investment credit recapture tax.
For more information regarding estimated tax, refer to Instructions for Form 1120S, U.S. Income Tax Return for an S Corporation, page 5 and Publication 542 (PDF), Corporations, page 4.
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How do partnerships file and pay quarterly estimated tax payments.
Partnerships file Form 1065 (PDF), U.S. Partnership Return of Income, to report income and expenses. The partnership passes the information to the individual partners on Schedule K-1, Form 1065. The partners report the information and pay any taxes due on Form 1040. Because partners are not employees of the partnership, no withholding is taken out of their distributions to pay the income and self-employment taxes on their Forms 1040. The partners may need to pay Estimated Tax Payments using Form 1040-ES.
Refer to Instructions for Form 1065, U.S. Partnership Return of Income and Publication 505 (PDF), Tax Withholding and Estimated Tax for additional information.
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