IRS Publication 542 — Corporations

immediate catch -up payment should be made to reduce any penalty resulting from the underpayment of any earlier installments.

Underpayment 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. Therefore, 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. Form 2220. Use Form 2220, Underpayment of Estimated Tax by Corporations, to determine if a corporation is subject to the penalty for underpayment of estimated tax and to figure the amount of the penalty. If the corporation is charged a penalty, the amount of the penalty depends on the following three factors.

1. The amount of the underpayment.

2. The period during which the underpayment was due and unpaid.

3. The interest rate for underpayments published quarterly by the IRS in the Internal Revenue Bulletin. A corporation generally does not have to file Form 2220 with its income tax return because the IRS will figure any penalty and bill the corporation. However, even if the corporation does not owe a penalty, complete and attach the form to the corporation's tax return if any of the following apply.

1. The annualized income installment method was used to figure any required installment.

2. The adjusted seasonal installment method was used to figure any required installment.

3. The corporation is a large corporation figuring its first required installment based on the prior year's tax. How to pay estimated tax. A corporation is generally required to use EFTPS to pay its taxes. See Electronic Federal Tax Payment System (EFTPS), earlier. Quick refund of overpayments. A corporation that has overpaid its estimated tax for the tax year may be able to apply for a quick refund. Use Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, to apply for a quick refund of an overpayment of estimated tax. A corporation can apply for a quick refund if the overpayment is:

• At least 10% of its expected tax liability, and

• At least $500.

Use Form 4466 to figure the corporation's expected tax liability and the overpayment of estimated tax. File Form 4466 after the end of the corporation’s tax year, but before the corporation files its income tax return. Do not file Form 4466 before the end of the corporation's tax year. An extension of time to file the corporation's income tax return will not extend the time for filing Form 4466. The IRS will act on the form within 45 days from the date you file it.

U.S. Real Property Interest If a domestic corporation acquires a U.S. real property interest from a foreign person or firm, the corporation may have to withhold tax on the amount it pays for the property. The amount paid includes cash, the fair market value of other property, and any assumed liability. If a domestic corporation distributes a U.S. real property interest to a foreign person or firm, it may have to withhold tax on the Estimated Tax Worksheet Keep for Your Records Note. This worksheet may be used as a guide in figuring the required estimated tax installments.

1. Enter the expected taxable income … 1.

2. Multiply line 1 by the maximum tax rate that is in effect for the applicable tax year. For example, in 2023 the maximum rate is 21%. … 2.

3. Tax credits. For information on tax credits the corporation can take, see the instructions for Form 1120, Schedule J, Part I, lines 5a through 5e, or the instructions for the applicable lines and schedule of the corporation’s income tax return … 3.

4. Subtract line 3 from line 2 … 4.

5. Other taxes. For information on other taxes the corporation may owe, see the instructions for Form 1120, Schedule J, or the instructions for the applicable lines and schedule of the corporation's income tax return … 5.

6. Total tax. Add lines 4 and 5 … 6.

7. Enter any credit for federal tax paid on fuels and other refundable credits. For information on other refundable credits, see the instructions for Form 1120, Schedule J, or the instructions for the applicable line of the corporation’s income tax return … 7.

8. Subtract line 7 from line 6. If the result is less than $500, the corporation is not required to make estimated tax payments … 8.

9. Enter the tax shown on the corporation’s prior year’s tax return. If the tax is zero or the tax year was for less than 12 months, skip this line and enter the amount from line 8 on line 10 … 9.

10. Enter the smaller of line 8 or line 9. If the corporation is required to skip line 9, enter the amount from line 8 … 10.

11. Required installments. Enter 25% of line 10. If the corporation uses the annualized income installment method, or adjusted seasonal installment method, or is a large corporation, an additional computation may be needed … 11. Publication 542 (1-2024) 7