Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 73-25

1973-1 C.B. 606

Sec. 1371
Sec. 6154
Sec. 6655

IRS Headnote

A small business corporation whose election was terminated after the first day of the twelfth month of its taxable year is not liable for the addition to tax for its failure to pay estimated income tax for that year.

Full Text

Rev. Rul. 73-25

Advice has been requested whether, under the conditions described below, a corporate taxpayer that did not make installment payments of estimated income tax as provided by section 6154 of the Internal Revenue Code of 1954 is liable for the addition to the tax under section 6655(a) for failure to pay estimated income tax.

The taxpayer qualified as a small business corporation as defined by section 1371 of the Code for its fiscal years ending March 31, 1969, and March 31, 1970. The corporation continued to qualify during the fiscal year ended March 31, 1971, until it ceased to so qualify on March 25, 1971. On that date the taxpayer became a member of an affiliated group and pursuant to section 1372(e)(3) of the Code the small business corporation election terminated retroactively for the entire fiscal year ended March 31, 1971.

The taxpayer made no deposits of estimated income tax for its taxable year ending March 31, 1971.

Section 6154(a) of the Code provides that every corporation subject to taxation under section 11 or section 1201(a) shall make payments of estimated tax during its taxable year as provided in section 6154(b) if its estimated tax for such taxable year can reasonably be expected to be $40 or more.

Section 6154(b) of the Code provides that any corporation required to make payments of estimated tax shall make such payments in installments if the requirements of section 6154(a) are first met "before the 1st day of the 12th month of the taxable year." Section 6655(a) of the Code provides that in case of any underpayment of estimated tax by a corporation, except as provided in section 6655(d), there shall be added to the tax under chapter 1 for the taxable year an amount determined at the rate of 6 percent per annum upon the amount of the underpayment for the period of underpayment.

The taxpayer's small business corporation election was in effect until five days before the end of its taxable year; therefore, it was not subject to taxation under sections 11 or 1201(a) of the Code during such period.

Since the requirement to pay estimated income tax as provided by section 6154 of the Code was not applicable to the taxpayer "before the 1st day of the 12th month of the taxable year," the taxpayer was not required to make installment payments of estimated income tax during its fiscal year ending March 31, 1971.

Accordingly, it is held that the taxpayer did not underpay its estimated income tax during the fiscal year ending March 31, 1971, and, therefore, is not liable for the addition to the tax under section 6655(a) of the Code for failure to pay estimated income tax.