§7519 — Required payments for entities electing not to have required taxable year
Statute Text — 26 U.S.C. §7519
This section applies to a partnership or S corporation for any taxable year, if—
an election under section 444 is in effect for the taxable year, and
the required payment determined under subsection (b) for such taxable year (or any preceding taxable year) exceeds $500.
For purposes of this section, the term “required payment” means, with respect to any applicable election year of a partnership or S corporation, an amount equal to—
the excess of the product of—
the applicable percentage of the adjusted highest section 1 rate, multiplied by
the net base year income of the entity, over
the net required payment balance.
For purposes of paragraph (1)(A), the term “adjusted highest section 1 rate” means the highest rate of tax in effect under section 1 as of the end of the base year plus 1 percentage point (or, in the case of applicable election years beginning in 1987, 36 percent).
If, for any applicable election year, the amount determined under subsection (b)(2) exceeds the amount determined under subsection (b)(1), the entity shall be entitled to a refund of such excess for such year.
If—
an election under section 444 is terminated effective with respect to any year, or
the entity is liquidated during any year, the entity shall be entitled to a refund of the net required payment balance.
Any refund under this subsection shall be payable on the later of—
April 15 of the calendar year following—
in the case of the year referred to in paragraph (1), the calendar year in which it begins,
in the case of the year referred to in paragraph (2), the calendar year in which it ends, or
the day 90 days after the day on which claim therefor is filed with the Secretary.
For purposes of this section—
An entity’s net base year income shall be equal to the sum of—
the deferral ratio multiplied by the entity’s net income for the base year, plus
the excess (if any) of—
the deferral ratio multiplied by the aggregate amount of applicable payments made by the entity during the base year, over
the aggregate amount of such applicable payments made during the deferral period of the base year.
For purposes of this paragraph, the term “deferral ratio” means the ratio which the number of months in the deferral period of the base year bears to the number of months in the partnership’s or S corporation’s taxable year.
Net income is determined by taking into account the aggregate amount of the following items—
In the case of a partnership, net income shall be the amount (not below zero) determined by taking into account the aggregate amount of the partnership’s items described in section 702(a) (other than credits and tax-exempt income).
In the case of an S corporation, net income shall be the amount (not below zero) determined by taking into account the aggregate amount of the S corporation’s items described in section 1366(a) (other than credits and tax-exempt income). If the S corporation was a C corporation for the base year, its taxable income for such year shall be treated as its net income for such year (and such corporation shall be treated as an S corporation for such taxable year for purposes of paragraph (3)).
For purposes of subparagraph (A) or (B), any limitation on the amount of any item described in either such paragraph which may be taken into account for purposes of computing the taxable income of a partner or shareholder shall be disregarded.
The term “applicable payment” means amounts paid by a partnership or S corporation which are includible in gross income of a partner or shareholder.
The term “applicable payment” shall not include any—
gain from the sale or exchange of property between the partner or shareholder and the partnership or S corporation, and
dividend paid by the S corporation.
The applicable percentage is the percentage determined in accordance with the following table:
| If the applicable election year of the partnership or S corporation begins during: | The applicable percentage is: |
|---|---|
| 1987 | 25 |
| 1988 | 50 |
| 1989 | 75 |
| 1990 or thereafter | 100. |
Notwithstanding the preceding provisions of this paragraph, the applicable percentage for any partnership or S corporation shall be 100 percent unless more than 50 percent of such entity’s net income for the short taxable year which would have resulted if the entity had not made an election under section 444 would have been allocated to partners or shareholders who would have been entitled to the benefits of section 806(e)(2)(C) of the Tax Reform Act of 1986 with respect to such income.
Any guaranteed payment by a partnership shall not be treated as an applicable payment, and the amount of the net income of the partnership shall be determined by not taking such guaranteed payment into account.
For purposes of subparagraph (A), the term “guaranteed payment” means any payment referred to in section 707(c).
For purposes of this section—
The term “deferral period” has the meaning given to such term by section 444(b)(4).
The term “base year” means, with respect to any applicable election year, the taxable year of the partnership or S corporation preceding such applicable election year.
The term “applicable election year” means any taxable year of a partnership or S corporation with respect to which an election is in effect under section 444.
Each partnership or S corporation which makes an election under section 444 shall include on any required return or statement such information as the Secretary shall prescribe as is necessary to carry out the provisions of this section.
The term “net required payment balance” means the excess (if any) of—
the aggregate of the required payments under this section for all preceding applicable election years, over
the aggregate amount allowable as a refund to the entity under subsection (c) for all preceding applicable election years.
Except as otherwise provided in this subsection or in regulations prescribed by the Secretary, any payment required by this section shall be assessed and collected in the same manner as if it were a tax imposed by subtitle C.
The amount of any payment required by this section shall be paid on or before April 15 of the calendar year following the calendar year in which the applicable election year begins (or such later date as may be prescribed by the Secretary).
For purposes of determining interest, any payment required by this section shall be treated as a tax; except that no interest shall be allowed with respect to any refund of a payment made under this section.
In the case of any failure by any person to pay on the date prescribed therefor any amount required by this section, there shall be imposed on such person a penalty of 10 percent of the underpayment. For purposes of the preceding sentence, the term “underpayment” means the excess of the amount of the payment required under this section over the amount (if any) of such payment paid on or before the date prescribed therefor. No penalty shall be imposed under this subparagraph on any failure which is shown to be due to reasonable cause and not willful neglect.
For purposes of part II of subchapter A of chapter 68, any payment required by this section shall be treated as a tax.
If any partnership or S corporation willfully fails to comply with the requirements of this section, section 444 shall cease to apply with respect to such partnership or S corporation.
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the provisions of this section and section 280H, including regulations providing for appropriate adjustments in the application of this section and sections 280H and 444 in cases where—
2 or more applicable election years begin in the same calendar year, or
the base year is a taxable year of less than 12 months.
Treasury Regulations
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Treas. Reg. §1.7519-0TTable of contents
This section lists the captions that appear in the temporary regulations under section 7519.
(a) In general.
(1) Applicability.
(2) Returns and required payments.
(3) Required payment.
(4) Examples.
(b) Definitions and special rules.
(1) Applicable percentage.
(i) In general.
(ii) Exception for certain applicable election years beginning after 1987.
(iii) Example.
(2) Adjusted highest section 1 rate.
(i) General rule.
(ii) Period for determining highest section rate.
Base year.
(4) Special rules for certain applicable election years.
(i) First applicable election year of new entities.
(ii) Applicable election years ending prior to the required taxable year.
(5) Net base year income.
(i) In general.
(ii) Partnership net income.
(A) In general.
(B) Treatment of deductions and losses.
(C) Partner limitations disregarded.
(iii) S corporation net income.
(A) In general.
(B) Treatment of deductions and losses.
(C) Shareholder limitations disregarded.
(iv) Applicable payments.
(A) In general.
(B) Exceptions.
(C) Special rule for corporation electing S status.
(D) Special rules for certain payments.
(1) Certain indirect payments.
(2) Payments by a downstream controlled partnership.
(i) In general.
(ii) Definition of a downstream controlled partnership.
(3) Examples.
(v) Special rule for base year of less than twelve months.
(A) In general.
(B) Annualized short base year income.
(vi) Examples.
(c) Refunds of required payments.
(d) Examples.
(a) Payment and return required.
(1) In general.
(2) Return required.
(i) In general.
(ii) Procedure if amount for applicable election year (and all preceding years) is not greater than $500.
(3) Time and place for filing return.
(i) Applicable election years beginning in 1987.
(A) Taxpayers that would otherwise file Form 720 for the second quarter of 1988.
(B) Other taxpayers.
(ii) Applicable election years beginning after 1987.
(A) Return made on Form 720.
(B) Return made on form other than Form 720.
(iii) Special rule for back-up section 444 election.
(4) Time and place for making required payment.
(i) Applicable election years beginning in 1987.
(ii) Applicable election years beginning after 1987.
(iii) Special rule for back-up section 444 election.
(5) Penalties for failure to pay.
(6) Refund of required payment.
(i) In general.
(ii) Procedures for claiming refund.
(iii) Interest on refund.
(b) Assessment and collection of payment.
(c) Termination due to willful failure.
(d) Negligence and fraud penalties made applicable.
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Treas. Reg. §1.7519-0T(a)Payment and return required.
Payment and return required.
(1) In general.
(2) Return required.
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Treas. Reg. §1.7519-0T(b)Assessment and collection of payment.
Assessment and collection of payment.
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Treas. Reg. §1.7519-0T(c)Termination due to willful failure.
Termination due to willful failure.
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Treas. Reg. §1.7519-0T(d)Negligence and fraud penalties made applicable.
Negligence and fraud penalties made applicable.
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Treas. Reg. §1.7519-0T(i)In general.
In general.
(ii) Procedures for claiming refund.
(iii) Interest on refund.
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Treas. Reg. §1.7519-0T(v)Special rule for base year of less than twelve months.
Special rule for base year of less than twelve months.
(A) In general.
(B) Annualized short base year income.
(vi) Examples.
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Treas. Reg. §1.7519-1TRequired payments for entities electing not to have required year
(a) In general—(1) Applicability. This section applies to any taxable year that a partnership or S corporation has an election under section 444 in effect (an “applicable election year”).
(2) Returns and required payments. For each applicable election year, a partnership or S corporation must—
(i) File a return as provided in § 1.7519-2T(a)(2), and
(ii) Make a required payment (as defined in paragraph (a)(3) of this section) as provided in § 1.7519-2T.
However, if the required payment for an applicable election year is not more than $500 and the partnership or S corporation has not been required to make a required payment for a prior year, the partnership or S corporation should not make a required payment for such applicable election year.
(3) Required payment. The term “required payment” means, with respect to any applicable election year, an amount equal to the excess of—
(i) The product of the applicable percentage of the adjusted highest section 1 rate, multiplied by the net base year income (as defined in paragraph (b)(5) of this section) of the entity over
(ii) The cumulative amount of required payments actually made for all preceding applicable election years (reduced by the cumulative amount of such payments refundable under section 7519(c) for all such preceding years).
Furthermore, the amount of the required payment is determined without regard to the required payment of any other partnership or S corporation. See example (3) in paragraph (d) of this section.
(4) Examples. The provisions of paragraph (a) of this section may be illustrated by the following examples.
(b) Definitions and special rules—(1) Applicable percentage—(i) In general. Except as provided in paragraph (b)(1)(ii) of this section, the term “applicable percentage” means the percentage determined in accordance with the following table:
(ii) Exception for certain applicable election years beginning after 1987. [Reserved]
(iii) Example. The provisions of paragraph (b)(1) of this section may be illustrated by the following example.
(2) Adjusted highest section 1 rate—(i) General rule. For any applicable election year, the term “adjusted highest section 1 rate” means the highest rate of tax under section 1 applicable to the period defined in paragraph (b)(2)(ii) of this section, plus 1 percentage point. Notwithstanding the preceding sentence, the adjusted highest section 1 rate is 36 percent for applicable election years beginning in 1987. For purposes of this section, the highest rate of tax is determined without regard to the effect of section 1(g), relating to the phaseout of the 15-percent rate and personal exemptions.
(ii) Period for determining highest section 1 rate. For purposes of paragraph (b)(2)(i) of this section, the period for determining the highest rate of tax under section 1 is the 12 month period that—
(A) Ends with the required taxable year for the applicable election year, and
(B) Includes the end of the base year.
For example, assume that a partnership's applicable election year begins on October 1, 1988 and that the required taxable year for such applicable election year is December 31. Based upon these facts, the period for determining the highest section 1 rate is the 12-month period ending December 31, 1988.
(3) Base year. The term “base year” means, with respect to any applicable election year, the taxable year of the partnership or S corporation preceding such applicable election year.
(4) Special rules for certain applicable election years—(i) First applicable election year of new entities. If an applicable election year is a partnership's or S corporation's first year in existence (i.e., the partnership or S corporation is newly formed and therefore does not have a base year), the required payment for such applicable election year is zero.
(ii) Applicable election years ending prior to the required taxable year. If a partnership or S corporation makes a section 444 election and the resulting applicable election year (the “first applicable election year”) of the partnership or S corporation ends prior to the last day of the required year, the required payment for the first applicable election year is zero. See example (5) in paragraph (b)(5)(vi) of this section.
(5) Net base year income—(i) In general. Except as provided in paragraph (b)(5)(v) of this section (relating to short base years), the net base year income of a partnership or S corporation is the sum of—
(A) The deferral ratio multiplied by the partnership's or S corporation's net income for the base year, plus
(B) The excess (if any) of—
(1) The deferral ratio multiplied by the aggregate amount of applicable payments made by the partnership or S corporation during the base year, over
(2) The aggregate amount of such applicable payments made during the deferral period of the base year.
The term “deferral ratio” means the ratio which the number of months in the deferral period (as defined in § 1.444-1T (b)(4)) of the applicable election year bears to 12 months.
(ii) Partnership net income. For purposes of paragraph (b)(5)(i) of this section—
(A) In general. The net income of the partnership is the amount (not below zero) determined by taking into account the aggregate amount of the partnership's items described in section 702(a), except for—
(1) Credits,
(2) Tax-exempt income, and
(3) Guaranteed payments under section 707(c).
(B) Treatment of deductions and losses. For purposes of determining the aggregate amount of partnership items, deductions and losses are treated as negative income. Thus, for example, if under section 702(a) a partnership has $1,000 of ordinary taxable income, $500 of specially allocated deductions, and $300 of capital loss, the net income of the partnership is $200 ($1,000-$500-$300).
(C) Partner limitations disregarded. Any limitation on the amount of a partnership item described in section 702(a) which may be taken into account for purposes of computing the taxable income of a partner shall be disregarded in computing the net income of the partnership.
(iii) S corporation net income. For purposes of paragraph (b)(5)(i) of this section—
(A) In general. The net income of an S corporation is the amount (not below zero) determined by taking into account the aggregate amount of the S corporation's items described in section 1366(a) (other than credits and tax-exempt income). If the S corporation was a C corporation for the base year, the taxable income of the C corporation shall be treated as the net income of the S corporation for such year.
(B) Treatment of deductions and losses. For purposes of determining the aggregate amount of S corporation items, deductions and losses are treated as negative income. Thus, for example, if under section 1366(a) an S corporation has $2,000 of ordinary taxable income, $1,000 of deductions described in section 1366(a)(1)(A) of the Code, and $500 of capital loss, the net income of the S corporation is $500 ($2,000-$1,000-$500).
(C) Shareholder limitations disregarded. Any limitation on any amount described in section 1366(a) which may be taken into account for purposes of computing the taxable income of a shareholder shall be disregarded in computing the net income of the S corporation.
(iv) Applicable payments—(A) In general. The term applicable payment means any amount deductible in the base year that is includable at any time, directly or indirectly, in the gross income of a taxpayer that during the base year is a partner or shareholder.
(B) Exceptions. The term applicable payment does not include any guaranteed payments under section 707(c).
(C) Special rule for corporation electing S status. If an S corporation was a C corporation for the base year, the corporation shall be treated as if it were an S corporation for the base year for purposes of determining the amount of applicable payments under this section. Thus, amounts deductible by the C corporation in the base year that are includable at any time in the gross income of a taxpayer that is a shareholder during the base year are treated as if from an S corporation, and therefore within the meaning of the term “applicable payments.”
(D) Special rules for certain payments—(1) Certain indirect payments. For purposes of paragraph (b)(5)(iv)(A) of this section, an amount is indirectly includable in the gross income of a partner or shareholder of a partnership or S corporation that has a section 444 election in effect (an electing partnership or S corporation) if the amount is includable in the gross income of—
(i) The spouse (other than a spouse who is legally separated from the partner or shareholder under a decree of divorce or separate maintenance) or child (under age 14) of such partner or shareholder, or
(ii) A corporation more than 50 percent (measured by fair market value) of which is owned in the aggregate by partners or shareholders (and individuals related under paragraph (b)(5)(iv)(D)(1)(i) of this section to any such partners or shareholders), of the electing partnership or S corporation, or
(iii) A partnership more than 50 percent of the profits and capital of which is owned in the aggregate by partners or shareholders (and individuals related under paragraph (b)(5)(iv)(D)(1)(i) of this section to any such partners or shareholders) of the electing partnership or S corporation, or
(iv) A trust more than 50 percent of the beneficial ownership of which is owned in the aggregate by partners or shareholders (and individuals related under paragraph (b)(5)(iv)(D)(1)(i) of this section to any such partners or shareholders), of the electing partnership or S corporation.
For purposes of this paragraph (b)(5)(iv)(D)(1), ownership by any person described in this paragraph (b)(5)(iv)(D)(1) shall be treated as ownership by the partners or shareholders of the electing partnership or S corporation. This paragraph (b)(5)(iv)(D)(1) does not apply to amounts deductible by a partnership or S corporation that has made a section 444 election (the “deducting partnership”) and included in the gross income of a partnership or S corporation defined in paragraphs (b)(5)(iv)(D)(1) (ii) or (iii) of this section (the “including partnership”), if the including partnership has the same taxable year as the deducting partnership and the including partnership has a section 444 election in effect. Furthermore, notwithstanding the general effective date provided in § 1.7519-3T, this paragraph (b)(5)(iv)(D)(1) is effective for amounts deductible on or after June 1, 1988.
(2) Payments by a downstream controlled partnership—(i) In general. If a partnership or S corporation has made a section 444 election, any amounts deducted by a downstream controlled partnership will be considered deducted by the partnership or S corporation that has made the section 444 election for purposes of determining the applicable payments of the partnership or S corporation that has made the section 444 election.
(ii) Definition of a downstream controlled partnership. If a partnership or S corporation that has made a section 444 election owns more than 50 percent of a partnership's profits and capital, such owned partnership is considered a downstream controlled partnership for purposes of paragraph (b)(5)(iv)(D)(2)(i) of this section. Furthermore, if more than 50 percent of a partnership's profits and capital are owned by a downstream controlled partnership, such owned partnership is considered a downstream controlled partnership for purposes of paragraph (b)(5)(iv)(D)(2)(i) of this section.
(3) Examples. The provisions of this paragraph (b)(5)(iv)(D) may be illustrated by the following examples.
(v) Special rule for base year of less than twelve months—(A) In general. If a base year is a taxable year of less than twelve months (a “short base year”), net base year income for such year is an amount equal to the excess, if any, of—
(1) The deferral ratio multiplied by the annualized short base year income, over
(2) Applicable payments made during the deferral period of the applicable election year following the base year.
(B) Annualized short base year income. The annualized short base year income is determined by—
(1) Increasing the net income for the short base year by applicable payments deductible in the short base year, and
(2) Multiplying the short base year income as increased in paragraph (b)(5)(v)(B)(1) of this section by twelve, and dividing the result by the number of months in the short base year.
(vi) Examples. The provisions of paragraph (b)(5) of this section may be illustrated by the following examples.
(c) Refunds of required payments. A partnership of S corporation is entitled to make a claim for refund, in accordance with the procedures provided in § 1.7519-2T(a)(6), if—
(1) The amount specified in paragraph (a)(3)(i) of this section is less than the amount specified in paragraph (a)(3)(ii) of this section; or
(2) The partnership or S corporation terminates its section 444 election, within the meaning of § 1.444-1T(a)(5).
(d) Example. The provisions of this section may be illustrated by the following examples.
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Treas. Reg. §1.7519-1T(a)In general—(1) Applicability.
In general—(1) Applicability. This section applies to any taxable year that a partnership or S corporation has an election under section 444 in effect (an “applicable election year”).
(2) Returns and required payments. For each applicable election year, a partnership or S corporation must—
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Treas. Reg. §1.7519-1T(b)Definitions and special rules—(1) Applicable percentage—(i) In general.
Definitions and special rules—(1) Applicable percentage—(i) In general. Except as provided in paragraph (b)(1)(ii) of this section, the term “applicable percentage” means the percentage determined in accordance with the following table:
(ii) Exception for certain applicable election years beginning after 1987. [Reserved]
(iii) Example. The provisions of paragraph (b)(1) of this section may be illustrated by the following example.
(2) Adjusted highest section 1 rate—(i) General rule. For any applicable election year, the term “adjusted highest section 1 rate” means the highest rate of tax under section 1 applicable to the period defined in paragraph (b)(2)(ii) of this section, plus 1 percentage point. Notwithstanding the preceding sentence, the adjusted highest section 1 rate is 36 percent for applicable election years beginning in 1987. For purposes of this section, the highest rate of tax is determined without regard to the effect of section 1(g), relating to the phaseout of the 15-percent rate and personal exemptions.
(ii) Period for determining highest section 1 rate. For purposes of paragraph (b)(2)(i) of this section, the period for determining the highest rate of tax under section 1 is the 12 month period that—
(A) Ends with the required taxable year for the applicable election year, and
(B) Includes the end of the base year.
For example, assume that a partnership's applicable election year begins on October 1, 1988 and that the required taxable year for such applicable election year is December 31. Based upon these facts, the period for determining the highest section 1 rate is the 12-month period ending December 31, 1988.
(3) Base year. The term “base year” means, with respect to any applicable election year, the taxable year of the partnership or S corporation preceding such applicable election year.
(4) Special rules for certain applicable election years—(i) First applicable election year of new entities. If an applicable election year is a partnership's or S corporation's first year in existence (i.e., the partnership or S corporation is newly formed and therefore does not have a base year), the required payment for such applicable election year is zero.
(ii) Applicable election years ending prior to the required taxable year. If a partnership or S corporation makes a section 444 election and the resulting applicable election year (the “first applicable election year”) of the partnership or S corporation ends prior to the last day of the required year, the required payment for the first applicable election year is zero. See example (5) in paragraph (b)(5)(vi) of this section.
(5) Net base year income—(i) In general. Except as provided in paragraph (b)(5)(v) of this section (relating to short base years), the net base year income of a partnership or S corporation is the sum of—
(A) The deferral ratio multiplied by the partnership's or S corporation's net income for the base year, plus
(B) The excess (if any) of—
(1) The deferral ratio multiplied by the aggregate amount of applicable payments made by the partnership or S corporation during the base year, over
(2) The aggregate amount of such applicable payments made during the deferral period of the base year.
The term “deferral ratio” means the ratio which the number of months in the deferral period (as defined in § 1.444-1T (b)(4)) of the applicable election year bears to 12 months.
(ii) Partnership net income. For purposes of paragraph (b)(5)(i) of this section—
(A) In general. The net income of the partnership is the amount (not below zero) determined by taking into account the aggregate amount of the partnership's items described in section 702(a), except for—
(1) Credits,
(2) Tax-exempt income, and
(3) Guaranteed payments under section 707(c).
(B) Treatment of deductions and losses. For purposes of determining the aggregate amount of partnership items, deductions and losses are treated as negative income. Thus, for example, if under section 702(a) a partnership has $1,000 of ordinary taxable income, $500 of specially allocated deductions, and $300 of capital loss, the net income of the partnership is $200 ($1,000-$500-$300).
(C) Partner limitations disregarded. Any limitation on the amount of a partnership item described in section 702(a) which may be taken into account for purposes of computing the taxable income of a partner shall be disregarded in computing the net income of the partnership.
(iii) S corporation net income. For purposes of paragraph (b)(5)(i) of this section—
(A) In general. The net income of an S corporation is the amount (not below zero) determined by taking into account the aggregate amount of the S corporation's items described in section 1366(a) (other than credits and tax-exempt income). If the S corporation was a C corporation for the base year, the taxable income of the C corporation shall be treated as the net income of the S corporation for such year.
(B) Treatment of deductions and losses. For purposes of determining the aggregate amount of S corporation items, deductions and losses are treated as negative income. Thus, for example, if under section 1366(a) an S corporation has $2,000 of ordinary taxable income, $1,000 of deductions described in section 1366(a)(1)(A) of the Code, and $500 of capital loss, the net income of the S corporation is $500 ($2,000-$1,000-$500).
(C) Shareholder limitations disregarded. Any limitation on any amount described in section 1366(a) which may be taken into account for purposes of computing the taxable income of a shareholder shall be disregarded in computing the net income of the S corporation.
(iv) Applicable payments—(A) In general. The term applicable payment means any amount deductible in the base year that is includable at any time, directly or indirectly, in the gross income of a taxpayer that during the base year is a partner or shareholder.
(B) Exceptions. The term applicable payment does not include any guaranteed payments under section 707(c).
(C) Special rule for corporation electing S status. If an S corporation was a C corporation for the base year, the corporation shall be treated as if it were an S corporation for the base year for purposes of determining the amount of applicable payments under this section. Thus, amounts deductible by the C corporation in the base year that are includable at any time in the gross income of a taxpayer that is a shareholder during the base year are treated as if from an S corporation, and therefore within the meaning of the term “applicable payments.”
(D) Special rules for certain payments—(1) Certain indirect payments. For purposes of paragraph (b)(5)(iv)(A) of this section, an amount is indirectly includable in the gross income of a partner or shareholder of a partnership or S corporation that has a section 444 election in effect (an electing partnership or S corporation) if the amount is includable in the gross income of—
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Treas. Reg. §1.7519-1T(c)Refunds of required payments.
Refunds of required payments. A partnership of S corporation is entitled to make a claim for refund, in accordance with the procedures provided in § 1.7519-2T(a)(6), if—
(1) The amount specified in paragraph (a)(3)(i) of this section is less than the amount specified in paragraph (a)(3)(ii) of this section; or
(2) The partnership or S corporation terminates its section 444 election, within the meaning of § 1.444-1T(a)(5).
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Treas. Reg. §1.7519-1T(d)Example.
Example. The provisions of this section may be illustrated by the following examples.
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Treas. Reg. §1.7519-1T(i)§1.7519-1T(i)
The spouse (other than a spouse who is legally separated from the partner or shareholder under a decree of divorce or separate maintenance) or child (under age 14) of such partner or shareholder, or
(ii) A corporation more than 50 percent (measured by fair market value) of which is owned in the aggregate by partners or shareholders (and individuals related under paragraph (b)(5)(iv)(D)(1)(i) of this section to any such partners or shareholders), of the electing partnership or S corporation, or
(iii) A partnership more than 50 percent of the profits and capital of which is owned in the aggregate by partners or shareholders (and individuals related under paragraph (b)(5)(iv)(D)(1)(i) of this section to any such partners or shareholders) of the electing partnership or S corporation, or
(iv) A trust more than 50 percent of the beneficial ownership of which is owned in the aggregate by partners or shareholders (and individuals related under paragraph (b)(5)(iv)(D)(1)(i) of this section to any such partners or shareholders), of the electing partnership or S corporation.
For purposes of this paragraph (b)(5)(iv)(D)(1), ownership by any person described in this paragraph (b)(5)(iv)(D)(1) shall be treated as ownership by the partners or shareholders of the electing partnership or S corporation. This paragraph (b)(5)(iv)(D)(1) does not apply to amounts deductible by a partnership or S corporation that has made a section 444 election (the “deducting partnership”) and included in the gross income of a partnership or S corporation defined in paragraphs (b)(5)(iv)(D)(1) (ii) or (iii) of this section (the “including partnership”), if the including partnership has the same taxable year as the deducting partnership and the including partnership has a section 444 election in effect. Furthermore, notwithstanding the general effective date provided in § 1.7519-3T, this paragraph (b)(5)(iv)(D)(1) is effective for amounts deductible on or after June 1, 1988.
(2) Payments by a downstream controlled partnership—(i) In general. If a partnership or S corporation has made a section 444 election, any amounts deducted by a downstream controlled partnership will be considered deducted by the partnership or S corporation that has made the section 444 election for purposes of determining the applicable payments of the partnership or S corporation that has made the section 444 election.
(ii) Definition of a downstream controlled partnership. If a partnership or S corporation that has made a section 444 election owns more than 50 percent of a partnership's profits and capital, such owned partnership is considered a downstream controlled partnership for purposes of paragraph (b)(5)(iv)(D)(2)(i) of this section. Furthermore, if more than 50 percent of a partnership's profits and capital are owned by a downstream controlled partnership, such owned partnership is considered a downstream controlled partnership for purposes of paragraph (b)(5)(iv)(D)(2)(i) of this section.
(3) Examples. The provisions of this paragraph (b)(5)(iv)(D) may be illustrated by the following examples.
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Treas. Reg. §1.7519-1T(v)Special rule for base year of less than twelve months—(A) In general.
Special rule for base year of less than twelve months—(A) In general. If a base year is a taxable year of less than twelve months (a “short base year”), net base year income for such year is an amount equal to the excess, if any, of—
(1) The deferral ratio multiplied by the annualized short base year income, over
(2) Applicable payments made during the deferral period of the applicable election year following the base year.
(B) Annualized short base year income. The annualized short base year income is determined by—
(1) Increasing the net income for the short base year by applicable payments deductible in the short base year, and
(2) Multiplying the short base year income as increased in paragraph (b)(5)(v)(B)(1) of this section by twelve, and dividing the result by the number of months in the short base year.
(vi) Examples. The provisions of paragraph (b)(5) of this section may be illustrated by the following examples.
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Treas. Reg. §1.7519-2TRequired payments—procedures and administration
(a) Payment and return required—(1) In general. With respect to any taxable year for which a partnership or S corporation has a section 444 election in effect (an “applicable election year”), the partnership or S corporation shall file a return as provided in paragraphs (a) (2) and (3) of this section and make a payment, if required, as provided in paragraph (a)(4) of this section.
(2) Return required—(i) In general. A return showing the required payment shall be made, even if the required payment for the applicable election year is zero. For an applicable election year beginning in 1987, the return shall be made on Form 720, “Quarterly Federal Excise Tax Return.” For an applicable election year beginning after 1987, the return shall also be made on Form 720 unless another form is prescribed by the Commissioner.
(ii) Procedure if amount for applicable election year (and all proceeding years) is not greater than $500. If a partnership or S corporation is not required to make a payment under section 7519 for an applicable election year, the partnership or S corporation should type or legibly print “zero” on the appropriate line of the prescribed form.
(3) Time and place for filing return—(i) Applicable election years beginning in 1987. For an applicable election year beginning in 1987, the Form 720 must be filed with the Service Center indicated by the instructions for the Form 720. The date for filing such form is as follows—
(A) Taxpayers that would otherwise file Form 720 for the second quarter of 1988. Taxpayers that are required, without regard to this section, to file Form 720 for the second quarter of 1988 (e.g., taxpayers reporting liability for manufacturers excise tax) must file Form 720 by the normal due date of such form for the second quarter of 1988. Thus, such taxpayers must generally file Form 720 on or before July 31, 1988. However, if such taxpayers must also report tax imposed by section 4251 (relating to communications services tax), sections 4261 and 4271 (relating to air transportation tax), or section 4986 (relating to windfall profits tax) for the second quarter of 1988, they must file Form 720 on or before August 31, 1988.
(B) Other taxpayers. Taxpayers that are not described in paragraph (a)(3)(i)(A) of this section (i.e., taxpayers that but for this section would not be required to file Form 720 for the second quarter of 1988) must file Form 720 on or before July 31, 1988.
(ii) Applicable election years beginning after 1987—(A) Return made on Form 720. [Reserved]
(B) Return made on form other than Form 720. For an applicable election year beginning after 1987, the return showing the required payment is to be filed with the Service Center indicated by the instructions for the form prescribed for payment. The return must be filed on or before the date prescribed by the instructions to the form.
(iii) Special rule for back-up section 444 election. See § 1.444-3T(b)(4)(iii) for a special rule that may extend the due date for filing a return required by paragraph (a)(2) of this section.
(4) Time and place for making required payment—(i) Applicable election years beginning in 1987. For an applicable election year beginning in 1987, the required payment is due and payable without assessment and notice on or before the date the taxpayer's Form 720 for the second quarter is due (as specified in paragraph (a)(3) of this section). The required payment must be paid by check or money order, and such check or money order must indicate the partnership's or S corporation's taxpayer identification number and must include the statement: “IRS NO. 11 PAYMENT.” The check or money order must be sent, together with Form 720, to the Service Center indicated by the instructions for the Form 720.
(ii) Applicable election years beginning after 1987. For an applicable election year beginning after 1987, the required payment is due and payable without assessment or notice, on or before May 15 of the calendar year following the calendar year in which the applicable election year begins.
(iii) Special rule for back-up section 444 election. See § 1.444-3T(b)(4)(iii) for a special rule that may extend the due date for making a required payment.
(5) Penalties for failure to pay. In the case of any failure by a partnership or S corporation to pay the required payment on or before the date prescribed in paragraph (a)(4) of this section, there shall be assessed on such partnership or S corporation a penalty of 10 percent of the underpayment. For purposes of this section, the term “underpayment” means the excess of the amount of the payment required under this section over the amount (if any) of such payment paid on or before the date prescribed in paragraph (a)(4) of this section.
(6) Refund of required payment—(i) In general. If a partnership or S corporation is entitled to make a claim for refund pursuant to § 1.7519-1T(c), such partnership or S corporation should file a claim for refund, as provided in paragraph (a)(6)(ii) of this section. However, in no event shall a refund be made prior to April 15 of the second calendar year that follows the calendar year in which an applicable election year begins. For example, assume a partnership made a section 444 election to retain its taxable year for its taxable year beginning October 1, 1987, and as a result made a required payment for such year. Further assume that the partnership terminates its election for its taxable year beginning October 1, 1988. Based on these facts, the partnership will be entitled to a refund, but no earlier than April 15, 1989.
(ii) Procedures for claiming refund. [Reserved]
(iii) Interest on refund. No interest shall be allowed with respect to any refund of a required payment under § 1.7519-1T(C).
(b) Assessment and collection of payment. A required payment shall be assessed and collected in the same manner as if it were a tax imposed by subtitle C. Furthermore, no deduction shall be allowable to a partnership or S corporation (or their owners) with respect to the required payment.
(c) Termination due to willful failure. See § 1.444-1T(a)(5)(i)(C), which provides that willful failure to comply with the requirements of this section will result in the termination of the section 444 election.
(d) Negligence and fraud penalties made applicable. For purposes of section 6653, relating to additions to tax for negligence and fraud, any payment required by this section shall be treated as a tax.
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Treas. Reg. §1.7519-2T(a)Payment and return required—(1) In general.
Payment and return required—(1) In general. With respect to any taxable year for which a partnership or S corporation has a section 444 election in effect (an “applicable election year”), the partnership or S corporation shall file a return as provided in paragraphs (a) (2) and (3) of this section and make a payment, if required, as provided in paragraph (a)(4) of this section.
(2) Return required—(i) In general. A return showing the required payment shall be made, even if the required payment for the applicable election year is zero. For an applicable election year beginning in 1987, the return shall be made on Form 720, “Quarterly Federal Excise Tax Return.” For an applicable election year beginning after 1987, the return shall also be made on Form 720 unless another form is prescribed by the Commissioner.
(ii) Procedure if amount for applicable election year (and all proceeding years) is not greater than $500. If a partnership or S corporation is not required to make a payment under section 7519 for an applicable election year, the partnership or S corporation should type or legibly print “zero” on the appropriate line of the prescribed form.
(3) Time and place for filing return—(i) Applicable election years beginning in 1987. For an applicable election year beginning in 1987, the Form 720 must be filed with the Service Center indicated by the instructions for the Form 720. The date for filing such form is as follows—
(A) Taxpayers that would otherwise file Form 720 for the second quarter of 1988. Taxpayers that are required, without regard to this section, to file Form 720 for the second quarter of 1988 (e.g., taxpayers reporting liability for manufacturers excise tax) must file Form 720 by the normal due date of such form for the second quarter of 1988. Thus, such taxpayers must generally file Form 720 on or before July 31, 1988. However, if such taxpayers must also report tax imposed by section 4251 (relating to communications services tax), sections 4261 and 4271 (relating to air transportation tax), or section 4986 (relating to windfall profits tax) for the second quarter of 1988, they must file Form 720 on or before August 31, 1988.
(B) Other taxpayers. Taxpayers that are not described in paragraph (a)(3)(i)(A) of this section (i.e., taxpayers that but for this section would not be required to file Form 720 for the second quarter of 1988) must file Form 720 on or before July 31, 1988.
(ii) Applicable election years beginning after 1987—(A) Return made on Form 720. [Reserved]
(B) Return made on form other than Form 720. For an applicable election year beginning after 1987, the return showing the required payment is to be filed with the Service Center indicated by the instructions for the form prescribed for payment. The return must be filed on or before the date prescribed by the instructions to the form.
(iii) Special rule for back-up section 444 election. See § 1.444-3T(b)(4)(iii) for a special rule that may extend the due date for filing a return required by paragraph (a)(2) of this section.
(4) Time and place for making required payment—(i) Applicable election years beginning in 1987. For an applicable election year beginning in 1987, the required payment is due and payable without assessment and notice on or before the date the taxpayer's Form 720 for the second quarter is due (as specified in paragraph (a)(3) of this section). The required payment must be paid by check or money order, and such check or money order must indicate the partnership's or S corporation's taxpayer identification number and must include the statement: “IRS NO. 11 PAYMENT.” The check or money order must be sent, together with Form 720, to the Service Center indicated by the instructions for the Form 720.
(ii) Applicable election years beginning after 1987. For an applicable election year beginning after 1987, the required payment is due and payable without assessment or notice, on or before May 15 of the calendar year following the calendar year in which the applicable election year begins.
(iii) Special rule for back-up section 444 election. See § 1.444-3T(b)(4)(iii) for a special rule that may extend the due date for making a required payment.
(5) Penalties for failure to pay. In the case of any failure by a partnership or S corporation to pay the required payment on or before the date prescribed in paragraph (a)(4) of this section, there shall be assessed on such partnership or S corporation a penalty of 10 percent of the underpayment. For purposes of this section, the term “underpayment” means the excess of the amount of the payment required under this section over the amount (if any) of such payment paid on or before the date prescribed in paragraph (a)(4) of this section.
(6) Refund of required payment—(i) In general. If a partnership or S corporation is entitled to make a claim for refund pursuant to § 1.7519-1T(c), such partnership or S corporation should file a claim for refund, as provided in paragraph (a)(6)(ii) of this section. However, in no event shall a refund be made prior to April 15 of the second calendar year that follows the calendar year in which an applicable election year begins. For example, assume a partnership made a section 444 election to retain its taxable year for its taxable year beginning October 1, 1987, and as a result made a required payment for such year. Further assume that the partnership terminates its election for its taxable year beginning October 1, 1988. Based on these facts, the partnership will be entitled to a refund, but no earlier than April 15, 1989.
(ii) Procedures for claiming refund. [Reserved]
(iii) Interest on refund. No interest shall be allowed with respect to any refund of a required payment under § 1.7519-1T(C).
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Treas. Reg. §1.7519-2T(b)Assessment and collection of payment.
Assessment and collection of payment. A required payment shall be assessed and collected in the same manner as if it were a tax imposed by subtitle C. Furthermore, no deduction shall be allowable to a partnership or S corporation (or their owners) with respect to the required payment.
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Treas. Reg. §1.7519-2T(c)Termination due to willful failure.
Termination due to willful failure. See § 1.444-1T(a)(5)(i)(C), which provides that willful failure to comply with the requirements of this section will result in the termination of the section 444 election.
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Treas. Reg. §1.7519-2T(d)Negligence and fraud penalties made applicable.
Negligence and fraud penalties made applicable. For purposes of section 6653, relating to additions to tax for negligence and fraud, any payment required by this section shall be treated as a tax.
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Treas. Reg. §1.7519-3TEffective date
The provisions of §§ 1.7519-1T through § 1.7519-3T are effective for taxable years beginning after December 31, 1986.
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