§ 7519. — Required payments for entities electing not to have required taxable year.
[Laws in effect as of January 7, 2003]
[Document not affected by Public Laws enacted between
January 7, 2003 and December 19, 2003]
[CITE: 26USC7519]
TITLE 26--INTERNAL REVENUE CODE
Subtitle F--Procedure and Administration
CHAPTER 77--MISCELLANEOUS PROVISIONS
Sec. 7519. Required payments for entities electing not to have
required taxable year
(a) General rule
This section applies to a partnership or S corporation for any
taxable year, if--
(1) an election under section 444 is in effect for the taxable
year, and
(2) the required payment determined under subsection (b) for
such taxable year (or any preceding taxable year) exceeds $500.
(b) Required payment
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--
(1) the excess of the product of--
(A) the applicable percentage of the adjusted highest
section 1 rate, multiplied by
(B) the net base year income of the entity, over
(2) 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).
(c) Refund of payments
(1) In general
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.
(2) Termination of elections, etc.
If--
(A) an election under section 444 is terminated effective
with respect to any year, or
(B) the entity is liquidated during any year, the entity
shall be entitled to a refund of the net required payment
balance.
(3) Date on which refund payable
Any refund under this subsection shall be payable on the later
of--
(A) April 15 of the calendar year following--
(i) in the case of the year referred to in paragraph
(1), the calendar year in which it begins,
(ii) in the case of the year referred to in paragraph
(2), the calendar year in which it ends, or
(B) the day 90 days after the day on which claim therefor is
filed with the Secretary.
(d) Net base year income
For purposes of this section--
(1) In general
An entity's net base year income shall be equal to the sum of--
(A) the deferral ratio multiplied by the entity's net income
for the base year, plus
(B) the excess (if any) of--
(i) the deferral ratio multiplied by the aggregate
amount of applicable payments made by the entity during the
base year, over
(ii) 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.
(2) Net income
Net income is determined by taking into account the aggregate
amount of the following items--
(A) Partnerships
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).
(B) S corporations
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)).
(C) Certain limitations disregarded
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.
(3) Applicable payments
(A) In general
The term ``applicable payment'' means amounts paid by a
partnership or S corporation which are includible in gross
income of a partner or shareholder.
(B) Exceptions
The term ``applicable payment'' shall not include any--
(i) gain from the sale or exchange of property between
the partner or shareholder and the partnership or S
corporation, and
(ii) dividend paid by the S corporation.
(4) Applicable percentage
The applicable percentage is the percentage determined in
accordance with the following table:
If the applicable election year
of the partnership or S The applicable
corporation begins during: 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.
(5) Treatment of guaranteed payments
(A) In general
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.
(B) Guaranteed payment
For purposes of subparagraph (A), the term ``guaranteed
payment'' means any payment referred to in section 707(c).
(e) Other definitions and special rules
For purposes of this section--
(1) Deferral period
The term ``deferral period'' has the meaning given to such term
by section 444(b)(4).
(2) Years
(A) 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.
(B) 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.
(3) Requirement of reporting
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.
(4) Net required payment balance
The term ``net required payment balance'' means the excess (if
any) of--
(A) the aggregate of the required payments under this
section for all preceding applicable election years, over
(B) the aggregate amount allowable as a refund to the entity
under subsection (c) for all preceding applicable election
years.
(f) Administrative provisions
(1) In general
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.
(2) Due date
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).
(3) Interest
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.
(4) Penalties
(A) In general
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.
(B) Negligence and fraud penalties made applicable
For purposes of part II of subchapter A of chapter 68, any
payment required by this section shall be treated as a tax.
(C) Willful failure
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.
(g) Regulations
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--
(1) 2 or more applicable election years begin in the same
calendar year, or
(2) the base year is a taxable year of less than 12 months.
(Added Pub. L. 100-203, title X, Sec. 10206(b)(1), Dec. 22, 1987, 101
Stat. 1330-398; amended Pub. L. 100-647, title II, Sec. 2004(e)(4)-(10),
(14)(B), Nov. 10, 1988, 102 Stat. 3601, 3602; Pub. L. 101-239, title
VII, Secs. 7721(c)(12), 7821(b), Dec. 19, 1989, 103 Stat. 2400, 2424;
Pub. L. 101-508, title XI, Sec. 11704(a)(29), Nov. 5, 1990, 104 Stat.
1388-519; Pub. L. 105-34, title XII, Sec. 1281(d), Aug. 5, 1997, 111
Stat. 1037.)
References in Text
Section 806(e)(2)(C) of the Tax Reform Act of 1986, referred to in
subsec. (d)(4), is section 806(e)(2)(C) of Pub. L. 99-514, which is set
out as a note under section 1378 of this title.
Amendments
1997--Subsec. (f)(4)(A). Pub. L. 105-34 inserted at end ``No penalty
shall be imposed under this subparagraph on any failure which is shown
to be due to reasonable cause and not willful neglect.''
1990--Subsec. (c)(3). Pub. L. 101-508 substituted ``payable on the
later of'' for ``payable on later of''.
1989--Subsec. (d)(4). Pub. L. 101-239, Sec. 7821(b), struck out
``for taxable years beginning after 1987,'' before ``the applicable
percentage'' and substituted ``unless more than 50 percent'' for ``if
more than 50 percent'' and ``who would have been entitled'' for ``who
would not have been entitled''.
Subsec. (f)(4)(B). Pub. L. 101-239, Sec. 7721(c)(12), substituted
``part II of subchapter A of chapter 68'' for ``section 6653''.
1988--Subsec. (b)(2). Pub. L. 100-647, Sec. 2004(e)(4)(A), amended
par. (2) generally. Prior to amendment, par. (2) read as follows: ``the
amount of the required payment for the preceding applicable election
year.''
Subsec. (c). Pub. L. 100-647, Sec. 2004(e)(5), amended subsec. (c)
generally. Prior to amendment, subsec. (c) read as follows: ``If the
amount determined under subsection (b)(2) exceeds the amount determined
under subsection (b)(1), then the entity shall be entitled to a refund
of such excess.''
Subsec. (d)(2)(A). Pub. L. 100-647, Sec. 2004(e)(10), substituted
``(other than credits and tax-exempt income)'' for ``(other than
credits)''.
Subsec. (d)(2)(B). Pub. L. 100-647, Sec. 2004(e)(7), (10),
substituted ``(other than credits and tax-exempt income)'' for ``(other
than credits)'' and inserted before period at end ``(and such
corporation shall be treated as an S corporation for such taxable year
for purposes of paragraph (3))''.
Subsec. (d)(3)(A). Pub. L. 100-647, Sec. 2004(e)(14)(B), struck out
``or incurred'' after ``amounts paid''.
Subsec. (d)(4). Pub. L. 100-647, Sec. 2004(e)(9), inserted at end
``Notwithstanding the preceding provisions of this paragraph, for
taxable years beginning after 1987, the applicable percentage for any
partnership or S corporation shall be 100 percent if 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 not
have been entitled to the benefits of section 806(e)(2)(C) of the Tax
Reform Act of 1986 with respect to such income.''
Subsec. (d)(5). Pub. L. 100-647, Sec. 2004(e)(8), added par. (5).
Subsec. (e)(4). Pub. L. 100-647, Sec. 2004(e)(4)(B), added par. (4).
Subsec. (g). Pub. L. 100-647, Sec. 2004(e)(6), substituted
``including regulations providing for appropriate adjustments in the
application of this section and sections 280H and 444 in cases where--
``(1) 2 or more applicable election years begin in the same
calendar year, or
``(2) the base year is a taxable year of less than 12 months''
for ``including regulations for annualizing the income and
applicable payments of an entity if the base year is a taxable year
of less than 12 months''.
Effective Date of 1997 Amendment
Amendment by Pub. L. 105-34 applicable to taxable years beginning
after Aug. 5, 1997, see section 1281(e) of Pub. L. 105-34, set out as a
note under section 6652 of this title.
Effective Date of 1989 Amendment
Amendment by section 7721(c)(12) of Pub. L. 101-239 applicable to
returns the due date for which (determined without regard to extensions)
is after Dec. 31, 1989, see section 7721(d) of Pub. L. 101-239, set out
as a note under section 461 of this title.
Section 7821(b) of Pub. L. 101-239 provided that the amendment made
by that section is effective with respect to taxable years beginning
after 1988.
Effective Date of 1988 Amendment
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provisions of the Revenue Act of 1987,
Pub. L. 100-203, title X, to which such amendment relates, see section
2004(u) of Pub. L. 100-647, set out as a note under section 56 of this
title.
Effective Date
Section applicable to applicable election years beginning after Dec.
31, 1986, see section 10206(d)(2) of Pub. L. 100-203, set out as a note
under section 444 of this title.
Section Referred to in Other Sections
This section is referred to in section 444 of this title.
