New Corporate Estimated Tax Rules: Calculating Annualized Income Isn't What It Used to Be

On Aug 6, 2007, the Internal Revenue Service and the Department of the Treasury issued final regulations relating to corporate estimated taxes under section 6655 of the Internal Revenue. These new rules apply to taxable years beginning after Sep 6, 2007. The Final Regulations reflect significant changes to the tax law since 1984 and include new rules for computing quarterly estimated tax payments using an annualization method. Although the Final Regulations cover a number issues relating to corporate estimated taxes, this article focuses on the rules affecting how a corporation is required to calculate its annualized taxable income under an annualization method. This article addresses the general rule and the significant special rules that taxpayers will need to apply. The Preamble to the Final Regulations provides that the IRS and Treasury recognize that various allocations may be considered to be done in a reasonably accurate manner and intend for taxpayers to have flexibility in determining which allocation to use, particularly when use of a specific allocation reduces administrative burdens on taxpayers.