§ 7519. Required payments for entities electing not to have required taxable year
(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—
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.
(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—
(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—
(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)).
(3)
Applicable payments
(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.
(e)
Other definitions and special rules
For purposes of this section—
(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.
(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