Underpayment of Estimated Tax by Corporations penalty

The Underpayment of Estimated Tax by Corporations penalty applies to corporations that don't pay enough estimated tax payments or pay them late.

Corporations generally pay quarterly estimated tax payments if they expect to owe $500 or more in estimated tax when they file their tax return.

Find how to figure and pay estimated tax.

How you know you owe the penalty

We send you a notice or letter if you owe the Underpayment of Estimated Tax by Corporations penalty. For more information, see Understanding your IRS notice or letter.

How we calculate the penalty

We calculate the amount of the Underpayment of Estimated Tax by Corporations penalty based on the tax shown on your original return or on a more recent return that you filed on or before the due date. The tax shown on the return is your total tax minus your total refundable credits.

We calculate the penalty based on:

• The amount of the underpayment.
• The period when the underpayment was due and underpaid.
• The interest rate for underpayments that we publish quarterly.

Interest on a penalty

We charge interest on penalties.

The date from which we begin to charge interest varies by the type of penalty. Interest increases the amount you owe until you pay your balance in full. For more information about the interest we charge on penalties, see Interest.

Pay a penalty

Send us a payment or pay your estimated taxes in full on time to stop future penalties and interest from adding up.

Remove or reduce a penalty

We may remove or reduce a penalty if any of the following apply:

• You owe less than $500.
• You can show cancelled checks or other documents with the amount and date you made estimated tax payments.
• You are a member of a consolidated group that is figuring its first required installment based on prior year's tax.

If exceptions do apply and result in a lower penalty, you can ask us to adjust the amount of the penalty. Send Form 2220, Underpayment of Estimated Tax by Corporations or, if applicable, Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts to the address on the penalty notice. Include a signed letter confirming the accuracy of the form and payments for all penalties you calculated.

Dispute a penalty

While we can't adjust the Underpayment of Estimated Tax by Corporations penalty for reasonable cause, we may consider making an adjustment if we imposed the penalty after you relied on incorrect written advice we gave you.

Check if you meet the following criteria:

• The written advice we gave you was in direct response to your written request for advice.
• The incorrect written advice we gave you was not the result of material omissions or misinformation in your written request for advice.
• You reasonably relied on our written advice and were penalized based on that advice.

If you believe you meet the criteria above:

• Mail a statement signed under penalty of perjury that describes how our erroneous written advice resulted in the penalty.
• Include a copy of both the written request for advice you sent us and our written response.
• Mail the original statement and copies of the supporting documents to the address on your penalty notice.
• Keep a copy of the documents you sent to us.

When you sign a statement under penalty of perjury, you may be found guilty of a crime if you knowingly lie in your statement.

Avoid a penalty

To avoid a penalty, do the following:

• Make installment estimated tax payments when you expect your total tax for the year (less applicable credits) to be $500 or more.
• Make installment payments by the 15th day of the 4, 6, 9 and 12 months of the tax year. If any date falls on a Saturday, Sunday or a legal federal holiday, the installment is due on the next regular business day.

Apply for a payment plan

If you can't pay the full amount of your taxes or penalty on time, pay what you can now and apply for a payment plan. You may reduce future penalties and interest when you set up a payment plan.

Get help

For help with a penalty, call the phone number on your notice or letter. If you didn’t receive a letter or notice, use telephone assistance.

Law and regulations

• Failure by a Corporation to Pay Estimated Income Tax — Internal Revenue Code § 6655
• Additions to Tax for Corporations — Estimated tax – 26 Code of Federal Regulations § 1.6655-1
• Estimated Tax for Consolidated Corporate Returns — 26 Code of Federal Regulations § 1.1502-5