26 USC 7519 - Required payments for entities electing not to have required taxable year

U.S Code last checked for updates: Nov 26, 2024

§ 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

(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

(B)

S corporations

(C)

Certain limitations disregarded

(3)

Applicable payments

(A)

In general

(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

(5)

Treatment of guaranteed payments

(A)

In general

(B)

Guaranteed payment

(e)

Other definitions and special rules

For purposes of this section—

(1)

Deferral period

(2)

Years

(A)

Base year

(B)

Applicable election year

(3)

Requirement of reporting

(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

(2)

Due date

(3)

Interest

(4)

Penalties

(A)

In general

(B)

Negligence and fraud penalties made applicable

(C)

Willful failure

(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, § 10206(b)(1), Dec. 22, 1987, 101 Stat. 1330–398; amended Pub. L. 100–647, title II, § 2004(e)(4)–(10), (14)(B), Nov. 10, 1988, 102 Stat. 3601, 3602; Pub. L. 101–239, title VII, §§ 7721(c)(12), 7821(b), Dec. 19, 1989, 103 Stat. 2400, 2424; Pub. L. 101–508, title XI, § 11704(a)(29), Nov. 5, 1990, 104 Stat. 1388–519; Pub. L. 105–34, title XII, § 1281(d), Aug. 5, 1997, 111 Stat. 1037.)

cite as: 26 USC 7519