What This Notice Means

The IRS assessed a penalty because its records show you didn't prepay enough tax through estimated payments, or you didn't make them on time. Corporations generally must make estimated payments if they expect to owe $500 or more when the return is filed.

What to Do

Read the notice. It shows how much you owe and how to pay. Pay it by the due date on the notice.

Before you pay, check Form 2220, Underpayment of Estimated Tax by Corporations. If an exception applies, you may lower or avoid the penalty. If the corporation received income unevenly during the year, the annualized income method may reduce it.

Estates and most trusts use Form 2210 instead.

Getting the Penalty Adjusted

The IRS may reduce or remove the penalty if:

  • The corporation owed less than $500.
  • You can show canceled checks or other proof of the amounts and dates of your estimated payments.
  • The corporation is a member of a consolidated group figuring its first required installment based on the prior year's tax.

If an exception lowers the penalty, mail the completed Form 2220 (or Form 2210) with a signed statement attesting to its accuracy to the address on the payment stub. Include payment for any penalty you computed.

Reasonable Cause Doesn't Apply Here

This is important. The IRS can't remove this penalty for reasonable cause. The one exception is erroneous written advice from the IRS. To qualify, the advice must have been a direct answer to your written request, your request can't have left out material facts or included bad information, and you must have reasonably relied on it.

If that fits, mail a statement signed under penalty of perjury explaining how the advice caused the penalty. Include a copy of your written request and the IRS's written answer.

Avoiding It Next Year

Installments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the tax year, moved to the next business day for weekends and holidays. Corporations must pay estimated tax by electronic funds transfer. Form 1120-W works as a worksheet.

If your corporation received a CP173 and you need help with the penalty or the balance, call us at (813) 229-7100.