Mo. Code Regs. tit. 12 § 10-2.067
Current through Register Vol. 49, No.12, June 17, 2024
Section 12 CSR 10-2.067 - Failure to Pay Estimated Tax for Tax Years Ending After December 31, 1989PURPOSE: This rule is being amended to remove or change unnecessary, outdated, or incorrect language and citations, to account for statutory and other legal changes since the original filing of the rule, to make the language of section (7) of this rule more lenient, and to promote clarity.
PURPOSE: This rule clarifies the requirement for filing declaration of estimated income tax by individuals and corporations, the determination of the amount of the installments required to be paid by the appropriate due dates, and the additions to tax imposed for the underpayment of estimated tax.
(1) Applicability and Scope of Rule. This rule is applicable only with respect to taxable years ending after December 31, 1989, and is intended as an interpretive guideline in the application of Chapter 143, RSMo.(2) Definitions. As used in this rule- (A) The term "director" shall mean the director of revenue or his/her duly authorized agent or designee;(B) The term "farmer" shall mean an individual described in section 143.531.2, RSMo. The term does not include a corporation and income from catching, taking, harvesting, cultivating, or farming any aquatic forms of animal and vegetable life (other than oyster farming) does not constitute gross income from farming; and (C) The term "other corporation" shall mean any corporation not defined as a "large corporation" in section 143.761, RSMo.(3) General Rule. Section 143.761, RSMo, imposes an addition to tax in the case of any underpayment of estimated tax by an individual or a corporation (with certain exceptions described in section 143.761.4., RSMo). This addition to tax is in addition to any applicable civil or criminal penalties (including, but not limited to, an addition to tax or penalty under section 143.751, RSMo). If the amount of Missouri estimated tax is reasonably expected to be at least the amount that requires a declaration of estimated tax under section 143.521, RSMo, then the addition to tax under section 143.761, RSMo, is imposed without regard to any reasonable cause or lack of willful neglect for the underpayment. There is no provision for the payment of interest with respect to any underpayment of estimated tax.(4) Amount of Underpayment. The amount of the underpayment for any installment date is the excess of- (A) Ninety percent (90%) in the case of corporations or individuals (sixty-six and two-thirds percent (66 2/3%) in the case of a farmer) of the tax shown on the return for the taxable year, or if no return was filed, ninety percent (90%) in the case of corporations or individuals (sixty-six and two-thirds percent (66 2/3%) in the case of a farmer) of the tax for the year, divided by the number of installment dates prescribed for the taxable year, over; and(B) The amount, if any, of the installment paid on or before the last day prescribed for its payment.(5) The amount of the addition is determined by the application of the rate set forth in section 32.065, RSMo, to the amount of underpayment of any installment of estimated tax for the period beginning with the date the installment was required to be paid until the earliest of the following:(A) The fifteenth day of the fourth month following the close of the taxable year; or(B) With respect to any portion of the underpayment, the date on which such portion is paid. For the purpose of determining the period of underpayment, the date prescribed for the payment of any installment of estimated tax shall be determined without regard to any extension of time; and a payment of estimated tax on any installment date, to the extent that it exceeds the amount of the installment determined under subsection (4)(A) of this rule for the installment date, shall be considered a payment of any previous underpayment.
(6) In determining the amount of the installment paid on or before the last day prescribed for payment of the installment, the estimated tax shall be computed without any reduction for the amount which the taxpayer estimates as his/her credit for taxes withheld at the source on wages, and the amount of that credit shall be deemed a payment of estimated tax. An equal part of the amount of the credit shall be considered paid on each installment date for the taxable year unless the taxpayer establishes the dates on which all amounts were actually withheld. In the latter case, all amounts withheld shall be considered as payments of estimated tax on the dates the amounts were actually withheld. (7) Statement Relating to Underpayment. If there has been an underpayment of estimated tax as of any installment date prescribed for its payment and the taxpayer believes that one (1) or more of the exceptions described in section 143.761.4, RSMo, precludes the imposition of the addition to the tax, the appropriate Missouri form should be attached to the income tax return for the taxable year showing the applicability of an exception. Failure to show the applicability of an exception will result in the imposition of the additions to tax on the total amount of the underpayment of the installment and not on the amount by which the taxpayer fails to come within one (1) of the five (5) exceptions.(8) Exceptions to Imposition of Additions to Tax. Exceptions shown in subsections (8)(A)-(D) apply to individuals. Exceptions shown in subsections (8)(A)-(E) apply to all corporations except large corporations as defined in section 143.761, RSMo. Only the exceptions shown in subsections (8)(B), (C), and (E) apply to large corporations. The addition to the tax under section 143.761, RSMo, will not be imposed for any underpayment of any installment of estimated tax, if, on or before the date prescribed for payment of the installment, the total amount of all payments of estimated tax equals or exceeds the least of the following amounts.(A) The amount which would have been required to be paid on or before the date prescribed for payment if the estimated tax were the tax shown on the return for the preceding taxable year, provided that the preceding taxable year was a year of twelve (12) months and a return showing a liability for tax was filed for that year.(B) The amount which would have been required to be paid on or before the date prescribed for payment if the estimated tax were an amount equal to ninety percent (90%) in the case of other corporations or individuals (sixty-six and two-thirds percent (66 2/3%) in the case of a farmer) of the tax computed by placing on an annualized basis the taxable income for the calendar months in the taxable year preceding that date. The taxable income shall be placed on an annualized basis as follows. 1. Multiply by twelve (12) (or the number of months in the taxable year if less than twelve (12)) the taxable income (computed without the standard deduction and without the deduction for personal and dependency exemptions, if any) or the AGI if the standard deduction is to be used for the calendar months.2. Divide the resulting amount by the number of those calendar months.3. Deduct from that amount the standard deduction, if applicable, the deductions for personal and dependency exemptions, if any, determined as of the date prescribed for payment, and the deduction for federal income tax liability.4. Multiply, in the case of an other corporation, the amount determined in paragraph (8)(B)3. of this rule by the applicable apportionment percentage determined as of the last day of the month preceding the date prescribed for payment. For tax years beginning on or after January 1, 2020, the applicable apportionment percentage is determined under section 143.455, RSMo. For tax years beginning before January 1, 2020, the applicable apportionment percentage is determined under either section 143.451 or 32.200, RSMo.(C) An amount equal to ninety percent (90%) of the tax computed, at the rate applicable to the taxable year, on the basis of the actual taxable income for the calendar months in the taxable year preceding the date prescribed for payment.(D) The amount which would have been required to be paid on or before the date prescribed for payment if the estimated tax were an amount equal to a tax determined on the basis of the tax rates and the taxpayer's status with respect to personal and dependency exemptions, if any, for the taxable year, but otherwise on the basis of the facts shown on the return for the preceding taxable year and the law applicable to that year, in case of a taxpayer required to file a return for the preceding taxable year.(E) The amount which would have been required to be paid on or before the date prescribed for payment if the estimated tax were an amount equal to ninety percent (90%) of the tax computed by placing on an annualized basis the taxable income for the calendar months in the taxable year preceding that date. The taxable income shall be placed on an annualized basis as follows. 1. Multiply by twelve (12) the taxable income for the "applicable period" identified in paragraph (8)(E)3. below.2. Divide the resulting amount by the whole number of months within the "applicable period" used in paragraph (8)(E)1. above (that is, 3, 5, 6, 8, 9 or 11, as the case may be).3. Determine the "applicable period" for use in paragraphs (8)(E)1. and 2. as follows.A. The first three (3) months of the taxable year, in the case of an installment required to be paid in the fourth month.B. The first three (3) months or the first five (5) months of the taxable year, in the case of an installment required to be paid in the sixth month.C. The first six (6) months or the first eight (8) months of the taxable year, in the case of an installment required to be paid in the ninth month.D. The first nine (9) months or the first eleven (11) months of the taxable year, in the case of the installment required to be paid in the twelfth month. (F) Example: An individual filed an income tax return for his/her taxable year 2022, which showed an income tax of four thousand dollars ($4,000). The individual always files on a calendar year basis. The individual pays installments of estimated tax of one thousand dollars ($1,000) each on April 15, June 15, and September 15 of 2023, and on January 15 of 2024. The individual files an income tax return for his/her taxable year 2023 on April 15, 2024, and the return shows an income tax of thirteen thousand dollars ($13,000). The individual is not liable for an addition to tax for the failure to pay estimated tax, as the individual has timely paid installments of estimated tax in amounts that meet the exception in subsection (8)(A) of this rule.(G) Example: A farmer files an income tax return on February 15 of the succeeding year paying his/her total tax liability of five thousand dollars ($5,000) on that date. In this case, there is no underpayment of estimated tax since the filing of the return and full payment of the tax on or before March 1 of the succeeding year is considered as the farmer's declaration of estimated tax which was required to be filed by January 15 of the succeeding taxable year pursuant to section 143.521.6, RSMo. In the event that the farmer in this example had filed his/her declaration of estimated tax on or before January 15 of the succeeding year, s/he would have only been required to pay sixty-six and two-thirds percent (66 2/3%) of his/her total tax liability for the year on that date.(H) Example: An individual (other than a farmer) files an income tax return on February 15 of the succeeding year paying his/her total tax liability of five thousand dollars ($5,000) on that date. In this case, there is an underpayment of estimated tax. The individual has not paid any installments of estimated tax. Unless the individual meets one (1) of the exceptions in subsections (8)(A)-(D) of this rule, an addition to tax for failure to pay estimated tax will be imposed.(9) Example: The following example illustrates the application of the exception in subsection (8)(E) of this rule to the imposition of the addition to tax for an underpayment of estimated tax for a calendar year corporation. Assume that a corporation has eighty thousand dollars ($80,000) of Missouri taxable income from January through June, and one hundred thousand dollars ($100,000) of Missouri taxable income from January through August. Further assume that the corporate income tax rate is four percent (4%), and that the first two (2) installments for the year already meet the exception in subsection (8)(E) of this rule. The third installment payment must be at least four thousand fifty dollars ($4,050) for it to meet the exception in subsection (8)(E) of this rule, calculated as follows: The lesser of:
$80,000 x 12 = $960,000
$960,000 divided by 6 = $160,000
$160,000 x 4% = $6,400
$6,400 x 90% = $5,760
$5,760 x 75% = $4,320
or
$100,000 x 12 = $1,200,000
$1,200,000 divided by 8 = $150,000
$150,000 x 4% = $6,000
$6,000 x 90% = $5,400
$5,400 x 75% = $4,050.
(10) Statutory Changes Require Amended Installment. Taxpayers required to make a declaration of estimated tax shall make a recalculation of the installment due when there is a change in statute which affects the estimated liability and installments for their taxable period. Example: Assume Z Corporation had a state income tax estimated tax for its fiscal year beginning July 1, 1983, and ending June 30, 1984, based upon a Missouri taxable income of two million dollars ($2,000,000) with a tax of one hundred thousand dollars ($100,000) at the five percent (5%) tax rate then in effect. To avoid additions to tax, the former exception provided in section 143.761.4(2), RSMo, of eighty percent (80%) was used. Effective January 1, 1984, House Bill No. 10, First Extraordinary Session, 82nd General Assembly, increased the eighty percent (80%) to ninety percent (90%) for corporations. The taxpayer had paid two (2) installments of twenty thousand dollars ($20,000) a each prior to the change in statute. The calculation to determine the amount of the third and fourth installment would be as follows: (A) Missouri taxable income | $2,000,000; |
(B) Missouri tax (historical 5% rate) | $100,000; |
(C) Estimated tax after change of statute 90% X $100,000 | $90,000; |
(D) Amount required to be paid through 3 installments ($90,000 ÷ 4 X 3) | $67,500; |
(E) Amount paid first 2 installments ($20,000 X 2) | $40,000; |
(F) Amount of 3rd installment (line (D) minus (E)) and | $27,500; |
(G) Amount of 4th installment (line (C) X 1/4) | $22,500. |
If the corporation's estimated tax payment equals ninety percent (90%) of the amount due for the three (3) installments no additions to tax would be imposed with respect to the third installment. This same calculation method would apply to a calendar year situation when the statute was changed and applied during their taxable period.
(11) Determination of Taxable Income for Installment Periods. In determining the applicability of the exceptions in section 143.761.4(2) or (3), RSMo, there must be an accurate determination of the amount of income and deductions for the calendar months in the taxable year preceding the installment date as of which the determination is made. For example, if a taxpayer distributes year-end bonuses to its employees but does not determine the amount of the bonuses until the next to the last month of the taxable year, it may not deduct any portion of the year-end bonuses in determining the taxable income for any installment period other than the final installment period for the taxable year. If a taxpayer on an accrual method of accounting wishes to use either of the exceptions in section 143.761.4(2) or (3), RSMo, s/he must establish the amount of income and deductions for each applicable installment period. If income is derived from business in which the production, purchase, or sale of merchandise is an income-producing factor requiring the use of inventories, the taxpayer will be unable to determine accurately the amount of the taxable income for the applicable period unless there can be established, with reasonable accuracy, the cost of goods sold for the applicable installment period. Unless a more exact determination is available, the cost of goods sold for the period shall be determined based on the same proportion of the cost of goods sold during the entire taxable year as the ratio of gross receipts from the sales for the installment period to the gross receipts from the sale for the entire taxable year.(12) Members of Partnerships. In determining a partner's taxable income for the months in his/her taxable year which precede the month in which the installment date occurs, each partner shall take into account all items for any partnership taxable year ending with or within this taxable year to the extent that those items are attributable to months in the partnership taxable year which preceded the month in which the installment date occurs together with any guaranteed payments from the partnership to the extent that the guaranteed payments are includable in his/her taxable income for those months. The provisions of this section may be illustrated by the following examples.(A) A, who is an individual calendar year taxpayer, is a member of a partnership whose taxable year ends on January 31. A must take into account, in the determination of his/her taxable income for the installment due on April 15, 1984, all of his/her distributive share of partnership items and the amount of any guaranteed payments made to him/her which were deductible by the partnership in the partnership taxable year beginning on February 1, 1983, and ending on January 31, 1984.(B) Assume that the taxable year of the partnership of which A, a calendar year taxpayer, is a member ends on June 30. A must take into account, in the determination of his/her taxable income for the installment due on April 15, 1984, his/her distributive share of partnership items for the period July 1, 1983, through March 31, 1984; and for the installment due on June 15, 1984, s/he must take into account the amounts for the period July 1, 1983, through May 31, 1984; and for the installment due on September 15, 1984, s/he must take into account the amounts for the entire partnership taxable year of July 1, 1983, through June 30, 1984 (the date on which the partnership taxable year ends).(13) Beneficiaries of Estates and Trusts. In determining the applicability of the exceptions in subsections (8)(B) and (C) of this rule as of any installment date, the beneficiary of an estate or trust must take into account his/her distributable share of income from the estate or trust for the applicable period (whether or not actually distributed) if the trust or estate is required to distribute income to him/her currently. If the estate or trust is not required to distribute income currently, only the amounts actually distributed to the beneficiary during the period must be taken into account. If the taxable year of the beneficiary and the taxable year of the estate or trust are different, there shall be taken into account the beneficiary's distributable share of income, or the amount actually distributed to him/her, as the case may be, during the months in the taxable year of the estate or trust ending within the taxable year of the beneficiary which precedes the month in which the installment date occurs. This rule is similar to the rule that applies for a member of a partnership when a partner and a partnership of which s/he is a member have different taxable years. AUTHORITY: section 143.961, RSMo 1986.* Original rule filed Dec. 30, 1983, effective April 12, 1984. Amended by Missouri Register March 1, 2022/Volume 47, Number 5, effective 4/30/2022*Original authority: 143.961, RSMo 1972.