Underpayment of Estimated Tax by Corporations

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Instructions for Form 2220

12:32 - 16-MAR-2006

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2005

Department of the Treasury
Internal Revenue Service

Instructions for Form 2220
Underpayment of Estimated Tax by Corporations
Section references are to the Internal Revenue Code unless otherwise noted.

General Instructions
What’s New
For corporations affected by Presidentially declared
disasters relating to Hurricanes Katrina, Rita, and Wilma,
the due dates for certain required installments of
estimated tax were extended to February 28, 2006. For
certain corporations affected by Hurricane Katrina, this
extended due date was further extended to August 28,
2006. See Hurricane Relief on this page.

Purpose of Form
Corporations (including S corporations), tax-exempt
organizations subject to the unrelated business income
tax (tax-exempt organizations), and private foundations
use Form 2220 to determine:
• Whether they are subject to the penalty for
underpayment of estimated tax and, if so,
• The amount of the underpayment penalty.

Who Must File
Generally, the corporation does not have to file this form
with its income tax return because the IRS will figure the
amount of any penalty and notify the corporation of any
amount due. However, even if the corporation does not
owe a penalty, complete and attach this form to the
corporation’s tax return if the Part I, line 3 amount on
page 1 is $500 or more and any of the following apply.
1. The adjusted seasonal installment method is used.
2. The annualized income installment method is used.
3. The corporation is a large corporation (as defined in
the instructions for Part II, line 8, on page 3) figuring its
first required installment based on the prior year’s tax.

Who Must Pay the Underpayment
Penalty
Generally, a corporation is subject to the penalty if it did
not timely pay at least the smaller of:
1. The tax shown on its 2005 return, or
2. The tax shown on its 2004 return (if it filed a 2004
return showing at least some amount of tax and the
return was for a full 12 months). However, a large
corporation can base only its first required installment on
the prior year’s tax.

In these instructions, “return” generally refers to
TIP the corporation’s original return. However, an
amended return is considered the original return if
the amended return is filed by the due date (including
extensions) of the original return.
The penalty is figured separately for each installment
due date. Therefore, the corporation may owe a penalty
for an earlier due date even if it paid enough tax later to
make up the underpayment. This is true even if the
corporation is due a refund when its return is filed.
However, the corporation may be able to reduce or
eliminate the penalty by using the annualized income
installment method or the adjusted seasonal installment
method. See the Part II instructions for details.

Exception to the Penalty
A corporation will not have to pay a penalty if the tax
shown on the corporation’s 2005 return (the Part I, line 3
amount) is less than $500.

How To Use Form 2220

• Complete lines 1 through 3 of Part I. If line 3 is $500 or
more, complete the rest of Part I to determine the
required annual payment and go to Part II.
• Check one or more boxes in Part II if the corporation
uses the adjusted seasonal installment method, the
annualized income installment method, or if the
corporation is a large corporation.
If the corporation checked a box in Part II, attach
Form 2220 to the income tax return. Be sure to check the
box on line 33, page 1, of Form 1120; line 29 of Form
1120-A; or the comparable line of any other income tax
return the corporation is required to file (for example,
Form 990-C, 1120-L, 1120S, etc.).
• Complete Part III to determine the underpayment for
any of the installment due dates.
• If there is an underpayment in Part III on line 17
(column (a), (b), (c), or (d)), go to Part IV to figure the
penalty.
• Complete Schedule A if the corporation uses the
adjusted seasonal installment method and/or the
annualized income installment method.

Hurricane Relief
Corporations affected by Presidentially declared
disasters relating to Hurricanes Katrina, Rita, and Wilma
are eligible for relief as described below. Also see the
instructions for line 9 in Part III.
Relief extension through February 28, 2006. For some
corporations affected by Hurricane Katrina, the due date

Cat. No. 64293P

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Instructions for Form 2220

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for any required installment of estimated tax originally
due after August 28, 2005 (after August 23, 2005 for an
affected corporation in Florida), and before February 28,
2006, is extended until February 28, 2006.

Line 1. Generally, enter the tax from line 31, Form 1120;
line 27, Form 1120-A; or the applicable line for other
income tax returns. However, if that amount includes any
tax attributable to a sale described in section 338(a)(1),
do not include that tax on line 1. Instead, write “Sec. 338
gain” and show the amount of tax in brackets on the
dotted line next to line 1. This exclusion from the line 1
amount does not apply if a section 338(h)(10) election is
made.

For corporations affected by Hurricane Rita, the due
date for any required installment of estimated tax
originally due after September 22, 2005, and before
February 28, 2006, is extended until February 28, 2006.
For corporations affected by Hurricane Wilma, the due
date for any required installment of estimated tax
originally due after October 22, 2005, and before
February 28, 2006, is extended until February 28, 2006.

Note. For information on how to figure the total tax for
estimated tax purposes, see the following forms or their
instructions.

Identify an affected corporation eligible for relief
extension through February 28, 2006, by writing
“Hurricane Katrina,” “Hurricane Rita,” or “Hurricane
Wilma” in red ink at the top of the corporation’s income
tax return and Form 2220, if required to be filed.
Corporations eligible for relief extension through
February 28, 2006, are described in detail in IRS News
Releases IR-2005-112, IR-2005-110, and IR-2005-128,
respectively. IRS news releases are available at
www.irs.gov. See also Pub. 4492 for more information.

•

•

•

•

•

•

990-C
990-PF
• 990-T
• 1120-F

1120-FSC
1120-L
• 1120-ND
• 1120-PC

1120-REIT
1120-RIC
• 1120S
• 1120-SF

Line 2c. Enter the amount from line 32f(2), Form 1120;
line 28f(2), Form 1120-A; or the applicable line for other
income tax returns.
Line 4. All filers (other than S corporations). Figure
the corporation’s 2004 tax the same way the amount on
line 3 of this form was determined, using the taxes and
credits from its 2004 tax return. However, skip line 4 and
enter on line 5 the amount from line 3 if either of the
following applies.
• The corporation did not file a tax return for 2004 that
showed a liability for at least some amount of tax.
• The corporation had a 2004 tax year of less than 12
months.

Relief extension through August 28, 2006, for certain
corporations. For certain corporations affected by
Hurricane Katrina, the due date for any required
installment of estimated tax originally due after August
28, 2005, and before August 28, 2006, is extended until
August 28, 2006.
Identify an affected corporation eligible for relief
extension through August 28, 2006, by writing “Hurricane
Katrina” in red ink at the top of the corporation’s income
tax return and Form 2220, if required to be filed.
Corporations eligible for relief extension through August
28, 2006, are described in detail in Notice 2006-20, which
is available at www.irs.gov/pub/irs-irb/irb06-10.pdf.

S corporations. Enter on line 4 the sum of:
1. The total of the investment credit recapture tax and
the built-in gains tax shown on the return for the 2005 tax
year and
2. Any excess net passive income tax shown on the S
corporation’s return for the 2004 tax year.

A corporation with a 2005 tax year ending on or before
May 31, 2006, that is eligible for relief extension through
August 28, 2006, will not owe any underpayment penalty
for any required installments with an extended due date
of August 28, 2006, and should not complete Form 2220
to figure a penalty for those installments.

If the 2004 tax year was less than 12 months, skip
line 4 and enter on line 5 the amount from line 3.

Part II. Reasons for Filing

The IRS may also postpone the estimated tax
TIP payment due dates of corporations affected by
other disasters resulting in Presidential disaster
declarations. If any estimated tax payment due date is
postponed, the IRS will publicize the postponement in the
affected area and publish a news release, revenue ruling,
revenue procedure, notice, announcement, or other
guidance in the Internal Revenue Bulletin, which is
available at www.irs.gov/irb.

Lines 6 and 7. Adjusted seasonal installment method
and/or annualized income installment method. If the
corporation’s income varied during the year because, for
example, it operated its business on a seasonal basis, it
may be able to lower or eliminate the amount of one or
more required installments by using the adjusted
seasonal installment method and/or the annualized
income installment method.
Example. A ski shop, which receives most of its
income during the winter months, may benefit from using
one or both of these methods to figure its required
installments. The annualized income installment or
adjusted seasonal installment may be less than the
required installment under the regular method for one or
more due dates. Using one or both of these methods
may reduce or eliminate the penalty for those due dates.

Specific Instructions
Part I. Required Annual Payment
Complete lines 1 through 5 to figure the corporation’s
required annual payment.
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Instructions for Form 2220

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Use Schedule A on pages 3 and 4 of Form 2220 to
figure one or more required installments. If Schedule A is
used for any payment due date, it must be used for all
payment due dates. To arrive at the amount of each
required installment, Schedule A automatically selects
the smallest of:
• The adjusted seasonal installment (if applicable),
• The annualized income installment (if applicable), or
• The regular installment under section 6655(d)(1)
(increased by any recapture of a reduction in a required
installment under section 6655(e)(1)(B)).

For each installment with an extended due date of
February 28, 2006, enter 2/28/06 on line 9 instead of the
original due date. If two columns have the same due
date, skip lines 10 through 33 of the first of those two
columns. On lines 10 and 11 for the second of those two
columns, enter the sum of the amounts that would have
otherwise been entered for those two columns. On lines
12 and 14, ignore the skipped column and use the
amounts from the preceding column (if any). If three
columns have the same due date, skip lines 10 through
33 of the first two of those three columns. On lines 10
and 11 for the third of those three columns, enter the sum
of the amounts that would have otherwise been entered
for those three columns.
Corporations eligible for relief through August 28,
2006. For certain corporations affected by Hurricane
Katrina, the due date is August 28, 2006, for any required
installments originally due after August 28, 2005, and
before August 28, 2006. However, there is no
underpayment penalty for installments with an extended
due date of August 28, 2006, under certain
circumstances. See Relief extension through August 28,
2006, for certain corporations, under Hurricane Relief, on
page 2.

Follow the steps below to determine which parts of the
form have to be completed.
• If the corporation is using only the adjusted seasonal
installment method, check the box in Part II on line 6 and
complete Parts I and III of Schedule A.
• If the corporation is using only the annualized income
installment method, check the box in Part II on line 7 and
complete Parts II and III of Schedule A.
• If the corporation is using both methods, check the
boxes in Part II on lines 6 and 7 and complete all three
parts of Schedule A.
Line 8. Large corporations. A large corporation is a
corporation (other than an S corporation) that had, or
whose predecessor had, taxable income (defined below)
of $1 million or more for any of the 3 tax years
immediately preceding the 2005 tax year. A large
corporation includes a “large organization” as defined in
the instructions for Form 990-W.

For each installment with an extended due date of
August 28, 2006, enter 8/28/06 on line 9 instead of the
original due date. If three columns have the same due
date, see the instructions above under Corporations
eligible for relief through February 28, 2006. If four
columns have the same due date, skip lines 10 through
33 of the first three of those four columns. On lines 10
and 11 for the fourth of those four columns, enter the
sum of the amounts that would have otherwise been
entered for those four columns.
Line 10. If multiple columns have the same due date,
see the instructions for line 9. Large corporations, follow
the instructions below.
1. If the box on line 8 (but not line 6 or line 7) is
checked and line 3 is smaller than line 4, enter 25% of
line 3 in columns (a) through (d) of line 10.
2. If the box on line 8 (but not line 6 or line 7) is
checked and line 4 is smaller than line 3, enter 25% of
line 4 in column (a) of line 10. In column (b), figure the
amount to enter as follows:
a. Subtract line 4 from line 3,
b. Add the result to the amount on line 3, and
c. Multiply the total in item b above by 25%, and enter
the result in column (b).
In columns (c) and (d), enter 25% of line 3.
3. If the box on line 8 and the box on line 6 and/or line
7 are checked, follow the instructions in items 1 and 2
above by substituting Schedule A, line 35 for line 10 and
complete the rest of Schedule A, Part III.

Taxable income, for this purpose, is modified to
exclude net operating loss and capital loss carrybacks
and carryovers. Members of a controlled group, as
defined in section 1563, must divide the $1 million
amount among themselves under rules similar to those in
section 1561.
If the corporation is a large corporation, check the box
in Part II on line 8 and, if applicable, check the box(es) in
Part II on line 6 and/or line 7. Also, if applicable, complete
Parts I, II, and III of Schedule A, as discussed on page 2.

Part III. Figuring the Underpayment
Line 9. The corporation is generally required to enter the
15th day of the 4th (Form 990-PF filers —use the 5th
month), 6th, 9th, and 12th months of its tax year.
Corporations eligible for relief through February
28, 2006. The due date is February 28, 2006, for any of
the following required installments.
• For some corporations affected by Hurricane Katrina,
installments originally due after August 28, 2005 (after
August 23, 2005, for an affected corporation in Florida),
and before February 28, 2006.
• For corporations affected by Hurricane Rita,
installments originally due after September 22, 2005, and
before February 28, 2006.
• For corporations affected by Hurricane Wilma,
installments originally due after October 22, 2005, and
before February 28, 2006.
See Relief extension through February 28, 2006, under
Hurricane Relief, on page 1.

Line 11. Enter the estimated tax payments made by the
corporation for its tax year as indicated below. Include
any overpayment from the corporation’s 2004 tax return
that was credited to the corporation’s 2005 estimated tax.
If an installment is due on a Saturday, Sunday, or legal
holiday, payments made on the next day that is not a
Saturday, Sunday, or legal holiday are considered made
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Instructions for Form 2220

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on the due date to the extent the payment is applied
against that required installment. If multiple columns have
the same due date, see the instructions for line 9.
Column (a). Enter payments made by the date on
line 9, column (a).
Columns (b), (c), and (d). Enter payments made by
the date on line 9 for that column and after the date on
line 9 of the preceding column.
Line 17. If any of the columns in line 17 shows an
underpayment, complete Part IV to figure the penalty.

taxable income for each May –October period in 2002,
2003, and 2004. It then divides the taxable income for
each May –October period by the total taxable income for
that particular tax year. The resulting percentages are:
69% (.69) for May –October 2002, 74% (.74) for
May –October 2003, and 67% (.67) for May –October
2004. Because the average of 69%, 74%, and 67% is
70%, the base period percentage for May through
October 2005 is 70%. Therefore, the amusement park
qualifies for the adjusted seasonal installment method.
Line 15. Compute the alternative minimum tax (AMT) on
Form 4626, Alternative Minimum Tax-Corporations, if
applicable. Figure alternative minimum taxable income
(AMTI) based on the corporation’s income and
deductions for the months shown in the column headings
directly above line 1. For each column, divide the AMTI
by the amount shown on line 8 before subtracting the
AMT exemption amount under section 55(d). Enter on
line 15, column (d), the AMT determined for column (d).
For columns (a) through (c) only, first multiply the AMT
determined by the amounts shown in columns (a)
through (c) of line 13 and then enter on line 15 the result
for each column.

Part IV. Figuring the Penalty
Complete lines 19 through 34 to determine the amount of
the penalty. The penalty is figured for the period of
underpayment using the underpayment rate determined
under section 6621(a)(2). The period of underpayment
runs from the installment due date to the earlier of the
date the underpayment is actually paid or the 15th day of
the third month after the close of the 2005 tax year. For
information on obtaining the interest rate on
underpayments paid after March 31, 2006, see the
footnote on page 2 of Form 2220.
Line 19. A payment of estimated tax is applied against
unpaid required installments in the order in which
installments are required to be paid, regardless of the
installment to which the payment pertains.

Line 16. Enter on line 16 any other taxes the corporation
owed for the months shown in each column heading
directly above line 1. Include the same taxes used to
figure Part I, line 1 of Form 2220, but do not include the
personal holding company tax and interest due under the
look-back method of section 460(b)(2) for completed
long-term contracts or section 167(g)(2) for property
depreciated under the income forecast method.

Example. A corporation underpaid the April 15
installment by $1,000. The June 15 installment requires a
payment of $2,500. On June 10, the corporation deposits
$2,500 to cover the June 15 installment. However,
$1,000 of this payment is applied against the April 15
installment. The penalty for the April 15 installment is
figured from April 15 to June 10 (56 days). The remaining
$1,500 is applied to the June 15 installment.
If the corporation has made more than one payment
for a required installment, attach a separate computation
for each payment.

Line 18. Enter the credits the corporation is entitled to
for the months shown in each column heading above line
1.

Part II. Annualized Income Installment
Method
Line 20. Annualization periods. Enter on line 20,
columns (a) through (d), respectively, the annualization
periods for the option shown in the tables below. For
example, if the corporation elected Option 1, enter on line
20 the annualization periods 2, 4, 7, and 10, in columns
(a) through (d), respectively.

Schedule A
Part I. Adjusted Seasonal Installment
Method
The corporation can use the adjusted seasonal
installment method only if the corporation’s base period
percentage for any 6 consecutive months of the tax year
is 70% or more. The base period percentage for any
period of 6 consecutive months is the average of the 3
percentages figured by dividing the taxable income for
the corresponding 6-consecutive-month period in each of
the 3 preceding tax years by the total taxable income for
each of the 3 preceding tax years, respectively. Figure
the base period percentage using the 6-month period in
which the corporation normally receives the largest part
of its taxable income.

Use Option 1 or Option 2 only if the corporation
elected to do so by filing Form 8842, Election To
CAUTION Use Different Annualization Periods for Corporate
Estimated Tax, by the due date of the first required
installment payment. Once made, the election is
irrevocable for the particular tax year.

!

Option 2 is not available to tax-exempt organizations
and private foundations. See the options shown in the
table below for these entities.
Corporations
1st
2nd
3rd
4th
Installment Installment Installment Installment

Example. An amusement park with a 2005
calendar tax year receives the largest part of its taxable
income during the 6-month period from May through
October. To compute its base period percentage for this
6-month period in 2005, the amusement park figures its
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Standard option

3

3

6

9

Option 1

2

4

7

10

Option 2

3

5

8

11

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Instructions for Form 2220

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Line 28. Enter the credits the corporation is entitled to
for the months shown in each column on line 20. Do not
annualize any credit. However, when figuring the credits,
annualize any item of income or deduction used to figure
the credit.

Tax-Exempt Organizations and Private Foundations
1st
2nd
3rd
4th
Installment Installment Installment Installment

Standard option

2

3

6

9

Option 1

2

4

7

10

Part III. Required Installments

Line 21. Enter on line 21 the taxable income (line 30,
Form 1120; line 26, Form 1120-A; or the applicable line
for other income tax returns) that the corporation
received for the months entered for each annualization
period in columns (a) through (d) on line 20.
Line 22. Annualization amounts. Enter on line 22,
columns (a) through (d), respectively, the annualization
amounts shown in the tables below for the option used
for line 20 above. For example, if the corporation elected
Option 1, enter on line 22 the annualization amounts 6, 3,
1.71429, and 1.2, in columns (a) through (d),
respectively.

Line 33. Before completing line 33 in columns (b)
through (d), complete lines 34 through 38 in each of the
preceding columns. For example, complete lines 34
through 38 in column (a) before completing line 33 in
column (b).
Line 38. For each installment, enter the smaller of line
34 or line 37 on line 38. Also enter the result on line 10,
page 1.
Paperwork Reduction Act Notice. We ask for the
information on this form to carry out the Internal Revenue
laws of the United States. You are required to give us the
information. We need it to ensure that you are complying
with these laws and to allow us to figure and collect the
right amount of tax.
You are not required to provide the information
requested on a form that is subject to the Paperwork
Reduction Act unless the form displays a valid OMB
control number. Books or records relating to a form or its
instructions must be retained as long as their contents
can become material in the administration of any Internal
Revenue law. Generally, tax returns and return
information are confidential, as required by section 6103.
The time needed to complete and file this form will
vary depending on individual circumstances. The
estimated average time is:

Corporations
1st
2nd
3rd
4th
Installment Installment Installment Installment

Standard option

4

4

2

Option 1

6

3

1.71429

1.2

Option 2

4

2.4

1.5

1.09091

1.33333

Tax-Exempt Organizations and Private Foundations
1st
2nd
3rd
4th
Installment Installment Installment Installment

Standard option

6

4

2

Option 1

6

3

1.71429

1.33333
1.2

Line 25. Compute the alternative minimum tax (AMT) on
Form 4626, if applicable. Figure alternative minimum
taxable income (AMTI) based on the corporation’s
income and deductions for the annualization period
entered in each column on line 20. Multiply AMTI by the
annualization amounts (line 22) used to figure annualized
taxable income before subtracting the AMT exemption
amount under section 55(d). Enter on line 25 the result
for each column.
Line 26. Enter any other taxes the corporation owed for
the months shown in each column on line 20. Include the
same taxes used to figure Part I, line 1 of Form 2220, but
do not include the personal holding company tax and
interest due under the look-back method of section
460(b)(2) for completed long-term contracts or section
167(g)(2) for property depreciated under the income
forecast method.

Form
2220
2220, Schedule A, Part I
2220, Schedule A, Part II
2220, Schedule A, Part III

Recordkeeping

Learning
Preparing and
about the law
sending the
or the form form to the IRS

30 hr., 51 min. 1 hr., 5 min.
22 hr., 43 min.
— —
10 hr., 31 min.
18 min.
6 hr., 13 min.
— —

1 hr., 38 min.
22 min.
28 min.
6 min.

If you have comments concerning the accuracy of
these time estimates or suggestions for making this form
simpler, we would be happy to hear from you. See the
instructions for the tax return with which this form is filed.

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