Who is subject to IRC 6655
IRC 6655 applies to C corporations, S corporations, private foundations (including those organized as trusts), tax-exempt organizations with unrelated business taxable income, and qualified settlement funds (IRM 20.1.3.4). An entity must make estimated payments if its tax shown on the return (income tax minus credits) is $500 or more; if no return is filed, the test is the tax for the year (IRM 20.1.3.4.1). The 2025 Form 2220 instructions repeat the exception: no penalty if the tax shown is less than $500.
Partnerships with foreign partners pay IRC 1446 withholding tax on a similar schedule, using Schedule A (Form 8804) to compute their penalty (IRM 20.1.3.4.1.7.2). Individuals, estates and trusts fall under IRC 6654 instead; see the individual estimated tax penalty.
The required annual payment
The corporation must pay the lesser of 100 percent of the current year's tax or 100 percent of the tax shown on the preceding year's return (IRM 20.1.3.4.1.1). Two limits on the prior-year test catch many clients:
- Zero prior-year tax. A prior-year return showing $0 cannot be used. The IRM cites Rev. Rul. 92-54 and gives the example of a corporation with a loss and zero tax in one year that must base the next year's installments on 100 percent of current-year tax.
- Short prior year. A prior year shorter than 12 months cannot be used, as in the IRM's example of a corporation organized in February that filed a short initial return.
The Form 2220 instructions add that an amended prior-year return counts for the prior-year test only if filed before the installment due date. The annualized income method and the adjusted seasonal method can reduce required installments when income is back-loaded; a corporation that wants different annualization periods must elect on Form 8842 by the due date of the first installment.
Large corporations
A large corporation is one that (or whose predecessor) had taxable income of $1,000,000 or more in any of the 3 preceding tax years, computed without NOL or capital loss carryovers and with short years annualized; members of a controlled group share the $1,000,000 equally unless they agree otherwise on Schedule O (IRM 20.1.3.4.1.1.7). A large corporation must pay 100 percent of current-year tax and may use prior-year tax “for only the first installment”. Any shortfall from using prior-year tax for the first installment must be recaptured in the second.
| IRM example | Amount |
|---|---|
| Prior-year tax / current-year tax | $400,000 / $600,000 |
| First installment based on prior year (25% of $400,000) | $100,000 |
| Regular installment based on current year (25% of $600,000) | $150,000 |
| Second installment: $150,000 plus the $50,000 shortfall | $200,000 |
Due dates and application of payments
Installments are due on the 15th day of the 4th, 6th, 9th and 12th months of the tax year: April 15, June 15, September 15 and December 15 for a calendar-year corporation. For private foundations and exempt organizations subject to unrelated business income tax, the first installment is due the 15th day of the 5th month (IRM 20.1.3.4.1.3).
Payments apply in received-date order to installments in the order they arise, and “There are no exceptions to this rule” (IRM 20.1.3.4.1.4). The Form 2220 instructions give the standard illustration: a corporation that underpaid April 15 by $1,000 and deposited $2,500 on June 10 has the April penalty run 56 days, and only $1,500 applies to June 15.
Deposit timing matters. Deposits post at the effective date reported by the bank, electronic transfers generally process one business day after they are requested, and all deposits after December 31, 2010 must be made electronically (IRM 20.1.3.4.1.7.3).
Computing the penalty
For each installment, the penalty is the underpayment times the number of days late times the rate. The rate is the IRC 6621 underpayment rate (federal short-term rate plus three points), set quarterly, and “NOT compounded daily” (IRM 20.1.3.4.1.6). The underpayment period runs from the installment due date to the earlier of payment or the 15th day of the 4th month after year end; the Form 2220 instructions substitute the 3rd month for C corporations with June 30 year ends and for S corporations, and the 5th month for Form 990-PF and 990-T filers (IRM 20.1.3.4.1.2 also notes the June 30 rule).
| Period | Underpayment rate |
|---|---|
| Rate periods on the 2025 Form 2220 | 7% |
| January to March 2026 | 7% |
| April to June 2026 | 6% |
| July to September 2026 | 7% |
| October to December 2026 | 7% |
Sources: 2025 Form 2220, Part IV; IRS quarterly interest rates page (IRB 2026-36). The penalty is based on the tax on the original return; a superseding return filed by the due date counts as the original, but an amended return or audit adjustment after the due date does not change the penalty (IRM 20.1.3.4.1.7). See IRS interest rates.
Form 2220
The IRS computes the penalty and bills it unless the corporation files Form 2220. The instructions require attaching Form 2220 when the Part I, line 3 amount is $500 or more and the corporation uses the adjusted seasonal installment method, the annualized income installment method, or is a large corporation basing its first installment on prior-year tax, and checking the box on Form 1120, page 1, line 34. The parts: Part I required annual payment; Part II reasons for filing; Part III underpayment by installment; Part IV penalty (IRM 20.1.3.4.1.7.1). The IRS verifies claimed payments and dates against the account and will not use a computation with a significant discrepancy.
Why abatement is rare, and what does change it
IRM 20.1.3.4.2 is blunt: “There is no provision in IRC 6655 that allows for removal of the penalty for reasonable cause, nor in the case of unusual circumstance.” The IRM adds that this holds even if the result seems inequitable. The penalty is adjusted after assessment only when:
- it was computed incorrectly;
- the amount or effective date of payments or credits changes;
- a superseding return is filed;
- an administrative or legislative waiver applies; or
- the IRS misapplied a payment or credit and the penalty would be against equity and good conscience.
For a misapplied payment, the IRS first moves the payment to where it belongs, and if that would create penalties elsewhere, explains and does not adjust. If a payment or credit was refunded in error, the IRS reapplies it when the refund was under $50,000; at $50,000 or more it leaves the penalty in place. IRM 20.1.3.2.7.2 says the corporate penalty generally does not qualify for a waiver, with very specific exceptions, and points to 2001, when part of the penalty could be waived for corporations affected by the terrorist attacks. The penalty is not subject to supervisory approval (IRC 6751(b)(2)) or to First Time Abate, and the general reasonable cause standard does not apply.
Because there is no reasonable cause relief, the practical work is in the computation: confirm payment effective dates on the transcript (see reading an account transcript), check whether the annualized or seasonal method lowers early installments, and confirm the prior-year test was available. A paid penalty that was computed wrong is recovered through a refund claim.
The CAMT waiver
Notice 2024-66 waives the IRC 6655 penalty to the extent an underpayment is attributable to the corporate alternative minimum tax for tax years beginning after December 31, 2023 and before January 1, 2025. The IRM says IRS computers do not apply this automatically, so a corporation may be billed unless it attaches Form 2220 with the waiver reflected (IRM 20.1.3.4.2.2). For tax years beginning in 2025, the 2025 Form 2220 instructions say the IRS will continue to waive the penalty for CAMT-related underpayments under Notice 2025-27; affected corporations must still file Form 2220, may exclude CAMT when computing the required annual payment, and must enter an estimated tax penalty amount on Form 1120, line 34, even if zero. Failing to do so “could result in affected corporations receiving a penalty notice that will require an abatement request to apply the relief.”
Questions practitioners ask
Can a corporation get the estimated tax penalty abated for reasonable cause?
No. IRM 20.1.3.4.2 says IRC 6655 has no provision for removal for reasonable cause or unusual circumstances. The penalty changes only for computation errors, payment changes, superseding returns, specific waivers, or IRS misapplication of payments.
My client had a loss last year. Can it base estimates on last year's tax?
No. A prior-year return showing zero tax cannot be used for the prior-year safe harbor, per IRM 20.1.3.4.1.1 and Rev. Rul. 92-54. Installments must be based on current-year tax or reduced through annualization.
When does a corporation count as large?
When it had taxable income of $1,000,000 or more in any of the three preceding tax years, determined without NOL or capital loss carryovers. A large corporation can use prior-year tax for its first installment only.
Does an amended return reduce the penalty?
Only a superseding return filed by the due date, including extensions. An amended return or audit change after the due date does not change the penalty, per IRM 20.1.3.4.1.7.
Do S corporations owe estimated tax?
IRM 20.1.3.4 lists S corporations among the entities IRC 6655 covers, subject to the same $500 threshold. The Form 2220 instructions end the underpayment period for S corporations on the 15th day of the 3rd month after year end instead of the 4th.
Does First Time Abate apply?
No. FTA covers only the failure-to-file, failure-to-pay and failure-to-deposit penalties listed in IRM 20.1.1.3.3.2.1.