Instructions For Form 1120-Pc - 2008 (Page 4 of 20) in pdf

underpayment penalty for the period of

taxes are not paid. These taxes are

Accounting Period

underpayment. Generally, a corporation is

generally reported on:

•

An insurance company must figure its

subject to the penalty if its tax liability is

Form 720, Quarterly Federal Excise

taxable income on the basis of a tax year.

$500 or more and it did not timely pay the

Tax Return;

•

A tax year is the annual accounting period

smaller of:

Form 941, Employer’s QUARTERLY

•

an insurance company uses to keep its

Its tax liability for 2008 or

Federal Tax Return; or

•

records and report its income and

Its prior year’s tax.

Form 945, Annual Return of Withheld

expenses.

See section 6655 for details and

Federal Income Tax.

exceptions, including special rules for

The trust fund recovery penalty may

As a general rule under section 843,

large corporations.

be imposed on all persons who are

the tax year for every insurance company

Use Form 2220, Underpayment of

determined by the IRS to have been

is the calendar year. However, if an

Estimated Tax by Corporations, to see if

responsible for collecting, accounting for,

insurance company joins in the filing of a

the corporation owes a penalty and to

and paying over these taxes, and who

consolidated return, it may adopt the tax

figure the amount of the penalty.

acted willfully in not doing so. The penalty

year of the common parent corporation

Generally, the corporation does not have

is equal to the unpaid trust fund tax. See

even if that year is not a calendar year.

to file this form because the IRS can

the Instructions for Form 720 or Pub. 15

figure the amount of any penalty and bill

(Circular E), Employer’s Tax Guide, for

Rounding Off To Whole

the corporation for it. However, even if the

details, including the definition of

corporation does not owe the penalty,

Dollars

responsible persons.

complete and attach Form 2220 if:

Other penalties. Other penalties can be

The corporation can round off cents to

•

The annualized income or adjusted

imposed for negligence, substantial

whole dollars on its return and schedules.

seasonal installment method is used, or

understatement of tax, reportable

If the corporation does round to whole

•

The corporation is a large corporation

transaction understatements, and fraud.

dollars, it must round all amounts. To

computing its first required installment

See sections 6662, 6662A, and 6663.

round, drop amounts under 50 cents and

based on the prior year’s tax. See the

increase amounts from 50 to 99 cents to

Instructions for Form 2220 for the

Accounting Methods

the next dollar. For example, $1.39

definition of a large corporation.

becomes $1 and $2.50 becomes $3.

Also, see the instructions for line 15,

Figure taxable income using the method

Form 1120-PC.

of accounting regularly used in keeping

If two or more amounts must be added

the corporation’s books and records. In all

to figure the amount to enter on a line,

Foreign insurance companies, see

cases, the method used must clearly

include cents when adding the amounts

Notice 90-13, 1990-1 C.B. 321,

show taxable income. Permissible

and round off only the total.

before computing estimated tax.

CAUTION

methods include cash, accrual, or any

other method authorized by the Internal

Recordkeeping

Interest and Penalties

Revenue Code.

Keep the corporation’s records for as long

Interest. Interest is charged on taxes

The gross amounts of underwriting

as they may be needed for the

paid late even if an extension of time to

and investment income should be

administration of any provision of the

file is granted. Interest is also charged on

computed on the basis of the Statement

Internal Revenue Code. Usually, records

penalties imposed for failure to file,

of Income of the NAIC annual statement

that support an item of income, deduction,

negligence, fraud, substantial valuation

to the extent not inconsistent with the

or credit on the return must be kept for 3

misstatements, substantial

Internal Revenue Code and its

years from the date the return is due or

understatements of tax, and reportable

Regulations. In all cases, the method

filed, whichever is later. Keep records that

transaction understatements from the due

used must clearly show taxable income.

verify the corporation’s basis in property

date (including extensions) to the date of

Change in accounting method.

for as long as they are needed to figure

payment. The interest charge is figured at

Generally, the corporation must get IRS

the basis of the original or replacement

a rate determined under section 6621.

consent to change the method of

property.

Late filing of return. A corporation that

accounting used to report taxable income

does not file its tax return by the due date,

The corporation should keep copies of

(for income as a whole or for the

including extensions, may be penalized

all filed returns. They help in preparing

treatment of any material item). To do so,

5% of the unpaid tax for each month or

future and amended returns.

the corporation generally must file Form

part of a month the return is late, up to a

3115, Application for Change in

maximum of 25% of the unpaid tax. The

Other Forms and

Accounting Method.

minimum penalty for a return that is over

See Form 3115 and Pub. 538,

Statements That May Be

60 days late is the smaller of the tax due

Accounting Periods and Methods, for

or $135. The penalty will not be imposed

Required

more information on accounting methods.

if the corporation can show that the failure

to file on time was due to reasonable

There are some instances when the

Reportable transaction disclosure

cause. Corporations that file late should

corporation can obtain automatic consent

statement. Disclose information for each

attach a statement explaining the

from the IRS to change to certain

reportable transaction in which the

reasonable cause.

accounting methods. See Rev. Proc.

corporation participated. Form 8886,

2008-52, 2008-36 I.R.B. 587, as modified

Late payment of tax. A corporation that

Reportable Transaction Disclosure

by Announcement 2008-84, 2008-38

does not pay the tax when due generally

Statement, must be filed for each tax year

I.R.B. 748.

may be penalized

of 1% of the unpaid

that the federal income tax liability of the

tax for each month or part of a month the

corporation is affected by its participation

Safe harbor method of accounting for

tax is not paid, up to a maximum of 25%

in the transaction. The following are

premium acquisition expenses.

of the unpaid tax. The penalty will not be

reportable transactions.

Insurance companies subject to tax under

imposed if the corporation can show that

section 831 are provided with a safe

1. Any listed transaction, which is a

the failure to pay on time was due to

harbor method of accounting for premium

transaction that is the same as or

reasonable cause.

acquisition expenses. Form 3115 must be

substantially similar to tax avoidance

Trust fund recovery penalty. This

filed in order to change to the safe harbor

transactions identified by the IRS.

penalty may apply if certain excise,

method. For more information, see the

2. Any transaction offered under

income, social security, and Medicare

Instructions for Form 3115 and item 67 in

conditions of confidentiality for which the

taxes that must be collected or withheld

the List of Automatic Accounting Method

corporation paid an advisor a fee of at

are not collected or withheld, or these

Changes.

least $250,000.

-4-

Instructions for Form 1120-PC

Instructions For Form 1120-Pc - 2008 Page 4

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