Instructions For Form 1120-Pc - 2006 (Page 4 of 20) in pdf

Safe harbor method of accounting for

of the tax year. If any date falls on a

or $100. The penalty will not be imposed

premium acquisition expenses.

Saturday, Sunday, or legal holiday, the

if the corporation can show that the failure

Insurance companies subject to tax under

installment is due on the next regular

to file on time was due to reasonable

section 831 are provided with a safe

business day.

cause. Corporations that file late should

•

harbor method of accounting for premium

Use Form 1120-W, Estimated Tax for

attach a statement explaining the

Corporations, as a worksheet to compute

reasonable cause.

acquisition expenses. Form 3115 must be

estimated tax.

filed in order to change to the safe harbor

Late payment of tax. A corporation that

•

If the corporation does not use EFTPS,

method. For more information, see the

does not pay the tax when due generally

use the deposit coupons (Forms 8109) to

Instructions for Form 3115 and item 67 in

may be penalized

of 1% of the unpaid

make deposits of estimated tax.

the List of Automatic Accounting Method

tax for each month or part of a month the

•

Changes.

If the corporation overpaid estimated

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

tax, it may be able to get a quick refund

of the unpaid tax. The penalty will not be

Accounting Period

by filing Form 4466, Corporation

imposed if the corporation can show that

Application for Quick Refund of

An insurance company must figure its

the failure to pay on time was due to

Overpayment of Estimated Tax.

taxable income on the basis of a tax year.

reasonable cause.

See the instructions for lines 14c and

A tax year is the annual accounting period

Trust fund recovery penalty. This

14e, Form 1120-PC.

an insurance company uses to keep its

penalty may apply if certain excise,

records and report its income and

Estimated tax penalty. A corporation

income, social security, and Medicare

expenses.

that does not make estimated tax

taxes that must be collected or withheld

payments when due may be subject to an

As a general rule under section 843,

are not collected or withheld, or these

underpayment penalty for the period of

the tax year for every insurance company

taxes are not paid. These taxes are

underpayment. Generally, a corporation is

is the calendar year. However, if an

generally reported on:

•

subject to the penalty if its tax liability is

insurance company joins in the filing of a

Form 720, Quarterly Federal Excise

$500 or more and it did not timely pay the

consolidated return, it may adopt the tax

Tax Return;

•

smaller of:

year of the common parent corporation

Form 941, Employer’s QUARTERLY

•

Its tax liability for 2006 or

even if that year is not a calendar year.

Federal Tax Return; or

•

Its prior year’s tax.

Form 945, Annual Return of Withheld

Rounding Off to Whole

See section 6655 for details and

Federal Income Tax.

exceptions, including special rules for

Dollars

The trust fund recovery penalty may

large corporations.

be imposed on all persons who are

The corporation can round off cents to

Use Form 2220, Underpayment of

determined by the IRS to have been

whole dollars on its return and schedules.

Estimated Tax by Corporations, to see if

responsible for collecting, accounting for,

If the corporation does round to whole

the corporation owes a penalty and to

and paying over these taxes, and who

dollars, it must round all amounts. To

figure the amount of the penalty.

acted willfully in not doing so. The penalty

round, drop amounts under 50 cents and

Generally, the corporation does not have

is equal to the unpaid trust fund tax. See

increase amounts from 50 to 99 cents to

to file this form because the IRS can

the Instructions for Form 720 or Pub. 15

the next dollar. For example, $1.39

figure the amount of any penalty and bill

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

becomes $1 and $2.50 becomes $3.

the corporation for it. However, even if the

details, including the definition of

corporation does not owe the penalty,

If two or more amounts must be added

responsible persons.

complete and attach Form 2220 if:

to figure the amount to enter on a line,

•

Other penalties. Other penalties can be

The annualized income or adjusted

include cents when adding the amounts

imposed for negligence, substantial

seasonal installment method is used, or

and round off only the total.

•

understatement of tax, reportable

The corporation is a large corporation

transaction understatements, and fraud.

Recordkeeping

computing its first required installment

See sections 6662, 6662A, and 6663.

based on the prior year’s tax. See the

Keep the corporation’s records for as long

Instructions for Form 2220 for the

as they may be needed for the

Accounting Methods

definition of a large corporation.

administration of any provision of the

Also, see the instructions for line 15,

Figure taxable income using the method

Internal Revenue Code. Usually, records

Form 1120-PC.

of accounting regularly used in keeping

that support an item of income, deduction,

the corporation’s books and records. In all

or credit on the return must be kept for 3

Foreign insurance companies, see

cases, the method used must clearly

years from the date the return is due or

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

show taxable income. Permissible

filed, whichever is later. Keep records that

before computing estimated tax.

CAUTION

methods include cash, accrual, or any

verify the corporation’s basis in property

other method authorized by the Internal

Interest and Penalties

for as long as they are needed to figure

Revenue Code.

the basis of the original or replacement

Interest. Interest is charged on taxes

property.

The gross amounts of underwriting

paid late even if an extension of time to

and investment income should be

The corporation should keep copies of

file is granted. Interest is also charged on

computed on the basis of the Statement

all filed returns. They help in preparing

penalties imposed for failure to file,

of Income of the NAIC annual statement

future and amended returns.

negligence, fraud, substantial valuation

to the extent not inconsistent with the

misstatements, substantial

Other Forms and

Internal Revenue Code and its

understatements of tax, and reportable

Regulations. In all cases, the method

Statements That May Be

transaction understatements from the due

used must clearly show taxable income.

date (including extensions) to the date of

Required

Change in accounting method. To

payment. The interest charge is figured at

change the method of accounting used to

a rate determined under section 6621.

Reportable transaction disclosure

report taxable income (for income as a

Late filing of return. A corporation that

statement. Disclose information for each

whole or for the treatment of any material

does not file its tax return by the due date,

reportable transaction in which the

item), the corporation must file Form

including extensions, may be penalized

corporation participated. Form 8886,

3115, Application for Change in

5% of the unpaid tax for each month or

Reportable Transaction Disclosure

Accounting Method.

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

Statement, must be filed for each tax year

maximum of 25% of the unpaid tax. The

See Form 3115 and Pub. 538,

that the federal income tax liability of the

minimum penalty for a return that is over

Accounting Periods and Methods, for

corporation is affected by its participation

60 days late is the smaller of the tax due

more information on accounting methods.

in the transaction. The corporation may

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Instructions for Form 1120-PC

Instructions For Form 1120-Pc - 2006 Page 4

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