Instructions For Form 1120-Pc - 2010 (Page 4 of 21) in pdf

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The annualized income or adjusted

Pub. 15 (Circular E), for details, including

As a general rule under section 843,

seasonal installment method is used, or

the definition of responsible persons.

the tax year for every insurance company

•

The corporation is a large corporation

is the calendar year. However, if an

Other penalties. Other penalties can be

computing its first required installment

insurance company joins in the filing of a

imposed for negligence, substantial

based on the prior year’s tax. See the

consolidated return, it may adopt the tax

understatement of tax, reportable

Instructions for Form 2220 for the

year of the common parent corporation

transaction understatements, and fraud.

definition of a large corporation.

even if that year is not a calendar year.

See sections 6662, 6662A, and 6663.

Also, see the instructions for line 15,

Rounding Off to Whole

Accounting Methods

Form 1120-PC.

Dollars

Figure taxable income using the method

Foreign insurance companies, see

of accounting regularly used in keeping

The corporation can round off cents to

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

the corporation’s books and records. In all

whole dollars on its return and schedules.

before computing estimated tax.

CAUTION

cases, the method used must clearly

If the corporation does round to whole

show taxable income. Permissible

dollars, it must round all amounts. To

Interest and Penalties

methods include cash, accrual, or any

round, drop amounts under 50 cents and

other method authorized by the Internal

increase amounts from 50 to 99 cents to

Interest. Interest is charged on taxes

Revenue Code.

the next dollar. For example, $1.39

paid late even if an extension of time to

becomes $1 and $2.50 becomes $3.

file is granted. Interest is also charged on

The gross amounts of underwriting

penalties imposed for failure to file,

If two or more amounts must be added

and investment income should be

negligence, fraud, substantial valuation

to figure the amount to enter on a line,

computed on the basis of the Statement

misstatements, substantial

include cents when adding the amounts

of Income of the NAIC annual statement

understatements of tax, and reportable

and round off only the total.

to the extent not inconsistent with the

transaction understatements from the due

Internal Revenue Code and its

Recordkeeping

date (including extensions) to the date of

Regulations. In all cases, the method

payment. The interest charge is figured at

used must clearly show taxable income.

Keep the corporation’s records for as long

a rate determined under section 6621.

as they may be needed for the

Change in accounting method.

Late filing of return. A corporation that

administration of any provision of the

Generally, the corporation must get IRS

does not file its tax return by the due date,

Internal Revenue Code. Usually, records

consent to change the method of

including extensions, may be penalized

that support an item of income, deduction,

accounting used to report taxable income

5% of the unpaid tax for each month or

or credit on the return must be kept for 3

(for income as a whole or for the

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

years from the date the return is due or

treatment of any material item). To do so,

maximum of 25% of the unpaid tax. The

filed, whichever is later. Keep records that

the corporation generally must file Form

minimum penalty for a return that is over

verify the corporation’s basis in property

3115, Application for Change in

60 days late is the smaller of the tax due

for as long as they are needed to figure

Accounting Method.

or $135. The penalty will not be imposed

the basis of the original or replacement

See Form 3115, the Instructions for

if the corporation can show that the failure

property.

Form 3115, and Pub. 538, Accounting

to file on time was due to reasonable

The corporation should keep copies of

Periods and Methods, for more

cause. Corporations that file late should

all filed returns. They help in preparing

information on accounting methods.

attach a statement explaining the

future and amended returns.

reasonable cause.

There are some instances when the

corporation can obtain automatic consent

Other Forms and

Late payment of tax. A corporation that

from the IRS to change to certain

does not pay the tax when due generally

Statements That May Be

accounting methods. See Rev. Proc.

may be penalized

of 1% of the unpaid

2008-52, 2008-36 I.R.B. 587, and Rev.

Required

tax for each month or part of a month the

Proc. 2009-39, 2009-38 I.R.B. 371. Also,

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

see the Instructions for Form 3115.

Reportable transaction disclosure

of the unpaid tax. The penalty will not be

statement. Disclose information for each

imposed if the corporation can show that

Safe harbor method of accounting for

reportable transaction in which the

the failure to pay on time was due to

premium acquisition expenses.

corporation participated. Form 8886,

reasonable cause.

Insurance companies subject to tax under

Reportable Transaction Disclosure

section 831 are provided with a safe

Trust fund recovery penalty. This

Statement, must be filed for each tax year

harbor method of accounting for premium

penalty may apply if certain excise,

that the federal income tax liability of the

acquisition expenses. Form 3115 must be

income, social security, and Medicare

corporation is affected by its participation

filed in order to change to the safe harbor

taxes that must be collected or withheld

in the transaction. The following are

method. For more information, see the

are not collected or withheld, or these

reportable transactions.

Instructions for Form 3115 and item 67 in

taxes are not paid. These taxes are

1. Any listed transaction, which is a

the List of Automatic Accounting Method

generally reported on:

transaction that is the same as or

Changes.

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Form 720, Quarterly Federal Excise

substantially similar to one of the types of

Application of section 833. The

Tax Return;

transactions that the IRS has determined

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Form 941, Employer’s QUARTERLY

application of section 833 in a tax year

to be a tax avoidance transaction and

Federal Tax Return;

followed by nonapplication of that section

identified by notice, regulation, or other

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Form 944, Employer’s ANNUAL

in a subsequent tax year (or vice versa)

published guidance as a listed

Federal Tax Return; or

may result in one or more changes in

transaction.

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Form 945, Annual Return of Withheld

accounting method. See section 3.08 of

2. Any transaction offered under

Federal Income Tax.

Notice 2010-79 for more information.

conditions of confidentiality for which the

The trust fund recovery penalty may

corporation (or a related party) paid an

Accounting Period

be imposed on all persons who are

advisor a fee of at least $250,000.

determined by the IRS to be responsible

An insurance company must figure its

3. Certain transactions for which the

for collecting, accounting for, and paying

taxable income on the basis of a tax year.

corporation (or a related party) has

over these taxes, and who acted willfully

A tax year is the annual accounting period

contractual protection against

in not doing so. The penalty is equal to

an insurance company uses to keep its

disallowance of the tax benefits.

the full amount of the unpaid trust fund

records and report its income and

4. Certain transactions resulting in a

tax. See the Instructions for Form 720 or

expenses.

loss of at least $10 million in any single

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Instructions for Form 1120-PC (2010)

Instructions For Form 1120-Pc - 2010 Page 4

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