IRS Provides Penalty Relief for Estimated Tax Underpayments to Farmers and Fishermen

(Parker Tax Publishing April 2022)

The IRS announced that is providing a waiver of the addition to tax under Code Sec. 6654 for underpayments of estimated income tax for the 2021 tax year by individuals who qualify as farmers and fishermen under Code Sec. 6654(i). The IRS stated that, because some qualifying farmers and fishermen have been unable to electronically file Form 7203, S Corporation Shareholder Stock and Debt Basis Limitations, the penalty under Code Sec. 6654 for failing to make an estimated tax payment will be waived for any qualifying farmer or fisherman who files a 2021 tax return and pays in full any tax due on the return by April 18, 2022 (April 19, 2022, for taxpayers who live in Maine or Massachusetts). Notice 2022-13.

Background

Code Sec. 6654 generally provides that, in the case of an individual taxpayer, estimated income tax is required to be paid in four installments, each of which is 25 percent of the required annual payment. An individual taxpayer who fails to make a sufficient and timely payment of estimated income tax generally is liable for an addition to tax under Code Sec. 6654(a).

However, special rules may apply in the case of an individual taxpayer who is a farmer or fisherman and satisfies the requirements of Code Sec. 6654(i) for a tax year (i.e., a qualifying farmer or fisherman). Under Code Sec. 6654(i)(1), a qualifying farmer or fisherman has only one required installment payment (instead of four quarterly payments) due on January 15 of the year following the tax year if at least two-thirds of the taxpayer's total gross income was from farming or fishing in either the tax year or the preceding tax year. For a qualifying farmer or fisherman who does not make the required estimated tax installment payment by January 15 of the year following the tax year, Code Sec. 6654(i)(1)(D) provides that the taxpayer is not subject to an addition to tax for failing to pay estimated income tax if the taxpayer files the return for the tax year and pays the full amount of tax reported on the return by March 1 of the year following the tax year. Under Code Sec. 6654(e)(3)(A), the IRS may waive the Code Sec. 6654 addition to tax for an underpayment of estimated tax in unusual circumstances to the extent its imposition would be against equity and good conscience.

According to the IRS, some qualifying farmers and fishermen have been unable to electronically file Form 7203, S Corporation Shareholder Stock and Debt Basis Limitations, which may be required to be included in their federal income tax returns for tax year 2021. The IRS stated that, due to this inability, farmers and fishermen may have had difficulty filing their 2021 tax returns electronically by the March 1, 2022, due date. Accordingly, the IRS has determined it is appropriate to waive certain penalties for qualifying farmers and fishermen due to these unusual circumstances.

Notice 2022-13

On March 15, the IRS issued Notice 2022-13 to announce that it is providing a waiver of the addition to tax under Code Sec. 6654 for failure to make an estimated tax payment for the 2021 tax year for any taxpayer who (1) is a qualifying farmer or fisherman for the 2021 tax year, and (2) files a 2021 tax return and pays in full any tax due on the return by April 18, 2022, or, for those taxpayers who live in Maine or Massachusetts, by April 19, 2022.

The waiver provided in Notice 2022-13 applies automatically to any qualifying taxpayer who does not report an addition to tax under Code Sec. 6654 on the 2021 tax return. Taxpayers who otherwise satisfy the criteria for relief under Notice 2022-13, but already filed a return and reported an addition to tax under Code Sec. 6654, may request an abatement of the addition to tax by filing Form 843, Claim for Refund and Request for Abatement, in accordance with the instructions for Form 843 and the additional instructions provided in Notice 2022-13. Specifically, taxpayers are instructed to: (1) write "Request for Relief under Notice 2022-13" at the top of Form 843; (2) enter "6654" on line 4; (3) check the third box on line 5a; (4) on line 5b, show the dates of any payment of tax liability and addition to tax under Code Sec. 6654 for the tax period involved; and (5) on line 7, state why the taxpayer's circumstances satisfy the criteria for relief under this notice. Generally, this would include the status of the taxpayer as a qualifying farmer or fisherman, filing a 2021 tax return, and paying in full any tax due on the return by April 18, 2022, or, for those taxpayers who live in Maine or Massachusetts, by April 19, 2022.

For a discussion of estimated tax payments by individuals, see Parker Tax ¶251,105.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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