
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC7519]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                Subtitle F--Procedure and Administration
 
                  CHAPTER 77--MISCELLANEOUS PROVISIONS
 
Sec. 7519. Required payments for entities electing not to have 
        required taxable year
        

(a) General rule

    This section applies to a partnership or S corporation for any 
taxable year, if--
        (1) an election under section 444 is in effect for the taxable 
    year, and
        (2) the required payment determined under subsection (b) for 
    such taxable year (or any preceding taxable year) exceeds $500.

(b) Required payment

    For purposes of this section, the term ``required payment'' means, 
with respect to any applicable election year of a partnership or S 
corporation, an amount equal to--
        (1) the excess of the product of--
            (A) the applicable percentage of the adjusted highest 
        section 1 rate, multiplied by
            (B) the net base year income of the entity, over

        (2) the net required payment balance.

For purposes of paragraph (1)(A), the term ``adjusted highest section 1 
rate'' means the highest rate of tax in effect under section 1 as of the 
end of the base year plus 1 percentage point (or, in the case of 
applicable election years beginning in 1987, 36 percent).

(c) Refund of payments

                           (1) In general

        If, for any applicable election year, the amount determined 
    under subsection (b)(2) exceeds the amount determined under 
    subsection (b)(1), the entity shall be entitled to a refund of such 
    excess for such year.

                 (2) Termination of elections, etc.

        If--
            (A) an election under section 444 is terminated effective 
        with respect to any year, or
            (B) the entity is liquidated during any year, the entity 
        shall be entitled to a refund of the net required payment 
        balance.

                  (3) Date on which refund payable

        Any refund under this subsection shall be payable on the later 
    of--
            (A) April 15 of the calendar year following--
                (i) in the case of the year referred to in paragraph 
            (1), the calendar year in which it begins,
                (ii) in the case of the year referred to in paragraph 
            (2), the calendar year in which it ends, or

            (B) the day 90 days after the day on which claim therefor is 
        filed with the Secretary.

(d) Net base year income

    For purposes of this section--

                           (1) In general

        An entity's net base year income shall be equal to the sum of--
            (A) the deferral ratio multiplied by the entity's net income 
        for the base year, plus
            (B) the excess (if any) of--
                (i) the deferral ratio multiplied by the aggregate 
            amount of applicable payments made by the entity during the 
            base year, over
                (ii) the aggregate amount of such applicable payments 
            made during the deferral period of the base year.

    For purposes of this paragraph, the term ``deferral ratio'' means 
    the ratio which the number of months in the deferral period of the 
    base year bears to the number of months in the partnership's or S 
    corporation's taxable year.

                           (2) Net income

        Net income is determined by taking into account the aggregate 
    amount of the following items--

        (A) Partnerships

            In the case of a partnership, net income shall be the amount 
        (not below zero) determined by taking into account the aggregate 
        amount of the partnership's items described in section 702(a) 
        (other than credits and tax-exempt income).

        (B) S corporations

            In the case of an S corporation, net income shall be the 
        amount (not below zero) determined by taking into account the 
        aggregate amount of the S corporation's items described in 
        section 1366(a) (other than credits and tax-exempt income). If 
        the S corporation was a C corporation for the base year, its 
        taxable income for such year shall be treated as its net income 
        for such year (and such corporation shall be treated as an S 
        corporation for such taxable year for purposes of paragraph 
        (3)).

        (C) Certain limitations disregarded

            For purposes of subparagraph (A) or (B), any limitation on 
        the amount of any item described in either such paragraph which 
        may be taken into account for purposes of computing the taxable 
        income of a partner or shareholder shall be disregarded.

                       (3) Applicable payments

        (A) In general

            The term ``applicable payment'' means amounts paid by a 
        partnership or S corporation which are includible in gross 
        income of a partner or shareholder.

        (B) Exceptions

            The term ``applicable payment'' shall not include any--
                (i) gain from the sale or exchange of property between 
            the partner or shareholder and the partnership or S 
            corporation, and
                (ii) dividend paid by the S corporation.

                      (4) Applicable percentage

        The applicable percentage is the percentage determined in 
    accordance with the following table:

If the applicable election year
  of the partnership or S                                 The applicable
  corporation begins during:                              percentage is:
     1987.........................................................      
                                                                  25    
     1988.........................................................      
                                                                  50    
     1989.........................................................      
                                                                  75    
    1990 or thereafter........................................     100.  
                                                                        

    Notwithstanding the preceding provisions of this paragraph, the 
    applicable percentage for any partnership or S corporation shall be 
    100 percent unless more than 50 percent of such entity's net income 
    for the short taxable year which would have resulted if the entity 
    had not made an election under section 444 would have been allocated 
    to partners or shareholders who would have been entitled to the 
    benefits of section 806(e)(2)(C) of the Tax Reform Act of 1986 with 
    respect to such income.

                (5) Treatment of guaranteed payments

        (A) In general

            Any guaranteed payment by a partnership shall not be treated 
        as an applicable payment, and the amount of the net income of 
        the partnership shall be determined by not taking such 
        guaranteed payment into account.

        (B) Guaranteed payment

            For purposes of subparagraph (A), the term ``guaranteed 
        payment'' means any payment referred to in section 707(c).

(e) Other definitions and special rules

    For purposes of this section--

                         (1) Deferral period

        The term ``deferral period'' has the meaning given to such term 
    by section 444(b)(4).

                              (2) Years

        (A) Base year

            The term ``base year'' means, with respect to any applicable 
        election year, the taxable year of the partnership or S 
        corporation preceding such applicable election year.

        (B) Applicable election year

            The term ``applicable election year'' means any taxable year 
        of a partnership or S corporation with respect to which an 
        election is in effect under section 444.

                    (3) Requirement of reporting

        Each partnership or S corporation which makes an election under 
    section 444 shall include on any required return or statement such 
    information as the Secretary shall prescribe as is necessary to 
    carry out the provisions of this section.

                  (4) Net required payment balance

        The term ``net required payment balance'' means the excess (if 
    any) of--
            (A) the aggregate of the required payments under this 
        section for all preceding applicable election years, over
            (B) the aggregate amount allowable as a refund to the entity 
        under subsection (c) for all preceding applicable election 
        years.

(f) Administrative provisions

                           (1) In general

        Except as otherwise provided in this subsection or in 
    regulations prescribed by the Secretary, any payment required by 
    this section shall be assessed and collected in the same manner as 
    if it were a tax imposed by subtitle C.

                            (2) Due date

        The amount of any payment required by this section shall be paid 
    on or before April 15 of the calendar year following the calendar 
    year in which the applicable election year begins (or such later 
    date as may be prescribed by the Secretary).

                            (3) Interest

        For purposes of determining interest, any payment required by 
    this section shall be treated as a tax; except that no interest 
    shall be allowed with respect to any refund of a payment made under 
    this section.

                            (4) Penalties

        (A) In general

            In the case of any failure by any person to pay on the date 
        prescribed therefor any amount required by this section, there 
        shall be imposed on such person a penalty of 10 percent of the 
        underpayment. For purposes of the preceding sentence, the term 
        ``underpayment'' means the excess of the amount of the payment 
        required under this section over the amount (if any) of such 
        payment paid on or before the date prescribed therefor. No 
        penalty shall be imposed under this subparagraph on any failure 
        which is shown to be due to reasonable cause and not willful 
        neglect.

        (B) Negligence and fraud penalties made applicable

            For purposes of part II of subchapter A of chapter 68, any 
        payment required by this section shall be treated as a tax.

        (C) Willful failure

            If any partnership or S corporation willfully fails to 
        comply with the requirements of this section, section 444 shall 
        cease to apply with respect to such partnership or S 
        corporation.

(g) Regulations

    The Secretary shall prescribe such regulations as may be necessary 
or appropriate to carry out the provisions of this section and section 
280H, including regulations providing for appropriate adjustments in the 
application of this section and sections 280H and 444 in cases where--
        (1) 2 or more applicable election years begin in the same 
    calendar year, or
        (2) the base year is a taxable year of less than 12 months.

(Added Pub. L. 100-203, title X, Sec. 10206(b)(1), Dec. 22, 1987, 101 
Stat. 1330-398; amended Pub. L. 100-647, title II, Sec. 2004(e)(4)-(10), 
(14)(B), Nov. 10, 1988, 102 Stat. 3601, 3602; Pub. L. 101-239, title 
VII, Secs. 7721(c)(12), 7821(b), Dec. 19, 1989, 103 Stat. 2400, 2424; 
Pub. L. 101-508, title XI, Sec. 11704(a)(29), Nov. 5, 1990, 104 Stat. 
1388-519; Pub. L. 105-34, title XII, Sec. 1281(d), Aug. 5, 1997, 111 
Stat. 1037.)

                       References in Text

    Section 806(e)(2)(C) of the Tax Reform Act of 1986, referred to in 
subsec. (d)(4), is section 806(e)(2)(C) of Pub. L. 99-514, which is set 
out as a note under section 1378 of this title.


                               Amendments

    1997--Subsec. (f)(4)(A). Pub. L. 105-34 inserted at end ``No penalty 
shall be imposed under this subparagraph on any failure which is shown 
to be due to reasonable cause and not willful neglect.''
    1990--Subsec. (c)(3). Pub. L. 101-508 substituted ``payable on the 
later of'' for ``payable on later of''.
    1989--Subsec. (d)(4). Pub. L. 101-239, Sec. 7821(b), struck out 
``for taxable years beginning after 1987,'' before ``the applicable 
percentage'' and substituted ``unless more than 50 percent'' for ``if 
more than 50 percent'' and ``who would have been entitled'' for ``who 
would not have been entitled''.
    Subsec. (f)(4)(B). Pub. L. 101-239, Sec. 7721(c)(12), substituted 
``part II of subchapter A of chapter 68'' for ``section 6653''.
    1988--Subsec. (b)(2). Pub. L. 100-647, Sec. 2004(e)(4)(A), amended 
par. (2) generally. Prior to amendment, par. (2) read as follows: ``the 
amount of the required payment for the preceding applicable election 
year.''
    Subsec. (c). Pub. L. 100-647, Sec. 2004(e)(5), amended subsec. (c) 
generally. Prior to amendment, subsec. (c) read as follows: ``If the 
amount determined under subsection (b)(2) exceeds the amount determined 
under subsection (b)(1), then the entity shall be entitled to a refund 
of such excess.''
    Subsec. (d)(2)(A). Pub. L. 100-647, Sec. 2004(e)(10), substituted 
``(other than credits and tax-exempt income)'' for ``(other than 
credits)''.
    Subsec. (d)(2)(B). Pub. L. 100-647, Sec. 2004(e)(7), (10), 
substituted ``(other than credits and tax-exempt income)'' for ``(other 
than credits)'' and inserted before period at end ``(and such 
corporation shall be treated as an S corporation for such taxable year 
for purposes of paragraph (3))''.
    Subsec. (d)(3)(A). Pub. L. 100-647, Sec. 2004(e)(14)(B), struck out 
``or incurred'' after ``amounts paid''.
    Subsec. (d)(4). Pub. L. 100-647, Sec. 2004(e)(9), inserted at end 
``Notwithstanding the preceding provisions of this paragraph, for 
taxable years beginning after 1987, the applicable percentage for any 
partnership or S corporation shall be 100 percent if more than 50 
percent of such entity's net income for the short taxable year which 
would have resulted if the entity had not made an election under section 
444 would have been allocated to partners or shareholders who would not 
have been entitled to the benefits of section 806(e)(2)(C) of the Tax 
Reform Act of 1986 with respect to such income.''
    Subsec. (d)(5). Pub. L. 100-647, Sec. 2004(e)(8), added par. (5).
    Subsec. (e)(4). Pub. L. 100-647, Sec. 2004(e)(4)(B), added par. (4).
    Subsec. (g). Pub. L. 100-647, Sec. 2004(e)(6), substituted 
``including regulations providing for appropriate adjustments in the 
application of this section and sections 280H and 444 in cases where--
        ``(1) 2 or more applicable election years begin in the same 
    calendar year, or
        ``(2) the base year is a taxable year of less than 12 months'' 
    for ``including regulations for annualizing the income and 
    applicable payments of an entity if the base year is a taxable year 
    of less than 12 months''.


                    Effective Date of 1997 Amendment

    Amendment by Pub. L. 105-34 applicable to taxable years beginning 
after Aug. 5, 1997, see section 1281(e) of Pub. L. 105-34, set out as a 
note under section 6652 of this title.


                    Effective Date of 1989 Amendment

    Amendment by section 7721(c)(12) of Pub. L. 101-239 applicable to 
returns the due date for which (determined without regard to extensions) 
is after Dec. 31, 1989, see section 7721(d) of Pub. L. 101-239, set out 
as a note under section 461 of this title.
    Section 7821(b) of Pub. L. 101-239 provided that the amendment made 
by that section is effective with respect to taxable years beginning 
after 1988.


                    Effective Date of 1988 Amendment

    Amendment by Pub. L. 100-647 effective, except as otherwise 
provided, as if included in the provisions of the Revenue Act of 1987, 
Pub. L. 100-203, title X, to which such amendment relates, see section 
2004(u) of Pub. L. 100-647, set out as a note under section 56 of this 
title.


                             Effective Date

    Section applicable to applicable election years beginning after Dec. 
31, 1986, see section 10206(d)(2) of Pub. L. 100-203, set out as a note 
under section 444 of this title.

                  Section Referred to in Other Sections

    This section is referred to in section 444 of this title.
