Discover the intricacies of corporate tax returns and circumvent penalties. Our article's initial section expounds on the US corporate tax season, elucidating the requisite filing and payment procedures. Subsequent articles delve further into tax matters.
Tax season
American corporations are subject to annual taxation. Corporate taxpayers are allowed to select an alternate tax year from the current year. For their first tax season, newly formed firms and existing corporations may choose to adopt a short tax year.
Tax filings
The self-assessment and voluntary reporting tenets serve as the foundation of the US tax system. A corporate taxpayer must submit an annual tax return by the 15th day of the fourth month after the end of its tax year (often Form 1120). An additional six-month extension of time to file a tax return is available to taxpayers. Penalties may apply if a return is not filed on time. For some information returns that must be filed alongside a timely return, additional penalties may be imposed for a late return.
Paying taxes
In general, a taxpayer's tax liability must be paid in full by the initial due date of the tax return and must be spread out over the course of the year in four equal projected payments. However, since practically all corporations are required to pay their entire projected tax liability for the year in four estimated tax payments, a firm that anticipates its tax liability for the tax year to exceed the modest sum of USD 500 is compelled to make estimated tax payments. The four projected payments for calendar-year corporations are due by the fifteenth day of April, June, September, and December. The four expected payments are due by the fifteenth day of the fourth, sixth, ninth, and twelveth months of the tax year for corporations with a fiscal year. In general, no payment extensions are permitted. Estimated tax, late payment fees, and interest charges may apply if the tax is not paid by the deadlines listed above.
Although though not all of these taxes are disclosed through the Form 1120, the instalment payments must include estimates of regular CIT and, for international firms, the tax on gross transportation income. Although some of these additional taxes are reported on tax forms other than the 1120 series, frequent tax deposits made throughout the year may be necessary to make similar projected payments for those additional taxes.
Corporations must base their instalment payments on at least 25% of the tax stated on their most recent tax return or the tax liability from the prior year, provided that the prior year's tax liability was positive and that year had 12 months, in order to avoid a penalty. However, except for when calculating the first instalment payment, corporations with taxable income of at least USD 1 million (before use of NOLs or capital loss carryforwards) in any of the three years prior are not allowed to compute the instalment payments based on the tax liability from the prior year. Such firms must instead base the instalment payments on the tax indicated on the most recent tax return.
Penalties
Failure to record and pay US taxes in accordance with the Code may result in civil and criminal consequences. The civil penalty clauses can be broken down into four groups: penalties for delinquency, penalties for accuracy-related errors, penalties for information reporting, and penalties for preparers, promoters, and frivolous filings. There are exception clauses that permit prospective abatement based on justifiable cause in many, but not all, contracts. Many of them also include clauses that specify how one penalty affects the others. These four primary types of civil penalties can be further broken down. Secondly, there are three categories of delinquent penalties: failure to file, failure to pay, and failure to deposit tax on time. Taxpayers who are obligated to make WHT payments and instalment payments are subject to penalties for failing to deposit their taxes on time.
Second, there are four categories of penalties related to the correctness of tax returns: negligence, substantial understatement, considerable overstatement of pension liabilities, substantial undervaluation of estate or gift taxes, and valuation penalties. To prevent any penalty stacking, these fines are coordinated with the fraud penalty. The fraud penalty is not meant to be applied as a stack of penalties, just like other clauses.
Information reporting penalties make up the third type of fines. Those who are only required to report specific information to the IRS are subject to these penalties. A potential longer limitations period for the assessment of tax for correctly failing to report certain information is another consequence of neglecting to submit certain information on overseas operations, however it is not a penalty.
The preparer, promoter, and frivolous-filing penalties make up the fourth and last major category of civil penalties. The return preparer penalty, which is a penalty for a position on a return for which the preparer did not have considerable authority and there was a failure to declare the transaction on the return, is now the most notable of these. This clause also includes a fine for knowingly or recklessly attempting to understate another person's tax liability. In addition, failing to sign a return or claim for refund, provide the taxpayer with a copy of the return or claim, provide an identifying number, or file an accurate information return may result in return preparer penalties.
Additional promoter and frivolous-filing fines include those for promoting illegal tax shelters, encouraging false tax liability declarations, and submitting fictitious income tax returns. A person who initiates or pursues an action merely for delay, adopts a frivolous stance, or unjustly foregoes using administrative remedies is also subject to sanctions and costs from the court.
In addition to these significant civil penalties, international tax-related penalties for failures other than timely and accurate filing (such as wilful failure to report international boycott activity, failure of an agent to provide a notice of a false affidavit regarding the WHT on dispositions of US real property interests, failure of a US person to furnish information relating to CFCs and controlled foreign partnerships, failure of a US person to report foreign bank account) are also available. To safeguard the policy justifications for the tax incentives, most notably the early withdrawal of pension funds, fines relating to pension and employee benefits are in place. Organizations that are exempt are subject to a different set of specialized sanctions.
When failures to adhere to the tax system are more extreme and the activities are intentional, criminal consequences are available. Despite being applicable to corporate taxpayers, they are used on people more commonly.
In addition to the penalty clauses, underpayments of tax are typically subject to interest at the statutory rates, and interest is typically not refundable.
