IRS waives estimated tax penalties for farmers and fishermen

An inability of qualified farmers and fishers to file the new Form 7203 online, Limitations on shares and debt of shareholders of S Corporationon March 1, the IRS urged the IRS to grant these taxpayers a waiver of the estimated tax penalties on Tuesday.

The waiver, in Notice 2022-13, follows a March 3 IRS press release in which the Service said it was aware of a third-party software issue affecting farmers and eligible anglers trying to complete Form 7203 with their declarations.

Individual taxpayers whose current year taxes are not withheld from wages or other sources generally must pay estimated taxes quarterly or be liable for additional tax or penalty under s. . 6654(a). However, Sec. 6654(i) provides a special rule for qualifying farmers and fishers. They can pay a single estimated installment for the tax year before January 15 of the following tax year. They can also avoid any addition to tax under Sec. 6654(a) by filing their return and paying all of the tax owing by March 1 of the following tax year.

Further, while other taxpayers’ estimated payments must total at least 90% of their actual tax payable for the tax year to avoid penalties (or 100% of their previous year’s tax, or 110% for adjusted gross income over $150,000), for farmers and fishers, the actual tax liability is 66.67% of their actual liability instead of 90%.

An eligible farmer or fisher is one whose gross income from farming or fishing in the tax year or the preceding year is at least two-thirds of the total gross income from all sources ( 6654(i)(2)).

Form 7203 is new for the 2021 tax year. It replaces a worksheet formerly in the Instructions to Shareholders for Schedule K-1 (Form 1120-S), Shareholder income share, deductions, credits, etc.. It is intended to better enable the shareholders of Corporation S to calculate their stock and debt in their shares and thus to more accurately and verifiably calculate the resulting limitation on their share of Corporation S’s losses and deductions under the Dry. 1366(d), and to track losses and deductions carried forward and adjusted basis from year to year.

The IRS requested comments on a draft Form 7203 in July 2021 and released a second draft form in October. It issued a final Form 7203 in December. Some tax preparation software vendors were still adding it to their e-filing products long before the current tax season.

Due to the inability of some farmers and fishermen to file Form 7203 electronically by March 1, the IRS announced in the notice that it was waiving any tax additions under Sec. 6654 for failing to make an estimated tax payment for the 2021 tax year in respect of any qualifying farmer or fisher who files a return for the 2021 tax year and pays any tax owing in full on the return on the general filing date of April 18, 2022 (April 19 for taxpayers residing in Maine or Massachusetts).

The waiver is automatic, and any taxpayer who qualifies for the waiver who has already filed a return declaring an addition to tax under Sec. 6654 can request the reduction by filing form 843, Request for reimbursement and request for abatementfollowing the special instructions contained in the notice.

— To comment on this article or suggest an idea for another article, contact Paul Bonner at [email protected].

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