Rev. Rul. 78-257

Advice has been requested whether, under the circumstances described below, a corporation is subject to the addition to the tax for underpayment of estimated tax imposed by section 6655(a) of the Internal Revenue Code of 1954, or whether it is relieved from the addition to the tax by operation of section 6655(d)(2).

X Corporation timely filed its 1975 Federal income tax return. The return reflected no taxable income because of a net operating loss, but it showed an amount of tax from recomputing a prior year's investment credit. For 1976 X Corporation had taxable income and a liability for income tax, but made no deposits for estimated tax.

Section 6154(a) of the Code provides that every corporation subject to taxation under section 11 or 1201(a), or subchapter L of chapter 1, shall make payments of estimated tax during its taxable year if its estimated tax for such year can reasonably be expected to be $40 or more. Section 6154(b) provides that if the requirements of section (a) are met before the first day of the fourth month of the taxable year, 25 percent of the estimated tax shall be paid on the 15th day of each of the fourth, sixth, ninth, and twelfth months of the taxable year.

Section 6655(a) of the Code provides that in the case of any underpayment of estimated tax by a corporation, except as provided in section 6655(d), there shall be added to the tax under chapter 1 for the taxable year an amount based on the amount of underpayment for the period of the underpayment.

Section 6655(d)(2) of the Code provides that the addition to the tax with respect to any underpayment of any installment shall not be imposed if the total amount of all payments of estimated tax made on or before the last date prescribed for the payment of such installment equals or exceeds the amount which would have been required to be paid on or before such date if the estimated tax were an amount equal to the tax computed at the rates applicable to the taxable year but otherwise on the basis of the facts shown on the return of the corporation for, and the law applicable to, the preceding taxable year.

Section 6655(e)(1)(A) of the Code defines tax for purposes of subsection (d) as the tax imposed by section 11 or 1201(a), or subchapter L of chapter 1, whichever is applicable, minus the credits against the tax provided by part IV of subchapter A of chapter 1.

Section 47 of the Code provides that the tax under chapter 1 shall be increased by an amount equal to the amount of the recaptured investment credit, as determined thereunder. Section 1.47-1(b)(1) of the Income Tax Regulations provides, subject to certain exceptions not here material, that any increase in income tax under section 47 shall be treated as income tax imposed on the taxpayer by chapter 1 of the Code for the recapture year notwithstanding that without regard to such increase the taxpayer has no income tax liability, has a net operatinging loss for such taxable year, or no income tax return was otherwise required for such taxable year.

The amount of the recaptured investment credit, as determined under section 47 of the Code, is a fact shown on the return of the corporation for the preceding taxable year. Further, the tax under chapter 1 of the Code, as referred to in section 47, includes the tax imposed by section 11 for purposes of section 6655(d)(2). Therefore, the "tax" as defined in section 6655(e) includes the amount of tax resulting from the recomputation of a prior year's investment credit at the applicable rate for the current year.

Accordingly, X is subject to the addition to the tax for underpayment of estimated tax imposed by section 6655(a) of the Code, because it did not pay, on or before the prescribed installment due dates, an amount equal to the tax resulting from the recomputation of the prior year's investment credit.