For purposes of this determination, the period of the underpayment shall run from the due date of the subsequent installment payment until the earlier of the dates specified in section 6655(c) (1) or (2).
Example. Corporation M, which uses the calendar year as its taxable year, relies on the safe harbor provided by paragraph (b) of this section for its first two installment payments of estimated tax for 1987. M is required by this paragraph (c) to make a timely subsequent installment payment of $1,000,000 by September 15, 1987, but M's actual installment payment by that date is only $990,000. Because of this shortfall, M loses the benefit of the safe harbor and is subject to underpayment penalties with respect to the first two installments. The aggregate penalties with respect to those two installments, however, cannot exceed the amount of the underpayment penalty to which M would be subject if there were an underpayment of $10,000 with respect to the September 15, 1987, installment payment. Such penalties are independent of any penalty that may apply with respect to M's third installment payment under the normal rules of section 6655.
Example.
(1) Taxable income shown on return for taxable year ending on January 31, 1987 | $10,000,000 |
(2) Annualized taxable income for taxable year ending January 31, 1988, determined pursuant to paragraph (b)(1) of this section (Item (1)x120%) | $12,000,000 |
(Note: 120%xordinary income of $9,000,000 = $10,800,000; | |
120%xnet capital gain of $1,000,000 = $1,200,000) | |
(3) Tax on annualized taxable income (Item 2) using rates under section 11 and 1201, taking into account section 15, applicable to the taxable year ending January 31, 1988 | $4,612,603 |
(4) Amount described in section 6655(d)(3)(A)(i) (Item (3)x22.5%) | $1,037,836 |
45 percent of $6,000,000 | $2,700,000 |
less first payment | 1,037,836 |
Minimum second installment | $1,662,164 |
26 C.F.R. §1.6655-2T