23 Va. Admin. Code § 10-115-163

Current through Register Vol. 41, No. 8, December 2, 2024

Section 23VAC10-115-163 - Additions to the tax; exceptions

A. Notwithstanding the provisions of 23VAC10-115-160 through 23VAC10-115-162, the addition to the tax shall not be imposed if the income tax for the taxable year is less than $150.

B. Notwithstanding the provisions of 23VAC10-115-160 through 23VAC10-115-162, the addition to the tax with respect to an underpayment of any installment shall not be imposed if the total 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 any of the following:

1. The tax shown on the return of the estate or trust for the preceding taxable year, if a return showing a liability for tax was filed for the preceding taxable year and such preceding year was a taxable year of 12 months.

2. An amount equal to the tax computed, at the rates applicable to the taxable year, on the basis of the facts shown on the return for, and the law applicable to, the preceding taxable year.

3. An amount equal to 90% of the tax for the taxable year computed by placing on an annualized basis the taxable income for the months in the taxable year ending before the month in which the installment is required to be paid. Credits shall not be taken into account when computing the tax on annualized income. For purposes of this subdivision the taxable income shall be placed on an annualized basis by:

a. Multiplying by 12 (or, in the case of a taxable year of less than 12 months, the number of months in the taxable year) the taxable income for the months in the taxable year ending before the month in which the installment is required to be paid, and

b. Dividing the resulting amount by the number of months in the taxable year ending before the month in which such installment date falls.

4. An amount equal to 90% of the tax computed, at the rates applicable to the taxable year, on the basis of the actual taxable income for the months in the taxable year ending before the month in which the installment is required to be paid. The periods involved, for a calendar year taxpayer, are January 1 to April 30, January 1 to May 31, and January 1 to August 31. Virginia taxable income for the applicable period is computed in accordance with § 58.1-361 of the Code of Virginia for the four, five or eight month period, as applicable. Credits shall not be taken into account when computing the tax under this subdivision.

C. If a fiduciary has any discretion in distributing or accumulating distributable net income, then for the purposes of the computations under subdivisions B 3 (tax on annualized income) and B 4 (tax on 4, 5, and 8 month period) of this section, the income of the trust as of any date shall be reduced by distributions to a beneficiary actually made on or before such date which the fiduciary reasonably expects to be treated as made from distributable net income.

D. If an estate or trust was required to change its taxable year during 1987 to a taxable year ending on December 31, then the estate or trust may qualify for the "prior year alternative" exception in subdivision B 1 of this section under the following conditions:

1. The preceding taxable year was a short taxable year in 1987; and

2. The short taxable year was preceded by a taxable year of 12 months; and

3. The tax shown on the return for the preceding short taxable year is annualized by dividing it by the number of months in the short taxable year and multiplying the result by 12.

E. Examples. On or before May 1, 1988, the trustee of The Jones Trust could reasonably expect the fiduciary's Virginia tax liability for calendar year 1988 to exceed $150. Therefore the trustee timely made four installment payments: $1,500 on May 1, 1988, and June 15, 1988, and $2,000 on September 15, 1988, and January 15, 1989. When the fiduciary income tax return was filed on May 1, 1989, the tax liability was $10,000. Although the $7,000 estimated tax paid is less than 90% of the income tax, an addition to the tax is not required because the trust qualifies for one or more of the exceptions for each installment.

1. The tax for the prior year was $6,670. The trust would qualify for the first exception (prior year's tax) with respect to the fourth installment as follows:

INSTALLMENT 1st 2nd 3rd 4th

DUE DATE 5/1/88 6/15/88 9/15/88 1/15/89

Payment 1,500.00 1,500.00 2,000.00 2,000.00

Total paid through each

installment date 1,500.00 3,000.00 5,000.00 7,000.00

Prior year's tax applicable

to each installment 1,667.50 3,335.00 5,002.50 6,670.00

Qualifies for exception NO NO NO YES

2. The $6,670 tax for 1987 was based on taxable income of $120,085. The tax on $120,085 at 1988 rates would be $6,662. The trust would qualify for the second exception (prior year's income at current rates) with respect to the third and fourth installments as follows:

INSTALLMENT 1st 2nd 3rd 4th

DUE DATE 5/1/88 6/15/88 9/15/88 1/15/89

Payment 1,500.00 1,500.00 2,000.00 2,000.00

Total paid through each

installment date 1,500.00 3,000.00 5,000.00 7,000.00

Applicable tax on prior year's

income at current rates 1,665.50 3,331.00 4,996.50 6,662.00

Qualifies for exception NO NO YES YES

3. The 1988 tax of $10,000 is based on taxable income of $178,130. After reviewing the records of income, expenses and distributions, the trustee determines that the taxable income is $40,000 as of April 30, 1988, $55,000 as of May 31, 1988, and $115,000 as of August 31, 1988. The trust qualifies for the third exception (annualized income) with respect to the first installment. (Note that this exception cannot be used to avoid the addition for the fourth installment.)

INSTALLMENT 1st 2nd 3rd

DUE DATE 5/1/88 6/15/88 9/15/88

Payment 1,500.00 1,500.00 2,000.00

Applicable dates 4/30/88 5/31/88 8/31/88

Income through date 40,000.00 55,000.00 115,000.00

Annualization factor 3 (12 / 4) 2.4 (12 / 5) 1.5 (12 /8)

Annualized income 120,000.00 132,000.00 172,500.00

Tax on annualized income 6,657.50 7,345.50 9,676.25

Installment percentage 25% 50% 75%

90% of installment percentage 22.5% 45% 67.5%

Amount required through due date 1,497.94 3,306.38 6,531.47

Actual payments through due date 1,500.00 3,000.00 5,000.00

Qualifies for exception YES NO NO

4. The trust qualifies for the fourth exception (tax on income over a 4, 5, and 8 month period) with respect to the second installment. (Note that this exception cannot be used to avoid the addition for the fourth installment.)

INSTALLMENT 1st 2nd 3rd

DUE DATE 5/1/88 6/15/88 9/15/88

Payment 1,500.00 1,500.00 2,000.00

Applicable dates 4/30/88 5/31/88 8/31/88

Income through date $40,000.00 55,000.00 115,000.00

Tax on income for period 2,057.50 2,920.00 6,370.00

Amount required through due date 2,057.50 2,920.00 6,370.00

Actual payments through due date 1,500.00 3,000.00 5,000.00

Qualifies for exception NO YES NO

23 Va. Admin. Code § 10-115-163

Derived from VR630-5-492 § 4, eff. February 2, 1989.

Statutory Authority

§§ 58.1-203 and 58.1-492 of the Code of Virginia.