PURPOSE: This rule sets forth guidelines in the determination of whether an individual, corporate or other taxpayer is subject to an additional tax for failure to pay estimated tax.

1. (1) Authority For Rule. This rule is being issued under the general regulatory powers granted to the director of revenue in section 143.961, RSMo which became effective on January 1, 1973.
2. (2) Applicability and Scope of Rule. This rule is intended as an interpretive guideline in the application of section 143.761, RSMo and is applicable only with respect to taxable years beginning after December 31, 1972. Chapter 143, RSMo and the corresponding rules shall continue in force with respect to taxable years beginning before January 1, 1973.

3. (3) Definitions. As used in this rule—

   1. (A) The term director shall mean the director of revenue or his/her duly authorized agent or designee; and
   2. (B) The term farmer shall mean an individual having an estimated Missouri adjusted gross income (MAGI) from farming for the taxable year which is at least two-thirds (2/3) of his/her total estimated MAGI taxable in this state for the taxable year. The term does not include a fisherman or a corporation.
4. (4) General rule section 143.761.1., RSMo imposes an addition to tax in the case of any underpayment of estimated tax by an individual or a corporation (with certain exceptions described in section 143.761.4., RSMo). This addition to tax is in addition to any applicable civil or criminal penalties and is imposed without regard to whether or not extenuating circumstances disclose a reasonable cause or lack of willful neglect for the underpayment. There are no provisions for the payment of interest with respect to any underpayment of estimated tax.

5. (5) Amount and Period of Underpayment. The amount of the underpayment for any installment date is the excess of—

   1. (A) Eighty percent (80%) (66 2/3% in the case of a farmer) of the tax shown on the return for the taxable year or, if no return was filed, eighty percent (80%) (66 2/3% in the case of a farmer) of the tax for the year, divided by the number of installment dates prescribed for the taxable year, over; and
   2. (B) The amount, if any, of the installment paid on or before the last day prescribed for its payment.
6. (6) The amount of the addition is determined at the rate set forth in section (8) of this rule upon the underpayment of any installment of estimated tax for the year from the date the installment is required to be paid until the fifteenth day of the fourth month following the close of the taxable year, or the date the underpayment is paid, whichever is earlier. For the purposes of determining the period of underpayment, the date prescribed for the payment of any installment of estimated tax shall be determined without regard to any extension of time; and a payment of estimated tax on any installment date, to the extent that it exceeds the amount of the installment determined under subsection (5)(A) of this rule for the installment date, shall be considered a payment of any previous underpayment.
7. (7) In determining the amount of the installment paid on or before the last day prescribed for payment of the installment, the estimated tax shall be computed without any reduction for the amount which the taxpayer estimates as his/her credit for taxes withheld at the source on wages, and the amount of that credit shall be deemed a payment of estimated tax. An equal part of the amount of the credit shall be considered paid on each installment date for the taxable year unless the taxpayer establishes the dates on which all amounts were actually withheld. In the latter case, all amounts withheld shall be considered as payments of estimated tax on the dates the amounts were actually withheld.
8. (8) The rate of additions to tax for underpayment of estimated tax is six percent (6%) a year for the underpayment prior to January 1, 1983. Beginning January 1, 1983, the rate of additions to tax is the same as established by the director of revenue under authority of section 32.065, RSMo and 12 CSR 10-41.010 Annual Adjusted Rate of Interest.
9. (9) Statement Relating to Underpayment. If there has been an underpayment of estimated tax as of any installment date prescribed for its payment and the taxpayer believes that one
10. (1) or more of the exceptions described in section 143.761.4., RSMo precludes the imposition of the addition to the tax, Missouri Form 30 should be attached to the income tax return for the taxable year showing the applicability of an exception. There is no rule which precludes a taxpayer from making computations under each of the four
11. (4) exceptions at each estimated tax installment date, and then bringing all payments as of that date up to whatever amount will avoid imposition of an addition to tax, using whatever exception would require the smallest amount to be paid. If this is done, however, the slightest error in computation, so that the taxpayer fails by as little as one dollar ($1) to satisfy at least one (1) of the exceptions, will result in the imposition of the additions to tax on the total amount of the underpayment and not on the amount by which the taxpayer fails to come within one (1) of the four (4) exceptions.

12. (10) Examples: The following examples illustrate the application of the provisions for the imposition of the additions to tax for any underpayment of estimated tax prior to January 1, 1983 (see section (8) for rate of additions to tax after December 31, 1982), in the case of an individual whose taxable year is the calendar year:

    1. (A) An individual taxpayer files his/her return for calendar year 1974 on April 15, 1975 showing a total tax liability of $2,000. Taxpayer has paid a total of $1,000 of estimated tax in four (4) equal installments of $250 on each of the four (4) installment dates prescribed for the year. No other payments were made before the date the return was filed. Since the amount of each installment paid by the last date prescribed for its payment is less than one-quarter (1/4) of eighty percent (80%) of the tax shown on the return, an underpayment exists and the addition to the tax is applicable with respect to the underpayment existing as of each installment date and is computed as follows:

       1. 1. Amount of tax shown on return $2,000
       2. 2. 80% of item 1. $1,600
       3. 3. One-fourth of item 2. $ 400
       4. 4. Amount of each installment paid $ 250
       5. 5. Amount of underpayment for each installment date $ 150

       6. 6. Addition to the tax—

          1. A. First installment— $150 × 6% × 365 days/365 days;
          2. B. Second installment— $150 × 6% × 304 days/365 days;
          3. C. Third installment— $150 × 6% × 212 days/365 days;

and

1. D. Fourth installment— $150 × 6% × 90 days/365 days.

Note that the addition to tax are computed using the actual number of days that the underpayment continues. In the case of a corporate taxpayer whose fourth estimated tax payment would have been required to be filed on December 15, 1974, the calculation for the fourth installment period would be $150 × 6% × 121 days/365 days;

1. (B) Assume the same facts as in subsection (10)(A) of this rule except that the individual taxpayer (who is not a farmer) files his/her calendar year 1974 Missouri income tax return on February 28, 1975 and pays the balance due on that date. In this case, February 28, 1975 would be the last date the underpayment continues and the calculation dates would be as follows:

   1. 1. First installment— $150 × 6% × 319 days/365 days;
   2. 2. Second installment— $150 × 6% × 258 days/365 days;
   3. 3. Third installment— $150 × 6% × 166 days/365 days;

and

1. 4. Fourth installment— $150 × 6% × 44 days/365 days;
2. (C) An individual taxpayer filed a declaration of estimated tax for the taxable year indicating an estimated liability of $8,000. Taxpayer made four (4) timely installment payments of $2,000 each during the year. Taxpayer’s actual tax, as shown on the income tax return for the year, amounts to $10,000. In this case, there is no underpayment since each installment was at least equal to one-quarter (1/4) of eighty percent (80%) of the installment which would have been payable on the basis of his/her final tax for the year (1/4 × $10,000 × 80% = $2,000);

3. (D) Assume that a taxpayer whose final tax liability is $700, made the following installments during the year:

   1. 1. First installment—$100;
   2. 2. Second installment—$190;
   3. 3. Third installment—$100; and
   4. 4. Fourth installment—$140. Since each

installment, based upon a final tax liability of $700, should have been at least $140 ($700 × 80% × 1/4), there is an underpayment for the first and third installments and an overpayment for the second installment. In this case, $40 of the $50 overpayment of the second installment is carried back to the first installment and cuts off the six percent (6%) addition to tax for that installment as of the payment date for the second installment. The remaining $10 of the overpayment carries over to the third installment to reduce the underpayment for the installment to $30. In this example, the addition to the tax is computed as follows:

1. A. First installment— $40 × 6% × 61 days/365 days;
2. B. Second installment— no underpayment exists;
3. C. Third installment—$30 × 6% × 212 days/365 days; and
4. D. Fourth installment—no underpayment exists;

5. (E) Assume the same facts as in subsection (10)(D) of this rule except that the second installment was paid in the amount of $160. The $20 overpayment of the second installment would be carried back to the first installment but would not stop the underpayment period of the first installment for the entire amount of that installment. In this example, the addition to tax is computed as follows:

   1. 1. First installment— $20 × 6% × 61 days/365 days; $20 × 6% × 365 days/365 days;
   2. 2. Second installment—no underpayment exists;
   3. 3. Third installment— $40 × 6% × 212 days/365 days;

and

1. 4. Fourth installment—

no underpayment exists; and

1. (F) Taxpayer, a farmer, files an income tax return on February 15 of the succeeding year paying the total tax liability of $5,000 on that date. In this case, there is no underpayment of estimated tax since the filing of the return and payment of the tax on or before February 28 of the succeeding year is considered as the taxpayer’s declaration of estimated tax which was required to be filed by January 15 of the succeeding taxable year under section 143.521.6., RSMo. In the event that the taxpayer in this example had filed his/her declaration of estimated tax on or before January 15 of the succeeding year, s/he would have been required to pay sixty-six and two-thirds (66 2/3%) of his/her total tax liability for the year on that date.

1. (11) Exceptions to Imposition of Additions to Tax in the Case of Individuals and Corporations. The addition to the tax under section 143.761, RSMo will not be imposed for any underpayment of any installment of estimated tax if, on or before the date prescribed for payment of the installment, the total amount of all payments of estimated tax equals or exceeds the least of the following amounts:

   1. (A) The amount which would have been required to be paid on or before the date prescribed for payment if the estimated tax were the tax shown on the return for the preceding taxable year, but only if the preceding taxable year was a year of twelve (12) months and a return showing a liability for tax was filed for that year;

   2. (B) The amount which would have been required to be paid on or before the date prescribed for payment if the estimated tax were an amount equal to eighty percent (80%) (66 2/3% in the case of a farmer) of the tax computed by placing on an annualized basis the taxable income for the calendar months in the taxable year preceding that date. The taxable income shall be placed on an annualized basis by—

      1. 1. Multiplying by twelve (12) (or the

number of months in the taxable year if less than twelve (12)) the taxable income (computed without the standard deduction and without the deduction for personal and dependency exemptions), or the adjusted gross income if the standard deduction is to be used, for the calendar months;

1. 2. Dividing the resulting amount by the

number of those calendar months;

1. 3. Deducting from that amount the stan-

dard deduction, if applicable, the deductions for personal and dependency exemptions determined as of the date prescribed for payment and the deduction for federal income tax liability; and

1. 4. Multiplying, in the case of a corpo-

rate taxpayer, the amount determined in paragraph (11)(B)3. of this rule by the applicable percentage determined under section 143.451, RSMo as of the last day of the month preceding the date prescribed for payment;

1. (C) An amount equal to ninety percent

(90%) of the tax computed, at the rate applicable to the taxable year, on the basis of the actual taxable income for the calendar months in the taxable year preceding the date prescribed for payment; or

1. (D) The amount which would have been required to be paid on or before the date prescribed for payment if the estimated tax were an amount equal to a tax determined on the basis of the tax rates and the taxpayer’s status with respect to personal and dependency exemptions for the taxable year but otherwise on the basis of the facts shown on the return for the preceding taxable year and the law 12 CSR 10-2

applicable to that year, in the case of a taxpayer required to file a return for the preceding taxable year.

1. (12) Examples: The following examples illustrate the application of the exceptions to the imposition of the addition to tax for an underpayment of estimated tax for a calendar year taxpayer. In cases of a calendar year corporate taxpayer, the fourth installment is due on December 15 of the taxable year rather than January 15 of the succeeding year in the case of individuals:

   1. (A) An individual taxpayer files his/her 1974 calendar year Missouri income tax return on April 15, 1975 showing a total tax liability of $5,000. Taxpayer had filed a declaration of estimated tax on April 15, 1974 showing an estimated tax of $3,000 which was paid in four (4) equal installments of $750 each on April 15, June 15 and September 15, 1974, and January 15, 1975. The balance of $2,000 was paid with the return. Taxpayer has an underpayment or each installment period of $250 ($5,000 × 80% × 1/4 = equals $1,000). The 1973 calendar year return of the taxpayer showed a liability of $2,500. Since the total amount of estimated tax paid by each installment date equaled or exceeded the amount that would have been required to be paid on or before each of the installment dates if the estimated tax were the tax shown on the return for the preceding year, the exception described in subsection (11)(A) of this rule applies and no addition to tax for underpayment of estimated tax will be imposed;

   2. (B) Assume the same facts as in subsection (12)(A) of this rule except that the four (4) timely paid estimated tax installments are made in the following amounts:

      1. 1. First installment—$500;
      2. 2. Second installment—$500;
      3. 3. Third installment—$750; and
      4. 4. Fourth installment—$750. Even

though the total amount of estimated tax payments equals or exceeds the total tax shown on the taxpayer’s return for the preceding year ($2,500), each installment must stand by itself in determining the applicability of the exceptions to the additions to tax. The exception in subsection (11)(A) of this rule would only apply as of the fourth installment in this example since that is the only date as of which the total amount paid equaled the amount that would have been required to have been paid computed as follows: Amount Required For Amount Exception Paid 25% of tax $ 625 $ 500 50% of tax $1,250 $1,000 75% of tax $1,875 $1,750 100% of tax $2,500 $2,500

The same requirement that each installment must stand on its own applies to each of the four (4) exceptions to the addition to tax permitted by section 143.761.4., RSMo;

1. (C) Assume that a married taxpayer with two (2) dependent children files a combined return with his/her spouse for calendar year 1974. Taxpayer receives a monthly income from self-employment of $1,500 ($18,000 annually) and neither taxpayer nor his/her spouse have any other income for 1974. The following procedure will be followed in annualizing taxpayer’s income: 1.Self-employment income during January, February and March $ 4,500

   1. 2. Annualized income-line 1. × 12/3 $18,000
   2. 3. Less: standard deduction $ 2,000 Exemptions $ 3,200 Estimated federal income tax $ 2,500 $ 7,700
   3. 4. Annualized taxable income $10,300
   4. 5. Estimated annual income tax $ 393

If the taxpayer’s payment of estimated tax for the first installment equaled or exceeded $78.60 ($393 × 80% × 1/4), the exception in subsection (11)(B) of this rule would apply and no addition to tax would be imposed for the first installment. The same procedure would be followed for each installment period to determine if the exception in subsection (11)(B) of this rule applies, except that the required installment amount would be multiplied by 2/4 of 80% and 3/4 of 80% respectively for the second and third installments. This exception does not apply to individuals with respect to the fourth installment due January 15 of the succeeding taxable year since the taxable income for the preceding calendar year had been determined on December 31 of the taxable year;

1. (D) Assume a calendar year corporation has a federal taxable income from all sources for the period January through May of $5,000 and that it has no positive or negative modifications for the period under sections 143.121 and 143.141, RSMo. Further assume that its allocation factor for the period is fifty percent (50%). The following procedure would be followed in determining whether the exception in subsection (11)(B) of this rule would apply to its required second installment payment due on June 15:

   1. 1. Net income all sources January through May $ 5,000
   2. 2. Annualized income-line 1. 12/5 $12,000
   3. 3. Less estimated federal tax $ 2,640
   4. 4. Annualized Missouri taxable income all sources $ 9,360
   5. 5. Annualized Missouri taxable income at 50% $ 4,680
   6. 6. Estimated Missouri income tax $ 234

If the taxpayer’s estimated tax payments paid on or before June 15 total at least $93.60 ($234 × 80% × 2/4), the exception in subsection (11)(B) of this rule would apply and no addition to tax would be imposed with respect to the second installment;

1. (E) Assume that a married taxpayer who files a combined return for calendar year 1974 with his/her spouse, has two (2) dependent children and receives a monthly salary of $1,500 on which $28 a month is withheld by his/her employer. During November and December of 1974, the taxpayer receives $3,400 of income not subject to withholding. S/he makes no estimated tax payments until January 15, 1975 at which time s/he pays $100. S/he uses the standard deduction in preparing his/her income tax return. There is no addition to tax for underpayment. Applying the ninety percent (90%) test of the exception in subsection (11)(C) of this rule, his/her status as of each payment date is—

   Tax if

Status For Full 90% Withheld Date Income Year* of Tax and Paid 4-15 $ 4,500 0 0 $ 84 6-15 $ 7,500 $ 49 $ 44.10 $140 9-15 $12,000 $155 $139.50 $244 1-15 $21,400 $545 $490.50 $436

*The tax for the full year shown in the column was computed on the basis of the taxpayer filing a federal income tax return for the year and claiming the standard deduction in the computation of his/her federal income tax deduction for Missouri income tax purposes.

Since the total amount in the fifth column is larger than the amount in the fourth column on each of the first three (3) installment dates, there is no addition to the tax for underpayment, by reason of the exception in subsection (11)(C) of this rule. Also, there is no underpayment of the fourth installment, by reason of the exception in subsection (11)(B) of this rule (80% of $545 ě $436). Note that the exception in subsection (11)(C) does not apply to individuals with respect to the fourth installment;

1. (F) Taxpayer, a married man with one (1) child and a dependent parent, files a combined Missouri income tax return for 1974 with his spouse showing a total taxable income of $9,000 and a tax liability of $315. The taxpayer’s 1973 income tax return showed a total taxable income of $7,500 and a total tax liability of $238 with exemptions claimed for only the taxpayer and his spouse. Assume that the taxpayer paid four (4) timely estimated tax payments of $50 each for 1974. The exception is subsection (11)(A) of this rule would not apply as the 1974 estimated tax payments of $200 do not equal or exceed the prior year’s tax of $238. Under the exception in subsection (11)(D) of this rule, what would have been due on the 1973 return, computed with regard to the 1974 exemptions (totaling $3,200 instead of $2,400) would have been $199 which is less than the $200 paid; therefore the exception in subsection (11)(D) of this rule applies and no addition to the tax will be imposed; and
2. (G) The X Corporation was incorporated and began doing business on April 1, 1973 and filed its first Missouri income tax return for the period April 1, 1973 through December 31, 1973 showing a Missouri taxable income of $1,000 and a tax liability of $50. X Corporation pays four (4) timely estimated tax payments for 1974 in the amount of $25 each. On its calendar year 1974 Missouri income tax return, Corporation X shows a Missouri taxable income of $100,000 and a tax liability of $5,000. In this example, the exception in subsection (11)(A) of this rule would not apply since the preceding year’s tax return did not cover a period of twelve

1. (12) months. The exception in subsection (11)(D) of this rule does apply since taxpayer’s estimated tax payments exceed that which would have been due on the 1974 return if it had been calculated at the 1974 rates but based on the facts shown on the 1973 return.
2. (13) Determination of Taxable Income for Installment Periods. In determining the applicability of the exceptions in section 143.761.4(2) and (3), RSMo, there must be an accurate determination of the amount of income and deductions for the calendar months in the taxable year preceding the installment dated as of which the determination is made. For example, if a taxpayer distributes year-end bonuses to its employees, but does not determine the amount of the bonuses until the next to the last month of the taxable year, it may not deduct any portion of the year-end bonuses in determining the taxable income for any installment period other than the final installment period for the taxable year. If a taxpayer on an accrual method of accounting wishes to use either of the exceptions in section 143.761.4(2) or (3), RSMo, s/he must establish the amount of income and deductions for each applicable installment period. If income is derived from business in which the production, purchase or sale of merchandise is an income-producing factor requiring the use of inventories, the taxpayer will be unable to determine accurately the amount of the taxable income for the applicable period unless there can be established, with reasonable accuracy, the cost of goods sold for the applicable installment period. The cost of goods sold for the period shall be considered, unless a more exact determination is available, as that part of the cost of goods sold during the entire taxable year as the gross receipts from the sales for the installment period is to the gross receipts from the sales for the entire taxable year.

3. (14) Members of Partnerships. In determining a partner’s taxable income for the months in his/her taxable year which precede the month in which the installment date occurs, each partner shall take into account all items for any partnership taxable year ending with or within his/her taxable year to the extent that those items are attributable to months in the partnership taxable year which precede the month in which the installment date occurs together with any guaranteed payments from the partnership to the extent that the guaranteed payments are includable in his/her taxable income for those months. The provisions of this section may be illustrated by the following examples:

   1. (A) A, who is an individual calendar year taxpayer, is a member of a partnership whose taxable year ends on January 31. A must take into account, in the determination of his/her taxable income for the installment due on April 15, 1974, all of his/her distributive share of partnership items and the amount of any guaranteed payments made to him/her which were deductible by the partnership in the partnership taxable year beginning on February 1, 1973 and ending on January 31, 1974; and
   2. (B) Assume that the taxable year of the partnership of which A, a calendar year taxpayer, is a member ends on June 30. A must take into account in the determination of his/her taxable income for the installment due on April 15, 1974 his/her distributive share of partnership items for the period July 1, 1973—March 31, 1974; and for the installment due on June 15, 1974, s/he must take into account the amounts for the period July 1, 1973—May 31, 1974; and for the installment due on September 15, 1974, s/he must take into account the amounts for the entire partnership taxable year of July 1, 1973—June 30, 1974 (the date on which the partnership taxable year ends).
4. (15) Beneficiaries of Estates and Trusts. In determining the applicability of the exceptions in subsections (11)(A) and (B) of this rule as of any installment date, the beneficiary of an estate or trust must take into account his/her distributable share of income from the estate or trust for the applicable period (whether or not actually distributed) if the trust or estate is required to distribute income to him/her currently. If the estate or trust is not required to distribute income currently, only the amounts actually distributed to the beneficiary during the period must be taken into account. If the taxable year of the beneficiary and the taxable year of the estate or trust are different, there shall be taken into account the beneficiary’s distributable share of income, or the amount actually distributed to him/her, as the case may be, during the months in the taxable year of the estate or trust ending within the taxable year of the beneficiary which precedes the month in which the installment date occurs. This rule is similar to the rule that applies for a member of a partnership when a partner and a partnership of which s/he is a member have different taxable years.

AUTHORITY: section 143.961, RSMo 1986. Regulation 1.761 was originally filed Dec. 22, 1975, effective Jan. 2, 1976. Amended: Filed Nov. 5, 1982, effective Feb. 11, 1983.

*Original authority 1972. 12 CSR 10-2