Form 2220 AR 2023-2024

Form 2220 AR: What You Should Know

Enter the estimated tax. Line 5 Underpayment is not subject to penalties. However, the underpayment may also be subject to interest or additional penalties. (a) For taxpayers whose tax liability as a result of this underpayment is greater than 5,000, the penalty is 4,000. However, for taxpayers whose tax liability as a result of underpayment is not greater than 5,000, the underpayment penalty will be reduced in proportion to the excess of the tax liability as a result of this underpayment over the 5,000. The taxpayer must show that an adjustment was made to its tax liability as a result of this underpayment. (b) If the amount reported as underpayment on Line 4 is less than 500 and the amount reported as underpayment on Line 5 is at least 5,000, the applicable underpayment penalty is 2,500 (6,000 – 4,000). For taxpayers whose tax liability as a result of this underpayment is less than 5,000, the penalty will not reduce tax liability. However, the underpayment penalty will be assessed against any liability in excess of 6,000. (d) If the amount reported as underpayment on Line 4 is 5,000 or the underpayment amount is 6,000 and the underpayment amount is at least 150,000 and the tax liability is at least 6,000, the underpayment penalty is 5,000 (6,000 + 2,500). (e) For taxpayers whose tax liability as a result of this underpayment is 5,000, less than 5,000, the amount reported as underpayment on Line 4 will not decrease the tax liability from the amount shown on Line 5. (f) For taxpayers whose tax liability as a result of this underpayment is 5,000 or less, the amount reported as underpayment on Line 4 will increase tax liability by the amount reported as underpayment on Line 5. (g) For the purpose of determining penalties, the underpayment penalty is considered a penalty for purposes of tax liability reduction calculations by the IRS, if that penalty has previously been assessed against the taxpayer. The only exception to this is when the penalty will apply to a claim for refund or credit, under IRC Section 6513. See IRM 26.2.1.1.

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