Figuring Your Penalty (Section B of Part IV)

Figure the amount of your penalty in Section B, Part IV of Form 2210, following the instructions. The penalty is imposed on each underpayment shown on line 29, Section A, for the number of days through April 15, 2001, that it remained unpaid. (You may find it helpful to show the date of payment beside each amount on line 29.)

There are three rate periods to figure the penalty. Use Rate Period 1 (lines 31 and 32) to apply the 8% rate in effect between April 16, 2001 and June 30, 2001. Use Rate Period 2 (lines 33 and 34) to apply the 7% rate in effect between July 1, 2001 and December 31, 2001. Use Rate Period 3 (lines 35 and 36) to apply the 6% rate in effect between January 1, 2002 and April 15, 2002.

Aid for counting days.   Table 4-1 provides a simple method to count the number of days between payment dates or between a due date and a payment date.

1. Find the number for the date the payment was due.
2. Find the number for the date the payment was made.
3. Subtract the due date number from the payment date number.

For example, if a payment was due on June 15 (61), but was not paid until November 4 (203), the payment was 142 (203 - 61) days late.

Payments.   Before completing Section B, make a list of the payments you made after the due date (or the last day payments could be made on time) for the earliest payment period an underpayment occurred. For example, if you had an underpayment for the first payment period, list your payments after April 15, 2001. You can use the tables in the Form 2210 instructions to make your list. Follow those instructions for listing income tax withheld and payments made with your return. Use the list to determine when each underpayment was paid.

Underpayment paid in two or more parts.   If an underpayment was paid in two or more parts on different dates, you must figure the penalty separately for each part. (You may find it helpful to show the underpayment on line 29, Section A, broken down into the parts paid on different dates.)

Figuring the penalty.   Form 2210 for 2001 has 3 rate periods. Figure the underpayment penalty by applying the appropriate rate against each underpayment shown on line 29. If an underpayment remained unpaid for more than one rate period, the penalty on that underpayment will be figured using more than one rate.

Use lines 31, 33, and 35 to figure the number of days the underpayment remained unpaid. (Also see Table 4-1.) Use lines 32, 34, and 36 to figure the actual penalty amount by applying the rate against the underpayment for the number of days it remained unpaid.

If an underpayment remained unpaid for the entire period, use Table 4-2 to determine the number of days to enter for each period.

Table 4-2 Chart of Total Days

	Column (a)	Column (b)	Column (c)	Column (d)
line 31	76	15	NA	NA
line 33	184	184	98	NA
line 35	105	105	105	90

Example 4.8.   In Example 4.6, Ben Brown determined that he had an underpayment for all four payment periods.

Ben's filled-in Form 2210 is shown at the end of this chapter. This example illustrates Part IV, Section B, of that form.

Ben's 2001 tax is $7,031. His minimum required payment for each period is $1,529 ($6,116 ÷ 4). His $3,228 withholding is considered paid in four equal installments of $807, one on each payment due date. Therefore, he must make estimated tax payments of $722 each period. Ben made estimated tax payments of $1,000 on September 2, 2001, and $1,000 on January 12, 2002. He plans to file his return and pay his $1,803 tax balance ($7,031 tax - $5,228 withholding and estimated tax payments) on April 15, 2002. Therefore, he is considered to have made the following payments for tax year 2001:

April 15, 2001	$ 807
June 15, 2001	807
September 2, 2001	1,000
September 15, 2001	807
January 12, 2002	1,000
January 15, 2002	807
April 15, 2002	1,803

Penalty for first period (April 15, 2001) - column (a).   Ben's $722 underpayment for the first payment period was paid by applying $722 of his $807 payment on June 15, 2001. The $722 remained unpaid 61 days (April 16 through June 15, 2001). Ben enters 61 on line 31 and figures this part of the penalty on line 32.

Penalty for second period (June 15, 2001) - column (b).   Ben figures his second period underpayment as follows.

1. Of the $807 he paid for the second period, $722 is applied to the underpayment remaining from the first period.
2. That leaves $85 ($807 - $722) to apply to his second period required installment of $1,529.
3. The result, $1,444 ($1,529 - $85) is Ben's underpayment for the second period.

The $1,444 underpayment is paid in two parts by applying the $1,000 paid on September 2 and $444 of his $807 September 15 payment. To help him figure his penalty, Ben shows each part of the underpayment paid on different dates on line 29.

For Rate Period 1, the entire underpayment remained unpaid 15 days (June 16 through June 30). Ben enters 15 on line 31 and figures this part of his penalty on line 32.

For Rate Period 2, $1,000 of the underpayment remained unpaid for 64 days (July 1 through September 2) and $444 remained unpaid for 77 days (July 1 through September 15). Ben enters 64 and 77 on line 33. He figures this part of the penalty on line 34 by adding the result of the two penalty computations.

Penalty for third period (September 24, 2001) - column (c).   Ben figures his third period underpayment as follows.

1. Of the $1,807 he paid for the third period, $1,444 is applied to the underpayment remaining from the second period.
2. That leaves $363 ($1,807 - $1,444) to apply to his third period required installment of $1,529.
3. The result, $1,166 ($1,529 - $363) is Ben's underpayment for the third period.

The $1,166 underpayment is paid in two parts by applying his $1,000 payment on January 12, 2001, and $166 of his $807 payment on January 15. On line 29, Ben shows each part of the underpayment paid on different dates.

For Rate Period 2, the entire underpayment remained unpaid 98 days (September 25 through December 31). Ben enters 98 on line 33 and figures this part of his penalty on line 34.

For Rate Period 3, $1,000 of the underpayment remained unpaid for 12 days (January 1 through January 12) and $444 remained unpaid for 15 days (January 1 through January 15). Ben enters 15 and 12 on line 35 and figures his penalty for each part of the underpayment on line 36. He includes both penalty amounts on line 36.

Penalty for fourth period (January 15, 2002) - column (d).   Ben figures his fourth period underpayment as follows.

1. Of the $1,807 he paid for the fourth period, $1,166 is applied to the underpayment remaining from the third period.
2. That leaves $641 ($1,807 - $1,166) to apply to his fourth period required installment of $1,529.
3. The result, $888 ($1,529 - $641) is Ben's underpayment for the fourth period.

The $888 underpayment was paid April 15, 2002, with his tax return. The $888 remained unpaid 90 days (January 16 through April 15, 2002). Ben enters that number on line 35 and figures his penalty on line 36.

Total penalty.   Ben's total penalty for 2001 on line 37 is $70.66, the total of all amounts on lines 32, 34, and 36 in all columns. Ben enters that amount on line 71 of his Form 1040. He also adds $71 to his $1,803 tax balance and enters the $1,874 total on line 70. He files his return on April 15 and includes a check for $1,874. He keeps his completed Form 2210 for his records.

Example 4.9.   In Example 4.7, Ben Brown's first underpayment was for the second payment period.

Ben's filled-in Schedule AI and Part IV of Form 2210 are shown at the end of this chapter. This example illustrates completion of Part IV, Section B, of Ben's Form 2210 under the annualized income installment method.

Ben made the same payments listed in the table in Example 4.8.

Penalty for second period - column (b).   Ben's $598 underpayment for the second payment period was paid by applying $598 of his $1,000 September 2, 2001 payment. To help him figure his penalty, Ben shows the date the underpayment was paid on line 29.

For Rate Period 1, the entire underpayment remained unpaid 15 days (June 16 through June 30). Ben enters 15 on line 31 and figures this part of his penalty on line 32.

For Rate Period 2, the entire underpayment remained unpaid for 64 days (July 1 through September 2). Ben enters 64 on line 33 and figures this part of his penalty on line 34.

Penalty for third period - column (c).   Ben's $246 underpayment for the third payment period was paid by applying $246 of his $1,000 payment on January 12, 2002.

For Rate Period 2, the entire underpayment remained unpaid 98 days (September 25 through December 31, 2001). Ben enters 98 on line 33 and figures this part of the penalty on line 34.

For Rate Period 3, the entire underpayment remained unpaid 12 days (January 1, 2002, through January 12, 2002). Ben enters 12 on line 35 and figures this part of the penalty on line 36.

Penalty for fourth period - column (d).   Ben's $653 underpayment for the fourth payment period was paid on April 15, 2002, with his tax return. The entire amount remained unpaid 90 days (January 16 through April 15, 2002). Ben enters that number on line 35 and figures this part of the penalty on line 36.

Total penalty.   Ben's total penalty for 2001 on line 37 is $24.08, the total of all amounts on lines 32, 34, and 36 in all columns. Ben enters that amount on line 71 of his Form 1040. He also adds $24 to his $1,803 tax balance and enters the $1,827 total on line 70. He files his return on April 15 and includes a check for $1,827. Because he used the annualized income installment method, he must attach Form 2210, including Schedule AI, to his return and check the box on line 1b of Form 2210.

Farmers and Fishermen

If you are a farmer or fisherman, the following special rules for underpayment of estimated tax apply to you.

1. The penalty for underpaying your 2001 estimated tax will not apply if you file your return and pay all the tax due by March 1, 2002. If you are a fiscal year taxpayer, the penalty will not apply if you file your return and pay the tax due by the first day of the third month after the end of your tax year.
2. Any penalty you owe for underpaying your 2001 estimated tax will be figured from one payment due date, January 15, 2002.
3. The underpayment penalty for 2001 is figured on the difference between the amount of 2001 withholding plus estimated tax paid by the due date and the smaller of:
   1. 100% of the tax shown on your 2000 return, or
   2. 662/3% (rather than 90%) of your 2001 tax.

Even if these special rules apply to you, you will not owe the penalty if you meet either of the two conditions discussed earlier under Exceptions.

See chapter 2 to see whether you are a farmer or fisherman who is eligible for these special rules.

Form 2210-F.   Use Form 2210-F to figure any underpayment penalty. Do not attach it to your return unless you check box 1a or box 1b. Also, if neither box applies to you and you owe a penalty, you do not need to complete Form 2210-F. The IRS can figure your penalty and send you a bill.

Waiver of Penalty

The IRS can waive the penalty for underpayment if either of the following applies.

1. You did not make a payment because of a casualty, disaster, or other unusual circumstance and it would be inequitable to impose the penalty.
2. You retired (after reaching age 62) or became disabled in 2000 or 2001 and both the following requirements are met:
   1. You had a reasonable cause for not making the payment, and
   2. Your underpayment was not due to willful neglect.

How to request a waiver.   To request a waiver, you must complete Form 2210 as follows.

1. Check the box on line 1a.
2. Complete line 2 through line 20 (or through line 36 if you use the regular method) without regard to the waiver.
3. Write the amount you want waived in parentheses on the dotted line next to line 21 (line 37 for the regular method).
4. Subtract this amount from the total penalty you figured without regard to the waiver. Enter the result on line 21 (line 37 for the regular method).
5. Attach Form 2210 and a statement to your return explaining the reasons you were unable to meet the estimated tax requirements and the time period for which you are requesting a waiver.
6. If you are requesting a penalty waiver due to a casualty, disaster, or other circumstance, include supporting documentation, such as police and insurance company reports.
7. If you are requesting a penalty waiver due to retirement or disability, attach documentation that shows your retirement date (and your age on that date) or the date you became disabled.

The IRS will review the information you provide and will decide whether or not to grant your request for a waiver.

Farmers and fishermen.   To request a waiver, you must complete Form 2210-F as follows.

1. Check the box on line 1a.
2. Complete line 2 through line 18 without regard to the waiver.
3. Write the amount you want waived in parentheses on the dotted line next to line 19.
4. Subtract this amount from the total penalty you figured without regard to the waiver. Enter the result on line 19.
5. Attach Form 2210-F and a statement to your return explaining the reasons you were unable to meet the estimated tax requirements.
6. If you are requesting a penalty waiver due to a casualty, disaster, or other circumstance, include supporting documentation, such as police and insurance company reports.
7. If you are requesting a penalty waiver due to retirement or disability, attach documentation that shows your retirement date (and your age on that date) or the date you became disabled.

The IRS will review the information you provide and will decide whether or not to grant your request for a waiver.

Form 2210 for Ivy Fields (Examples 4.4 and 4.5)Form: 2210 Filled-in examples

Form 2210 for Ben Brown (Example 4.6); Form 2210, page 2 (Example 4.6 continued and Example 4.8)Form: 2210 Filled-in examples

Form 2210, page 3 (Example 4.7)Form: 2210 Filled-in examples

Form 2210, page 2 (Examples 4.7 and 4.9)Form: 2210 Filled-in examples

How To Get Tax Help

You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. By selecting the method that is best for you, you will have quick and easy access to tax help.

Contacting your Taxpayer Advocate.   If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate.

The Taxpayer Advocate represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels. While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that your case is given a complete and impartial review.

To contact your Taxpayer Advocate:

• Call the Taxpayer Advocate at
  1-877-777-4778.
• Call the IRS at 1-800-829-1040.
• Call, write, or fax the Taxpayer Advocate office in your area.
• Call 1-800-829-4059 if you are a
  TTY/TDD user.

For more information, see Publication 1546, The Taxpayer Advocate Service of the IRS.

Free tax services.   To find out what services are available, get Publication 910, Guide to Free Tax Services. It contains a list of free tax publications and an index of tax topics. It also describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics.

Personal computer. With your personal computer and modem, you can access the IRS on the Internet at www.irs.gov. While visiting our web site, you can:

• Find answers to questions you may have.
• Download forms and publications or search for forms and publications by topic or keyword.
• View forms that may be filled in electronically, print the completed form, and then save the form for recordkeeping.
• View Internal Revenue Bulletins published in the last few years.
• Search regulations and the Internal Revenue Code.
• Receive our electronic newsletters on hot tax issues and news.
• Get information on starting and operating a small business.

You can also reach us with your computer using File Transfer Protocol at ftp.irs.gov.

TaxFax Service. Using the phone attached to your fax machine, you can receive forms and instructions by calling 703-368-9694. Follow the directions from the prompts. When you order forms, enter the catalog number for the form you need. The items you request will be faxed to you.

For help with transmission problems, call the FedWorld Help Desk at 703-487-4608.

Phone. Many services are available by phone.

• Ordering forms, instructions, and publications. Call 1-800-829-3676 to order current and prior year forms, instructions, and publications.
• Asking tax questions. Call the IRS with your tax questions at 1-800-829-1040.
• TTY/TDD equipment. If you have access to TTY/TDD equipment, call 1-800-829- 4059 to ask tax questions or to order forms and publications.
• TeleTax topics. Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics.

Evaluating the quality of our telephone services. To ensure that IRS representatives give accurate, courteous, and professional answers, we evaluate the quality of our telephone services in several ways.

• A second IRS representative sometimes monitors live telephone calls. That person only evaluates the IRS assistor and does not keep a record of any taxpayer's name or tax identification number.
• We sometimes record telephone calls to evaluate IRS assistors objectively. We hold these recordings no longer than one week and use them only to measure the quality of assistance.
• We value our customers' opinions. Throughout this year, we will be surveying our customers for their opinions on our service.

Walk-in. You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Some IRS offices, libraries, grocery stores, copy centers, city and county governments, credit unions, and office supply stores have an extensive collection of products available to print from a CD-ROM or photocopy from reproducible proofs. Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes.

Mail. You can send your order for forms, instructions, and publications to the Distribution Center nearest to you and receive a response within 10 workdays after your request is received. Find the address that applies to your part of the country.

• Western part of U.S.:
  Western Area Distribution Center
  Rancho Cordova, CA 95743-0001
• Central part of U.S.:
  Central Area Distribution Center
  P.O. Box 8903
  Bloomington, IL 61702-8903
• Eastern part of U.S. and foreign addresses:
  Eastern Area Distribution Center
  P.O. Box 85074
  Richmond, VA 23261-5074

CD-ROM. You can order IRS Publication 1796, Federal Tax Products on CD-ROM, and obtain:

• Current tax forms, instructions, and publications.
• Prior-year tax forms and instructions.
• Popular tax forms that may be filled in electronically, printed out for submission, and saved for recordkeeping.
• Internal Revenue Bulletins.

The CD-ROM can be purchased from National Technical Information Service (NTIS) by calling 1-877-233-6767 or on the Internet at www.irs.gov. The first release is available in mid-December and the final release is available in late January.

IRS Publication 3207, Small Business Resource Guide, is an interactive CD-ROM that contains information important to small businesses. It is available in mid-February. You can get one free copy by calling 1-800-829-3676 or visiting the IRS web site at www.irs.gov.

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