Question

Large corporations (corporations with more than $1,000,000 in taxable income in any of the three years prior to the current year) can use their prior tax year liability to determine all required estimated quarterly payments for the current year.

a) True
b) False

Answer 1

It is false that large corporations can use their prior tax year liability to determine all estimated quarterly payments for the current year due to safe harbor rules that require calculation based on the previous year or current year's taxes.

Step-by-step explanation:

It is false that large corporations (corporations with more than $1,000,000 in taxable income in any of the three years prior to the current year) can use their prior tax year liability to determine all required estimated quarterly payments for the current year. Corporate tax regulations require large corporations to calculate their estimated tax payments based on the lower of 100% of the tax shown on the return of the current year or 100% of the tax shown on the return of the previous year, provided the previous year was a 12 month period.

This method is known as the 'safe harbor' rule. However, if a corporation had a lower tax liability in the previous year, or situations have changed significantly in the current year, the estimated taxes based on the previous year's liability might not be sufficient to avoid underpayment penalties.