Instructions for Form 2210 (2006)

General Instructions

This is archived information that pertains only to the 2006 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Table of Contents

What's New

For certain taxpayers affected by Hurricane Katrina, the due dates for the April 16, 2006, June 15, 2006, and September 15, 2006, required installments were extended to October 16, 2006. See Hurricane Katrina Relief on page 2.
If you claimed the foreign earned income exclusion or housing exclusion on Form 2555 or Form 2555-EZ, the Tax Increase Prevention and Reconciliation Act of 2005 made changes to the tax law that may affect your 2006 tax liability.

At the time these instructions went to print, the IRS was considering waiving all or part of the estimated tax penalty to the extent the underpayment of any installment is attributable to changes made by the new law. To find out if a waiver is available, and for more details, go to www.irs.gov, click on More Forms and Publications, and then on What's Hot in forms and publications.

Purpose of Form

Generally, use Form 2210 to see if you owe a penalty for underpaying your estimated tax and, if you do, to figure the amount of the penalty. If you are not required to file Form 2210, you can use it to figure your penalty if you wish to do so. In that case, enter the penalty on your return, but do not file Form 2210.

Who Must File Form 2210

In most cases you do not need to file Form 2210. The IRS will figure any penalty you owe and send you a bill. See The IRS Will Figure the Penalty for You, below. Use the chart at the top of page 1 of Form 2210 to see if you need to file Form 2210.

The IRS Will Figure the Penalty for You

Because Form 2210 is complicated, we strongly encourage you to let the IRS figure the penalty. If you owe it, we will send you a bill. And as long as you file your return by April 17, 2007, we will not charge you interest on the penalty if you pay by the date specified on the bill.

If you want us to figure the penalty for you, complete your return as usual. Leave the penalty line on your return blank; do not file Form 2210.

See Part II of the form. If box B, C, or D is checked, you must figure the penalty yourself and attach a completed Form 2210 to your return.

Other Methods of Figuring the Penalty

We realize that there are different ways to figure the correct penalty. You do not have to use the method used on Form 2210 as long as you enter the correct penalty amount on the penalty line of your return.

However, if you are required to file Form 2210 because one or more of the boxes in Part II applies to you, you must complete certain lines.

If you use the short method, you must check the applicable boxes in Part II, complete lines 1 through 14, and enter the penalty on line 17.
If you use the regular method, you must check the applicable boxes in
Part II, complete lines 1 through 9 and lines 18 through 26, and enter the penalty on line 31.
If you use the annualized income installment method, you must check the applicable boxes in Part II, complete lines 1 through 9, Schedule AI, and lines 18 through 26, and enter the penalty on
line 31.

Who Must Pay the Underpayment Penalty

In general, you may owe the penalty for 2006 if you did not pay at least the smaller of:

90% of the tax shown on your 2006 tax return, or
100% of the tax shown on your 2005 tax return (110% of that amount if you are not a farmer or fisherman and the adjusted gross income (AGI) shown on that return is more than $150,000, or, if married filing separately for 2006, more than $75,000).

The penalty is figured separately for each installment due date. Therefore, you may owe the penalty for an earlier due date even if you paid enough tax later to make up the underpayment. This is true even if you are due a refund when you file your tax return. However, you may be able to reduce or eliminate the penalty by using the annualized income installment method. For details, see the Schedule AI instructions beginning on page 5.

Return. In these instructions, “return” refers to your original return. However, an amended return is considered the original return if it is filed by the due date (including extensions) of the original return. Also, a joint return that replaces previously filed separate returns is considered the original return.

Exceptions to the Penalty

You will not have to pay the penalty if either (1) or (2) applies.

You had no tax liability for 2005, you were a U.S. citizen or resident alien for the entire year (or an estate of a domestic decedent or a domestic trust), and your 2005 tax return was (or would have been had you been required to file) for a full 12 months.
The total tax shown on your 2006 return minus the amount of tax you paid through withholding is less than $1,000. To determine whether the total tax is less than $1,000, complete lines 1-7.

Estates and trusts. No penalty applies to either of the following.

A decedent's estate for any tax year ending before the date that is 2 years after the decedent's death.
A trust that was treated as owned by the decedent if the trust will receive the residue of the decedent's estate under the will (or if no will is admitted to probate, the trust primarily responsible for paying debts, taxes, and expenses of administration) for any tax year ending before the date that is 2 years after the decedent's death.

Special Rules for Farmers and Fishermen

If you meet both tests 1 and 2 below, you do not owe a penalty for underpaying estimated tax.

Your gross income from farming and fishing is at least ⅔ of your annual gross income from all sources for 2005 or 2006.
You filed Form 1040 or 1041 and paid the entire tax due by March 1, 2007.

See chapter 2 of Pub. 505, Tax Withholding and Estimated Tax, for the definition of gross income from farming and fishing.

If you meet test 1 but not test 2, use Form 2210-F, Underpayment of Estimated Tax by Farmers and Fishermen, to see if you owe a penalty. If you do not meet test 1, use
Form 2210.

Hurricane Katrina Relief

Relief extension through October 16, 2006. Additional time is granted to pay your April 17, 2006, June 15, 2006, and September 15, 2006, required installments if you are an eligible individual, estate, or trust located in the counties and parishes listed in this section.

Who is eligible for relief. The following individuals, estates, and trusts are eligible for the extension.

Any individual whose principal residence is located in the covered disaster area.
Any business entity or sole proprietor whose principal place of business is located (or was located on August 29, 2005) in the covered disaster area.
Any individual, business entity, or sole proprietor whose records necessary to meet a postponed deadline are maintained (or were maintained on August 29, 2005) or whose tax professional's office is located (or was located as of August 29, 2005) in the covered disaster area.
Any relief worker who assisted in the Katrina covered disaster area, regardless of whether affiliated with a recognized government or philanthropic organization.
Any individual visiting the covered disaster area who was killed or injured as a result of the hurricane or its aftermath.
Any spouse of an affected taxpayer, solely with regard to a joint return of the husband and wife.
Any estate or trust that has (or had as of August 29, 2005) tax records necessary to meet a filing or payment deadline in the covered disaster area.

Automatic extension. Individuals, estates, and trusts in the following counties and parishes will automatically receive the additional extension.

Louisiana—Cameron, Jefferson, Orleans, Plaquemines, St. Bernard, St. Charles, and St. Tammany parishes.
Mississippi—Hancock, Harrison, and Jackson counties.

Additional qualifying areas.

Alabama—Baldwin, Choctaw, Clarke, Greene, Hale, Marengo, Mobile, Pickens, Sumter, Tuscaloosa, and Washington.
Louisiana—Acadia, Ascension, Assumption, Calcasieu, East Baton Rouge, East Feliciana, Iberia, Iberville, Jefferson Davis, Lafayette, Lafourche, Livingston, Pointe Coupee, St. Helena, St. James, St. John the Baptist, St. Mary, St. Martin, Tangipahoa, Terrebonne, Vermilion, Washington, West Baton Rouge, and West Feliciana.
Mississippi—Adams, Amite, Attala, Claiborne, Choctaw, Clarke, Copiah, Covington, Franklin, Forrest, George, Greene, Hinds, Holmes, Humphreys, Jasper, Jefferson, Jefferson Davis, Jones, Kemper, Lamar, Lauderdale, Lawrence, Leake, Lincoln, Lowndes, Madison, Marion, Neshoba, Newton, Noxubee, Oktibbeha, Pearl River, Perry, Pike, Rankin, Scott, Simpson, Smith, Stone, Walthall, Warren, Wayne, Wilkinson, Winston, and Yazoo.

All qualifying individuals, estates, and trusts (unless they live in or, in the case of estates and trusts, have mailing addresses in one of the counties or parishes listed under Automatic extension ) must identify themselves as eligible for relief by calling 1-866-562-5227.

Figuring your penalty. If you use Part III, use the factor shown in the instructions for line 15 to figure the penalty. If you use Part IV, see Hurricane Katrina Relief on page 3 for special instructions to use when figuring the penalty.

More information. For more information about hurricane relief, see Pub.1460, Highlights of Tax Relief Provided to Taxpayers in Response to Hurricanes Katrina, Rita, and Wilma, and Pub. 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma.

Waiver of Penalty

If you have an underpayment, all or part of the penalty for that underpayment will be waived if the IRS determines that:

In 2005 or 2006, you retired after reaching age 62 or became disabled and your underpayment was due to reasonable cause, or
The underpayment was due to a casualty, disaster, or other unusual circumstance and it would be inequitable to impose the penalty.

To request a waiver, do the following.

Check box A or box B in Part II.
If you checked box A, complete only page 1 of Form 2210 and attach it to your tax return (you are not required to figure the amount of penalty to be waived).
If you checked box B, complete
Form 2210 through line 16 (line 30 if you use the regular method) without regard to the waiver. Write the amount you want waived in parentheses on the dotted line next to line 17 (line 31 for the regular method). Subtract this amount from the total penalty you figured without regard to the waiver, and enter the result on line 17 (line 31 for the regular method).
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.
If you are requesting a 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.
If you are requesting a waiver due to a casualty, disaster, or other unusual circumstance, attach documentation such as copies of police and insurance company reports.

The IRS will review the information you provide and decide whether to grant your request for a waiver.

Additional Information

See Pub. 505 for more details. It has examples of filled-in Forms 2210.

For guidance on figuring estimated taxes for trusts and certain estates, see Notice 87-32, 1987-1 C.B. 477.