[Code of Federal Regulations]
[Title 26, Volume 13]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR]

[Page 469-470]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
Procedure and Administration--Table of Contents
 
Sec.  1.6655-5  Addition to tax on account of excessive adjustment 
under section 6425.

    (a) In general. (1) Section 6655(g) imposes an addition to the tax 
under chapter 1 of the Code in the case of any excessive amount (as 
defined in subparagraph (3) of this paragraph) of an adjustment under 
section 6425 which is made before the 15th day of the third month 
following the close of a taxable year beginning after December 31, 1967. 
This addition to tax is imposed whether or not there was reasonable 
cause for an excessive adjustment.
    (2) If the amount of an adjustment under section 6425 is excessive, 
there shall be added to the tax under chapter 1 for the taxable year an 
amount determined at the annual rate referred to in

[[Page 470]]

the regulations under section 6621 upon the excessive amount from the 
date on which the credit is allowed or the refund paid to the 15th day 
of the third month following the close of the taxable year. A refund is 
paid on the date it is allowed under section 6407.
    (3) The excessive amount is equal to the lesser of the amount of the 
adjustment or the amount by which (i) the income tax liability (as 
defined in section 6425(c) of the Code) for the taxable year, as shown 
on the return for the taxable year, exceeds (ii) the estimated income 
tax paid during the taxable year, reduced by the amount of the 
adjustment.
    (4) The computation of the addition to the tax imposed by section 
6655 is made independently of, and does not affect the computation of, 
any addition to the tax which a corporation may otherwise owe for an 
underpayment of an installment of estimated tax.
    (5) The provisions of section 6655 may be illustrated by the 
following example:

    Example. Corporation A, a calendar year taxpayer, had an 
underpayment as defined in section 6655(b) for its fourth installment of 
estimated tax which was due on December 15, 1968, in the amount of 
$10,000. Nevertheless, on January 1, 1969, corporation A filed an 
application for adjustment of overpayment of estimated income tax for 
1968 in the amount of $20,000. On February 15, 1969, the Internal 
Revenue Service in response to the application, refunded $20,000 to 
Corporation A. On March 15, 1969, corporation A filed its 1968 tax 
return and made a payment in settlement of its total tax liability. 
Under section 6655(a), corporation A is subject to an addition to tax in 
the amount of $150 ($10,000x6 percentx\3/12\) on account of corporation 
A's December 15, 1968 underpayment. Under section 6655(g) corporation A 
is subject to an addition to tax in the amount of $100 ($20,000x6 
percent x\1/2\) on account of corporation A's excessive adjustment under 
section 6425. In determining the amount of the addition to tax under 
section 6655(a) for failure to pay estimated income tax, the excessive 
adjustment under section 6425 is not taken into account.

    (6) An adjustment is generally to be treated as a reduction of 
estimated income tax paid as of the date of the adjustment. However, for 
purposes of Sec. Sec.  1.6655-1 through 1.6655-3, the adjustment is to 
be treated as if not made in determining whether there has been any 
underpayment of estimated income tax and, if there is an underpayment, 
the period during which the underpayment existed.

[T.D. 7059, 35 FR 14548, Sept. 17, 1970, as amended by T.D. 7384, 40 FR 
49322, Oct. 22, 1975]