ARE THERE EXCEPTIONS OR WAIVERS FROM THE PENALTY for Underpayment of Estimated Tax? (not to be confused with the alternative methods of calculating the underpayment.)

Small Amount of Tax

There is an exception to the addition to tax if the tax shown on the return for the taxable year is less than $1000.

No Tax Liability for Preceding Year

No penalty is imposed if: the preceding taxable year was a 12 month period; the individual did not have any liability for tax for the preceding taxable year; and the individual was a U.S. citizen or resident throughout the entire preceding taxable year. For this exception, it does not matter that the individual filed, or was required to file, a return for the preceding year.

Waiver in Certain Cases

General

The IRS may waive the penalty if the IRS determines that the imposition of the penalty would "be against equity and good conscience" because of a casualty, disaster or other unusual circumstances.

Tax Law Changes

Major amendments to the Code typically provide relief from the penalty for underpayments of estimated tax to the extent the underpayment is caused or increased by such amendments.

Retired and Disabled Individuals

The IRS may waive the penalty for individuals who retired after having attained age or became disabled, in the current taxable year or in the immediately preceding taxable year, if it finds that the underpayment was due to reasonable cause and not willful neglect. In the case of a joint return, the waiver is available if either the husband or the wife satisfies the retirement or disability test.

Natural Disasters

Congress has recognized that, as a result of a natural disaster, taxpayers may be unable to timely make their estimated tax payments and has authorized the IRS to provide relief. In appropriate cases, the IRS has waived the underpayment penalty if payment is made by a specified date after the disaster has abated.

Required Change in Method of Accounting

Where cases or rulings require taxpayers to change their method of accounting for particular items, the IRS has at times waived the penalty for underpayment of estimated tax relating to such items for particular installments.

The IRS also will not impose penalties when a taxpayer changes from an impermissible method of accounting to a permissible one by complying with all applicable provisions of the revenue procedure governing such changes.

January Return

The law provides that no penalty will be imposed with respect to an underpayment of the fourth required installment if the individual files his tax return for the year on or before January 31 of the succeeding year and pays the balance of the tax shown on the return. Farmers and fishermen have until March 1 of the succeeding taxable year to file their return and pay the tax due.

Note: By filing a return and paying the tax by January 31 (March 1 in the case of a farmer or fisherman), the individual can effectively defer his last installment from January 15 to January 31 (March 1 in the case of a farmer or fisherman), without any penalty. However, it would accelerate the payment of any tax liability in excess of his estimated tax.

Bankruptcy Under Title 11

The addition to tax provided cannot be imposed in certain bankruptcy cases under Title 11 of the U.S. Code.

No General Reasonable Cause Exception

Except as mentioned above, if the estimated tax has been underpaid, the penalty will be imposed. Unless the individual's situation fits the limited circumstances for which a waiver is available, it is irrelevant whether or not there was reasonable cause for the underpayment or a lack of willful neglect. Not even the Bankruptcy Court, with all of its equitable powers, can disallow a penalty which does not fit into one of the exceptions.