US Code

Public Law 119-73 (01/23/2026)

26 U.S.C. § 7519

Required payments for entities electing not to have required taxable year

(a)

General rule

This section applies to a partnership or S corporation for any taxable year, if—
(1)
an election under section 444 is in effect for the taxable year, and
(2)
the required payment determined under subsection (b) for such taxable year (or any preceding taxable year) exceeds $500.
(b)

Required payment

For purposes of this section, the term “required payment” means, with respect to any applicable election year of a partnership or S corporation, an amount equal to—
(1)
the excess of the product of—
(A)
the applicable percentage of the adjusted highest section 1 rate, multiplied by
(B)
the net base year income of the entity, over
(2)
the net required payment balance.
For purposes of paragraph (1)(A), the term “adjusted highest section 1 rate” means the highest rate of tax in effect under section 1 as of the end of the base year plus 1 percentage point (or, in the case of applicable election years beginning in 1987, 36 percent).
(c)

Refund of payments

(1)

In general

If, for any applicable election year, the amount determined under subsection (b)(2) exceeds the amount determined under subsection (b)(1), the entity shall be entitled to a refund of such excess for such year.

(2)

Termination of elections, etc.

If—
(A)
an election under section 444 is terminated effective with respect to any year, or
(B)
the entity is liquidated during any year, the entity shall be entitled to a refund of the net required payment balance.
(3)

Date on which refund payable

Any refund under this subsection shall be payable on the later of—
(A)
April 15 of the calendar year following—
(i)
in the case of the year referred to in paragraph (1), the calendar year in which it begins,
(ii)
in the case of the year referred to in paragraph (2), the calendar year in which it ends, or
(B)
the day 90 days after the day on which claim therefor is filed with the Secretary.
(d)

Net base year income

For purposes of this section—
(1)

In general

An entity’s net base year income shall be equal to the sum of—
(A)
the deferral ratio multiplied by the entity’s net income for the base year, plus
(B)
the excess (if any) of—
(i)
the deferral ratio multiplied by the aggregate amount of applicable payments made by the entity during the base year, over
(ii)
the aggregate amount of such applicable payments made during the deferral period of the base year.
For purposes of this paragraph, the term “deferral ratio” means the ratio which the number of months in the deferral period of the base year bears to the number of months in the partnership’s or S corporation’s taxable year.
(2)

Net income

Net income is determined by taking into account the aggregate amount of the following items—
(A)

Partnerships

In the case of a partnership, net income shall be the amount (not below zero) determined by taking into account the aggregate amount of the partnership’s items described in section 702(a) (other than credits and tax-exempt income).

(B)

S corporations

In the case of an S corporation, net income shall be the amount (not below zero) determined by taking into account the aggregate amount of the S corporation’s items described in section 1366(a) (other than credits and tax-exempt income). If the S corporation was a C corporation for the base year, its taxable income for such year shall be treated as its net income for such year (and such corporation shall be treated as an S corporation for such taxable year for purposes of paragraph (3)).

(C)

Certain limitations disregarded

For purposes of subparagraph (A) or (B), any limitation on the amount of any item described in either such paragraph which may be taken into account for purposes of computing the taxable income of a partner or shareholder shall be disregarded.

(3)

Applicable payments

(A)

In general

The term “applicable payment” means amounts paid by a partnership or S corporation which are includible in gross income of a partner or shareholder.

(B)

Exceptions

The term “applicable payment” shall not include any—
(i)
gain from the sale or exchange of property between the partner or shareholder and the partnership or S corporation, and
(ii)
dividend paid by the S corporation.
(4)

Applicable percentage

If the applicable election year of

 the partnership or S corporation

 begins during:

The applicable percentage is:

1987

25  

1988

50  

1989

75  

1990 or thereafter

100.
The applicable percentage is the percentage determined in accordance with the following table:

Notwithstanding the preceding provisions of this paragraph, the applicable percentage for any partnership or S corporation shall be 100 percent unless more than 50 percent of such entity’s net income for the short taxable year which would have resulted if the entity had not made an election under section 444 would have been allocated to partners or shareholders who would have been entitled to the benefits of section 806(e)(2)(C) of the Tax Reform Act of 1986 with respect to such income.

(5)

Treatment of guaranteed payments

(A)

In general

Any guaranteed payment by a partnership shall not be treated as an applicable payment, and the amount of the net income of the partnership shall be determined by not taking such guaranteed payment into account.

(B)

Guaranteed payment

For purposes of subparagraph (A), the term “guaranteed payment” means any payment referred to in section 707(c).

(e)

Other definitions and special rules

For purposes of this section—
(1)

Deferral period

The term “deferral period” has the meaning given to such term by section 444(b)(4).

(2)

Years

(A)

Base year

The term “base year” means, with respect to any applicable election year, the taxable year of the partnership or S corporation preceding such applicable election year.

(B)

Applicable election year

The term “applicable election year” means any taxable year of a partnership or S corporation with respect to which an election is in effect under section 444.

(3)

Requirement of reporting

Each partnership or S corporation which makes an election under section 444 shall include on any required return or statement such information as the Secretary shall prescribe as is necessary to carry out the provisions of this section.

(4)

Net required payment balance

The term “net required payment balance” means the excess (if any) of—
(A)
the aggregate of the required payments under this section for all preceding applicable election years, over
(B)
the aggregate amount allowable as a refund to the entity under subsection (c) for all preceding applicable election years.
(f)

Administrative provisions

(1)

In general

Except as otherwise provided in this subsection or in regulations prescribed by the Secretary, any payment required by this section shall be assessed and collected in the same manner as if it were a tax imposed by subtitle C.

(2)

Due date

The amount of any payment required by this section shall be paid on or before April 15 of the calendar year following the calendar year in which the applicable election year begins (or such later date as may be prescribed by the Secretary).

(3)

Interest

For purposes of determining interest, any payment required by this section shall be treated as a tax; except that no interest shall be allowed with respect to any refund of a payment made under this section.

(4)

Penalties

(A)

In general

In the case of any failure by any person to pay on the date prescribed therefor any amount required by this section, there shall be imposed on such person a penalty of 10 percent of the underpayment. For purposes of the preceding sentence, the term “underpayment” means the excess of the amount of the payment required under this section over the amount (if any) of such payment paid on or before the date prescribed therefor. No penalty shall be imposed under this subparagraph on any failure which is shown to be due to reasonable cause and not willful neglect.

(B)

Negligence and fraud penalties made applicable

For purposes of part II of subchapter A of chapter 68, any payment required by this section shall be treated as a tax.

(C)

Willful failure

If any partnership or S corporation willfully fails to comply with the requirements of this section, section 444 shall cease to apply with respect to such partnership or S corporation.

(g)

Regulations

The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the provisions of this section and section 280H, including regulations providing for appropriate adjustments in the application of this section and sections 280H and 444 in cases where—
(1)
2 or more applicable election years begin in the same calendar year, or
(2)
the base year is a taxable year of less than 12 months.

Pub. L. 100–203, title X, § 10206(b)(1)101 Stat. 1330–398Pub. L. 100–647, title II, § 2004(e)(4)102 Stat. 3601Pub. L. 101–239, title VII103 Stat. 2400Pub. L. 101–508, title XI, § 11704(a)(29)104 Stat. 1388–519Pub. L. 105–34, title XII, § 1281(d)111 Stat. 1037(Added , , ; amended –(10), (14)(B), , , 3602; , §§ 7721(c)(12), 7821(b), , , 2424; , , ; , , .)

Editorial Notes

References in Text

section 806(e)(2)(C) of Pub. L. 99–514section 1378 of this titleSection 806(e)(2)(C) of the Tax Reform Act of 1986, referred to in subsec. (d)(4), is , which is set out as a note under .

Amendments

Pub. L. 105–341997—Subsec. (f)(4)(A). inserted at end “No penalty shall be imposed under this subparagraph on any failure which is shown to be due to reasonable cause and not willful neglect.”

Pub. L. 101–5081990—Subsec. (c)(3). substituted “payable on the later of” for “payable on later of”.

Pub. L. 101–239, § 7821(b)1989—Subsec. (d)(4). , struck out “for taxable years beginning after 1987,” before “the applicable percentage” and substituted “unless more than 50 percent” for “if more than 50 percent” and “who would have been entitled” for “who would not have been entitled”.

Pub. L. 101–239, § 7721(c)(12)Subsec. (f)(4)(B). , substituted “part II of subchapter A of chapter 68” for “section 6653”.

Pub. L. 100–647, § 2004(e)(4)(A)1988—Subsec. (b)(2). , amended par. (2) generally. Prior to amendment, par. (2) read as follows: “the amount of the required payment for the preceding applicable election year.”

Pub. L. 100–647, § 2004(e)(5)Subsec. (c). , amended subsec. (c) generally. Prior to amendment, subsec. (c) read as follows: “If the amount determined under subsection (b)(2) exceeds the amount determined under subsection (b)(1), then the entity shall be entitled to a refund of such excess.”

Pub. L. 100–647, § 2004(e)(10)Subsec. (d)(2)(A). , substituted “(other than credits and tax-exempt income)” for “(other than credits)”.

Pub. L. 100–647, § 2004(e)(7)Subsec. (d)(2)(B). , (10), substituted “(other than credits and tax-exempt income)” for “(other than credits)” and inserted before period at end “(and such corporation shall be treated as an S corporation for such taxable year for purposes of paragraph (3))”.

Pub. L. 100–647, § 2004(e)(14)(B)Subsec. (d)(3)(A). , struck out “or incurred” after “amounts paid”.

Pub. L. 100–647, § 2004(e)(9)Subsec. (d)(4). , inserted at end “Notwithstanding the preceding provisions of this paragraph, for taxable years beginning after 1987, the applicable percentage for any partnership or S corporation shall be 100 percent if more than 50 percent of such entity’s net income for the short taxable year which would have resulted if the entity had not made an election under section 444 would have been allocated to partners or shareholders who would not have been entitled to the benefits of section 806(e)(2)(C) of the Tax Reform Act of 1986 with respect to such income.”

Pub. L. 100–647, § 2004(e)(8)Subsec. (d)(5). , added par. (5).

Pub. L. 100–647, § 2004(e)(4)(B)Subsec. (e)(4). , added par. (4).

Pub. L. 100–647, § 2004(e)(6)Subsec. (g). , substituted “including regulations providing for appropriate adjustments in the application of this section and sections 280H and 444 in cases where—

“(1) 2 or more applicable election years begin in the same calendar year, or

“(2) the base year is a taxable year of less than 12 months” for “including regulations for annualizing the income and applicable payments of an entity if the base year is a taxable year of less than 12 months”.

Statutory Notes and Related Subsidiaries

Effective Date of 1997 Amendment

Pub. L. 105–34section 1281(e) of Pub. L. 105–34section 6652 of this titleAmendment by applicable to taxable years beginning after , see , set out as a note under .

Effective Date of 1989 Amendment

section 7721(c)(12) of Pub. L. 101–239section 7721(d) of Pub. L. 101–239section 461 of this titleAmendment by applicable to returns the due date for which (determined without regard to extensions) is after , see , set out as a note under .

Pub. L. 101–239, title VII, § 7821(b)103 Stat. 2424, , , provided that the amendment made by that section is effective with respect to taxable years beginning after 1988.

Effective Date of 1988 Amendment

Pub. L. 100–647Pub. L. 100–203, title Xsection 2004(u) of Pub. L. 100–647section 56 of this titleAmendment by effective, except as otherwise provided, as if included in the provisions of the Revenue Act of 1987, , to which such amendment relates, see , set out as a note under .

Effective Date

section 10206(d)(2) of Pub. L. 100–203section 444 of this titleSection applicable to applicable election years beginning after , see , set out as a note under .