Corporate income tax opportunities for maximizing cash flow.

• Author: Woolf, Steven

Under regular refund procedures, a corporation cannot receive a refund for overpaid tax until a return is filed. When a corporation files for an extension of time to submit an annual income tax return, the time for receipt of refund will be further delayed. However, a special provision allows a corporation that overpays estimated income taxes to apply for a quick refund immediately after the close of the tax year.

The application is Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax. The overpayment is the excess of estimated tax that the corporation paid during the tax year over the final income tax liability expected when the annual income tax return is filed. The refund is based on the excess of estimated tax payments over the total tax estimated to be due (not a percentage of estimated tax liability on which the earlier estimated tax payments were made).

The application must be filed no later than the fifteenth day of the third month after the corporation's tax year-end and before the corporation files an income tax return. The IRS will pay the refund within 45 days from the date the application is filed, except when material errors and omissions are found. However, in order to qualify for this refund, the estimated tax overpayment has to be at least (1) 10% of the expected income tax liability for the tax year and(2)$500.

The corporate tax return can be prepared as usual (including extensions) after the quick refund application has been filed. This will not affect the receipt of the estimated tax refund. Note that the estimated taxes refunded generally are treated as if never paid if later estimated tax penalties arise. If the final return shows a balance due, estimated tax penalties will be imposed and the Service may impose a late payment penalty.

An immediate cash flow benefit can be obtained by postponing some or all of the 1992 corporate taxes otherwise payable during 1993, if is estimated that a loss will occur in 1993. This includes income, accumulated earnings and personal holding company taxes. Further, the postponed amount may never have to be paid if the estimate of the 1993 loss turns out to be accurate.

Generally, the cash flow benefit of a net operating loss (NOL) does not become available until (1) after the end of the loss year, when the amount of the loss has been calculated and a return has been filed; (2) a claim for refund of taxes paid for a prior year is filed and processed by the...