1165
tion 1 equal to the owner’s allocable share of
the entity’s payments of required installments
under this section (determined without regard
to excess payments described in subparagraph
(C)(ii)(II) or amounts the entity is treated as
paying under paragraph (2)).
‘‘(B) COORDINATION WITH OWNER’S ESTI-
MATED TAX.—For purposes of section 6654, an
individual shall be treated as having paid on the
due date for the estimated tax installment for
each quarter of the individual’s taxable year de-
scribed in subparagraph (A)—
‘‘(i) except as provided in clause (ii),
25 percent of the tax deemed paid under
subparagraph (A), or
‘‘(ii) if the annualized income method
was used by the entity for any quarter of
the entity’s taxable year described in sub-
paragraph (A), an amount for the cor-
responding quarter in the individual’s tax-
able year equal to the portion of such tax
attributable to the individual’s allocable
share of the entity’s applicable income for
the entity’s quarter.
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In no event shall the aggregate estimated tax
payments treated as paid under this subpara-
graph exceed the amount of tax determined
under subparagraph (A).
‘‘(C) AMOUNTS DETERMINED ON BASIS OF
RETURN.—
‘‘(i) IN GENERAL.—The determination
of the amount of tax payments under sub-
paragraph (A) shall be made on the basis
of amounts shown on the entity’s return
for the taxable year.
‘‘(ii) 
RECONCILIATION
OF
DIF-
FERENCES.—If, as of the first April 15
more than 3 months after the close of the
entity’s 
taxable 
year, 
the 
aggregate
amounts paid as required installments
under this section are less or more than
the aggregate amounts described in clause
(i) shown on the entity’s return of tax for
the taxable year, then—
‘‘(I) subject to paragraph (2),
there is hereby imposed on the entity
under chapter 1 an additional tax
equal to the amount of the shortfall,
1167
the due date for which is such April
15, or
‘‘(II) the entity shall be treated
as having made a payment of tax
under chapter 1 on such April 15 in
an amount equal to the excess.
‘‘(2) TREATMENT OF PAYMENTS BY OWNERS.—
For purposes of subsection (b)(2)(B) and paragraph
(1)(C), an entity shall be treated as paying any por-
tion of an underpayment attributable to an owner’s
allocable share of applicable income at the time the
tax imposed by chapter 1 on the owner with respect
to such income is paid.
‘‘(3) ALLOCABLE SHARE.—For purposes of this
subsection—
‘‘(A) IN GENERAL.—An owner’s allocable
share of an item for a taxable year shall be an
amount which bears the same ratio to the
amount of such item as the owner’s applicable
income for the taxable year bears to the sum of
the applicable incomes of all owners. For pur-
poses of this subparagraph, applicable income
of an owner shall be determined in the same
manner as subsection (e).
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‘‘(B) APPLICATION OTHER THAN ON TAX-
ABLE YEAR BASIS.—If—
‘‘(i) the entity elects the annualized
income method for any quarter, subpara-
graph (A) shall be applied on a quarter-by-
quarter basis, or
‘‘(ii) there is an interim closing of the
books of an entity under this title, sub-
paragraph (A) shall be applied separately
for the periods before and after the clos-
ing.
‘‘(g) SPECIAL RULES FOR SHORT YEAR CREATED BY
ELECTION.—
‘‘(1) ADDITIONAL REQUIRED INSTALLMENT.—
If, by reason of an election under this section, an en-
tity has a taxable year of less than 12 months, the
entity shall make a required installment under this
section for such taxable year—
‘‘(A) which shall be in an amount equal to
the applicable rate multiplied by the lesser of—
‘‘(i) the entity’s applicable income for
such taxable year as determined under
subsection (e), or
‘‘(ii) 110 percent of the entity’s appli-
cable income for the base year (as so de-
1169
termined but ratably reduced to reflect the
period of such taxable year), and
‘‘(B) the due date for which shall be the
last day for which an election under this section
could be made for the taxable year.
‘‘(2) TREATMENT OF LOSSES.—Any net operat-
ing loss arising in the taxable year described in
paragraph (1) shall be treated as arising one-third
in such taxable year and each of the 2 following tax-
able years. This paragraph shall not apply to an en-
tity not in existence before such taxable year unless
more than one-half of the equity interests in the en-
tity are held by persons who owned another entity
carrying on the same business before such taxable
year.
‘‘(h) OTHER DEFINITIONS AND SPECIAL RULES.—
For purposes of this section—
‘‘(1) BASE YEAR.—The term ‘base year’ means
the most recent preceding taxable year containing 12
months.
‘‘(2) EQUITY INTEREST.—The term ‘equity in-
terest’ means—
‘‘(A) in the case of a partnership, the cap-
ital interests, and