IRS waives estimated-tax penalties for farmers and fishermen

By Paul Bonner

The IRS on Tuesday granted a waiver of estimated-tax penalties to qualifying farmers and fishermen, prompted by the inability of some of them to e-file the new Form 7203, S Corporation Shareholder Stock and Debt Basis Limitations, by March 1.

The waiver, in Notice 2022-13, follows up on an IRS news release March 3, in which the Service said it was aware of a third-party software issue affecting qualifying farmers and fishermen trying to e-file Form 7203 with their returns.

Individual taxpayers whose current-year taxes are not withheld from wages or other sources generally must pay estimated taxes quarterly or be liable for an addition to tax, or penalty, under Sec. 6654(a). However, Sec. 6654(i) provides a special rule for qualifying farmers and fishermen. They may pay a single estimated tax installment for the tax year by Jan. 15 of the following tax year. They also may avoid any addition to tax under Sec. 6654(a) by filing their return and paying the full tax liability by March 1 of the following tax year.

Also, while other taxpayers' estimated payments must total at least 90% of their actual tax liability for the tax year to avoid penalties (or 100% of their prior-year liability, or 110% for adjusted gross incomes over $150,000), for farmers and fishermen, the actual tax liability requirement is 66.67% of their actual liability instead of 90%.

A qualifying farmer or fisherman is one whose gross income from farming or fishing in the tax year or preceding year is at least two-thirds of total gross income from all sources (Sec. 6654(i)(2)).

Form 7203 is new for the 2021 tax year. It replaces a worksheet formerly in instructions to shareholders for Schedule K-1 (Form 1120-S), Shareholder's Share of Income, Deductions, Credits, etc. It is intended to better enable S corporation shareholders to calculate their stock and debt basis in their shares and thus more accurately and verifiably compute the resulting limitation on their share of the S corporation's losses and deductions under Sec. 1366(d), and to track loss and deduction carryforwards and adjusted basis from one year to the next.

The IRS requested comments on a draft Form 7203 in July 2021 and released a second draft form in October. It issued a final Form 7203 in December. Some tax preparation software vendors were still adding it to their products for e-filing well into the current tax season.

Due to the inability of some farmers and fishermen to e-file Form 7203 before March 1, the IRS announced in the notice it is waiving any addition to tax under Sec. 6654 for failing to make an estimated tax payment for the 2021 tax year with respect to any qualifying farmer or fisherman who files a 2021 tax year return and who pays in full any tax due on the return by the general filing date of April 18, 2022 (April 19 for taxpayers residing in Maine or Massachusetts).

The waiver is automatic, and any taxpayer who qualifies for the waiver who has already filed a return reporting an addition to tax under Sec. 6654 may request an abatement of it by filing Form 843, Claim for Refund and Request for Abatement, following special instructions contained in the notice.

— To comment on this article or to suggest an idea for another article, contact Paul Bonner at

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