All corporations whose income tax liability is less than $1,000,000 in the current year can avoid an underpayment penalty if each of their estimated tax payments is 25 percent or more of their immediately preceding tax year's tax liability.

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Corporations can avoid an underpayment penalty if each of their estimated tax payments is at least 25 percent of the "current year's" tax liability, not the "preceding year's" tax liability. This rule applies to corporations expecting to owe at least $500, not those with a tax liability less than $1,000,000. The safe harbor for avoiding underpayment penalties for corporations is generally based on the current year's tax or, alternatively, 100% of the prior year's tax if the corporation had a tax liability in the prior year.

All Corporations Whose Income Tax Liability Is Less Than $1,000,000