Would South Carolina waive the estimated-tax underpayment penalty caused by the 1987 increase in the required prepayment from 70% to 90%?

Plain-English summary

In 1987 South Carolina rewrote its penalty for underpaying estimated income tax. A new law, § 12-54-55, conformed the state's rules to the federal ones (IRC §§ 6654 and 6655): it raised the share of the year's tax that had to be prepaid from 70% to 90% and, in exchange, softened the penalty to simple interest (the old § 12-7-2000 had charged 5% plus interest on a 70% threshold).

The catch was timing. The new law was approved June 22, 1987 but applied to tax years beginning after December 31, 1986 — so it reached back over the 1987 tax year whose first two estimated payments (April 15 and June 15) had already come due before the law existed. At the federal level, meanwhile, the comparable jump to a 90% threshold had been delayed to years beginning after December 31, 1987 by the Technical Corrections Act of 1987.

Faced with taxpayers who could not have known to prepay 90% for 1987, the South Carolina Tax Commission used its authority under § 12-54-160 (which lets it waive, dismiss, or reduce penalties) to waive the penalty attributable to the 70%-to-90% increase for income tax years beginning before January 1, 1988.

What this means for you

Why this ruling exists — and its limits

RR 88-1 is a piece of transitional relief for a specific problem: a mid-year law change that retroactively raised a prepayment target taxpayers could not have met. It does not change the underlying rule that estimated tax must be paid in during the year; it only forgave the penalty that the sudden 70%→90% increase would otherwise have produced for pre-1988 tax years.

Taxpayers and preparers today

Do not rely on the 88-1 figures. The 90% threshold, the simple-interest penalty mechanics, the $100 small-amount floor mentioned here (versus $500 federally), and the governing code sections all reflect 1987–88 law. South Carolina's estimated-tax and penalty provisions have been amended many times since. Treat this ruling as a historical illustration of how the state handled a conformity-driven transition, and check current statutes and Department guidance for any live estimated-tax question.

Common questions

Q: What did Revenue Ruling 88-1 actually decide?
A: It waived the underpayment-of-estimated-tax penalty that resulted solely from the 1987 increase in the required prepayment from 70% to 90%, for income tax years beginning before January 1, 1988.

Q: Why waive it?
A: The law raising the threshold was approved June 22, 1987, after the first two 1987 estimated payments were due, and the matching federal increase had been postponed. The Commission concluded it would be unfair to penalize taxpayers for missing a target that did not exist when their early payments came due, and it had statutory authority under § 12-54-160 to waive penalties.

Q: Does this help with a current estimated-tax penalty?
A: No. This is 1988 transitional relief tied to a specific law change. Current estimated-tax thresholds and penalties are governed by later law and must be checked.

Citations and references

Statutes:

• S.C. Code Ann. § 12-54-55 (Supp. 1987) — conformed South Carolina's estimated-tax underpayment penalty to IRC §§ 6654 and 6655; raised the required prepayment to 90% and changed the penalty to simple interest
• S.C. Code Ann. § 12-54-160 (Supp. 1987) — authority to waive, dismiss, or reduce penalties
• Former S.C. Code Ann. § 12-7-2000 — the prior penalty (70% threshold, 5% plus interest), described in the ruling

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: RR88-1.pdf

Original ruling text

SC REVENUE RULING #88-1

SUBJECT:

Income Tax: Penalty for Underpayment of Estimated Tax

EFFECTIVE DATE:

Income Years Beginning Prior to January 1, 1988

REFERENCE:

S.C. Code Ann. Section 12-54-55 (Supp. 1987)
S.C. Code Ann. Section 12-54-160 (Supp. 1987)

AUTHORITY:

S.C. Code Ann. Section 12-3-170 (1976)
SC Revenue Procedure #87-3

SCOPE:

A Revenue Ruling is the Commission's official interpretation of
how tax law is to be applied to a specific set of facts. A Revenue
Ruling is public information and remains a permanent document
until superseded by a Regulation or is rescinded by a subsequent
Revenue Ruling.

Question:
Will the Commission waive the penalty for underpayment of estimated tax due to the increase in
the required payment from 70% to 90%?
Facts:
S.C. Code Section 12-54-55 was adopted to conform the penalties for underpayment of estimated
income tax to Internal Revenue Code Sections 6654 and 6655. The legislation was approved
June 22, 1987 and was effective for years beginning after Dec. 31, 1986. The provisions of this
section increased the amount required to be paid in as estimated tax to 90 percent and lowered
the penalty to simple interest. The old penalty section (12-7-2000) required 70 percent to be paid
in as estimated tax with a penalty of 5 percent and simple interest. Thus, while reducing the
amount of the penalty, the new provision increased the amount required to be paid in.
Discussion:
The purpose of Section 12-54-55 was to conform the underpayment of estimated tax penalties to
the federal penalties (with the exception of the small amount provision which is $100 for South
Carolina but $500 for federal).
1

The Tax Reform Act of 1986 increased the individuals required payments for federal purposes
from 80 percent to 90 percent. Subsequently, the Technical Corrections Act of 1987 delayed the
increase in the individuals required payments to years beginning after Dec. 31, 1987. The
primary reasons for delaying the increase from 80 percent to 90 percent was due to the problems
with Form W-4 and other provisions of the 1986 Act. Waiver provisions in the Tax Reform Act
provide that no penalties for underpayment of estimated taxes shall be made for any period
before April 16, 1987 (March 16, 1987 in the case of corporations).
S.C. Code Section 12-54-160 provides that the Commission, unless prohibited within a specific
section may waive, dismiss, or reduce penalties.
In view of the problems arising from the Tax Reform Act of 1986, the delay in the increase from
80 percent to 90 percent at the federal level and the fact that the first two payments of calendar
1987 (April 15 and June 15) were past when Section 12-54-55 was approved on June 22, 1987,
the penalties resulting from the increase from 70 percent to 90 percent for state purposes will be
waived.
Conclusion:
The penalty for underpayment of estimated tax due to the increase in the required payment from
70 percent to 90 percent will be waived for income tax years beginning prior to Jan. 1, 1988.
(Feb. 3, 1988)

SOUTH CAROLINA TAX COMMISSION

s/S. Hunter Howard Jr.
S. Hunter Howard, Jr., Chairman

s/John M. Rucker
John M. Rucker, Commissioner

s/A. Crawford Clarkson, Jr.
A. Crawford Clarkson, Jr., Commissioner

Columbia, South Carolina
19 88
February 3,

2