Alabama Alabama Department of Revenue Underpayment of Estimated Tax for Financial - Instructions

Alabama Department of Revenue Underpayment of Estimated Tax for Financial - Instructions
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FORM

2220E
INSTRUCTIONS

Alabama Department of Revenue
Instructions For Preparation of Form 2220E
Underpayment of Estimated Tax for Financial Institutions

2220E along with a copy of the federal Form 2220, consolidated and proforma federal Form 2220. Attach the Form 2220E; federal Form 2220; consolidated and proforma federal Form 2220, if applicable, directly following
Schedule EC of the Form ET-1 or page 2 of the Form ET-1C. If the box is
not checked to indicate the taxpayer used an alternate method for computing interest and penalty on their underpayment, or if the completed
Form 2220E along with a completed copy of the federal Form 2220 and
consolidated and proforma federal Form 2220, if applicable, is not included
with the Alabama financial institution excise tax return when filed, relief
will not be granted. Penalty and interest will be computed for underpayment
of the taxpayer’s quarterly installments based on 25% of the required annual
payment per quarter.

General Instructions
Purpose of Form
Financial Institutions which have an income tax liability of $500 or more use
Form 2220E to determine:
• Whether they are subject to the interest and penalty due for underpayment
of estimated tax and, if so,
• The amount of the underpayment interest and penalty due for the period
that applies.
Section 40-16-5.1 of the Code of Alabama 1975 provides for interest on underpayments of estimated taxes for corporations. The amount of any required
quarterly installment shall be 25% of the required annual payment. In addition,
Section 40-2A-11 of the Code of Alabama 1975 provides for a 10% penalty on
underpayments of quarterly installments.
In addition, Alabama tax law provides for relief from the interest and penalty
due on underpayments of estimated tax if the taxpayer computes their required
quarterly installments using an approved federal method (annualized or seasonal). The Internal Revenue Service requires that a taxpayer use federal Form
2220 if the taxpayer seeks relief from the interest due on their underpayment of
quarterly estimates. Alabama Form 2220E closely mirrors federal Form 2220.
Form 2220E should be used by financial institutions when estimated taxes are
computed and paid based on an allowable federal method which reduces the
amount of estimated tax required to be paid to the State of Alabama below the
amount that would be due using the regular method for computing quarterly installments. Taxpayers that file a consolidated federal return must complete
and submit consolidated federal Form 2220 and a proforma federal Form
2220 using separate company tax information along with Form 2220E. Federal Form 2220 may not be due if the federal group does not have enough
income for the federal estimated tax penalty to apply. However, Alabama
requires a consolidated federal Form 2220 and proforma federal Form 2220
be remitted with Form 2220E.
Under the normal method prescribed in Section 40-16-5.1, taxpayers should
remit 25% of the required annual payment per quarter. The first payment is due
by the 15th day of the 4th month of the taxable year. The 2nd, 3rd and 4th quarter payments are due by the 15th day of the 6th, 9th and 12th months, respectively (see the table below).
Installment

Calendar Year
The Due Date Is

Fiscal Year
The Due Date Is

1st

April 15

15th day of the 4th month following
the start of the tax year

2nd

June 15

15th day of the 6th month following
the start of the tax year

3rd

September 15

15th day of the 9th month following
the start of the tax year

4th

December 15

15th day of the 12th month following
the start of the tax year

2023

Note: In these instructions, “return” refers to the financial institution’s original return.
To obtain Form 2220E visit our website at www.revenue.alabama.gov.

Who Must File
Generally, a financial institution does not have to file this form with its income
tax return because the Department of Revenue will compute the amount of any
interest or penalty and notify the financial institution of any amount due. However,
even if the financial institution does not owe additional interest and penalty, complete and attach this form to the financial institution’s tax return if Part I, line 3 on
page 1 is $500 or more and any of the following apply. See “Specific Instructions”, page 2 of these instructions.
1. The adjusted seasonal installment method is used.
2. The annualized income installment method is used.
3. Exception
• Large Corporation – 1st quarter installment

Who Must Pay the
Underpayment Interest and/or Penalty?
Generally, a financial institution is subject to interest and penalty if the tax
shown on its 2021 return is $500 or more and it did not timely pay at least the
smaller of:
1. The tax shown on its 2021 return or
2. The tax shown on its 2020 return (if it filed a 2020 return showing at least
some amount of tax and the return was for a full 12 months). However,
a large corporation may base only its first required installment on the prior
year’s tax.
The interest and penalty are figured separately for each installment due date.
Therefore, the financial institution may owe interest and penalty for an earlier
due date even if it paid enough tax later to make up the underpayment. This is
true even if the financial institution is due a refund when its return is filed.

Exception to the Estimate Interest
and Penalty
The financial institution will not have to pay estimate interest or penalty if the
tax shown on the corporation’s 2021 return (Part I, line 3 amount) is less than
$500 and the tax has been paid by the original due date.

Although taxpayers utilizing one of the allowable federal methods (either the
Annualized Income Installment Method or the Seasonal Installment Method) may
receive some relief in regards to reduced interest and penalty on the amount underpaid by quarter, the due dates for the quarterly installments will always be
computed in accordance with the provisions in the table above.
If an installment is due on a Saturday, Sunday, or legal holiday, payments
made on the next day that is not a Saturday, Sunday, or legal holiday are considered made on the due date to the extent the payment is applied against that
required installment.
Check the box on the front of Form ET-1 or ET-1C and attach Form

How To Use Form 2220E
Complete lines 1 through 3 of Part I. If line 3 is $500 or more, then go to Part
II.
If the financial institution checked a box in Part II, attach Form 2220E along
with the federal Form 2220; consolidated and proforma federal Form 2220, if applicable. Be sure to check the box on the financial institution return to indicate
that the Form 2220E is attached.
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Part II – Reasons for Filing

Complete Schedule A if the financial institution utilized the Annualized Income Installment Method and/or Schedule B for the Adjusted Seasonal Installment Method.
Complete Part III after completing Part VI to determine the underpayment of
any of the required installment payments.
If there is an underpayment on line 15 of Part III [column (a), (b), (c), or (d)],
complete Part IV to calculate any late payment estimate penalty. Complete Part
V to compute any additional interest due.

Line 4a. Penalty – Enter the total amount of Late Payment Penalty – Estimate computed from Part IV, line 23.
Line 4b. Interest – Enter the total amount of Estimate Interest computed
from Part V, line 42.
Line 5. Check this box if the financial institution is a large taxpayer claiming
the Large Corporation exception and calculated its first quarter installment based
on the prior year tax. Any reduction in the 1st installment will be required to be
recaptured by increasing the amount of the next required installment.
Taxpayers utilizing the Annualized Income Installment Method should skip to
Schedule A to compute the required installments after completing Part I and Part
II of Form 2220E. Taxpayers utilizing the Adjusted Seasonal Installment Method
should skip to Schedule B after completing Parts I and II of Form 2220E.

Specific Instructions
Form 2220E is not a required form unless a taxpayer chooses to utilize
an alternative method (as provided for on 2220E) to compute the interest
and penalty due as a result of their underpayment of estimated tax. Form
2220E, if utilized, along with a copy of the Federal Form 2220, should accompany Forms ET-1 or ET-1C. In addition, any interest or penalty due as
computed using Form 2220E should be totaled and entered on PART II,
lines 4a and 4b, as well as reported on the appropriate line of Forms ET-1
or ET-1C.
Annualized Income Method. Check this box if the financial institution used
the annualized income installment method for federal purposes. Use the same
method for Alabama and attach the Federal Form 2220; consolidated and proforma Federal Form 2220, if applicable.
Adjusted Seasonal Method. Check this box if the financial institution used
the adjusted seasonal installment method for federal purposes. Use the same
method for Alabama and attach the Federal Form 2220; consolidated and proforma Federal Form 2220, if applicable.

Part III – Computation of
Underpayment/Overpayment by Quarter
Line 7. Enter the financial institution’s installment due dates for each quarter in columns (a) through (d). These dates should correspond with the 15th day
of the 4th, 6th, 9th, and 12th months of its tax year.
If the taxpayer utilizes the annualized income installment method and/or the
adjusted seasonal installment method or the box on line 5 is checked, enter the
installment due dates that correspond with the attached Federal Form 2220.
Line 8. Enter 25% of line 3 in columns (a) through (d). “Large corporations”
may make the first quarter estimated payment at 25% of line 3 or make the first
quarter estimated payment based on the financial institution’s prior year tax liability and not be subject to the underpayment penalty; however, the financial institution is required to make estimate payments based on the 2021 tax liability.
If the taxpayer utilizes the annualized income installment method and/or the
adjusted seasonal installment method or the box on line 5 is checked, enter the
amounts from page 3, Part VI, line 49.
Line 9. Enter the estimated tax payments made by the financial institution
for its tax year as indicated below. In column (a) only, include any overpayment
from the financial institution’s 2021 tax return that was credited to the corporation’s 2022 estimated tax and enter the amount on line 13.
Column (a). Enter payments made by the date on line 7, column (a). Include any overpayment from the corporation’s 2021 tax return that was credited
to the corporation’s 2022 estimated tax.
Columns (b), (c), and (d). Enter payments made by the date on line 7
for that column and after the date on line 7 of the preceding column.

Part I – Required Annual Payment
All taxpayers must complete Part I and Part II of the form before completing
any other parts of Form 2220E. Part I is used to compute the required annual
payment that would be due to the Department of Revenue for the year under
the regular method. Taxpayers utilizing the Annualized Income Installment
Method should skip to Schedule A to compute the required installments after
completing Part I and Part II of Form 2220E. Taxpayers utilizing the Adjusted
Seasonal Installment Method should skip to Schedule B after completing Part I
and Part II of Form 2220E.
Complete lines 1 through 3 to figure the financial institution’s required annual payment.
Line 1. Enter the financial institution’s 2022 net tax liability from Form ET1, Page 1, line 18, Form ET-1C, Page 1, line 4.
Line 2. Enter the financial institution’s 2022 net tax liability from Form ET1, Page 1, line 32 less line 33a, Form ET1-C, Page 1, line 2 less line 3a. If the
financial institution is considered a Large Corporation (see definition for Large
Corporation in this section) or if the previous year’s return did not have a tax liability, or if the previous tax year was for a period of less than 12 months the Required Annual Payment by default is 100% of the current year’s tax. If the
financial institution’s Required Annual Payment is by default 100% of the current
year’s tax, skip this line and enter the amount from line 1 on line 3.
Large Corporations are corporations that have Alabama Taxable Income of
$1,000,000 or more within a testing period. The testing period consists of the
three year periods immediately preceding the current tax year. The Taxable Income test for a Large Corporation is Alabama taxable income without regard to
any Net Operating Losses which may have been carried to one of the years in
the testing period. Large Corporations are required to pay 100% of the current
year tax in accordance with Section 40-16-5.1 of the Code of Alabama 1975.
Large Corporations are allowed to base the first estimated tax installment on the
previous year’s tax. However, the tax must be recaptured by increasing the next
required installment by the amount of the reduction to the first installment. Large
Corporations, in addition to all other corporations, are allowed to use Form 2220E
in accordance with these instructions to compute their required installments if
the alternative methods available reduce the amount of tax that would be owed
using one of the alternative methods rather than using the regular method for
computing estimated tax installments.
Line 3. Enter the smaller amount from line 1 or line 2.

Note: Complete lines 10 through 16 of one column before going to the next
column.
Lines 10 through 16. Complete line 15 or line 16 for column (a) before
going to column (b). Complete lines 10 through 16 for column (b) before going
to column (c); complete lines 10 through 16 for column (c) before going to column (d); complete lines 10 through 16.
Line 10. Columns (b), (c), and (d). Enter overpayment, if any, from line 16
from the preceding column.
Line 11. Columns (b), (c), and (d). Add lines 9 and 10. Enter the results.
Line 12. Column (b) add amount, if any, from line 15, column (a); column (c)
add amounts on lines 14 and 15, if any, from column (b); column (d) add amounts
on lines 14 and 15, if any, from column (c).
Line 13. In column (a) enter amount from line 9.
Columns (b), (c), and (d). Subtract line 12 from line 11. If zero or less,
enter -0-.
Line 14. Columns (b), (c), and (d). If line 13 is zero, subtract line 11 from
line 12. Otherwise, enter -0-.
Line 15. Columns (a), (b), (c), and (d). If line 13 is less than or equal to
line 8, subtract line 13 from line 8. Go to line 10 of the next column. Otherwise,
go to line 16.
Line 16. Columns (a), (b), (c), and (d). If line 8 is less than line 13, subtract line 8 from line 13. Go to line 10 of the next column.
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Part VI – Required Installments – Annualized
Income and/or Seasonal Installment Method

If there are no entries on line 15, do not proceed to PART IV. No addition
to tax is owed. If there are any underpayments on line 15, go to Part IV to
calculate the penalty, then to Part V to compute the interest on the underpayment.

Taxpayers using either the Annualized Income Installment Method or the
Seasonal Installment Method should complete this section after first completing
Schedule A, Schedule B, or both Schedules if using a combination of the two
methods.
Line 43. Columns (a), (b), (c), and (d). Enter the amount from page 4, line
19 of Schedule A or page 5, line 23 of Schedule B in each column (a), (b), (c),
and (d). If both Schedules A and B are completed, enter the lesser amount from
each column (a), (b), (c), and (d) and check the box.

Part IV – Late Payment Penalty-Estimate
Complete lines 17 through 22 to determine the amount of the late payment
penalty. The penalty is 10% of each quarterly underpayment.
Line 17. Columns (a), (b), (c), and (d). Enter the financial institution’s required installment amounts from page 1, Part III, line 8.
Line 18. Enter the estimated tax payments made by the financial institution
for its tax year as indicated below from Page 1, line 9. In column (a) only, include
any overpayment from the financial institution’s 2021 tax return that was credited
to the financial institution’s 2022 estimated tax. If an installment is due on a Saturday, Sunday, or state holiday, payments made on the next day that is not a Saturday, Sunday, or state holiday are considered made on the due date to the
extent the payment is applied against that required installment.
Column (a). Enter payments made by the date on line 17, column (a).
Include any overpayment from the financial institution’s 2021 tax return that was
credited to the financial institution’s 2022 estimated tax.
Columns (b), (c), and (d). Enter payments made by the date on line 17
for that column and after the date on line 17 of the preceding column.

Note: Complete lines 44 through 49 of one column before going to the next
column.
Lines 44 through 49. Complete lines 44 through 49 for column (a) before
going to column (b). Complete lines 44 through 49 for column (b) before going
to column (c); complete lines 44 through 49 for column (c) before going to column (d); complete lines 44 through 49.
Line 44. Columns (b), (c), and (d). Add the amounts in all preceding
columns of line 49. Enter the result in the appropriate column.
Line 45. Columns (a), (b), (c), and (d). Subtract line 44 from line 43. If zero
or less, enter -0-.
Line 46. Columns (a), (b), (c), and (d). Multiply the amount from page 1,
line 3 in each column (a), (b), (c), and (d) by 25% (.25). Enter the result in the
appropriate column.
Line 47. Columns (b), (c), and (d). Subtract line 49 of the preceding column
from line 48 of the preceding column. Enter the result in the appropriate column.
Line 48. Columns (a), (b), (c), and (d). Add line 46 and line 47. Enter the
result in the appropriate column.
Line 49. Columns (a), (b), (c), and (d). Enter the lesser of line 45 or line
48 amount from each column (a), (b), (c), and (d) and on page 1, line 8 in the appropriate column.

Note: Complete lines 19 through 22 of one column before going to the next
column.
Lines 19 through 22. Complete lines 19 through 22 for column (a) before
going to column (b). Complete lines 19 through 22 for column (b) before going
to column (c); then complete lines 19 through 22 for column (c) before going to
column (d); then complete lines 19 through 22.
Line 19. Columns (a), (b), (c), and (d). Subtract the amount on line 18
from the amount on line 17. Enter the result in the appropriate column.
Line 20. Columns (b), (c), and (d). If line 19 or 21 from the preceding column is a negative value (less than zero), enter the amount as a positive value in
columns (b), (c) and (d).
Line 21. Columns (a), (b), (c), and (d). Subtract the amount on line 20
from the amount on line 19. Enter the result in the appropriate column.
Line 22. Columns (a), (b), (c), and (d). Multiply the amount on line 21 by
10% (.10). Enter the result in the appropriate column. If line 21 reflects an overpayment, no penalty is due.
Line 23. Penalty – Add Column (a) through Column (d) of line 22. Enter the
total here and on page 1, line 4a.

After completing Part VI of the Form 2220E, Part III of the form should be
completed.

Schedule A – Annualized Income
Installment Method
Line 1. Columns (a), (b), (c), and (d). Enter the installment period that correspond with the attached federal Form 2220 in the appropriate column.
Enter the same periods in column (a), (b), (c), and (d) as used on the Annualized Income Installment Method from federal Form 2220.
NOTE: If the taxpayer elected to use federal Option 1 or 2, a signed
copy of Form 8842 must be attached.
Line 2. Columns (a), (b), (c), and (d). Enter the amounts that correspond
with the appropriate federal Form 2220 (page 4, Schedule A, line 23c) in the appropriate column.
Line 3. Columns (a), (b), (c), and (d). Enter the amount of any federal net
operating loss (2022 Form 1120, line 29a) in the appropriate column.
Line 4. Columns (a), (b), (c), and (d). Enter the annualized reconciliation
adjustments from Schedule A of Alabama Form ET-1 in the appropriate column.
Negative amounts should be entered in parenthesis ( ).
Line 5. Columns (a), (b), (c), and (d). Enter the annualized amounts from
Form ET-1, Schedule C, line 2, column E in the appropriate column. Income
should be entered as a negative ( ) amount, losses should be entered as a positive value.
Line 6. Columns (a), (b), (c), and (d). Total lines 2, 3, 4 and 5. Enter the
result in the appropriate column.
Line 7. Columns (a), (b), (c), and (d). For each period, enter the taxpayer’s
annualized Alabama apportionment factor in the appropriate column.
Line 8. Columns (a), (b), (c), and (d). Multiply the amount on line 6 by the
percentage on line 7. Enter the result in the appropriate column.
Line 9. Columns (a), (b), (c), and (d). Enter the annualized amounts from

Part V – Computing the
Addition to Tax-Interest
Complete lines 24 through 42 to determine the amount of interest due. The
interest is computed for the period of underpayment using the underpayment
rate determined under IRC Section 6621(a)(2). The period of underpayment
runs from the installment due date to the earlier of the date the underpayment is
actually paid or the 15th day of the fourth month after the close of the 2022 tax
year. For information on obtaining the interest rate on underpayments paid after
September 30, 2022, see the footnote on page 1 of Form 2220E.
A payment of estimated tax is applied against underpayments of required installments in the order that installments are required to be paid, regardless of the
installment to which the payment pertains.
Example. A financial institutionn underpaid the April 15 installment by
$1,000. The June 15 installment requires a payment of $2,500. On June
11, the financial institution deposits $2,500 to cover the June 15 installment. However, $1,000 of this payment is applied against the April 15 installment. The penalty for the April 15 installment is figured to June 11
(56 days). The remaining $1,500 is applied to the June 15 installment as
if it were made on June 15.
If the financial institution has made more than one payment for a required installment, attach a separate computation for each payment.
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Form ET-1, Schedule C, line 2, column F in the appropriate column. Income
should be entered as a positive amount, losses should be entered as a negative
( ) amount.
Line 10. Columns (a), (b), (c), and (d). Enter the financial institution’s annualized federal income tax deduction from Form ET-1, line 11 in the appropriate column. Negative amounts should be entered in parenthesis ( ).
Line 11. Columns (a), (b), (c), and (d). Enter the amount of the financial
institution’s net operating loss (2022 Form ET-1, line 13) in the appropriate column.
Line 12. Columns (a), (b), (c), and (d). Enter the amount of any annualized tax preference items not already accounted for in the appropriate column.
Attach a statement with Form 2220E describing the nature of any amounts entered on this line. Additions to Alabama income should be entered as a negative ( ) value, deductions from Alabama income should be entered as a
positive value.
Line 13. Columns (a), (b), (c), and (d). Enter the total of lines 9, 10, 11 and
12 in the appropriate column.
Line 14. Columns (a), (b), (c), and (d). Subtract the amount on line 13 from
the amount on line 8. Enter the result in the appropriate column.
Line 15. Columns (a), (b), (c), and (d). Multiply the amount on line 14 by
6.5% (.065). Enter the result in the appropriate column. If the result is $0.00, or
less than $0.00, no payment is due for the quarter.
Line 16. Columns (a), (b), (c), and (d). Enter the annualized tax credits
from Alabama Form ET-1, page 1, line 17, or the comparable line for other income tax returns, in the appropriate column. The total amount of credits utilized
should be entered as a positive amount.
Line 17. Columns (a), (b), (c), and (d). Subtract line 16 from line 15. Enter
the result in the appropriate column.
Line 19. Columns (a), (b), (c), and (d). Multiply line 17 by the percentage
on line 18. Enter the result in the appropriate column and on page 3, Part VI, line
43 in the appropriate column.

federal income tax deduction from Form ET-1, line 11 to each period. The total
claimed in columns (a) through (d) should sum to the amount claimed as a deduction on line 12, Form ET-1. Negative amounts should be entered in parenthesis.
Line 13. Columns (a), (b), (c), and (d). Enter the amount of the financial
institution’s net operating loss (2023 Form ET-1, line 13) in the appropriate column. The sum of columns (a), (b), (c), and (d) should total the amount claimed
on Form ET-1, page 1, line 13.
Line 14. Columns (a), (b), (c), and (d). Enter the amount of any tax preference items not already accounted for in the appropriate column. Attach a
statement along with Form 2220E describing the nature of any amounts entered
on this line. Additions to Alabama income should be entered as a negative
( ) value, deductions from Alabama income should be entered as a positive
value. The sum of the columns (a), (b), (c), and (d) should equal the total from
Form ET-1, page 2, Schedule A, line 25.
Line 15. Columns (a), (b), (c), and (d). Enter the total of lines 12, 13 & 14
in the appropriate column.
Line 16. Columns (a), (b), (c), and (d). Subtract the amount on line 15
from the amount on line 11. Enter the result in the appropriate column.
Line 17. Columns (a), (b), (c), and (d). Multiply the amount on line 16 by
6.5% (.065). Enter the result in the appropriate column. If the result is $0.00, or
less than $0.00, no payment is due for the quarter.
Line 18a. Columns (a), (b), and (c). Divide the amount in column (a), (b)
and (c) on line 3a by the amount in column (d) on line 3a. Enter the result in the
appropriate column.
Line 18b. Columns (a), (b), and (c). Divide the amount in column (a), (b)
and (c) on line 3b by the amount in column (d) on line 3b. Enter the result in the
appropriate column.
Line 18c. Columns (a), (b), and (c). Divide the amount in column (a), (b)
and (c) on line 3c by the amount in column (d) on line 3c. Enter the result in the
appropriate column.
Line 19. Columns (a), (b), and (c). Add the amounts on line 18a, 18b and
18c. Enter the result in the appropriate column.
Line 20. Columns (a), (b), and (c). Divide the amount on line 19 by 3 (not
line 3). Enter the result in the appropriate column.
Line 21. Columns (a), (b), and (c). Multiply the amount in column (a), (b)
and (c) of line 17 by column (a), (b) and (c) of line 20.
Column (d). Enter the amount from line 17, column (d).
Line 22. Columns (a), (b), (c), and (d). Enter in each column the amount
of any Alabama tax credits applicable to the income for each period.
Line 23. Columns (a), (b), (c), and (d). Subtract line 22 from line 21. A
quarterly installment is not due if the amount on line 23 is $0.00 or less. If line
23 is greater than $0.00, enter the amount from line 23 on line 43, Part VI of this
form.

Lines 4, 5, 7, 9, 10, 12 and 16 must be annualized according to the income/expenses directly tied to the annualized taxable income (loss) period as indicated on line 2.

Schedule B – Adjusted Seasonal
Installment Method
Since lines 1a – line 9 mirror the federal Form 2220, please enter the
amounts on these lines of the Alabama form that are used on the federal Form
2220. Line by line instructions for the section of the form will begin with line 10
of the Form 2220E.
Line 10. Columns (a), (b), (c), and (d). For each period, enter the taxpayer’s Alabama apportionment factor in the appropriate column.
Line 11. Columns (a), (b), (c), and (d). Multiply the amount on line 9 by the
amount on line 10. Enter the result in the appropriate column.
Line 12. Columns (a), (b), (c), and (d). Allocate the financial institution’s

After completing Part VI of the Form 2220E, Part III of the form should be
completed.

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