Relief from Additions to Tax under Sections 6654 and 6655 for Underpayment of Estimated Income Tax by Taxpayers Making an Election under Section 1062

Part III – Administrative, Procedural, and Miscellaneous

Relief from Additions to Tax under Sections 6654 and 6655 for Underpayment of

Estimated Income Tax by Taxpayers Making an Election under Section 1062

Notice 2026-3

SECTION 1. OVERVIEW

This notice provides relief from the additions to tax under sections 6654 and 6655

of the Internal Revenue Code (Code)1 for underpayment of estimated income tax by

a taxpayer that makes a valid election under section 1062(a) (section 1062 election).

SECTION 2. SCOPE

The relief provided in this notice applies for the purpose of calculating any

installment of estimated income tax of a taxpayer that makes a valid section 1062

election, with respect to the taxable year of the sale or exchange of qualified

farmland property that is the subject of the section 1062 election. The amount of the

relief depends on the amount of income tax for which payment is deferred by the

section 1062 election.

SECTION 3. BACKGROUND

.01 Section 1062.

(1) Generally. Section 70437 of Public Law 119-21, 139 Stat. 72 (2025),

1 Unless otherwise specified, all “section” references are to sections of the Code.

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commonly known as the One, Big, Beautiful Bill Act (OBBBA), redesignated pre-

OBBBA section 1062 as section 1063 and inserted a new section 1062. Section

1062(a) now allows a taxpayer who has gain from the sale or exchange of qualified

farmland property to a qualified farmer (qualified sale or exchange) to elect (by

making a section 1062 election) to pay the applicable net tax liability determined

under section 1062(d)(1)(A) in four equal installments

redesignated pre-

OBBBA section 1062 as section 1063 and inserted a new section 1062. Section

1062(a) now allows a taxpayer who has gain from the sale or exchange of qualified

farmland property to a qualified farmer (qualified sale or exchange) to elect (by

making a section 1062 election) to pay the applicable net tax liability determined

under section 1062(d)(1)(A) in four equal installments. Section 1062(b)(1) provides

that, if a section 1062 election is made, the first installment must be paid on the due

date (determined without regard to any extension of time for filing the return) for the

return of tax for the taxable year in which the qualified sale or exchange occurs, and

each succeeding installment must be paid on the due date (determined without

regard to any extension of time for filing the return) for the return of tax for the

taxable year following the taxable year with respect to which the preceding

installment was made.

(2) Applicable net tax liability. Section 1062(d)(1)(A) defines “applicable net tax

liability” with respect to a qualified sale or exchange as the excess (if any) of (i) such

taxpayer’s net income tax for the taxable year, over (ii) such taxpayer’s net income

tax for such taxable year determined without regard to any gain recognized from the

qualified sale or exchange. Section 1062(d)(1)(A) defines “net income tax” for these

purposes to mean the regular tax liability (as defined in section 26(b)) reduced by the

credits allowed under subparts A, B, and D of part IV of subchapter A of chapter 1 of

the Code.

(3) Qualified farmland property. Section 1062(d)(2)(A) defines the term

“qualified farmland property” as real property located in the United States that

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(1)(A) defines “net income tax” for these

purposes to mean the regular tax liability (as defined in section 26(b)) reduced by the

credits allowed under subparts A, B, and D of part IV of subchapter A of chapter 1 of

the Code.

(3) Qualified farmland property. Section 1062(d)(2)(A) defines the term

“qualified farmland property” as real property located in the United States that

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(i) during substantially all of the 10-year period ending on the date of the qualified

sale or exchange has been used by the taxpayer either as a farm for farming

purposes or leased by the taxpayer to a qualified farmer for farming purposes, and

(ii) is subject to a covenant or other legally enforceable restriction which prohibits the

use of such property other than as a farm for farming purposes for 10 years after the

date of the qualified sale or exchange. Section 1062(d)(2)(A) further provides that

property that is used or leased by a partnership or S corporation is treated as used

or leased by each person who holds a direct or indirect interest in such entity.

Section 1062(d)(2)(B) provides that the terms “farm” and “farming purposes” have

the respective meanings given such terms under section 2032A(e). See section

2032A(e)(4) and (5).

(4) Qualified farmer. Section 1062(d)(3) defines the term “qualified farmer” as

any individual who is actively engaged in farming (within the meaning of 7 U.S.C.

§§ 1308-1(b) and (c)).

(5) Acceleration of payment. Section 1062(b)(2)(A) provides that if there is an

addition to tax for failure to timely pay any installment required under section 1062,

then the unpaid portion of all remaining installments is due on the date of such

failure. Additional circumstances, described in section 1062(b)(2)(B) and (C), may

also accelerate the due date of unpaid installments.

(5) Acceleration of payment. Section 1062(b)(2)(A) provides that if there is an

addition to tax for failure to timely pay any installment required under section 1062,

then the unpaid portion of all remaining installments is due on the date of such

failure. Additional circumstances, described in section 1062(b)(2)(B) and (C), may

also accelerate the due date of unpaid installments.

(6) Election procedures. Section 1062(e) requires that a taxpayer making a

section 1062 election include with the return for the taxable year of the qualified sale

or exchange a copy of the covenant or other legally enforceable restriction described

in section 1062(d)(2)(A)(ii). Forthcoming guidance will provide further instructions on

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how a taxpayer may properly make a section 1062 election.

.02 Section 6654.

(1) Estimated income tax and liability for addition to tax. Generally, the Code

requires taxpayers to pay Federal income taxes as they earn income. To the extent

these taxes are not withheld from wages or other income, a taxpayer normally must pay

estimated income tax. Individual taxpayers who fail to make a sufficient or timely

payment of estimated income tax are liable for an addition to tax under section 6654(a).

With some exceptions, section 6654(l)(2) provides that the provisions of section 6654

generally apply to certain estates and trusts.

(2) Quarterly payments of estimated income tax for most individual taxpayers.

Section 6654 provides that, in the case of an individual, estimated income tax is

generally required to be paid in four installments, each in the amount of 25 percent of

the required annual payment

section 6654(l)(2) provides that the provisions of section 6654

generally apply to certain estates and trusts.

(2) Quarterly payments of estimated income tax for most individual taxpayers.

Section 6654 provides that, in the case of an individual, estimated income tax is

generally required to be paid in four installments, each in the amount of 25 percent of

the required annual payment. Generally, under section 6654(d)(1)(B), the required

annual payment is the lesser of (i) 90 percent of the tax shown on the return for the

taxable year; or (ii) 100 percent of the tax shown on the return of the individual for the

preceding taxable year (110 percent if the individual’s adjusted gross income on the

previous year’s return exceeded $150,000), provided that the preceding taxable year

was 12 months in duration and the individual filed a return for that year. An individual

taxpayer whose income varies during the taxable year may be able to use the

annualized income installment method described in section 6654(d)(2) to determine

estimated income tax liability as their income accumulates, rather than dividing the

required annual payment by four as if the income were earned equally throughout the

year. Generally, section 6654(d)(2)(B) allows an individual taxpayer to reduce the

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amount of estimated income tax installments that are due earlier in the year and

increase the amount of estimated income tax installments that are due later in the year.

ir income accumulates, rather than dividing the

required annual payment by four as if the income were earned equally throughout the

year. Generally, section 6654(d)(2)(B) allows an individual taxpayer to reduce the

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amount of estimated income tax installments that are due earlier in the year and

increase the amount of estimated income tax installments that are due later in the year.

(3) Due dates for installments of estimated income tax. Pursuant to

section 6654(c)(2), estimated income tax installments for an individual calendar-year

taxpayer generally are due on April 15, June 15, and September 15 of the taxable year,

and on January 15 of the following year. Pursuant to section 6654(k)(1), for an

individual fiscal-year taxpayer, the due dates of installments of estimated income tax are

determined by substituting corresponding months. Section 6654(h), (i), and (j) provides

special rules regarding installment amounts and due dates for taxpayers described

therein.

(4) One annual payment of estimated income tax for qualifying farmers or

fishermen. Special rules apply in the case of an individual taxpayer who is a farmer or

fisherman and satisfies the requirements of section 6654(i) for a taxable year (qualifying

farmer or fisherman). Under section 6654(i)(1), a qualifying farmer or fisherman has

only one required installment payment (instead of four quarterly payments) due on

January 15 of the year following the taxable year if at least two-thirds of the taxpayer’s

total gross income was from farming or fishing in either that taxable year or the

preceding taxable year

for a taxable year (qualifying

farmer or fisherman). Under section 6654(i)(1), a qualifying farmer or fisherman has

only one required installment payment (instead of four quarterly payments) due on

January 15 of the year following the taxable year if at least two-thirds of the taxpayer’s

total gross income was from farming or fishing in either that taxable year or the

preceding taxable year. For a qualifying farmer or fisherman who does not make the

required estimated income tax installment payment by January 15 of the year following

the taxable year, section 6654(i)(1)(D) provides that the taxpayer is not subject to an

addition to tax for failing to pay estimated income tax if the taxpayer files the return for

the taxable year and pays the full amount of tax reported on the return by March 1 of the

year following the taxable year. The definition of “qualified farmer” under

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section 1062(d)(3) differs from the definition of “farmer or fisherman” under

section 6654(i)(2). For purposes of section 6654, section 6654(i)(2) provides that an

individual is a farmer or fisherman for any taxable year if (A) the individual’s gross

income from farming or fishing (including oyster farming) for the taxable year is at least

66 and 2/3 percent of the total gross income from all sources for the taxable year, or

(B) the individual’s gross income from farming or fishing (including oyster farming)

shown on the return of the individual for the preceding taxable year is at least 66 and

2/3 percent of the total gross income from all sources shown on such return.

cluding oyster farming) for the taxable year is at least

66 and 2/3 percent of the total gross income from all sources for the taxable year, or

(B) the individual’s gross income from farming or fishing (including oyster farming)

shown on the return of the individual for the preceding taxable year is at least 66 and

2/3 percent of the total gross income from all sources shown on such return.

(5) Exceptions to the addition to tax. An individual taxpayer will not be subject to

the addition to tax under section 6654(a) if an exception applies. Under

section 6654(e)(1), no addition to tax will be imposed on an individual taxpayer if the

taxpayer owes less than $1,000 in tax, after subtracting tax withheld on wages. Under

section 6654(e)(2), an individual will not be subject to an addition to tax if (i) the

individual did not have any tax liability for the previous taxable year, (ii) the preceding

taxable year was 12 months, and (iii) the individual was a citizen or resident of the

United States throughout the preceding taxable year. Under section 6654(e)(3)(A), the

addition to tax will not be imposed with respect to any underpayment to the extent the

Secretary of the Treasury or the Secretary’s delegate (Secretary) “determines that by

reason of casualty, disaster, or other unusual circumstances the imposition of such

addition to tax would be against equity and good conscience.”

.03 Section 6655.

ng taxable year. Under section 6654(e)(3)(A), the

addition to tax will not be imposed with respect to any underpayment to the extent the

Secretary of the Treasury or the Secretary’s delegate (Secretary) “determines that by

reason of casualty, disaster, or other unusual circumstances the imposition of such

addition to tax would be against equity and good conscience.”

.03 Section 6655.

(1) Estimated income tax and liability for addition to tax. Section 6655(a) imposes

an addition to tax for failure by a corporation to make a sufficient and timely payment of

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estimated income tax. Section 6655(c) and (d)(1)(A) generally provides that, in the

case of a corporation, estimated income tax is required to be paid in four installments

and the amount of any required installment is 25 percent of the required annual

payment. Generally, under section 6655(d)(1)(B), the required annual payment is the

lesser of two amounts described in section 6655(d)(1)(B)(i) and (ii). The amount

described in section 6655(d)(1)(B)(i) is 100 percent of the tax shown on the return for

the taxable year. The amount described in section 6655(d)(1)(B)(ii) is 100 percent of

the tax shown on the taxpayer’s return for the preceding taxable year, so long as the

preceding taxable year was twelve months long and the return for such year showed a

liability for tax. However, pursuant to section 6655(d)(2), in the case of a large

corporation (as defined under section 6655(g)(2)), the amount described in

section 6655(d)(1)(B)(ii) may not be used to reduce the amount of an installment

payment other than the first installment payment for the taxable year. A taxpayer that is

a corporation with income that varies during the taxable year may be able to use the

annualized income installment method or the adjusted seasonal installment method

described in section 6655(e) to lower the amount of one or more required estimated

income tax installments.

he amount of an installment

payment other than the first installment payment for the taxable year. A taxpayer that is

a corporation with income that varies during the taxable year may be able to use the

annualized income installment method or the adjusted seasonal installment method

described in section 6655(e) to lower the amount of one or more required estimated

income tax installments.

(2) Due dates for installments of estimated income tax. Pursuant to

section 6655(c)(2), estimated income tax installments of a corporation that uses the

calendar-year for its taxable year generally are due on April 15, June 15, September 15,

and December 15 of the taxable year. Pursuant to section 6655(i), for a corporation

that uses a fiscal year for its taxable year, the due dates of installments of estimated

income tax are determined by substituting corresponding months. In special

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circumstances, other rules specified in section 6655 or elsewhere may also apply.

SECTION 4. LIMITED WAIVER OF ADDITION TO TAX

.01 Reasons for waiver. The Department of the Treasury (Treasury Department)

and the Internal Revenue Service (IRS) are aware that taxpayers may be concerned

that, in order to avoid the addition to tax under section 6654 or 6655 for failure to make

a sufficient and timely payment of estimated income tax, they must pay the full amount

of applicable net tax liability, or a substantial portion of it, as estimated income tax for

the taxable year of the qualified sale or exchange. Doing so would be contrary to the

purpose of the section 1062 election, which is to allow payment of the liability in

installments over four years. Without a limited waiver of the addition to tax, a taxpayer

making a section 1062 election might be deprived of the full benefit of the provision.

.02 Limited Waiver

timated income tax for

the taxable year of the qualified sale or exchange. Doing so would be contrary to the

purpose of the section 1062 election, which is to allow payment of the liability in

installments over four years. Without a limited waiver of the addition to tax, a taxpayer

making a section 1062 election might be deprived of the full benefit of the provision.

.02 Limited Waiver.

In the interest of sound tax administration, the IRS will waive a portion of the

addition to tax under sections 6654 and 6655 attributable to the qualified sale or

exchange for which the section 1062 election is made for taxpayers who both qualify to

make a section 1062 election and properly make a section 1062 election. The limited

waiver applies with respect to the applicable net tax liability the payment of which is

deferred by the section 1062 election. Accordingly, a taxpayer may exclude 75 percent

of the applicable net tax liability (with respect to the qualified sale or exchange as to

which the taxpayer has properly made the section 1062 election) from the calculation of

the required annual payment for purposes of determining estimated income tax

installment amounts for the taxable year of the qualified sale or exchange for which the

section 1062 election is made. In determining the required annual payment for the

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taxable year of the qualified sale or exchange, the taxpayer must include the portion of

the applicable net tax liability that is required to be paid on the due date of the income

tax return for the taxable year of the qualified sale or exchange (25 percent of the

applicable net tax liability with respect to the qualified sale or exchange as to which the

taxpayer has properly made the section 1062 election).

A proper section 1062 election is a prerequisite to receiving the relief provided in

this notice, but an acceleration of installment due dates under section 1062(b)(2) will not

affect this waiver

of the qualified sale or exchange (25 percent of the

applicable net tax liability with respect to the qualified sale or exchange as to which the

taxpayer has properly made the section 1062 election).

A proper section 1062 election is a prerequisite to receiving the relief provided in

this notice, but an acceleration of installment due dates under section 1062(b)(2) will not

affect this waiver. The waiver will apply automatically to any taxpayer who qualifies for

the waiver and does not self-report an addition to tax under section 6654 or 6655 on

their income tax return for the taxable year of the qualified sale or exchange. A

taxpayer who otherwise satisfies the criteria for relief under this notice, but who has

already filed an income tax return reporting an addition to tax under section 6654 or

6655, may request an abatement of the addition to tax by filing Form 843, Claim for

Refund and Request for Abatement and noting “Abatement requested pursuant to

Notice 2026-3” at the top of the claim. A taxpayer that satisfies the criteria for relief

under this notice but receives a penalty notice from the IRS should also request an

abatement of the addition to tax by filing Form 843.

.03 Form instructions to be modified. The instructions to forms relevant to estimated

income tax requirements, including Form 1040-ES, Estimated Tax for Individuals, Form

1041-ES, Estimated Income Tax for Estates and Trusts, Form 2210, Underpayment of

Estimated Tax by Individuals, Estates, and Trusts, Form 2210-F, Underpayment of

Estimated Tax by Farmers and Fishermen, Form 2220, Underpayment of Estimated Tax

by Corporations, will be modified, as necessary, to reflect the relief granted by this

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notice. If necessary, the modified instructions will be posted on https://www.irs.gov.

SECTION 5. DRAFTING AND CONTACT INFORMATION

The principal author of this notice is Alexander Wu of the Office of the Associate

Chief Counsel (Procedure and Administration)

0, Underpayment of Estimated Tax

by Corporations, will be modified, as necessary, to reflect the relief granted by this

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notice. If necessary, the modified instructions will be posted on https://www.irs.gov.

SECTION 5. DRAFTING AND CONTACT INFORMATION

The principal author of this notice is Alexander Wu of the Office of the Associate

Chief Counsel (Procedure and Administration). Other personnel from the Treasury

Department and the IRS participated in its development. For further information,

please contact Alexander Wu at (202) 317-6845 (not a toll-free number).