What does SC Private Letter Ruling #89-5 conclude about a long-term capital-gains refund and estimated income tax?

Plain-English summary

South Carolina Private Letter Ruling 89-5 concluded that one-half of a historical refundable credit for 1987 long-term capital gains could reduce the taxpayer's 1989 estimated income tax and the tax used to calculate the estimated-tax underpayment penalty.

Historical S.C. Code § 12-7-460 provided a refund of tax attributable to long-term capital gains recognized during 1987 or January 1988. The refund was payable in two equal installments in 1990 and 1991. To simplify administration, the Tax Commission allowed half as a refundable credit on the 1989 return filed in 1990 and the other half on the 1990 return filed in 1991.

For the 1989 estimate, the first half of the credit went on line 7 of the estimated-tax worksheet. It also reduced the tax-after-credits amount on line 1 of Form SC 2210, which calculated the penalty for underpayment of estimated tax.

The ruling described the historical penalty calculation as 90% of tax after credits, reduced by withholding. If that amount was less than $100, there was no state estimated-tax underpayment penalty under the rules and form discussed.

Common questions

Q: Could the taxpayer use the entire capital-gains refund in the 1989 estimate? No. Only one-half could be used in the 1989 computation.

Q: Where did that half go on the estimated-tax worksheet? Line 7 of the 1989 estimated-tax worksheet.

Q: Did the credit affect the SC 2210 underpayment calculation? Yes. It was included as a credit in the tax-after-credits amount on line 1.

Q: When was the other half available? On the taxpayer's 1990 return filed in 1991.

Q: What gains generated the historical refund? Long-term capital gains recognized during 1987 or January 1988.

Q: Can another taxpayer rely on PLR 89-5? No. The ruling says it applies only to the specific facts or circumstances in the request and has no precedential value.

Citations and references

• S.C. Code Ann. § 12-7-460 (historical long-term capital-gains refund)
• S.C. Code Ann. § 12-7-1930 (historical estimated-tax calculation)
• S.C. Code Ann. § 12-54-55 (historical underpayment penalty)
• IRC § 6654(f) (credit treatment used in the penalty calculation)
• SC Information Letter 88-15 (installment procedure identified in the ruling)
• S.C. Code § 12-3-170 and SC Revenue Procedure 87-3 (authority identified in the ruling)

Subject

Long-term Capital Gains Refund; Estimated Income Tax

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR89-5.pdf

Original ruling text

SC PRIVATE LETTER RULING 89-5

TO:

Mr. X

SUBJECT:

Long-term Capital Gains Refund
Estimated Income Tax

ERFERENCE:

S.C. Code Ann. Section 12-7-460 (Law. Co-Op. Supp. 1988)
S.C. Code Ann. Section 12-7-1930 (Law. Co-Op. 1976)
S.C. Code Ann. Section 12-54-55 (Law. Co-Op. Supp. 1988)

AUTHORITY:

S.C. Code Section 12-3-170
SC Revenue Procedure #87-3

SCOPE:

A Private Letter Ruling is a temporary document issued to a taxpayer,
upon request, and it applies only to the specific facts or circumstances
related in the request. Private Letter Rulings have no precedential
value and are not intended for general distribution.

Questions:
1.

Can the refundable credit for 1987 capital gains be treated as a credit in calculating
1989 estimated income taxes?

2.

How will this refundable credit be applied for purposes of computing the penalty for
underpayment of estimated tax on form SC 2210?

Discussion:
Section 12-7-460 provides a refund of taxes attributable to long-term capital gains recognized
during 1987 or January, 1988. The refund is payable in two equal installments in 1990 and 1991.
In order to simplify the procedure for issuing the refund, the Commission will allow half of the
refund as a refundable credit on the taxpayer's 1989 return filed in 1990 and the other half on the
taxpayer's 1990 return filed in 1991 (See S.C. Information Letter #88-15).
Section 12-7-1930 provides the following steps in computing estimated tax for the taxable year:
(1)

The amount which he estimates as the amount of tax due for the taxable year under
the provisions of this chapter;
1

(2)

The amount which he estimates as credits for taxes withheld by his employer;

(3)

The excess of the amount estimated under item (1) over the amount estimated under
item (2), which shall be considered the estimated tax for the taxable year;

Section 12-54-55 provides that the penalty for underpayment of estimated taxes is simple interest
determined under the provisions of IRC Section 6654. IRC Section 6654(F) provides that the tax
to be used in computing the underpayment penalty is the income tax less refundable and nonrefundable credits other than withholding tax credits. This tax is then multiplied by 90% and
reduced by the withholding taxes.
The underpayment of estimated tax penalty is computed on form SC 2210. Line 1 of form SC
2210 is the tax after credits. The tax, after credits is then multiplied by 90% and then reduced by
withholding taxes. If 90% of the tax reduced by withholding taxes is less than $100 there will be
no underpayment of estimated tax penalty for state purposes.
Therefore, the refundable credit should be treated as a credit for calculating the 1989 estimated
income taxes. This credit would be taken on line 7 of the 1989 estimated tax worksheet. It
should be noted that only half the refundable credit can be used in the 1989 computation. The
credit should also be used to compute the tax after credits on line 1 of Form SC 2210.
Conclusion:
1.

One-half of the refundable credit for 1987 capital gains can be treated as a credit in
calculating 1989 estimated income taxes.

2.

This refundable credit will be applied as a credit on line 1 of Form SC 2210.
SOUTH CAROLINA TAX COMMISSION
s/S. Hunter Howard Jr
S. Hunter Howard, Jr., Chairman
s/A. Crawford Clarkson Jr.
A. Crawford Clarkson, Jr., Commissioner
s/T. R. McConnell
T. R. McConnell, Commissioner

Columbia, South Carolina
, 1989
April 7

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