Highway Funding Law Brings Important Tax Compliance Law Changes
| August 25, 2015
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On July 31, the President signed into law the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (Pub. L. No. 114-41). This new law provides a temporary three-month extension of the Highway Trust Fund that is paid for through several tax compliance revenue offsets. These revenue offsets primarily affect tax return filing due dates and extension deadlines for C corporations, partnerships, and trusts and estates. There are also other important tax provisions contained in the law that include modifications to estate and mortgage reporting, consistent basis reporting, clarification of the 6-year limitation period for overstated basis, veterans tax incentives regarding ACA exemptions and improved HSA contribution eligibility, and an excise fuel tax provision for alternative fuels.
Revised Tax Return Due Dates and Other Tax Statement Changes
The due dates for several types of tax and information returns have been changed under the new law. With a few exceptions, these changes are generally effective for taxable years beginning after December 31, 2015 (calendar year 2016), and are thus applicable to returns to be filed in 2017. It is important to note that the IRS recently provided welcome relief to those estates required to report fair market value of property to beneficiaries. The reporting due date (originally effective for estate tax returns due after July 31, 2015) has been delayed until February 29, 2016. Nevertheless, there remain a few provisions that are effective now including the applicability of the 6 year statute of limitations for overstatement of basis in property sold and the veteran exemption of the Affordable Care Act employer mandate. In addition, some due dates or extension periods are not effective for up to 10 years due to transitional rules.
Here is an overview to help you navigate this new tax compliance timetable.
|Partnerships tax returns. Form 1065, “US Return of Partnership Income” and Schedule K-1s, “Partner’s Share of Income, Deductions, Credits, etc.”
| Calendar year partnerships
- Tax return due date - March 15 (previously April 15)
- Extension deadline – September 15 (new automatic 6 month extension replaces automatic 5 month extension)
| Fiscal year partnership
- Tax return due date - 2.5 months after the close of its fiscal tax year (previously 3.5 months after the close of its tax year)
- Extension deadline – 5 months (new 6 month extension applies only to calendar year partnerships)
|S corporation tax returns. Form 1120S, “US Income Tax Return for an S corporation” and Schedule K-1s, “Partner’s Share of Income, Deductions, Credits, etc.”
| Calendar year S corporation
- Tax return due date – March 15 (unchanged)
- Extension deadline – September 15 (unchanged)
| C corporation income tax returns. Form 1120, “US Corporation Income Tax Return”.
| Calendar year corporations
- Tax return due date - April 15 (previously March 15)
- Extension deadline – September 15 (under transitional rules, the automatic 6 month extensions do not apply until tax years beginning after December 31, 2025)
| Fiscal year corporations (other than June 30 year end)
- Tax return due date – 3.5 months after the close of its fiscal year (previously 2.5 months after the close if its tax year)
- Extension deadline – 6 month automatic extension (previously only 3 month automatic extensions were available)
| Fiscal year corporations (June 30 year end)
- Tax return due date – September 15 (unchanged until tax years beginning after December 31, 2025, at which time the filing due date will become October 15)
- Extension deadline – (automatic 7 month extension permitted until after December 31, 2025, at which time the automatic 6 month extension will take effect)
| FinCEN Form 114. Form 114, “Report of Foreign Bank and Financial Accounts.”
- Filing due date – April 15 (previously June 30)
- Extension deadline – 6 month extension to October 15 (previously no extension was available except to certain individuals with signature authority and no financial interests in the foreign financial accounts)
Under the new law, if you are required to file a Form 114 for the first time, penalty waivers may be available for failure to request or file an extension.
| Additional return date changes. The new law also instructs the Treasury Department to modify regulations to change the due dates for several other returns -
- Form 1041, “US Income Tax Return for Estates and Trusts,” – 5.5 month extension to September 30 for calendar year taxpayers.
- Form 5500, “Annual Return/Report of Employee Benefit Plan,” - automatic 3.5 extension ending on November 15 for calendar-year plans.
- Form 4720, “Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code,” – automatic 6 month extension beginning on the due date for filing the return.
- Form 990, “Return of Organization Exempt from Income Tax,” - automatic 6 extension ending on November 15 for calendar-year plans.
- Form 5227, “Split-Interest Trust Information Return” – 6 month extension beginning on the due date for filing the return.
- Form 8870, “Information Return for Transfers Associated with Certain Personal Benefit Contracts” – 6 month extension beginning on the due date for filing the return.
- Form 3520, “Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts” - due date is April 15 for calendar year taxpayers; 6 month extension to October 15.
- Form 3520-A, “Annual Information Return of Foreign Trust with a US Owner,” – due date is 15th day of the 3rd month after the close of the trust’s taxable year; maximum 6 month extension from taxable year closing date.
Additional Tax Provisions
Consistent basis reporting for property acquired from decedents
The new law mandates consistent reporting of basis between an estate and beneficiaries acquiring property from a decedent. An acquirer’s basis cannot exceed the final value that has been determined for estate tax purposes. If an estate value has not yet been determined, the acquirer’s basis cannot exceed the amount that has been reported under the new fair market value reporting requirements for executors of large estates. As noted above and pursuant to IRS Notice 2015-57, this reporting requirement has been delayed until February 29, 2016. This provision applies only to property whose inclusion in the decedent’s estate increases the estate’s tax liability (reduced by allowable credits). Any underpayment of tax resulting from inconsistent basis reporting may be subject to a 20% accuracy-related penalty.
Large estates must report fair market values – Delayed until February 29, 2016
To ensure consistent reporting for estate and income taxes, the new law imposes reporting requirements on executors of any estate required to file a return. As a result, executors of large estates will be required to provide the IRS and each beneficiary with statements identifying the fair market value of the property received as reported on the estate tax return. Failure to furnish statements or otherwise correct erroneous statements may be subject to strict “payee statement” and “information return” penalties. These requirements were initially scheduled to apply to estate tax returns filed after July 31, 2015. However, on August 21, the Treasury Department and the IRS released Notice 2015-57 that delayed the due date for these statements until February 29, 2016.
Overstated basis qualifies as understatement of gross income – Applies to returns filed after July 31, 2015
The new law also clarifies the statute of limitations for overstated tax basis, and overrides a Supreme Court decision holding that the extended six-year statute of limitations (in the case of taxpayers who omit from gross income an amount in excess of 25% of the gross income) did not apply to the overstatement of basis with respect to sold property. The new law amends the tax code to clarify that an understatement of gross income due to an overstatement of unrecovered cost or other basis is an omission from gross income. The amendment applies to returns filed after July 31, 2015, as well as previously filed returns that remain open.
Expanded mortgage servicer reporting – Returns due after December 31, 2016
The new law imposes additional tax reporting requirements on mortgage servicers with respect to information contained on the IRS Form 1098, Mortgage Interest Statement. Beginning for returns and statements that are due after December 31, 2016, mortgage servicers will be required to report the outstanding principal balance of the mortgage, the address of the property, and the loan origination date.
Veterans tax incentives – ACA exemption effective after December 31, 2013; HSA coverage effective after December 31, 2015
The new law provides information reporting and penalty relief to businesses that hire veterans who are enrolled in the Defense Department’s TRICARE or the Veterans Administration’s medical programs. These employees will not be counted as employees for purposes of determining whether an employer is considered an “applicable large employer” under the Affordable Care Act (ACA). Applicable large employers are generally those with 50 or more full-time employees or equivalent full-time employees. Applicable large employers are subject to information reporting requirements and penalty exposure under the ACA’s shared responsibility (or “play or pay”) provisions. The new law also clarifies that medical care received from the VA for a service-connected disability will not affect a veteran’s eligibility to contribute to a health savings account.
Employers have more time to transfer excess pension assets – Extended to
January 1, 2026
The new law provides an additional four years (until December 31, 2025) for employers to transfer excess defined benefit plan assets to a retiree’s health benefits account or life insurance plan. To make such transfers (which are allowed only once a year), a defined benefit plan must have assets of at least 125% of their funding target. The new law extends the deadline that was contained in a prior law that allowed such transfers to the end of 2021.
Alternative fuels tax cut – Applies to any sale of use of fuel after December 31, 2015
The new law cuts excise taxes on various alternative fuels including liquefied natural gas, liquid propane used in highway motor fuels. Beginning in 2016, taxes will be imposed uniformly on an energy-equivalent basis on other alternative fuels including liquefied petroleum gas and compressed natural gas.
For more information
If you have questions about this alert, please contact Steven Eliach, Principal-in-Charge of the Tax Practice, by phone at (212) 503-6388 or by email at firstname.lastname@example.org or any of our Marks Paneth professionals.
About Steven Eliach
Steven Eliach, JD, LL.M., is the Principal-in-Charge of Tax Services at Marks Paneth LLP. He specializes in taxation for the real estate industry, estate planning and income taxation of closely held companies including start-up technology companies. In addition to his client service responsibilities, as Principal-in-Charge of Tax Services, Mr. Eliach is responsible for overseeing the firm’s tax engagements, which include international tax, individual tax, trust and estates, corporate and partnership tax and state and local... READ MORE +