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Congress Swaps Partnership and C Corp Deadlines, Overturns Supreme Court Decision.

(Parker Tax Publishing August 17, 2015)

On July 31, President Obama signed into law a bill that restructures the due dates for Partnership and C corporation tax returns beginning with the 2016 tax year, with a goal of reducing the need for extended and amended tax returns. The new law also effectively reverses the Supreme Court's decision in United States vs. Home Concrete & Supply, changes the due date for FBAR filings, and makes a few other permanent changes to the tax code. H.R. 3236.

The changes were included in the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the Act), in part to help offset costs of the stop-gap spending measures.

Modified Due Dates for Partnership and C Corp Returns

H.R. 3236 (the Act), modifies the due dates for Partnership and C corporation tax returns, effective for the 2016 tax year. Once the new rules take effect, partnerships will be required to file their returns by the 15th day of the third month following the close of a tax year. For calendar year partnerships, the due date will be March 15, instead of April 15.

OBSERVATION: The filing deadlines for S corp returns remain unchanged, meaning that partnership and S corp returns will now share the same due dates.

In general, C corporations will have until the 15th day of the fourth month following the close of the tax year to file their returns. For calendar year C corps, this means the due date will be April 15, instead of March 15.

A special rule exempts C corps with fiscal years ending on June 30 from this change until tax years beginning after Dec. 31, 2025. Thus, the filing deadline for such corporations will remain September 15 until 2026 (when it will change to October 15).

The AICPA has applauded the changes. "The new structure will provide more accurate information to taxpayers in a more logical flow and reduce the number of extended and amended individual and corporate tax returns that are filed each year," stated AICPA president and CEO Barry Melancon.

Automatic Extension Periods Changed

For calendar year C corporations, Code Sec. 6081(b) provides a five month automatic extension for returns for tax years beginning after December 31, 2015 and ending before January 1, 2026. The extension period is a month shorter than under present law, but results in the same September 15 extended deadline because of the new April 15 original due date.

For fiscal year C corps with tax years ending on dates other than June 30, the length of automatic extensions remains unchanged at six months. For fiscal year C corps with tax years ending on June 30, a special seven month automatic extension applies for tax years beginning after December 31, 2015 and ending before January 1, 2026.

For tax years ending after December 31, 2025, automatic extensions for all C corporations will be for six months.

The Act also requires the IRS to modify appropriate regulations to provide maximum extensions for certain other returns of calendar year taxpayers for tax years beginning after Dec. 31, 2015, including:

1) a 6 month extension ending on Sept. 15 for partnerships filing Form 1065;

2) a 5-1/2 month extension ending on Sept. 30 for trusts filing Form 1041;

3) a 3-1/2 month extension ending on Nov. 15 for employee benefit plans filing Form 5500;

4) and a 6 month extension ending on Nov. 15 for exempt organizations filing Form 990.

Reversal of Supreme Court Decision in United States vs. Home Concrete & Supply

In U.S. v. Home Concrete & Supply, LLC, 2012 PTC 94 (S. Ct. 4/25/12), the Supreme Court held that taxpayer misstatements that overstate the basis in property do not fall within the scope of the Code Sec. 6501(e)(1) extended statute of limitations. That section extends the normal three year limitation period for assessments to six years where a taxpayer omits from gross income an amount in excess of 25 percent of the amount stated on the return.

The Court determined that an "understatement" of basis was not an "omission" for purposes of the statute. In reaching this decision, the Court looked at the legislative history of the provision and concluded that Congress intended an exception to the usual three-year statute of limitations only in a restricted type of situation - a situation that did not include overstatements of basis. As a result of the decision, the taxpayers were allowed to avoid certain taxes from their participation in a Son-of-BOSS transaction because the IRS didn't discover their overstated basis until after the normal three year period.

IRS Chief Counsel William J Wilkins lamented that the decision would mean taxpayers in other unsettled Son-of-BOSS cases would likely prevail, given the difficulty of untangling such transactions within the three year limit.

Congress has amended Code Sec. 6501, effectively overruling the Supreme Court's holding, to clarify that an understatement of gross income by reason of an overstatement of unrecovered cost or other basis is an omission from gross income for purposes of the six year statute of limitations under Code Sec. 6501(e).

The Joint Committee on Taxation estimates that this clarification will raise $1.2 billion in revenue by 2025.

Other Changes

In addition to the above modifications to the Tax Code, the Act also provides a new consistency standard for reporting basis in property received by reason of death under Code Sec. 1014, new information reporting requirements for inherited property, additional details taxpayers will need to disclose on mortgage information returns, and an extension for transfers of excess pension assets to retiree health accounts.

For taxpayers with foreign bank accounts, the Act directs the IRS to change the due date for FinCEN Report 114, relating to Report of Foreign Bank and Financial Accounts (FBAR), from June 30 to April 15, with a maximum extension for a six month period ending on Oct. 15, and to provide for an extension under rules similar to those in Reg. Sec. 1.6081-5. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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