Congress Sneaks in Some Important Procedural Tax Changes

On July 31, 2015, President Obama signed HR 3236, the "Surface Transportation and Veterans Health Care Choice Improvement Act of 2015." While you wouldn’t know it from the title, Congress included some important procedural tax changes that are of special interest to tax return preparers and estate administrators.

Due Date for FBAR/FinCEN Form 114. Starting next year, this has been moved up from June 30 to April 15. For the first time, taxpayers can obtain a six month extension to October 15. This will put the filing schedule in line with the federal income tax return filing deadlines for most individuals. At this point, it is unknown if a separate filing will be needed to obtain the extension or whether a federal income tax return extension request will be sufficient – hopefully only one extension request will be needed.

Filers residing abroad are automatically extended until June 15, and can get an extension until October 15 (which is shorter than the current extension period available to December 15). First time filers who file late may be eligible to receive late filing penalty relief if they file by October 15.

Due Date for Partnership Income Tax Returns/Form 1065 and S Corporation Income Tax Returns/Form 1120S. This has been moved up by a month, to March 15 for calendar year returns and the 15th day of the third month following the close of the fiscal year for fiscal year entities. A maximum six month extension is available.

Due Date for C Corporation Income Tax Returns/Form 1120. This has been moved back a month to April 15 for calendar year returns and the 15th day of the fourth month following the close of the fiscal year for fiscal year partnerships.

Maximum Extension Due Dates for Trusts/Form 1041. The maximum extension for calendar year taxpayers will be 5 1/2 months to September 30.

Maximum Extension Due Dates for Exempt Organization Forms 990. This is 6 months to November 15 if not otherwise required to file an income tax return, for calendar year filers.

Due Date for Form 3520-A, Annual Information Return of a Foreign Trust with a U.S. Owner. This will be the 15th day of the 3rd month after the close of the trust’s taxable year, with up to a six month extension.

Due Date for Form 3520, Annual Information Return of a Foreign Trust with a U.S. Owner. This will be April 15 for calendar year filers, with up to a six month extension.

Six Year Statute of Limitations for Basis Overstatement. The extended six year statute of limitations for 25% or more omissions from gross income on an income tax return now expressly provides than an overstatement of basis is an omission from gross income for this purpose. This overrules Home Concrete & Supply, LLC, 132 S.Ct. 1836 (2012) which held that an overstatement of basis was NOT an omission from gross income.

Consistent Basis Reporting. Code Section 1014 is modified to require that the basis of property reported on an income tax return must be consistent with the values determined for such property for estate tax purposes. Thus, taxpayers cannot claim a higher basis than the estate tax value. Based on the provision only applying to property whose inclusion in the decedent’s estate increased the liability for estate tax, it would appear that this provision would not apply if due to deductions taken on the estate tax return there was no estate tax due (but this exception should not apply to the new reporting discussed below). Accuracy-related penalties applicable to underpayments under Code Section 6662 will apply to violations of this provision.

New Code Section 6035 now requires an estate required to file an estate tax return to furnish to the IRS and to each person acquiring an interest in gross estate property a statement identifying the value of each interest in such property. This statement must be delivered within 30 days of the earlier of the date the return is filed or the date the estate tax return was due (with extensions). If the value is subsequently adjusted (e.g., by audit or amendment), a supplemental statement must be provided within 30 days. Presumably, the IRS will provide a form for use in this reporting. The penalty for each failure is $250, to a maximum of $3 million. If the failure to report was intentional, the penalty is increased to $500, with exceptions for reasonable cause.

These new provisions apply to estate tax returns filed after July 31, 2015. They should not apply to returns filed only to claim portability of the DSUE amount if a return was not otherwise required.

What happens if the estate does not know within the 30 day deadline who will receive what assets? It would appear that the estate would need to provide a list of all possible assets to each particular potential recipient to avoid a violation of this provision. Perhaps a rule that would extend this to within 30 days of receipt of the subject asset would have been better or can be included by the IRS in its instructions or regulations. Executors may also want to give notice to themselves if they are beneficiaries, to assure compliance, unless final rules provide otherwise.