Important Tax Provisions of Extended Highway Trust Fund Act

By:  Lauren B. Ades, Esquire          lades@pklaw.com

The “Surface Transportation and Veterans Health Care Choice Improvement Act of 2015” (P.L. 114-41, “the Act”) became law on July 31, 2015. Designed as a 3-month extension of the Highway Trust Fund and related measures, the Act includes a number of important tax provisions, some of the more important of which are touched upon in this article.

Partnership and C Corporation Returns

Currently, U.S. corporations (including S corporations) with a fiscal year must file their returns by March 15th of the following year. Partnerships on a calendar year must file their returns by April 15th of the following year, the same due date as individual returns.  Oftentimes, those holding partnership interests must file for an extension to file their returns due to the inability of partnerships to promptly furnish a Schedule K-1 to the holders of partnership interests.

The Act revises due dates for returns for tax years beginning after Dec. 31, 2015:

  • Partnerships and S corporations must file their returns by March 15 of the following year. The partnership date is moved forward a month while the S corporation date remains the same.
  • C corporations must file by the 15th day of the 4th month after the end of the tax year or April 15th of the following year for calendar year C corporations, moving the date back one month.  C corporations with a June 30th year end, will not have to meet the new filing date until tax years beginning after December 31, 2025.
  • The Act makes necessary conforming changes relating to the new C Corporation return due date.

Revised Statutory Automatic Extension Rules for Corporations

For returns for tax years beginning after December 31, 2015, the current three-month automatic extension for C corporations to file is generally changed to an automatic six-month extension. Those C corporations with a calendar year end and year beginning before January 1, 2026, have an automatic extension period of five months and not the current six months. C corporations with a June 30th year end and year beginning before January 1, 2026, have an automatic extension period of seven months, rather than the current six months.

Revised Extended Due Dates

The Act provides that effective for returns for tax years beginning after December 31, 2015, the Internal Revenue Service (“IRS”) is to modify its regulations so as to provide that the maximum extension for the filing of the following returns, being more salient to PK Law readers, will be:

  • Returns of partnerships will be a six-month period ending on September 15th for calendar year partnerships rather than the current five months.
  • The returns of trusts filing Form 1041 will be a five and a half-month period ending on September 30th for calendar year trusts, rather than the current five months.
  • Filers of Form 5500 are given an automatic three and a half-month period rather than the current two and a half-month period.
  • The Form 990 series will be subject to an automatic six-month period rather than the current three-month period.

Basis Reporting

Under current law, property acquired from a decedent receives a “stepped up” basis.  In other words, the “tax cost” of property acquired from a decedent generally is the fair market value (“FMV”) of the property on the decedent’s date of death. Similarly, property included in the decedent’s gross estate for estate tax purposes generally must be valued at its FMV on the date of death.

The Act formally requires that the basis of property received by reason of death must equal the value of that property for estate tax purposes. Also, a new information reporting requirement is imposed to insure that the basis of property reported by a recipient of a decedent’s property is the same as the FMV on the date of the decedent’s death.

Effective for property with respect to which an estate tax return is filed after July 31, 2015, the basis of property cannot exceed:

  1. In the case of property the final value of which has been determined for purposes of the estate tax on the estate of the decedent, such value, and
  2. In the case of property not described in A., above, and with respect to which a statement has been furnished under new [Internal Revenue] Code (“IRC”) Sec. 6035(a) (see below) identifying the value of such property, such value.

The Act generally describes the rules under which basis is determined in terms of establishing FMV.

New Information Reporting Requirements for Inherited Property

Effective for property with respect to which an estate tax return is filed after July 31, 2015, the following new information reporting requirements apply to inherited property:

  1. The executor of any estate required to file an estate tax return must furnish to IRS and to each person acquiring any interest in property included in the decedent’s gross estate for Federal estate tax purposes a statement identifying the value of each interest in such property as reported on the estate tax return and such other information with respect to such interest as IRS may prescribe.
  2. Each person required to file a “partial estate tax return” (returns to be filed by beneficiaries as to assets passing to which assets the executor lacks sufficient information (IRC 6018(b)) must furnish to IRS and to each other person who holds a legal or beneficial interest in the property to which such return relates a statement identifying the information described in (1), above.

The statements required under (1) and (2), above, must be furnished as prescribed by IRS, but not later than the earlier of:

  • The date which is 30 days after the date on which the return under IRC Sec. 6018 was required to be filed (including extensions, if any), or
  • The date which is 30 days after the date such return is filed. (IRC Sec. 6035(a)(3)(A)

Where there is an adjustment to the information required to be included on a statement after the statement has been filed, a supplemental statement must filed not later than the date which is 30 days after such adjustment is made.

Under new IRC Sec. 6035(b), the IRS is required (“shall”) to issue regulations necessary to carry out the new IRC Sec. 6035 basis reporting rules, including the application of the rules to property with regard to which no estate tax return is required to be filed, and situations in which the surviving joint tenant or other recipient of a decedent’s property may have better information than the executor regarding the basis or FMV of the property.

Failure to follow the information reporting rules and those reporting basis inconsistent with the estate’s reporting of basis will be subject to penalties.

PK Law’s Tax and Wealth Preservation attorneys can assist with the new filing deadlines and basis reporting requirements.  To contact a PK Law Tax Attorney click here or a PK Law Corporate and Business Services Attorney click here. For additional information contact information@pklaw.com.

 

This information is provided for general information only.  None of the information provided herein should be construed as providing legal advice or a separate attorney client relationship. Applicability of the legal principles discussed may differ substantially in individual situations. You should not act upon the information presented herein without consulting an attorney of your choice about your particular situation. While PK Law has taken reasonable efforts to insure the accuracy of this material, the accuracy cannot be guaranteed and PK Law makes no warranties or representations as to its accuracy.