New 2015 Tax Law Changes Tax and FBAR Filing Deadlines & Other Noteworthy Compliance Provisions: The Good, The Bad & The Ugly

On Friday, July 31, 2015, President Barack Obama signed HR 3236, the “Surface Transportation and Veterans Health Care Choice Improvement Act of 2015” (the “Act”). Not sure how this name relates to taxes but in any event the following tax law changes and provisions became law under this Act:

• Changes to the due dates for various returns. The Act sets new due dates for partnership returns, C corporation returns.
• Foreign Bank Account Reporting:  New due dates for the important and often overlooked foreign bank account reporting (FBAR) forms, known as FinCEN Form 114, Report of Foreign Bank and Financial Accounts have been implemented.
• Changing the six year statute of limitations to apply to understatements of income that resulted from taxpayers overstating tax basis when calculating sales.  This change overturns the Home Concrete case where the Supreme Court ruled that understatements of income as a result of basis miscalculations would not trigger the extended six-year statute of limitations applicable to understatements of income.
• Requiring consistent basis reporting for estates and estate beneficiaries.
• Requiring additional information to be included in mortgage information statements.
• Other Information Returns:  The new act imposes new filing requirements for several other IRS information returns.

The following provides more details of these tax law changes:

Tax Return Due Dates:

Individual Income Tax Returns: 

Due dates are still the same.  The April 15 due date is still the law and taxpayers can still get the 6 month automatic extension.

Partnership Returns:

For a partnership return (IRS Form 1065, U.S. Return of Partnership Income), the new due date is March 15 for calendar-year partnerships and the 15th day of the third month following the close of the fiscal year for fiscal-year partnerships. This is a one-month acceleration in due date for partnership returns. There also is a maximum extension of six months allowed for partnership returns that are extended.

Observation:  The best part of these tax law changes for taxpayers and tax practitioners is that partnerships must file their returns by March 15. This should hopefully reduce getting partnerships K-1s at the last-minute and then scrambling to get the individual tax returns done before the April 15 deadline. It may also reduce the number of extensions requested making it easier on everyone.

Effective Date: These new tax return due dates apply to tax returns for tax years beginning after Dec. 31, 2015.  As a result, this new law will impact 2016 tax returns and the filing of such returns in 2017.

C Corporations:

For C corporations that report on a calendar year, the new due date is April 15 and no longer is March 15th. This is a one-month deferral in due date for C corporations.

For non-calendar year reporting C corporations, the new due date is on the 15th day of the fourth month following the close of the tax year.  Once again this moves the due date back one month affording C corporations more time to complete their returns.

Effective Date: These new tax return due dates apply to tax returns for tax years beginning after Dec. 31, 2015.  As a result, this new law will impact 2016 tax returns and the filing of such returns in 2017.

C Corporation Extensions:  C corporations generally will eventually be allowed a six-month extension to file such returns. However, the law imposes the following transitional rules: a calendar-year C corporation is allowed a five-month extension until 2026, and a C corporation with a June 30 year end would get a seven-month extension until 2026.  Not sure why this transitional provision was needed but its the law for now.

Foreign Bank Account Reporting (FBAR):

If you have foreign accounts that in the aggregate topped $10,000 at any time during the year, you must electronically file a return called a FinCen Form 114. This filing must be taken very seriously as the penalties are very harsh and scary, including but not limited to willful and non-willful civil penalties, and even criminal sanctions.

The due date for this electronically filed return, Form 114, was changed from June 30 to April 15. Although this makes the return due earlier than under prior law, it now has a filing date that is the same as individual income tax returns.

Important Change Benefiting Taxpayers: Additionally, for the first time, taxpayers will be allowed an extension of time to file this return.  The new law allows a maximum six-month extension for filing this information return to October 15.

Once again, these rules apply for returns for taxable years beginning after December 31, 2015.   This means that Form 114 for the 2016 calendar year will be due according to this new rule.  The Form 114 due for the 2015 calendar year will still be due June 30, 2016. As a result,  this new deadline will first affect FBARs due in 2017 for calendar year 2016.

The Act also provides relief from penalties for taxpayers that are required to file a FBAR return for the first time where such return was filed late as the result of a mistake.

Fore more on FBAR issues and for an example of specialized IRS compliance relief programs readers may be interested in US Citizens Living Outside America: Streamlined Foreign Offshore Procedures Offers Tax and Compliance Relief.

Extending The Reach of the Six Year Statute of Limitations:

A little known part of federal tax law is that when a taxpayer omits 25% or more of gross income from their return, the IRS has a six year statute of limitations to audit a tax return.  In 2012, the United States Supreme Court held in Home Concrete & Supply, LLC, 132 S. Ct. 1836, that the extended six-year statute of limitations does not apply when a taxpayer overstates its basis in property that it sells. Basically, the Home Concrete decision was a favorable decision for taxpayers as it clarified that an overstated basis was  not an omission of income for purposes of extending the statute.  The new Act changes and overrules this Supreme Court decision to the detriment of taxpayers.

The new law specifically provides that the extended six-year statute of limitations applies to a case where there is an “overstatement of basis” on a tax return. As a result, Section 6501(e)(1)(B) of the Internal Revenue Code of 1986, (the “Code”) was amended to provide that an overstatement of basis constitutes an “omission from gross income.”

This change applies to returns filed after the date of enactment.  It also applies to previously filed returns that are still open under the statute of limitations of the law applicable prior to the Act.

Estates and Beneficiaries: Consistent Basis Reporting:

The new tax Act now requires that any beneficiary who receives property from an estate must not treat the property received as having a basis higher than the basis reported by the estate for estate tax purposes.

The Act also requires administrators of estates that are required to file an estate tax return to provide information returns to the IRS and payee statements to any beneficiary who acquires an interest in property from the estate. The required statements must identify the value of each interest in property that was reported in the estate tax return.

These new basis reporting rules apply to property included in an estate tax return that is filed after the Act’s date of enactment.

Planning Point:  The threshold for filing a federal estate tax return, Form 706, is currently $5,430,000.  As a result, very few estates are required to file this return.  However, many file such returns to get the benefits of portability upon the death of the first spouse.  This new tax law change is yet another reason to file the Form 706 (or whatever form this IRS creates to comply with this new tax law change) even though not required since consistency of basis reporting is in the best interest of the administrator of the estate and the beneficiary.

For why basis issues are such an important consideration readers should refer to The Biggest (Tax) Loser: Misguided Gifts of Real Estate By Uninformed Do It Yourselfers, Realtors & Attorneys

More Information Now Required Under Mortgage Interest Statements:

The new tax Act requires the following additional information be included in the mortgage information statements that must be sent by lenders (or lender’s agents) to individuals who pay more than $600 in mortgage interest during a tax year:

• The outstanding principal balance on the mortgage at the beginning of the calendar year
• The mortgage origination date, and
• The address of the property securing the mortgage.

These new tax reporting rules apply to information returns and statements due after Dec. 31, 2016.

Other Information Returns:

The new act imposes new filing requirements for several other IRS information returns.

For example, the due date for Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, will be April 15 for calendar-year filers, with a maximum six-month extension.

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