On July 31, 2015, President Obama signed the Surface Transportation Act of 2015 into law. The law not only extends highway and transportation spending through Oct. 29, 2015, but also includes significant tax compliance provisions designed to offset the cost of the extended highway and transportation spending.
Among other compliance changes, the law’s tax provisions include significant changes in filing dates for partnerships and C-Corporations, requires stepped-up basis conformity between the estate and the estate beneficiary, and establishes an extended limitation period for overstatement of basis.
Partnership, C-Corporation and Other Filing Deadlines Moved
The most impactful tax compliance provisions of the law involve adjustments to tax filing deadlines for partnerships and C-Corporations. Currently, the tax return due date for calendar-year partnerships is April 15. The new law provides that beginning with tax years starting after Dec. 31, 2015, the deadline for timely filed partnership returns will move to March 15 for calendar-year partnerships and the 15th day of the third month following the close of the tax year for fiscal-year partnerships. The law also stipulates that partnerships will be entitled to an automatic six-month filing extension. The new law will synchronize partnership filing deadlines with S-Corporation deadlines. The early filing deadline should speed up the distribution of partner K-1s, resulting in fewer extensions to personal tax returns.
The law also changed the return filing deadline for calendar year C-Corporations, pushing the deadline back from March 15 to April 15 (or the 15th day of the fourth month after the end of its tax year) for tax years starting after Dec. 31, 2015. C-Corporations with fiscal years ending June 30 will still be required to file on September 15 until tax years beginning after 2025, when the filing date will move to October 15. The law also provides C-Corporations with an automatic six-month extension of the tax return filing deadline, except for calendar year C-Corporations which will receive an automatic five-month extension through 2025 under transitional rules.
The filing deadline changes were designed to coordinate and improve the flow of information between pass-through entities and individual taxpayers while providing tax preparers and the IRS with staggered deadlines to ensure the ability to process returns. The law also provides for other modifications to extension to file including a six-month extension of Form 1065 for calendar-year partnerships and a five and a half month extension for calendar year trusts filing form 1041.
Beginning with the FBAR for the 2016 year, the filing deadline will be April 15th with an automatic six-month extension available upon request.
Stepped-Up Basis Conformity
The new law also requires consistent treatment of asset values between estates and estate beneficiaries. The new law requires that the fair market value determination that sets the basis in any property acquired from an estate be consistent with the value as determined for estate tax purposes. A lower valuation of an asset is generally preferable for estates and results in lower estate tax. For beneficiaries a higher statement of value provides the beneficiary with increased “stepped-up” basis, leading to lower reported capital gains upon sale of the asset. The new provision is effective for property related to estate tax returns filed after July 31, 2015.
Six-Year Limitation Period Established for Overstatement of Basis
The law specifically provides for an extended six-year assessment period that will apply where an overstatement of basis results in an understatement of income of greater than 25 percent on a return. The law is effective for all returns for which the normal assessment period is currently open as of July 31, 2015, and for all returns filed after the enactment of the law.
In addition to changes affecting filing deadlines and basis rules, the law also creates additional reporting requirements for mortgage servicers. Mortgage servicers are already required to report certain information on Form 1098 including annual mortgage interest paid. The law creates additional reporting requirements for mortgage servicers including the outstanding mortgage principal balance, the address of the property and the mortgage origination date. The law will apply for returns and statements due after Dec. 31, 2016.
For ACA purposes, the law provides that those individuals who have medical coverage for the month under a program for members of the United States Armed Forces or a Veterans Affairs health care program will not be taken into account as employees for a given month when calculating full-time employees. The law also extends through 2025 an employer’s ability to transfer excess pension assets to fund retiree health benefits and life insurance. Additionally, veterans’ ability to make pretax contributions to health savings accounts will not be affected by the receipt of medical care from the Veterans Affairs for service related disabilities.