Tax Provisions from Congress’s New Highway Funding Bill

tax iconOn July 31, President Barack Obama signed the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, H.R. 3236, into law. The Act makes many important changes to the Internal Revenue Code. For example, it requires additional information be included on mortgage interest returns, modifies basis reporting and penalties, overrules the Supreme Court’s Home Concrete decision, and changes the due dates and maximum extensions for certain returns.

Mortgage Information Statements. Section 6050H(b)(2) has been amended requiring a mortgage interest return to now include, inter alia, the amount of outstanding principal on the mortgage as of the beginning of the calendar year, the date of the origination of the mortgage, and the address of the property which secures the mortgage. This change applies to returns required to be filed after December 31, 2016.

Basis Reporting and Information. A new subsection has been added to Section 1014. It requires the basis reported by a person acquiring property from a decedent to be consistent with the value stated on the estate tax return but only if the property increased the estate tax liability of the decedent’s estate. Section 6662 has been amended to impose a penalty on inconsistent basis reporting. This penalty will apply to any tax returns filed after the date the Act was enacted on July 31, 2015.

A new Section 6035 has also been added. This section requires the executor of a decedent’s estate to furnish to the Secretary and to each person acquiring any interest in property included in the decedent’s gross estate a statement identifying the value of each interest in the property. Any beneficiaries required to file a return must also furnish such a statement to the Secretary and to each other person who holds a legal or beneficial interest in the property. The statements must be furnished no later than 30 days after the return is due or filed.

Substantial Omission of Items. Section 6501(e) has been amended to clarify that an “omission from gross income” under the extended six-year statute of limitations for substantial omissions of items does include an understatement of gross income because of an overstatement of unrecovered cost or other basis, thus overruling the Supreme Court’s decision in U.S. v. Home Concrete & Supply, LLC, 132 S. Ct. 1836 (2012). This amendment applies to tax returns filed after the enactment of the Act and to tax returns filed before the enactment of the Act if the statute of limitations for assessment of the taxes has not expired.

iStock_000020558994MediumPartnership and C Corporation Returns. The due dates for returns filed by partnerships and C corporations have also been changed. Returns for partnerships, like S corporations, made on the basis of a calendar year must now be filed on or before March 15, instead of April 15, and returns made on the basis of a fiscal year must be filed on or before the 15th day of the third month following the close of the fiscal year, rather than the fourth month. For C corporations, the new due date for returns is the 15th day of the fourth month following the close of the corporation’s taxable year instead of the 15th day of the third month. These amendments generally apply to returns for taxable years beginning after December 31, 2015. In the case of any C corporation with a taxable year ending on June 30, however, the amendments apply to returns for taxable years beginning after December 31, 2025.

Maximum Extensions. The maximum extension for certain returns has also been modified. The maximum extension for: (1) partnerships filing Form 1065, United States Return of Partnership Income, is now a 6-month period ending on September 15 for any calendar year taxpayers; (2) the returns of trusts filing Form 1041, U.S. Income Tax Return for Estates and Trusts, is now a 5 ½-month period ending on September 30 for calendar year taxpayers; (3) the returns of employee benefit plans filing Form 5500, Annual Return/Report of Employee Benefit Plan, is now an automatic 3 ½-month period ending on November 15 for calendar year plans; (4) the returns of organizations exempt from income tax filing Form 990 (series) is now an automatic 6-month period ending on November 15 for calendar year filers; (5) the returns of organizations exempt from income tax that are required to file Form 4720, Return of Certain Excise Taxes under Chapters 41 and 42 of the Internal Revenue Code, is now an automatic 6-month period beginning on the due date for filing the return; (6) the returns of trusts required to file Form 5227, Split-Interest Trust Information Return, is now an automatic 6-month period beginning on the due date for filing the return; and (7) a taxpayer required to file Form 8870, Information Return for Transfers Associated with Certain Personal Benefit Contracts, is now an automatic 6-month period beginning on the due date for filing the return.

Foreign Trusts and Banks. The new due date for: (1) Form 3520-A, Annual Information Return of Foreign Trust with a United States Owner, is the 15th day of the third month after the close of the trust’s taxable year, and the maximum extension is a 6-month period beginning on such day; (2) Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, for calendar year filers is April 15 with a maximum extension for a 6-month period ending on October 15; and (3) FinCEN Report 114 (formerly known as the “FBAR”) is April 15 with a maximum extension for a 6-month period ending on October 15. Previously, the FBAR was due on June 30 and no extensions were allowed.

Automatic Extension for Corporations. Finally, Section 6081(b) has been amended to allow an automatic extension of 6 months rather than 3 months for corporations filing income tax returns. However, for C corporations filing returns for taxable years ending on December 31 and beginning before January 1, 2026, there is a 5 month extension, and for taxable years ending on June 30 and beginning before January 1, 2026, there is a 7 month extension. This amendment applies to returns for taxable years beginning after December 31, 2015.