The Highway Act

Melissa Lanigan, CPA (Sep, 2015)

In July 2015, President Obama signed into law the "Surface Transportation and Veterans Health Care Choice Improvement Act of 2015" (aka "The Highway Act").  So you're probably thinking, "What does that have to do with me?" and "Why am I reading about it in an article from a tax newsletter?"

Well, it probably has a lot to do with you, despite the confusing, wordy title, the Act provided numerous and significant tax compliance changes.

Changes to Due Dates

One of the most significant changes the Highway Act brought were changes to the due dates of specific tax forms. Your personal income tax return is still due April 15th.  Though the due dates for C Corporation returns, Form 1120 (U.S. Corporation Income Tax Return) and Partnership returns, Form 1065 (U.S. Return of Partnership Income) changed.  Originally, for calendar year entities, C Corporation returns were due March 15th and Partnership returns were due April 15th

The Highway Act switched the due dates of C Corporation and Partnership returns.  For tax years beginning on January 1, 2016, Partnership returns will be due March 15, 2017 and C Corporation returns will be due April 15, 2017.  The extended due date for Partnership returns has not changed, but these entities are now allowed a six month extension, through September 15th.

The change will allow partners of the partnerships time to receive their K-1's and prepare and file their personal income tax returns, or at least have an estimate of income for extension purposes. 

For C Corporations with fiscal years ending on June 30th, don’t get too excited, the new law does not apply until tax years beginning after 2025.  Until then the due date will continue to be September 15th.  The extended due date for C Corporations remains unchanged as well, calendar year filers are now allowed a five month extension, through September 15th.

The Act also revised extension periods for several other tax filings.  See chart below for a summary.

Return Type

Current Extension Period

Extension Period Beginning in 2016

Form 1041 - U.S. Income Tax Return for Estates and Trusts

5 months, i.e. September 15th for calendar year estates and trusts

5 1/2 months, i.e. September 30th for calendar year estates and trusts

Form 5500 - Annual Return/Report of Employee Benefit Plan

2 1/2 months, i.e. October 15th for calendar year plans

3 1/2 months, i.e. November 15th for calendar year plans

Form 990 - Return of Organization Exempt from Income Tax

3 months, plus an additional 3 months

6 months

Form 4720 - Return of Certain Excise Taxes

3 months, plus an additional 3 months

6 months

Form 5227 - Split-Interest Trust Information Return

3 months, plus an additional 3 months

6 months


Changes to FinCEN Form 114

Do you remember the tedious form used to report your foreign financial interests that are due June 30th each year with no exceptions and no extensions? Well some good news, they can now be extended! 

For tax years beginning in 2016, FinCEN Form 114, Report of Foreign Bank and Financial Accounts, will be due April 15th and a six month extension to October 15th will be allowed.  Penalties for failure to timely request or file an extension may be waived for taxpayers required to file FinCEN Form 114 for the first time.

Changes to Basis on Inherited Property

Previously, a beneficiary's basis on inherited property was the property's Fair Market Value (FMV) at the decedent's date of death.  Property on the decedent's gross estate on Form 706 is also reported at FMV.  Before the Highway Act, the law did not explicitly require the beneficiary's basis on the property be the same as the value reported on Form 706.

The Highway Act now imposes a consistency rule.  For estate tax returns filed after July 31, 2015, the beneficiary's basis on inherited property must equal the value of the property reported on Form 706, but only if the property increased the estate's tax liability (reduced by allowable credits) on Form 706.  

To ensure the new consistency rule is being followed properly, the IRS now requires the executors to provide a statement to the IRS and recipients of the property, reporting the value of the property reported on Form 706.  These statements must be filed with the IRS no later than 30 days after Form 706 is filed, or 30 days after the date Form 706 was due (including extensions). 

Keep in mind, the information reporting is not required if the property value did not increase the estate's tax liability. Additionally, the information reporting is only required if Form 706 is required to be filed because gross estate exceeds the exclusion amount.  

Additional Information Required to be Reported on Form 1098 - Mortgage Interest Information Statement

Banks are now required to report additional information on your Form 1098-Mortgage Interest Statement for returns to be filed in 2016.  The new information required includes:

  • The outstanding mortgage principal as of the beginning of the calendar year
  • The mortgage origination date
  • The address (or other description) of the property that secures the mortgage

Cost Overstatement is Income Omission for Six Year Statute of Limitations Period

Typically, the statute of limitations for assessing income tax liabilities is three years from the later of the date the return was filed or the due date of the return.  Although, a six year statute of limitations applies when a taxpayer omits greater than 25% of gross income reported on the tax return.  The Act specifies the understatement of gross income by overstating costs or other basis is an omission from gross income for purposes of the six year limitations period. 

In summary, the Highway Act brought several significant changes to tax practice, including new due dates for calendar year end C Corporations and Partnerships,  revised extension periods for other tax filings, and new due dates and extension periods for FinCEN Form 114.  Also, the new consistency basis rule and additional statements required for estate filings.  There will also be additional information reported on your Form 1098, Mortgage Interest Statement.  Most of these changes are for the good and there is plenty of time to plan for the changes.

As always, please contact your Dermody, Burke & Brown advisor if you have any questions.

 

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