Unexpected changes in FBAR, corporate and partnership returns, and statute of limitations and mortgage reporting tax rules are embedded in funding bill H.R. 3236.
When US President Barack Obama extended funding for highways by signing H.R. 3236 into law on July 31 (now Public Law No. 114-41), he also changed some significant tax filing dates and statute of limitations rules. These changes affect broad categories of tax filers for tax years beginning after December 31, 2015.
Here are some of key changes you should know about:
New FBAR Filing Rules
The bill syncs the filing dates for Foreign Bank Account Reports (FBARs) with individual tax return filings. Starting in 2016, the due date for FBAR forms (FinCEN Form 114) with respect to accounts held at any time in 2015 is April 15. This is a common-sense change and has been a long time coming. Until this change, the due date for FBARs was June 30; different tax return and FBAR filing dates often caused taxpayers confusion and frustration. The law also provides for the first time an extension of up to six months to file a FBAR, pushing the final due date to October 15, like individual tax return extensions.
This section of the bill also authorizes a first-time penalty abatement for “any taxpayer required to file such [FBAR] Form for the first time” who failed to file or to timely request an extension. This codifies and clarifies the Internal Revenue Service’s (IRS’s) discretion to waive FBAR filing penalties.
New Corporation and Partnership Filing Rules
The bill also changes due dates for partnership income tax returns and C corporation tax returns.
Partnership tax returns are accelerated one month to require filing by the 15th day of the third month following the close of a partnership’s tax year. This rule makes the filing date for calendar-year partnerships March 15, which is consistent with the existing rule for S corporations. The bill also provides partnerships with a six-month extension (i.e., September 15 for calendar-year taxpayers), which is an increase from the current five-month extension period.
C corporation tax returns are deferred one month to require filing by the 15th day of the fourth month following the close of a corporation’s tax year. This rule makes the filing date for calendar-year C corporations April 15. Most C corporations also lose a month of extension, decreasing the automatic delayed filing window to five months and retaining the existing final due date for calendar-year C corporation returns on September 15. The five-month extension lasts until 2026, when the current six-month extension period is restored.
C corporations with fiscal years ending on June 30 are subject to a special rule that delays effectiveness of the bill’s changes for 10 years, until tax years beginning after December 31, 2025. These C corporations also get a seven-month filing extension until 2026, when the current six-month extension is restored.
Congress Imposes a Six-Year Statute of Limitations to Basis Overstatements
The biggest financial impact of H.R. 3236 is Congress’s decision to rewrite the six-year statute of limitations provision to include basis overstatements. Congress effectively “fixed” the US Supreme Court’s decision in United States v. Home Concrete, LLC, 132 S. Ct. 1836 (2012).
The IRS usually must assess tax within three years after a return is filed or due (whichever is later), unless an exception applies. An extended six-year statute of limitations applies if a taxpayer omits more than 25% of income that should have been reported.
In Home Concrete, the Supreme Court held that taxpayers were not subject to an extended six-year statute of limitations when a taxpayer overstated its basis in property it sold—even when the effect of the overstatement amounted to an economic omission from gross income in excess of 25%. The bill specifically amends Internal Revenue Code (IRC) section 6501(e)(1) to provide that an omission from gross income includes an overstatement of basis. The change applies to tax returns filed after July 31, 2015 and to previously filed returns that are still open to audit.
Surprisingly, the congressional record contains no discussion of this significant change or any of the other tax provisions during the time allotted for floor debate. None of the key decisionmakers have been quoted explaining the motivation behind these revisions. One motivation appears to be a nearly $5 billion bump in revenue generated, as benchmarked by the Joint Committee on Taxation. A major part of this revenue increase is expected to come from the repeal of Home Concrete that increases the IRS’s time to audit returns and assess additional taxes.
Modification of Mortgage Reporting Requirements
The bill requires that lenders include additional information on Form 1098, which reports mortgage interest paid by borrowers. Lenders will be required to include the amount of the outstanding principal on the mortgage at the beginning of the calendar year, the date that the mortgage originated, and the address of the property securing the mortgage. These amendments to IRC section 6050H(b)(2) apply after December 31, 2016, so companies can expect a new Form 1098 in 2017.
New Extended Due Dates for Many Miscellaneous Returns
In addition to the FBAR, partnership, and C corporation changes, the bill also changes the maximum filing extensions for numerous other tax and information returns. Some of the more prominent changes follow:
- Trusts filing Form 1041 will have a five and a half–month extension that ends on September 30 for calendar-year taxpayers (changed from the existing five-month period)
- Employee benefit plans filing Form 5500 will have an automatic three and a half–month extension that ends on November 15 for calendar-year plans (changed from the existing two and a half–month period)
- Tax-exempt organizations filing Form 990 series will have an automatic six-month extension that ends on November 15 for calendar-year filers (changed from the existing three-month period)
- Tax-exempt organizations required to file Form 4720 for excise tax returns will have an automatic six-month extension that begins on the due date for filing the return, without regard to any extensions (changed from the existing three-month period).