As with most legislation, "The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015" is a somewhat misleading name. The new law is about more than just transportation funding and it does nothing to change veterans' health care services. This three-month extension of the Highway Trust Fund was the 34th stopgap extension of transportation programs since 2009. In addition to providing continued funding for federal transportation projects, the new law includes several important tax-related provisions affecting businesses and individuals - all of which are designed to raise revenue to pay for the bill's spending provisions.
Taxpayers subject to revised reporting deadlines
The highway funding law changes the due dates for several types of tax and information returns:
Partnership income tax returns. Effective for tax years beginning after December 31, 2015, the due date for calendar year partnership returns will be March 15th. (Returns for fiscal year-end partnerships will be due the 15th day of the third month after the close of the tax year.) The new filing deadline is a month earlier than the current April 15th deadline. Partnerships will still be allowed to automatically extend the due date of the return until September 15th.
Corporation income tax returns. The new deadline for C corporations to file income tax returns is moved back one month - i.e., calendar year C corporations will file their returns on April 15th (the same date as individual tax returns) rather than March 15th. Fiscal year C corporation returns will be due the 15th day of the fourth month after the close of the corporation's tax year. S corporations will continue to file returns on March 15th (or the 15th day of the third month after the end of the tax year.
As with the partnership due date changes, the new due dates take effect for tax years starting after December 31, 2015. For C corporations whose fiscal years end on June 30, however, the changes won't be applicable until tax years starting after December 31, 2025.
The rules for corporate filing extensions were liberalized by the new law, although in a complicated way. Until now, C corporations were allowed an automatic three-month extension of time to file returns (with an additional three-month extension available upon request). For tax years beginning after December 31, 2015, most C corporations will be able to automatically extend the filing deadline by six months. Calendar-year C corporations will get only a five-month extension for all tax years beginning before January 1, 2026. On the other hand, C corporations whose fiscal year ends June 30 will be able to extend their returns for seven months for their tax years beginning before January 1, 2026.
FinCEN Form 114. There is some good news for those taxpayers required to report their foreign financial assets. While the deadline for Form 114, "Report of Foreign Bank and Financial Accounts," (also known as "FBAR") has been moved to April 15th from June 30th, taxpayers will now be allowed up to a six-month extension to file this important form. No extension was allowed for this form under prior law.
Form 3520. The deadline for Form 3520, "Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts," changes from June 30 to April 15 for taxpayers with a calendar year end, with a maximum six-month extension ending on October 15.
The highway fund law also revises the extension periods for several other tax and information returns. A maximum extension of 5½ months (until September 30) is available for calendar-year taxpayers that file Form 1041, "U.S. Income Tax Return for Estates and Trusts." Under prior law, the form was due April 15th, with a five-month extension to September 15th.
Also under the new law, a maximum extension of 3½ months (until November 15th) is available for Form 5500, "Annual Return/Report of Employee Benefit Plan," for calendar-year plans. This is an extra month over the previous extension date.
Other returns that may be extended for up to six months include:
• Form 5227, "Split-Interest Trust Information Return";
• Form 8870, "Information Return for Transfers Associated With Certain Personal Benefit Contracts" ; and
• Form 3520-A, "Annual Information Return of Foreign Trust With a U.S. Owner," for taxpayers that use calendar year ends (until September 15).
Estate Basis Conformity
In order to prevent beneficiaries from overstating the value of an item of inherited property when it is later sold, the law requires executors of large estates (those subject to estate tax) to provide the IRS and each of the estate's heirs with statements identifying the fair market value of the inherited property as reported on the estate tax return. Any underpayment of tax on the estate tax return resulting from an understatement of basis under this provision will be subject to a 20% accuracy-related penalty.
The changes apply to any estate tax returns filed after July 31, 2015.
Overstated basis qualifies as understatement of gross income
The highway fund law also clarifies the statute of limitations for overstated tax basis. In 2012, the U.S. Supreme Court held that the extended six-year statute of limitations - which applies when a taxpayer "omits from gross income an amount properly includible" in excess of 25% of the gross income - didn't apply to the overstatement of basis in sold property.
The new law amends the tax code to clarify that an understatement of gross income due to an overstatement of unrecovered cost or other basis is an omission from gross income. The amendment applies to returns filed after July 31, 2015, as well as previously filed returns that are still open.
Veterans don't count as employees for ACA purposes
The highway fund law has several provisions related to veterans. The main provision is an attempt by Congress to continue to modify, to the extent possible, the Affordable Care Act (ACA or "Obamacare") and specifies that veterans who are enrolled in the Defense Department's TRICARE or the Veterans Administration's medical programs shouldn't count as employees for purposes of determining whether an employer is considered an "applicable large employer". This relief is retroactive to months beginning after December 31, 2013.
Applicable large employers are generally those with 50 or more full-time employees or the equivalent. They are subject to significant information reporting requirements and at risk for penalties under the ACA's shared responsibility (or "play or pay") provision.
Exempting veterans from the 50-full-time-employee-or-equivalent calculation provides an added incentive for businesses near the threshold to hire them. Why? Hiring veterans rather than nonveterans can minimize their reporting requirements and risk for play-or-pay penalties.
Employers have more time to transfer excess pension assets
The highway fund law gives employers four more years to transfer - without adverse tax consequences - excess defined benefit plan assets to a retiree's health benefits account or group term life insurance that's part of the plan. To make such transfers (which are allowed only once a year), a defined benefit plan must have assets of at least 125% of their funding target. The new law extends the deadline to the end of 2025.
As with any new law, these provisions are quite complex. If you have questions about how you are likely to be affected by these changes, please contact your Friedman LLP tax professional.
