Small Business Taxes & Management^TM--Copyright 2015, A/N Group, Inc.

Introduction

On July 31, 2015 the president signed the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (P.L. 114-41). Despite its name, (the original intent was to extend the Highway Trust Fund for three months) it contains a number of tax provisions including changes in due dates for many types of returns.

New Law Explanation

Consistency in Valuation of Property Acquired from Decedent

The general rule is that property inherited from a decedent takes a stepped-up basis to the fair market value at the date of death. For example, Fred dies owning a rental property he purchased for $100,000 some years ago. It's been depreciated down to $20,000, but the fair market value is $600,000. His daughter, Sharon, inherits the property and sells it six months after his death for $610,000. She reports a $10,000 long-term gain on the transaction.

Some taxpayers have not reported the same basis for the eventual sale of the property as the value at the date of death or contained in the estate tax return. The new law is intended to prevent recipients from reporting a higher value for the property to reduce any capital gains taxes on the sale.

The new law contains a consistency requirement and a reporting requirement. The basis of property received on account of the death of the transferor under Section 1014 must equal that determined for estate tax purposes. The new law imposes a 20-percent accuracy-related penalty for understatements attributable to inconsistencies in basis.

The reporting requirement applies if an estate tax return is required to be filed after July 31, 2015. The executor must furnish to the IRS and every person acquiring any property interest included in the gross estate a statement identifying the property and the valuation of the property. The due date for the notices is no later than 30 days after the due date of the estate tax return (including extensions) or 30 days after the return is filed, whichever is earlier.

Mortgage Reporting Information

Under current law mortgage service companies must file Form 1098 (Mortgage Interest Statement) reporting the mortgage interest received from the payer/borrower (if the amount is $600 or more), points paid on purchase of principal residence and any refund of overpaid interest.

Under the new law the information return must also include the outstanding mortgage principal as of the beginning of the calendar year; the origination date of the mortgage; and the address of the property securing the mortgage. The new rules apply to statements that are required to be filed after December 31, 2016.

Basis Overstatement as Income Omission

The statute of limitations on returns is generally 3 years from the due date or the date the return was filed. That period is extended to 6 years if there's an omission of gross income in excess of 25% of the amount reported on the return.

The Supreme Court held in Home Concrete & Supply, LLC that an overstatement of basis is not the same as an omission of gross income for the 6-year limitations period. For example, Fred sells a parcel of property for $1,000,000. His true basis is $100,000, but he claims a basis of $950,000 resulting in a misstatement of gain on the sale by $850,000 (gain of $900,000 instead of $50,000). Under the current law the 3-year statute of limitations would apply.

Under the new law, if an overstatement of basis results in an understatement of gross income, it's considered an omission from gross income for the 6-year limitations period. In addition, the adequate disclosure rule does not apply when there is an overstatement of basis. This provision applies to returns filed after July 31, 2015 and to returns where the limitations period (under Sec. 6501) hasn't expired as of July 31, 2015.

Veterans With Government Health Insurance and the Affordable Care Act

The Affordable Care Act mandates that applicable large employers (ALEs) are subject to an employer shared responsibility penalty for failure to provide minimum essential coverage. An ALE is generally defined as an employer with an average of at least 50 full-time equivalent employees. The new law provides that for determining whether an employer is an ALE for any month, a worker isn't an employee for this determination if he or she is covered under the Veterans Administration health care program or the TRICARE program. An employer may apply this provision retroactively to months beginning after December 31, 2013.

Veterans and Health Savings Accounts

Under the new law, an individual otherwise eligible to participate in a Health Savings Account (HSA) will not be denied participation even if he or she receives medical care from the Veterans Administration for a service-connected disability. This provision is effective for months beginning after December 31, 2015.

Excess Pension Assets for Retiree Health Benefits

Pension assets are generally reserved for payment of retirement benefits for participants. Section 420 provides an exceptions for excess assets of a defined benefit plan that can be used for health benefits and retiree life insurance. Under prior law this provision was set to expire at the end of December, 2021. The new law extends this provision through December 31, 2025.

Revised Due Dates for Returns

This is the provision that will affect many individuals and businesses. First the good news. The due dates for Form 1040, your individual tax return have not changed. It'll still be due April 15 with the extended due date October 15.

There's also no change in S corporations. They're due March 15 with an extended due date of September 15.

Finally, information returns--W-2s, 1099s--retain the same due dates.

The chart below shows the current and the new filing dates. The new filing dates are generally for returns for tax years beginning after December 31, 2015. That is, they apply to a calendar year entity or requirement that begins in 2016 with a filing date in 2017.

The dates below assume calendar-year tax years.

       Return         Current Original and        New Due and
        Type            Extended Due Date        Extended Date

     Partnership           April 15                 March 15
      Form 1065          September 15             September 15
 
    C Corporation          March 15                 April 15
      Form 1120          September 15             September 15     

   Trust and Estate        April 15                 April 15
      Form 1041          September 15             September 30

 Exempt Organizations       May 15                   May 15
      Form 990            August 15               November 15 

Employee Benefit Plans     July 31                  July 31
      Form 5500           October 15              November 15
  
       FinCen              June 30                 April 15
     Report 114                                   October 15
             

Notes--While the table covers most of the filing requirements, there are some exceptions and notes.

C Corporations. Those on a June 30 fiscal year have an automatic extension of 7, not 6 months. In addition, the dates change for tax years beginning after December 31, 2025. For corporations with tax years beginning after December 31, 2025, the extended due date is 7 months after the due date.

Exempt Organizations. Exempt organizations are currently allowed two 3-month extensions. Under the new law there would be one, automatic, 6-month extension.

Foreign Trusts with a U.S. Owner (Form 3520-A). There is no change in filing dates for this entity.

FinCEN Report 114. Pay attention to the filing dates under the new law. Currently there's no extension allowed. Under the new law filers would be entitled to one 6-month extension. But the due date is moved up to April 15 from June 30.

Form 4720, Return of Certain Excise Taxes. The due date is unchanged, but the extended date under the new law is 6 months after the due date.

Form 5227, Split-Interest Trust Information Return. The due date is unchanged, but the extended date under the new law is 6 months after the due date.

--Last Update 08/11/15