The AICPA regularly advocates before Congress, the Treasury, and the IRS regarding issues important to members and the public. Many times, the advocacy efforts on an issue are short-term, but others can stretch over a longer time frame, particularly when a resolution requires legislative action. A good example of a longer-term effort is the Institute’s proposal to change the original and extended due dates for several important tax and informational returns. (Before readers get too excited, this proposal does not call for a change to the April 15 date for filing Form 1040, U.S. Individual Income Tax Return.)
Historically, calendar-year C and S corporations have been required to file their tax returns by March 15 (with an extension to Sept. 15), while individuals, trusts, and partnerships have been required to file by April 15 (with an extension to Oct. 15—until regulations issued in 2008 changed the extension date for trusts and partnerships to Sept. 15). Since January 1997, when the “check-the-box” regulations went into effect, there has been an increase in the formation of limited liability companies and limited liability partnerships—and a resulting dramatic increase in the number of partnership and S corporation returns being filed. This has corresponded with an increase in the number of individuals, S and C corporations, and trusts and estates that invest in passthrough entities and therefore rely on information from these entities to determine taxable income.
A growing number of practitioners and taxpayers, which increasingly rely on information from passthrough entities, are finding it difficult, if not impossible, to file certain types of returns accurately and timely, due to the current order of tax return due dates. Many practitioners find themselves anxiously waiting for a fax or email to arrive with a Schedule K-1 so they can complete a client’s Form 1040 by April 15.
As the AICPA came to understand the problem this was causing members and taxpayers, in 2008 the Institute began searching for solutions. The AICPA contacted more than 30,000 members in two separate surveys, and, in spring 2009, the Institute created a cross-disciplinary task force of partnership, trust, corporate, and individual tax experts to explore the various due dates and consider whether any combination of changes to those dates would provide a better overall flow of tax return information between providers and users of the information. The result of those efforts was a recommendation to Congress, submitted in October 2010, to restructure the due dates of a number of tax returns to create a more logical and timely flow of information for tax return preparation.
Because all other entities and individuals can be partners in a partnership and therefore anticipate the receipt of a Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., the AICPA believes it is logical that Form 1065, U.S. Return of Partnership Income, should be the first return due. S corporation returns should be filed next because once these entities receive the required information from their partnership investments, they can complete their returns and provide Schedules K-1 (Form 1120S), Shareholder’s Share of Income, Deductions, Credits, etc., to shareholders, which may be individuals, trusts/beneficiaries, and estates. Once partnership and S corporation returns have been filed and owners have received their Schedules K-1, individuals, trusts, and C corporations will have all the information they need from their passthrough entity investments to file accurate and timely returns. Similar ordering was recommended for the extended due dates to maintain the logical flow of tax returns that are extended.
In addition, to facilitate timely and accurate filing of tax returns and information returns, Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner, and FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), would be due and extended at the same times as the individual tax return.
Finally, employee benefit plans required to file Form 5500, Annual Return/Report of Employee Benefit Plan, currently have just a 2½-month extension to file their returns by Oct. 15 (for calendar plan years), which under current law is 30 days after the corporate extended filing deadline and the same day that individual returns on extension are due. These benefit plan returns would be permitted a deadline of 3½ months to continue to provide 30 days beyond the filing of the benefit plan’s related corporate and individual returns. (See the exhibit for the entire recommendation and the due dates in the current proposed legislation.)
Current Proposed Legislation and Tax Reform
In the current Congress, bills have been introduced in the House and Senate to enact these proposals (H.R. 901 and S. 420). These include the AICPA proposals to modify the due dates of certain tax returns. In addition to these bills, the proposals have been included in a couple of the tax reform discussion drafts, including the House Ways and Means Committee’s small business tax reform discussion draft introduced March 12, 2013, and the Senate Finance Committee’s tax reform options paper, “Simplifying the Tax System for Families and Businesses,” introduced on March 21, 2013. The Senate Finance Committee’s staff discussion draft of provisions to reform tax administration introduced on Nov. 20, 2013, contains some of the AICPA’s proposals, but the proposals were not included in their entirety. The AICPA commented on Jan. 16, 2014, recommending that the draft include the entire AICPA proposal regarding due dates of tax returns.
The AICPA remains committed to advocating for changes to the due dates of these tax returns because the Institute believes the changes would:
- Improve the accuracy of tax and information returns by allowing corporations and individuals to file using current data from flowthrough returns that have already been filed rather than relying on estimates.
- Better facilitate the flow of information between taxpayers (i.e., corporations, partnerships, and individuals).
- Promote earlier filing of more business and individual returns and reduce the need for extended and amended corporate and individual tax returns.
- Significantly simplify tax administration for the government, taxpayers, and practitioners.
Jeffrey Porter is the founder and owner of Porter & Associates in Huntington, W.Va. He is also the chair of the AICPA Tax Executive Committee. For more information about this column, contact Mr. Porter at firstname.lastname@example.org.