Temp. Regs. Streamline Automatic Extension Procedures

Temporary regulations issued under Sec. 6081 simplify the procedures for individuals, partnerships and others to obtain an automatic six-month extension of time to file certain income returns by filing a single request (TD 9229, 11/4/05). These rules also remove the requirements for a signature and an explanation of the need for an extension. Forms 2758, Application for Extension of Time To File Certain Excise, Income, Information, and Other Returns; 8736, Application for Automatic Extension of Time to File U.S. Return for a Partnership, REMIC, or for Certain Trusts; and 8800, Application for Additional Extension of Time to File U.S. Return for a Partnership, REMIC, or for Certain Trusts, have been made obsolete. The temporary regulations are effective for applications for an automatic extension to file certain returns due after 2005.

Individuals

For individuals, the submission of a timely and completed application for extension on Form 4868, Application for Automatic Extension of Time To File a U.S. Individual Income Tax Return, provides an automatic six-month extension with no need for signature or explanation; see Temp. Regs. Sec. 1.6081-4T(b). Of course, this automatic extension does not extend the time for payment of tax; see Temp. Regs. Sec. 1.6081-4T(c). As before, taxpayers must make a proper estimate of any tax due; while no tax payment is required to obtain the extension, failure to pay any tax as of the original return due date may subject the taxpayer to penalties and interest; see Temp. Regs. Sec. 1.6081-4T(e).

Corporations and Other Entities

Temp. Regs. Sec. 1.6081-3T does not change the rules for filing extensions for corporate income tax returns; rather, it expands the scope of formerly titled Form 7004, Application for Automatic Extension of Time to File Corporation Income Tax Return, from just corporate taxpayers, to partnerships, real estate mortgage investment conduits, certain trusts that previously filed Form 8736 (now made obsolete) and taxpayers that previously requested additional time to file certain excise, income, information and other returns by submitting Form 2758 (now made obsolete). Although the regulations do not change the rules for filing corporate extensions, they have resulted in changes to the title and appearance of Form 7004, now titled Application for Automatic 6-Month Extension of Time to File Certain Business Income Tax, Information, and Other Returns, and will apply to a larger number of returns than did the prior form; see Temp. Regs. Sec. 1.6081-2T,
-6T and -7T.

Passthrough entities: As noted above, the six-month automatic extension to file applies to returns of passthrough entities (e.g., Form 1065, U.S. Return of Partnership Income). According to the temporary regulations preamble, the Service and Treasury recognize that some taxpayers may not receive information returns from such entities in time to complete their own returns. For example, an individual taxpayer with a six-month extension (to Oct. 16, 2006) to file Form 1040 may not receive a Schedule K-1 from a partnership in which she holds an interest until after the partnership files its Form 1065 on its extended due date of Oct. 16, 2006. Although this filing anomaly existed under prior regulations, when the passthrough entity received an extension to file to a date on or after the extended due date for the passthrough interest holder, the new, automatic six-month extension may cause this to happen with more frequency. This may result in taxpayers filing an increased number of amended returns. Accordingly, the preamble states that Treasury and the IRS have requested comments on whether a shorter extension for passthrough entities might reduce overall taxpayer burden.

Certain Employee Plan Returns

According to Temp. Regs. Sec. 1.6081-11T, Form 5558, Application for Extension of Time To File Certain Employee Plan Returns, has been revised to allow administrators and sponsors of employee benefit plans subject to the Employee Retirement Income Security Act of 1974, an automatic 2 -month filing extension. Further, Form 5558 no longer requires an explanation of the need for an extension or a signature.         

Gift Tax Returns

A new version of Form 8892, Payment of Gift/GST Tax and/or Application for Extension of Time To File Form 709, will allow donors who do not request an income tax filing extension to request an automatic six-month extension to file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return; see Temp. Regs. Sec. 25.6081-1T. Under the temporary regulations, Form 8892 no longer requires an explanation of the need for an extension or a signature.

Transition Rule

The temporary regulations are effective for applications for an automatic extension to file certain returns filed after 2005, and accordingly, apply to applications for extension to file tax-year 2005 returns. In addition, they apply to applications for extension to file tax-year 2004 returns for certain fiscal-year taxpayers whose returns are due after 2005. Although the latter should continue to use the tax-year 2004 extension forms, the preamble notes that the IRS will grant a six-month filing extension if the request made on one of these forms would otherwise qualify under the temporary regulations, except for use of the specified form.

From Won Shin, J.D., LL.M., Philadelphia, PA