IRS Finalizes Automatic Five-Month Extension for Partnership, Trust and Estate Returns

June 23, 2011

Final regulations set the time for automatic extensions of partnership, trust and estate income tax returns at five months (TD 9531). Under this rule, the extended returns and Schedules K-1 for partners and beneficiaries will generally be due Sept. 15. The regulations also provide for an automatic six-month extension for pension excise tax returns.

 

Partnership returns subject to the automatic five-month extension under the final regulations are Form 1065, U.S. Partnership Return of Income, and Form 8804, Annual Return for Partnership Withholding Tax. Form 1065-B, U.S. Return of Income for Electing Large Partnerships, is eligible for an automatic six-month extension.

 

Most trusts and estates required to file Form 1041, U.S. Income Tax Return for Estates and Trusts, are also subject to the more-limited automatic five-month extension; however, bankruptcy estates required to file Form 1041 as well as filers of Form 1041-N, U.S. Income Tax Return for Electing Alaska Native Settlement Trusts, and Form 1041-QFT, U.S. Income Tax Return for Qualified Funeral Trusts, will receive six-month, not five-month, extensions.

 

The final regulations also allow filers of Form 8928, Return of Certain Excise Taxes Under Chapter 43 of the Internal Revenue Code, to obtain an automatic six-month extension of time to file.

 

To receive an extension, the partnership, trust or estate must generally file Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, and comply with other requirements.

 

In 2008, the IRS issued temporary and proposed regulations (TD 9407 and REG-1115457-08) that reduced the automatic six-month extension of time to file for certain pass-through entities—most partnerships and estates and certain trusts. This was done to ensure that taxpayers received Schedules K-1 from these entities by Sept. 15, giving those taxpayers time to file their own income tax returns by the extended Oct. 15 date for individual and corporate returns. The AICPA subsequently testified and submitted written comments asking that the trust extension be returned to a six-month period.  The IRS considered but rejected those comments.

 

Other commentators suggested that the IRS should change the original return due dates or lengthen the extension period for individual and corporate returns, but the return due dates are set by statute, and IRC § 6081 forbids extensions of more than six months, so the IRS could not make those changes in a regulation.

 

In the end, the IRS believes that a five-month automatic extension “reduces the overall burden on taxpayers and strikes the most reasonable balance for all affected taxpayers” and thus finalized the temporary regulations largely without change.

 

The AICPA had advocated for a Sept. 15 partnership extension due date for several years, and wrote to the IRS in January 2008, suggesting the IRS open a regulation project to address the difficulties taxpayer face when receiving Schedules K-1 on or near their return due date. The AICPA called for a Sept. 15 extension due date as a “regulatory change that would quickly assist a significant percentage of taxpayers presently burdened by the late receipt of Schedules K-1.”

 

As a follow-up, in October 2010, the AICPA sent statutory recommendations to the chairmen and ranking members of the Senate Finance Committee and House Ways and Means Committee that would further solve this problem for corporate and trust investors in partnerships, something that the regulation project does not solve or address, and, according to Marc Hyman, technical manager—Tax at the AICPA, in some cases, makes worse. This letter resulted in the introduction by Senator Michael Enzi, R-Wyo., of the Tax Return Simplification and Modernization Act of 2011 (S. 845).

 

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