IRS Issues Regs On Automatic Filing Extensions For Pass-Through Entities

T.D. 9531, 06/23/2011; Reg. §1.6081-2, Reg. §1.6081-6, Reg. §54.6081-1

IRS has issued final regs on the automatic extensions of time to file returns for partnership, trust, and estate taxpayers (i.e., pass-through entities). The final regs generally provide that these pass-through entities will continue to receive an automatic five-month extension of time to file (but electing large partnerships will be allowed a six-month extension), as had been provided in proposed and temporary regs. The final regs also provide a six-month automatic extension of time for filing returns for pension excise taxes.

Background. In July of 2008, IRS published final, temporary, and proposed regs simplifying the procedures for obtaining automatic extensions of time to file certain returns. The temporary and proposed regs reduced the previous automatic six-month extension of time to file to five months for certain pass-through entities (most partnerships, estates, and certain trusts). Thus, for example, the temporary regs changed the automatic filing extension period to five months, with no additional extension, for partnerships filing Form 1065 (U.S. Partnership Return of Income) or Form 8804 (Annual Return for Partnership Withholding Tax), and estates and trusts filing Form 1041 (U.S. Income Tax Return for Estates and Trusts).

The extension period was abbreviated out of concern that an individual or corporate partner might not receive a Schedule K-1 information return from a partnership that got an automatic six-month extension before the individual's or corporation's extended due date, forcing the partner to file using estimates of income and then file an amended return after it receives the K-1. The regs on the five-month extension applied to applications for an automatic extension of time to file affected returns due on or after Jan. 1, 2009.

Final regs. In the final regs, after considering approximately 70 comments, IRS adopted the five-month extension period for pass-through entities. (Reg. §1.6081-2(a)(1), Reg. §1.6081-6(a)(1)) IRS believed that the five-month automatic filing extension period has generally been successful and continues to strike the right balance in reducing overall taxpayer burden since the proposed and temporary regs were adopted. Recognizing that some corporations with ownership interests in pass-through entities may continue to experience delayed receipt of information needed to complete their own corporate returns, IRS nonetheless concluded that the five-month extension period allows pass-through entities, including complex and tiered entities, adequate time for preparation of the required pass-through returns and also ensures the timely and accurate dissemination of information to a large number of taxpayers who require that information for completion of their own income tax returns. (T.D. 9531, 06/23/2011)

However, electing large partnerships required to file Form 1065-B, U.S. Return of Income for Electing Large Partnerships, for any tax year are allowed an automatic six-month extension of time to file the return because these pass-through entities are required under Code Sec. 6031(b) to furnish Schedules K-1 by March 15, regardless of any extension of time to file the return. (Reg. §1.6081-2(a)(2))

The final regs provide that although fiduciaries of individual bankruptcy estates under chapter 7 or 11 of the Bankruptcy Code (trustees or debtors-in-possession) may be required to file Forms 1041, these bankruptcy estates aren't pass-through entities. The five-month automatic extension under the final regs doesn't apply to them. (Reg. §1.6081-6(a)(2)) However, pass-through entities eligible to file bankruptcy petitions, such as partnerships, are covered by the final regs, and the five-month automatic extension applies, since the filing of a bankruptcy petition doesn't change the information reporting requirements of pass-through entities, such as partnerships. (T.D. 9531, 06/23/2011)

Pension excise taxes. The final regs adopt without modification the proposed regs which 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 the return after the date prescribed for filing the return. (Reg. §54.6081-1(a))

Effective date. The final regs apply to applications for an automatic extension of time to file affected returns filed on or after June 24, 2011. (Reg. §1.6081-2(h), Reg. §1.6081-6(g), and Reg. §54.6081-1(f)) However, a five-month extension had previously applied for pass-through entities under the temporary regs, which are now removed by T.D. 9531, 06/23/2011 and the final regs.

References: For filing extensions for partnership returns, see FTC 2d/FIN ¶S-5030; United States Tax Reporter ¶60,814; TaxDesk ¶596,017; TG ¶2588. For filing extensions for trust and estate returns, see FTC 2d/FIN ¶S-5032; United States Tax Reporter ¶60,814.05; TaxDesk ¶659,014; TaxDesk ¶667,004; TG ¶3007.