IRS Sets Partnership, Estate and Trust Filing Extension at 5 Months

Jul 11, 2011   

The IRS recently released final regulations reducing the filing extension from six months to five months for certain pass-through entities, including most partnerships, estates, and trusts. Under these new regulations, the extended returns and Schedules K- for partners and beneficiaries will generally be due September 15. TD 9531 also finalized an automatic six-month extension for pension excise returns.

Before 2005, pass-through entities were entitled to an automatic three-month extension of time to file certain returns and could also request an additional three-month extension of time to file. In 2005, the IRS issued temporary regulations in TD 9229 simplifying the extension process by allowing most taxpayers, including pass-through entities, to obtain an automatic six-month filing extension. In 2008, the IRS released final and temporary regulations in TD 9407 granting an automatic six-month filing extension for non-pass-through entities and reducing the 2005 automatic filing extension for certain pass-through entities from six months to five months.

Recognizing the inherent conflict between providing sufficient time for pass-through entities to prepare returns and ensuring that owners and beneficiaries receive timely information returns for their own filings, the 2008 regulations requested comments on whether a five-month extension of time to file for pass-through entities might increase or reduce overall taxpayer burden. The IRS received approximately 70 comments.

The comments proposed a broad range of solutions, including moving the individual taxpayer return due date to April 30 or allowing individuals and corporations a seven-month filing extension. Some commentators suggested moving up the filing date for pass-through entities to March 15, which would allow such entities a full six-month extension to file by September 15 while providing timely information for individual taxpayers to prepare their own returns. However, tax return due dates are set by statute and IRC § 6081 bars extensions greater than six months. Thus, absent legislative action, none of the above comments are viable options for a regulation. Nevertheless, the majority of commentators agreed that an extension for pass-through entities shorter than six-months would reduce overall taxpayer burden, although there was no consensus as to the optimal extension period.

Many commentators expressed concern that corporate taxpayers with ownership interests in pass-through entities would see no relief with the proposed extension. They projected that the five-month extension period would simply align the extended due date for pass-through entities with the extended due date for corporate returns. The resulting delay to corporate owners would greatly increase the need for filing amended returns.

Ultimately, 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 without change.

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