Good morning! It feels that way to us, anyway. Last Tuesday, we emerged from our months-long, tax-preparing cocoon. The extra-long hours and take-out meals are a thing of the past, at least for now, and we’re basking in a more relaxed pace of life. Busy season is a distant eight months away! We should bask in this time, because as challenging as this season was, next year will be far, far worse.
Fundamental changes to the structure of our tax filing season go into effect next year, and they’ll drastically alter the way we do business.
As a reminder, for the past few years, due dates for calendar year businesses and all individuals have been as follows:
- C Corporations: March 15th
- S Corporations: March 15th
- Partnerships: April 15th
- Individuals: April 15th
This has been problematic because, in order to file a complete individual tax return, you need Schedule K-1 from any partnership or S corporation — the so-called “pass through” entities — in which the individual holds an ownership interest. But because partnership returns were not due until April 15th — the same due date as individual returns — we tax advisors were often left in the undesirable position of sitting around on the wee hours of April 14th, desperately awaiting the arrival of a Schedule K-1 so we could complete the individual return. C corporations, on the other hand, are not flow-through entities; they pay their own tax. Thus, there was no benefit of having C corporation returns due by March 15th.
To clean up the process of preparing and filing an individual return, Congress, as part of minor non-tax legislation passed last year, changed the due dates. The logical fix was to simply switch the due dates of C corporations — which have no urgency — with the due dates of partnerships.
Beginning with the 2017 filing season (for 2016 returns), the due dates will be as follows:
- Partnerships: March 15th
- S Corporations: March 15th
- C Corporations: April 15th
- Individuals: April 15th
What’s wrong with this? Well, for the average tax preparer, the pressure of preparing one C corporation return prior to March 15th has been traded for the pressure of filing two partnership returns, because each year, there are twice as many partnership returns filed with the IRS than there are C corporation returns. An overwhelming percentage of C corporation returns are the domain larger local or regional firms, which are likely trading one early C corporation filing for five or six accelerated partnership returns. That’s a lot of extra work to get done by March 15th.
What’s the solution? We could file extensions, but we don’t like to do that. It’s not fair to our clients who, in good faith, give us the necessary information to complete their returns on time. In addition, it conflicts with the Congressional calendar. Hang with me here.
Partnerships and S corporations are eligible for a six-month extension (to Sept. 15). Individuals are also eligible for a six-month extension; and obviously, if you’re going to extend a partnership or S corporation return that hands a K-1 to an individual, the Form 1040 will need to be extended as well, and that due date becomes October 15th. C corporations have traditionally been eligible for a six-month extension as well, meaning with our new due date of April 15th, we should now have the ability to extend those returns until October 15th.
But all of that extending conflicts with the government’s fiscal year, which ends on September 30th. An extended C corporation, with an original due date of April 15th, would be pushed to October 15th, which is outside the government’s fiscal year-end. That means that Congress would have recalculate the ten-year budget window to incorporate this change. It won’t do that.
Instead, for the next ten years, calendar year C corporations are only going to be eligible for a five-month extension, bringing the due date to September 15th and keeping them within the government’s fiscal year.
Confusing things more is this: C corporations with a June 30th year-end have traditionally been due two-and-one-half months later, or September 15th. It would follow then, that if calendar-year C corporations will now be due a month later, on April 15th, then June 30th year-end returns should also be due a month later, or October 15th, right? Wrong! Once again, that would push those returns beyond the government’s September 30th fiscal year-end, and rather than redo the budget window, Congress opted instead to simply force tax advisors to remember that while all other C corporation returns are now due three-and-a-half months after year-end, C corporations with a fiscal year-end of June 30th will remain due two-and-a-half months later, or September 15th, with a 7 month extension.
As a result, starting next summer, we could have the filing return due dates converging on September 15th: extended calendar-year partnership, S corporation and C corporation returns as well as un-extended filings for June 30th C corporation returns. That will be fun!
Fear not; this pain and confusion is temporary. After the ten year budget window expires, we’ll get the desired results: extended calendar year C corporation returns will be due October 15th, and June 30th fiscal year-end returns will have an original due date of October 15th.
2026 will hopefully be a great tax year.
