The Internal Revenue Service has issued final regulations shortening the automatic extension time period for partnership, trust and estate tax returns from six to five months, meaning the returns are due Sept. 15.

The final regulations in TD 9531 put in place a temporary change that was originally promulgated in July 2008.
Those temporary and proposed regulations reduced the automatic six-month extension of time to file to five months for certain pass-through entities, including most partnerships, estates, and certain trusts.

As these pass-through entities were previously allowed to obtain an automatic six-month extension of time to file certain returns under 2005 regulations, the Treasury Department and the IRS requested comments on whether, and how, a five-month extension of time to file for these pass-through entities might increase or reduce overall taxpayer burden. Approximately 70 comments were received in response to the notice of proposed rulemaking.

A public hearing was held on Jan. 13, 2009. Three speakers appeared at the public hearing and commented on the notice of proposed rulemaking.

Pass-through entities used to be entitled to an automatic three-month extension of the time to file certain returns by filing one form, and could also request a discretionary additional three-month extension of time to file by filing a second form. TD 9229 provided temporary regulations that simplified the extension process by allowing most taxpayers, including pass-through entities, to obtain a six-month automatic extension of time to file by filing one single form. In the 2008 final and temporary regulations, TD 9407, the Treasury Department and the IRS finalized rules granting an automatic six-month extension of time to file for non-pass-through entities and granting certain pass-through entities a five-month automatic extension of time to file certain returns. The five-month extension included in the 2008 final and temporary regulations for certain pass-through entities responded to comments received on the 2005 temporary regulations.

Commentators expressed concern that an automatic six-month extension for pass-through entities would unduly burden individual and corporate taxpayers with ownership interests in pass-through entities because individual and corporate taxpayers might not receive information returns from pass-through entities in sufficient time to complete their income tax returns in an accurate and timely manner.

Recognizing the inherent conflict between providing sufficient time for pass-through entities to prepare returns and ensuring that the owners and beneficiaries of pass-through entities timely receive information returns needed to file their own returns, the 2008 proposed and temporary regulations specifically requested comments on whether a shorter filing extension period for pass-through entities might increase or reduce overall taxpayer burden.

The IRS received approximately 70 comments.
Several commentators suggested that the Treasury Department and the IRS should consider changing the filing and extension due dates for individual and corporate tax returns rather than shortening the extension period for pass-through entities. For example, some commentators suggested moving the individual taxpayer return due date to April 30th, or allowing individuals and corporations a seven-month extension of time to file returns. Other commentators suggested moving up the filing date for partnership, trust, and estate taxpayers to March 15th, thereby allowing these entities a full six-month extension of time to file until September 15th so that individual taxpayers with ownership interests in the entities would receive information timely.

However, the IRS said these suggestions are not viable options for a regulation project because the due dates for filing tax returns are determined by statute. Section 6081 of the Tax Code provides that, except in the case of taxpayers who are abroad, the maximum extension of time to file a tax return cannot exceed six months. Accordingly, without legislative action, the Treasury Department and the IRS cannot change the due date for filing tax returns or increase the maximum extension of time to file a tax return for pass-through entities, individuals or corporations.

Although the comments with regard to shortening the automatic extension period for these pass-through entities varied as to time periods, the majority of commentators agreed that a less than six-month extension period for pass-through entities would generally reduce overall taxpayer burden by allowing taxpayers with ownership interests in pass-through entities to receive information in a more timely fashion vis-à-vis preparation of their own individual or corporate income tax returns. There was no clear consensus, however, regarding what the optimal period of extension would be for reducing taxpayer burden.

The Treasury Department and the IRS considered several extension periods for pass-through entities, including a four-month and a five-month extension period, when drafting the proposed and temporary regulations. The Treasury Department and the IRS ultimately decided upon a five-month automatic extension period for the proposed and temporary regulations. Many comments were received supporting the five-month extension period. Some commentators noted, however, that the five-month extension period would not alleviate the burden on corporate taxpayers with ownership interests in pass-through entities. These commentators expressed a concern that even a five-month extension period for these entities would, in most cases, simply align the extended due date for pass-through entities with the extended due date for corporate returns, resulting in the same delay of information to corporate owners of these entities. That delay, the commentators contend, would greatly increase the need for filing amended returns.

Commentators suggested shortening the automatic extension for these entities to less than five months. In opting for the five-month extension, the Treasury Department and the IRS recognize 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. The Treasury Department and the IRS, however, continue to believe that a five-month extension period reduces the overall burden on taxpayers and strikes the most reasonable balance for all affected taxpayers. The five-month extension period allows pass-through entities, including complex and tiered entities, an 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.

Electing large partnerships required to file Form 1065-B, “U.S. Return of Income for Electing Large Partnerships,” for any taxable year will be allowed an automatic six-month extension of time to file the return, however, because these pass-through entities are statutorily required to furnish Schedules K-1 by March 15, regardless of any extension of time to file the return.

Intuit’s monthly Small Business Employment Index, covering the period between April 24 and May 23, found that small business employment grew by 0.2 percent in May, equating to an annual growth rate of nearly 2.6 percent.

The index is based on figures from small businesses with fewer than 20 employees that use Intuit Online Payroll.
“The rate of small business job growth is the same as April’s,” said Susan Woodward, the economist who worked with Intuit to create the index. “But because compensation and hours dropped slightly, we can say the market for small business employment is a bit softer than last month.

However, in light of recent tumult in Japan, Greece, and right here at home, it’s a comfort that small business employment continues to improve at all.”

Based on the latest data, the employment growth rate for April was revised slightly down to 0.2 percent, equating to 45,000 jobs added for the month. Since the hiring trend began in October 2009, small businesses have created 685,000 jobs.

Small business hourly employees worked an average of 107.9 hours in May, making for a 24.9-hour workweek. This is a 0.13 percent decrease from the revised April figure of 108.1 hours.

“As small business employers react to economic pressures driven by such factors as rising gas prices and natural disasters, we see the job market soften,” Woodward said. “Employers cut back on employee hours when they have less work for people to do.”

Average monthly pay for all small business employees was $2,624 per month in May. This is a 0.14 percent decline compared to the April revised estimate of $2,628 per month. The equivalent annual wages would be about $31,500 per year, which is part-time work for many small business employees. Roughly 65 percent of small business employees are hourly, and only 27 percent of them worked more than 140 hours for the month in April.

“With small businesses assigning fewer hours to employees, average monthly pay declines too,” said Woodward. “Again, we see small businesses absorbing the shock of major events like natural disasters.”

The Intuit Index also breaks down employment by census divisions and states across the country.

“Job growth, although slow, continued in small businesses across most of the country in May,” said Nora Denzel, senior vice president and general manager of Intuit’s Employee Management Solutions division. “But the East South Central division, where severe flooding along the Mississippi River affected thousands of homes and businesses, showed job losses in May.”

To mark Small Business Week, the Internal Revenue Service is highlighting the tax benefits and resources available to small businesses this year.

The IRS is encouraging those who are self-employed or own a small business to take advantage of the tax benefits and learn about various IRS resources that can help them meet their federal tax obligations.

“When you’re running a business, you don’t need to be a tax expert, too. But you do need some basics to stay tax compliant so your business can thrive,” said IRS Commissioner for the Small Business and Self-Employed Division Faris Fink in a statement. “There are many tax credits and deductions currently available. So now is a good time to learn about the tools and services the IRS offers.”

The Small Business Tax Center (www.irs.gov/smallbiz) has links to some of the most useful tools the IRS offers, including the Virtual Small Business Tax Workshop, a downloadable tax calendar, common forms and their instructions and help on everything from how to get an Employer Identification Number (EIN) online to how to engage with the IRS in the event of an audit.

The IRS is offering a free, 30-minute webinar called “Small Business Advantage” to show small business owners what’s available to them. The webinar is scheduled for Wednesday, May 18 at 2 p.m. ET. To register and watch, visit IRS.gov and type “webinars” into the search box.

The IRS also urged small businesses to take advantage of the tax-saving opportunities available when they file their 2011 returns. Two key provisions that business owners should consider are the small business health care tax credit and faster write-offs on certain capital expenditures.

The small business health care tax credit aims to help small employers provide health insurance coverage to their employees. It is specifically intended for those who employ low- and moderate-income workers. The credit is designed to encourage both small businesses and small tax-exempt organizations to offer health insurance coverage for the first time or maintain coverage they already have. More information about the credit is available on the Affordable Care Act page on IRS.gov.

Many small businesses that invest in new property and equipment can deduct most or all of these purchases on their 2011 returns. Normally, businesses recover capital investments through annual depreciation deductions spread over several years. But many small businesses can get these deductions sooner during 2011. Claim these tax benefits on Form 4562. Special rules and limitations apply. Details can be found in the instructions to Form 4562, Publication 946 and Revenue Procedure 2011-26.

Tax filers who paid an accountant or CPA to prepare their returns register the highest satisfaction with their method of preparation.

Some 75 percent state that they were “very satisfied” in working with the accountant or CPA, according to a new survey.

In addition to the high satisfaction rates of those who used a CPA or accountant to prepare their returns, 77 percent of the filers who used an unpaid individual preparer (friend or family member) reported being extremely satisfied with the experience, according to MarketTools, a survey software company.

Satisfaction was lowest for individuals who visited a tax preparation chain to prepare their taxes, with only 64 percent reporting that they were extremely satisfied with this method, followed by those who used an online tax service (66 percent “extremely satisfied”) and those who used tax software (69 percent).

“Tax time can be an intense period for consumers, and it’s critical for companies that offer tax preparation software and services to listen to their customers to improve the overall customer experience,” said Justin Schuster, vice president of enterprise products at MarketTools, Inc.

The most popular means of preparing taxes is paying an individual such as an accountant or CPA to prepare the tax returns, or using a web-based (online) tax preparation service. Each of these methods was used by 28 percent of the filers.

Other methods of tax preparation were far less popular, including using tax software purchased in a store or downloaded (14 percent), visiting a branch office of a tax preparation chain (14 percent), completing IRS forms by hand (7 percent), and using a non-paid individual such as a friend or family member (5 percent).