Joint Committee Report JCS-1-16: General Explanation of Tax Legislation Enacted in the 114th Congress

Moving Ahead for Progress in the 21st Century ("MAP-21")⁷⁵ provided that, out of money in the Treasury not otherwise appropriated, the following transfers were to be made from the General Fund to the Highway Trust Fund:

                                   FY 2013               FY 2014

The Highway and Transportation Funding Act of 2014 transferred $7.765 billion from the General Fund to the Highway Account of the Highway Trust Fund, $2 billion from the General Fund to the Mass Transit Account of the Highway Trust Fund, and $1 billion from the Leaking Underground Storage Tank Trust Fund to the Highway Account of the Highway Trust Fund.⁷⁶ The provisions were effective August 8, 2014.

An executor of a decedent's estate that is required to file an estate tax return under section 6018(a) is required to report to both the recipient and the IRS the value of each interest in property included in the gross estate. A person that is required to file an estate tax return under section 6018(b) (returns by beneficiaries) is required to report to each other person holding a legal or beneficial interest in property to which the return relates and to the IRS the value of each interest in property included in the gross estate. The required reports must be furnished by the time prescribed by the Secretary, but in no case later than the earlier of 30 days after the return is due under section 6018 or 30 days after the return is filed. In any case where reported information is adjusted after a statement has been filed, a supplemental statement must be filed not later than 30 days after such adjustment is made.

The provision grants the Secretary authority to prescribe regulations necessary to carry out the provision, including the application of the provision when no estate tax return is required to be filed and when the surviving joint tenant or other recipient may have better information than the executor regarding the basis or fair market value of the property.

The provision applies the penalty for failure to file correct information returns under section 6721, and failure to furnish correct payee statements under section 6722, to failure to file the new information returns required under the proposal. Additionally, the provision applies the accuracy-related penalty under section 6662 to any inconsistent estate basis. For this purpose, there is an inconsistent estate basis if the basis of property claimed on a return exceeds the basis as determined under the above-described new rules that generally require consistency between the estate tax value of property and the basis of property acquired from a decedent under section 1014.

Other exceptions to the general rule result in an extension of the limitations period otherwise applicable. For example, the limitation period may be extended by taxpayer consent.⁸⁶ Failure to disclose or report certain information may also result in extensions of the statute of limitations. For example, failure to disclose a listed transaction as required under section 6011 on any return or statement for a taxable year will result in an extension that ensures that the limitations period remains open for at least one year from the date the requisite information is provided. The limitation period with respect to such transaction will not expire before the date which is one year after the earlier of (1) the date on which the Secretary is provided the information so required, or (2) the date that a "material advisor" (as defined in section 6111) makes its section 6112(a) list available for inspection pursuant to a request by the Secretary under section 6112(b)(1)(A).⁸⁷ In addition to the exceptions described above, there are also circumstances under which the three-year limitations period is suspended.⁸⁸

A separate limitations period of six years from the date a return is filed is established for substantial omissions of items from gross income. For a trade or business, the term "gross income" means the total amount received or accrued from the sale of goods or services (if such amounts are required to be shown on the return) prior to diminution by the cost of such sales or services (generally, gross receipts). An omission from gross income is substantial if the omission exceeds 25 percent of the gross income reported on the return or the amount omitted is attributable to a foreign financial asset within the meaning of section 6038D (without regard to dollar thresholds and regulatory exceptions to reporting based on existence of duplicative disclosure requirements) and exceeds $5,000.⁸⁹ Amounts that are adequately disclosed on a return, even if not reflected in the amount recorded as gross income, are generally not considered to have been omitted for purposes of determining whether the 25 percent threshold was exceeded. An amount is considered to have been adequately disclosed on a return if it is presented in a manner that is "adequate to apprise the Secretary of the nature and amount of such item."⁹⁰

The six-year statute was enacted in 1954, patterned on an earlier five-year limitations period, with several differences.⁹¹ The earlier statute was shortly thereafter the subject of an opinion of the U.S. Supreme Court, in which the Court held that the statute was clear on its face in requiring an omission of income to trigger the exception.⁹² Neither the present statute nor its predecessor explicitly addresses the treatment of overstatements of basis.

A series of courts have considered the issue of whether a basis overstatement on a return may be considered an omission from a taxpayer's income for purposes of the limitations period. The cases dealt with adjustments to "listed" transactions⁹³ on partnership returns. The litigation results varied, with the result often depending upon the view of the deciding court regarding the vitality of the opinion in The Colony, Inc.⁹⁴ In cases in which the taxpayer prevailed, the courts generally followed the principle set forth in The Colony, Inc., that "the extended period of limitations applies to situations where specific income receipts have been 'left out' in the computation of gross income and not when an understatement of gross income resulted from an overstatement of basis."

The Secretary promulgated regulations intended to resolve the issue going forward, making it explicit that the portion of income understated by reason of an overstated basis is to be included in determining whether an understatement constituted a 25 percent omission for purposes of the statute of limitations.⁹⁵

In Home Concrete & Supply, LLC. v. United States, the U.S. Supreme Court held that an overstatement of basis that contributes to an understatement of income due is not itself considered to be an omission of income, without regard to whether the return reveals the computation of basis.⁹⁶ In deciding in favor of the taxpayer, the Supreme Court followed its interpretation of the word "omits" in the predecessor to section 6501 in The Colony, Inc. Having previously interpreted an unambiguous term in the statute, the Court held that the contrary interpretation by the Secretary in Treasury regulations was invalid.

A partnership generally is required to file a Federal income tax return on or before the 15th day of the fourth month after the end of the partnership taxable year.⁹⁸ For a partnership with a taxable year that is a calendar year, for example, the partnership return due date (and the date by which Schedules K-1 must be furnished to partners) is April 15. However, a partnership is allowed an automatic five-month extension of time to file the partnership return and the Schedule K-1s (to September 15 in the foregoing example) by submitting an application on Form 7004 in accordance with the rules prescribed by the Treasury regulations.⁹⁹

A C corporation or an S corporation generally is required to file a Federal income tax return on or before the 15th day of the third month following the close of the corporation's taxable year. For a corporation with a taxable year that is a calendar year, for example, the corporate return due date is March 15.¹⁰⁰ However, a corporation is allowed an automatic six-month extension of time to file the corporate return (to September 15 in the foregoing example) by submitting an application on Form 7004 in accordance with the rules prescribed by the Treasury regulations.¹⁰¹

To assist taxpayers in preparing their income tax returns and to help the Internal Revenue Service ("IRS") determine whether such income tax returns are correct and complete, present law imposes a variety of information reporting requirements on participants in certain transactions.¹⁰² The primary provision governing information reporting by payors requires an information return by every person engaged in a trade or business who makes payments aggregating $600 or more in any taxable year to a single payee in the course of the payor's trade or business.¹⁰³ Payments subject to reporting include fixed or determinable income or compensation, but do not include payments for goods or certain enumerated types of payments that are subject to other specific reporting requirements.¹⁰⁴ Detailed rules are provided for the reporting of various types of investment income, including interest, dividends, and gross proceeds from brokered transactions (such as a sale of stock) paid to U.S. persons.¹⁰⁵

The payor of amounts described above is required to provide the recipient of the payment with an annual statement showing the aggregate payments made and contact information for the payor.¹⁰⁶ The statement must be supplied to taxpayers by the payors by January 31 of the year following the calendar year for which the return must be filed. Payors generally must file the information return with the IRS on or before the last day of February of the year following the calendar year for which the return must be filed,¹⁰⁷ unless they file electronically, in which event the information returns are due March 31.¹⁰⁸

Payors also must report wage amounts paid to employees on information returns. For wages paid to, and taxes withheld from, employees, the payors must file an information return with the Social Security Administration ("SSA") on or before the last day of February of the year following the calendar year for which the return must be filed.¹⁰⁹ However, the due date for information returns that are filed electronically is March 31.

Under the combined annual wage reporting ("CAWR") system, the SSA and the IRS have an agreement, in the form of a Memorandum of Understanding, to share wage data and to resolve, or reconcile, the differences in the wages reported to them. Employers submit Forms W-2, Wage and Tax Statement (listing Social Security wages earned by individual employees), and W-3, Transmittal of Wage and Tax Statements (providing an aggregate summary of wages paid and taxes withheld) directly to SSA.¹¹⁰ After it records the Forms W-2 and W-3 wage information in its individual Social Security wage account records, SSA forwards the Forms W-2 and W-3 information to IRS.¹¹¹

U.S. persons who transfer assets to, and hold interests in, foreign bank accounts or foreign entities may be subject to self-reporting requirements under both Title 26 (the Internal Revenue Code) and Title 31 (the Bank Secrecy Act) of the United States Code. With respect to account holders, a U.S. citizen, resident, or person doing business in the United States is required to keep records and file reports, as specified by the Secretary, when that person enters into a transaction or maintains an account with a foreign financial agency.¹¹² Regulations promulgated pursuant to broad regulatory authority granted to the Secretary in the Bank Secrecy Act¹¹³ provide additional guidance regarding the disclosure obligation with respect to foreign accounts and require filing FinCEN Report 114, Report of Foreign Bank and Financial Accounts ("FBAR"), by June 30 of the year following the year in which the $10,000 filing threshold is met.¹¹⁴ The FBAR is required to be filed electronically with the Treasury Department through the FinCEN BSA E-filing System.¹¹⁵ Failure to file the FBAR is subject to both criminal¹¹⁶ and civil penalties.¹¹⁷ The regulations do not provide for extensions of time in which to file the FBAR.

Filing deadlines for business income tax returns

The provision accelerates the due date for filing of Federal income tax returns of partnerships and S corporations by one month, to the 15th day of the third month following the close of the taxable year. It also removes C corporations from the scope of the exception to the general rule that requires income tax returns to be filed by the 15th day of the fourth month after the end of a taxable year, with the result that C corporation returns are generally due on or before the 15th day of the fourth month following the close of a taxable year, with the exception of certain C corporations electing a fiscal year ending on June 30. For those C corporations, the first return for which the due date as amended applies is the return with respect to a fiscal year beginning in 2026.

Extensions of time to file tax returns

The provision modifies the statute (consistent with current Treasury regulations) to grant an automatic six-month extension of time to file a Federal corporate income tax return, with two exceptions. First, C corporations with a taxable year ending on June 30 are granted a seven-month extension for returns with respect to taxable years beginning before January 1, 2026. For C corporations with a taxable year ending on December 31, the extension available for taxable years beginning before January 1, 2026 is five months. As with present law, the eligibility for the automatic extension is contingent on the corporation filing the form prescribed by the Secretary and paying all tax estimated to be due on or before the due date prescribed for payment.

The provision requires that the Treasury Department modify its regulations to conform the extension periods prescribed to the following terms. The maximum extension for the returns of partnerships using a calendar year is a six-month period ending on September 15. The maximum extension for the returns of trusts using a calendar year is a 5 1/2 month period ending on September 30. The maximum extension for the returns of employee benefit plans using a calendar year is an automatic 3 1/2 month period ending on November 15.¹¹⁸ The maximum extension for the returns of tax-exempt organizations using a calendar year is an automatic six-month period ending on November 15. The due date for forms relating to the Annual Information Return of Foreign Trust with a United States Owner for calendar year filers is April 15 with a maximum extension for a six-month period ending on October 15.

FBAR due date conformity with income tax filing

In addition to requiring modification of the regulatory deadlines established for extensions of time to file income tax returns, the provision also requires that regulations establishing the due date for the form required under FBAR be amended. Under the provision, the FBAR due date is April 15 with regulatory authority to grant an extension of up to a six-month period ending on October 15. The provision permits the Secretary to waive any penalties for failure to file a timely request for an extension if the reporting period to which the penalty relates is the first period for which the taxpayer was subject to the FBAR requirements.

The requirements that the Secretary revise certain filing due dates and extensions for taxable years beginning after December 31, 2016 are effective upon date of enactment (July 31, 2015).

Finally, the automatic six-month extension of time to file corporate income tax returns is effective for taxable years beginning after December 31, 2015 of all corporations, with the exceptions of C corporations with taxable years ending either June 30 or December 31. For years beginning before January 1, 2026, C corporations with a taxable year ending June 30 are permitted a seven month extension of time to file rather than six months. For C corporations with a taxable year ending December 31, the maximum extension of time to file for years beginning before January 1, 2026 is five months rather than six months.

In order for the transfer to be qualified, accrued retirement benefits under the plan generally must be 100-percent vested as if the plan terminated immediately before the transfer (or in the case of a participant who separated in the one-year period ending on the date of the transfer, immediately before the separation). In addition, at least 60 days before the date of a qualified transfer, the employer must notify the Secretary of Labor, the Secretary of the Treasury, employee representatives, and the plan administrator of the transfer, and the plan administrator must notify each plan participant and beneficiary of the transfer.¹²⁰

No more than one qualified transfer may be made in any taxable year. For this purpose, a transfer to a retiree medical account and a transfer to a retiree life insurance account in the same year are treated as one transfer. No qualified transfer may be made after December 31, 2021.

 Gasoline                        18.3 cents per gallon

Liquefied natural gas ("LNG") and liquefied petroleum gas (also known as propane) are classified as alternative fuels. LNG is taxed at the same per gallon rate as diesel, 24.3 cents per gallon. According to the Oak Ridge National Laboratory, diesel fuel has an energy content of 128,700 Btu per gallon (lower heating value) and LNG has an energy content of 74,700 Btu per gallon (lower heating value). Therefore, a gallon of LNG produces approximately 58 percent of the energy produced by a gallon of diesel fuel.

Liquefied petroleum gas is taxed at the same per gallon rate as gasoline, 18.3 cents per gallon. According to the Oak Ridge National Laboratory, gasoline has an energy content of 115,400 Btu per gallon (lower heating value), and liquefied petroleum gas has an energy content of 83,500 Btu per gallon (lower heating value). Therefore, a gallon of liquefied petroleum gas produces approximately 72 percent of the energy produced by a gallon of gasoline.

Compressed natural gas is taxed at 18.3 cents per energy equivalent of a gasoline gallon of gasoline. In Notice 2006-92, the IRS provided that this rate is 18.3 cents per 126.67 cubic feet of compressed natural gas.

Specifically, the provision provides that liquefied petroleum gas is taxed at 18.3 cents per energy equivalent of a gallon of gasoline. For this purpose, "energy equivalent of a gallon of gasoline" means, with respect to liquefied petroleum gas, the amount of such fuel having a Btu content of 115,400 (lower heating value), which is 5.75 pounds of liquefied petroleum gas.

LNG is taxed at 24.3 cents per energy equivalent of a gallon of diesel fuel. For this purpose, "energy equivalent of a gallon of diesel" means, with respect to a liquefied natural gas fuel, the amount of such fuel having a Btu content of 128,700 (lower heating value), which is 6.06 pounds of liquefied natural gas.

Compressed natural gas is taxed at 18.3 cents per energy equivalent of a gallon of gasoline, which is 5.66 pounds of compressed natural gas.

In general

Under the Patient Protection and Affordable Care Act ("PPACA"),¹²⁵ as amended by the Health Care and Education Reconciliation Act of 20101A¹²⁶ (referred to collectively as the "Affordable Care Act" or "ACA"), an applicable large employer may be subject to a tax, called an "assessable payment," for a month if one or more of its full-time employees is certified to the employer as receiving for the month a premium assistance credit for health insurance purchased on an American Health Benefit Exchange or reduced cost-sharing for the employee's share of expenses covered by such health insurance.¹²⁷ As discussed below, whether an applicable large employer owes an assessable payment and the amount of any assessable payment depend on whether the employer offers its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under a group health plan sponsored by the employer and, if it does, whether the coverage offered is affordable and provides minimum value.¹²⁸

Definitions of full-time employee and applicable large employer

For purposes of applying these rules, full-time employee means, with respect to any month, an employee who is employed on average at least 30 hours of service per week. Hours of service are to be determined under regulations, rules, and guidance prescribed by the Secretary of the Treasury ("Secretary"), in consultation with the Secretary of Labor, including rules for employees who are not compensated on an hourly basis.

Applicable large employer generally means, with respect to a calendar year, an employer who employed an average of at least 50 full-time employees on business days during the preceding calendar year.¹²⁹ Solely for purposes of determining whether an employer is an applicable large employer (that is, whether the employer has at least 50 full-time employees), besides the number of full-time employees, the employer must include the number of its full-time equivalent employees for a month, determined by dividing the aggregate number of hours of service for that month (up to a maximum of 120 for any employee) of employees who are not full-time employees for the month by 120. In addition, in determining whether an employer is an applicable large employer, members of the same controlled group, group under common control, and affiliated service group are treated as a single employer.¹³⁰

Assessable payments

If an applicable large employer does not offer its full-time employees and their dependents minimum essential coverage under an employer-sponsored plan for a month and at least one full-time employee is certified as receiving for the month a premium assistance credit or reduced cost-sharing, the employer may be subject to an assessable payment of $2,0001A¹³¹ (divided by 12 and applied on a monthly basis) multiplied by the number of its full-time employees minus 30, regardless of the number of full-time employees so certified. For example, in 2016, Employer A fails to offer minimum essential coverage and has 100 full-time employees, 10 of whom receive premium assistance credits for the entire year. The employer's assessable payment is $2,000 for each full-time employee over the 30-employee threshold, for a total of $140,000 ($2,000 multiplied by 70 (100-30)).

Generally, an employee who is offered minimum essential coverage under an employer-sponsored plan is not eligible for a premium assistance credit or reduced cost-sharing unless the coverage is unaffordable or fails to provide minimum value.¹³² However, if an employer offers its full-time employees and their dependents minimum essential coverage under an employer-sponsored plan and at least one full-time employee is certified as receiving a pre-mium assistance credit or reduced cost-sharing (because the coverage is unaffordable or fails to provide minimum value), the employer may be subject to an assessable payment of $3,000 (divided by 12 and applied on a monthly basis) multiplied by the number of such full-time employees. However, the assessable payment in this case is capped at the amount that would apply if the employer failed to offer its full-time employees and their dependents minimum essential coverage. For example, in 2016, Employer A offers minimum essential coverage and has 100 full-time employees, 20 of whom receive premium assistance credits for the entire year. The employer's assessable payment before consideration of the cap is $3,000 for each full-time employee receiving a credit, for a total of $60,000 ($3,000 multiplied by 20). The cap on the assessable payment is the amount that would have applied if the employer failed to offer coverage, or $140,000 ($2,000 multiplied by 70 (100-30)). In this example, the cap therefore does not affect the amount of the assessable payment, which remains at $60,000.

TRICARE and veterans health programs

The Military Health System provides active and retired members of the armed forces and their families (including certain survivors and former spouses) with medical coverage, primarily through the TRICARE program.¹³³ The TRICARE program offers various health plans, including a managed care option and fee-for-service options.

The Veterans Health Administration ("VHA"), within the Department of Veterans Affairs, provides certain veterans and family members (including certain survivors) with medical coverage through its health care programs.¹³⁴ Enrolled veterans are provided a medical benefits package that covers a range of medical care, including inpatient, outpatient, and preventive services. Medical coverage for eligible family members of veterans is provided through the Civilian Health and Medical Program of the Department of Veterans Affairs ("CHAMPVA").¹³⁵

An individual with other coverage in addition to a high deductible health plan is still eligible to make HSA contributions if such other coverage is permitted insurance or permitted coverage. Permitted insurance is: (1) insurance if substantially all of the coverage provided under such insurance relates to (a) liabilities incurred under worker's compensation law, (b) tort liabilities, (c) liabilities relating to ownership or use of property (e.g., auto insurance), or (d) such other similar liabilities as the Secretary of the Treasury may prescribe by regulations; (2) insurance for a specified disease or illness; and (3) insurance that provides a fixed payment per day (or other period) for hospitalization. Permitted coverage is coverage (whether provided through insurance or otherwise) for accidents, disability, dental care, vision care, or long-term care. Coverage under certain health flexible spending arrangements or health reimbursement arrangements is also permitted.

Under IRS guidance, an otherwise eligible individual who is eligible for medical benefits under a program of the Department of Veterans Affairs ("VA"), but who has not actually received such benefits during the preceding three months, is an eligible individual.¹³⁶ However, an individual is not eligible to make HSA contributions for any month if the individual has received VA medical benefits at any time during the previous three months unless the benefits are for permissible coverage or preventive care.¹³⁷

The provision does not otherwise change the application of the present-law rule for individuals eligible for VA medical benefits. Thus, an otherwise eligible individual who is eligible for VA medical benefits, but who has not actually received such benefits during the preceding three months, continues to be an eligible individual. However, an individual is not eligible to make HSA contributions for any month if the individual has received VA medical benefits at any time during the previous three months unless the benefits are for permissible coverage or preventive care or for a service-connected disability.