Extending but Still Filing Before the Original Due Date

• March 11, 2024
• Carey M. Heyman, CPA

As a refresher with the upcoming filing due dates approaching, the Bipartisan Budget Act (BBA) partnership audit rules, which affect all partnerships except those that make an annual election out, significantly changes the way partnership tax returns can be adjusted after filing.  Under these rules, partnerships are barred from using an amended Form 1065 and Schedule K-1.  Instead, a BBA partnership must file an Administrative Adjustment Request (AAR), which can result in unexpected results for the partnership and its partners.  The IRS, however, will likely treat a tax return filed after the original return as filed, but before the due date of the original tax return (including extensions), as the original tax return.  This may provide partnerships a limited timeframe to correct a previously filed tax return and issue superseding K-1s without being subject to the BBA procedures.

The reliance on an extension to preserve the ability to file a superseding tax return comes with caution.  Guidance from the IRS regarding the validity of an extension where the tax return is filed before the original due date (prior to March 15^th) is limited.  The IRS has broad discretion to determine whether an extension is valid.  Additionally, guidance from the IRS suggests filing a timely extension after the original return is filed is not a valid extension because it is a nullity.  For example, assume a Form 1065 subject to the BBA rules is filed on March 11, 2024, followed by the filing of a Form 7004 extension on March 12, 2024.  This would not be considered a valid extension.  In the event changes needed to be made after the original due date, the partnership would have to file an AAR.

Practitioners should consider whether certain partnerships should file for an extension, even though it may not need one, in order to extend the timeframe allowed for filing a superseding tax return.  This can be a useful strategy for partnerships that have a history of finding errors or omissions shortly after filing.  Please note though; this is not a one-size-fits-all solution.  There are some additional considerations that need to be made:

• Filing extensions places additional stress on practitioners responsible for processing the extensions.  Given the low probability that an error or omission is discovered within the next six months, strong consideration needs to be given to determine whether or not the additional burden is worthwhile.
• For tax returns where filing a superseding tax return is likely, practitioners need to evaluate whether or not filing a tax return now, just to file by the original due date, is a good practice.  In most of these cases, it makes sense to file an extension to ensure an accurate tax return filing later in the filing season.

Practitioners should also be mindful of state tax returns.  States may not recognize superseding tax returns; accordingly, amended state tax returns may be required.  Consultation with a state and local tax professional is recommended.

Thank you to Shane Wheeler for authoring this blog post. 

Tags: BBA, Bipartisan Budget Act, Deadline, Extension, Partnership, Federal and state taxation, including proposed regulations, Industry best practices | Comments Off on Extending but Still Filing Before the Original Due Date