Supersede (verb): to take the place of or replace. A do-over.

The IRS suffers from its historic backlog of unprocessed filings and personnel shortages. But, this is not stopping them from placing speed bumps and other obstacles on the path to filing tax returns this year. Such obstacles include:

• Additional reporting requirements for the Payroll Protection Program (PPP) loan information. This includes disclosures regarding the timing and recognition of tax-exempt income on loan forgiveness and the resulting effects on tax capital and basis. Failure to adequately report the new disclosures could affect the deductibility of expenses incurred and paid with PPP funds.

• New foreign reporting forms and requirements for partnerships and S corporations, (even if the business has no foreign owners, assets, or activity) Schedules K-2 and K-3, which broadly apply to taxpayers. Completing these schedules will take time and resources to properly report the required information. Leaving a required disclosure off a tax return can result in extremely expensive penalties. These forms are not available for e-File until mid-March or mid-June. Wow!

• Delays in interpretive guidance.

• Delays in availability of both new and updated tax forms and schedules from the IRS and NC Department of Revenue. Where is the logic of requiring a new form, but not making it available for filing yet?

• Electronic filing delays and postponements. While the IRS opened the tax filing system on January 24th, that was not for all forms, and issues with forms availability remain. Further,  we cannot e-file certain forms and schedules simply because they do not exist yet. In addition, North Carolina has not begun accepting e-filed returns. Plans to begin accepting individuals start the week of February 28 and businesses March 7.

• New pass-through entity state tax elections.

• New pass-through entity disregarded entity ownership disclosure requirements.

We are facing a lack of guidance, a much later start to tax filing season, and the addition of unavailable new forms. All this is causing a slew of delays and uncertainty. Spare guidance is making life much harder for us to file complete accurate tax returns. It is possible that corrections to tax returns may be necessary once the IRS has issued final guidance. Our strategy is to make the filing of any such corrections as easy as possible through the superseding return process.

To protect you, we are recommending that all our clients allow us to file for an automatic extension of time to file their returns. We recommend extensions even if we are to file by the original due date. Without an extension, an IRS interpretation may require we file an amended return exposing the return to IRS scrutiny. But with an extension, we are able to file a superseding or second return. This replaces the old return if filed before the extended due date, and obviates the need for an amendment and prying eyes. 

Each year approximately 20,000 superseding returns are filed before the extended deadline. Benefits also include the ability to file or refile elections or revocation of elections and avoidance of penalties.

Further, certain returns of partnerships not eligible to elect out of the IRS’s centralized audit regime are prohibited from filing amended returns. These BBA partnerships have other partnerships or have trusts, disregarded entities, or certain estates as partners. These partnerships are not allowed to file amended returns. Instead, they must file an Administrative Adjustment Request (AAR). Which is an intensive process that also restarts the statute of limitation. But with an extension, we can file a superseding return before the extended due date, thus simplifying the process.

Accordingly, we will be preparing automatic extensions of time to file for our clients. This leaves the superseding option available to you if needed. We are working diligently to complete your returns. But to avoid potential penalties and minimize risks of audit, we will need the additional time for this year’s returns. 

Please continue providing your tax information to us for preparation. Although an extension may be filed, we will continue preparing and filing your returns in a timely and thoughtful manner. We appreciate your understanding as we work through increased reporting requirements and delays.

We prefer to e-file returns, rather than paper-file, to speed up the processing of your return. E-filing delays by the IRS and states may delay your filing, particularly if your return contains certain of the forms subject to delay. E-filing and superseded e-filing are options we like and want to have available for you in light of the confusion with taxing authorities.

As always, feel free to reach out with any questions or concerns regarding our process. We are happy to help in any way we can. You can contact your Holden Moss representative directly or call (919) 556-6216.