Tax News & Views Pandas and Partnership Deadline Roundup

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It's 1065 and 1120-S Deadline Day

It's pass-through entity deadline day. Partnership and S corporation returns must be filed or extended today to avoid late-filing penalties. And those penalties can be nasty. Most LLCs with more than one member file Form 1065, the partnership return, but some file Form 1120-S as S corporations.

The penalties. If a partnership or S corporation return is filed late, the penalties are $255 per owner for being a single day late. The penalty repeats for each additional month the return is late.

That means an unextended 1065 with 10 partners filed tomorrow, rather than today, will be subject to a penalty of $2,550. If it isn't filed by April 15, there is another $2,550, and so on for each additional month.

How to file. E-file if at all possible. Most active businesses are required to e-file their 1065s and 1120-S returns. Your preparer needs to have your signed e-file authorization in hand before they can submit your return. Please don't ask them to file based on your assurance that you have mailed the authorization to them.

If you somehow insist on paper filing - and most 1065 and 1120-S filers aren't eligible to paper file - be sure to use certified mail, return receipt requested, and save the paper filing postmark. Changes in postal procedures mean that anything mailed today other than certified mail will likely not be postmarked today, making it late-filed in the eyes of the IRS.

How to extend. Again, e-file. The IRS inexplicably does not support electronic filing of extensions via its website, but preparers can handle it for you. You can paper-file an extension using Form 7004 - but you need to carry it to the post office and get it sent certified mail, and save the postmark.

If you are reading this today after the post office closes, you can use an authorized private delivery service to paper-file, but be careful. You have to use the right service; for example, UPS Next Day Air qualifies, but UPS Ground does not. You have to use the IRS service center street addresses, as the private services can't use post office boxes. Again, save the receipt.

Extending may be a good idea, even if you are ready to file your 1065. If you extend, you have until the extended due date to re-file if you find an error in the return, or to make an election on the return that was overlooked. More here.

Tax Season Mystery: The Slow Start

Tax season off to slow start again, despite lure of bigger refunds - Brian Faler, Politico:

Though the opening of tax season is seen as especially busy, as people clamor for refunds, the IRS so far has seen about eight million fewer returns than it did during the same period in the filing season before the pandemic.

It’s a little-noticed change that has puzzled experts — though there are lots of theories, from people being confused about President Donald Trump’s new tax provisions to more people procrastinating because they owe the IRS.

Some wonder too if it’s a sign that undocumented immigrants have stopped filing.

IRS Has Frozen Paper Refunds for Over 1 Million Taxpayers - Benjamin Valdez, Tax Notes ($):

The IRS has sent more than 1 million notices to taxpayers informing them that their paper refund check will be delayed unless they provide bank account information, as the filing season approaches its final month.

As of March 6, the IRS had mailed 1.1 million CP53E notices that ask taxpayers to provide updated direct deposit information within 30 days, or they will face lengthy delays in receiving a paper refund check, according to filing season data obtained by Tax Notes.

The number indicates the notices are being sent out in high volumes. At the end of February the agency had sent about 500,000 notices, and by March 9 it had mailed over 800,000 notices.

Bessent Gives Up Acting IRS Commissioner Title, Keeps Powers

Update on IRS Commissioner position - IRS:

Consistent with applicable law and longstanding practice, the Secretary of the Treasury oversees the operations of all Treasury offices and bureaus, including the Internal Revenue Service. Secretary Scott Bessent’s service as Acting Commissioner of the IRS under the Federal Vacancies Reform Act has expired, and he has not served in that capacity since that time.

In accordance with the Federal Vacancies Reform Act, the Secretary retains the authority and responsibility to perform the functions and duties of vacant Treasury offices that are not filled on an acting basis. The IRS continues to operate without interruption, with Chief Executive Officer Frank J. Bisignano successfully leading day-to-day operations and reporting directly to the Secretary.

Bessent Drops Commissioner Title but Retains Duties, IRS Says - Benjamin Valdez, Tax Notes ($):

The announcement signals that the Trump administration likely intends to keep the IRS commissioner role vacant for the foreseeable future, while Social Security Administration Commissioner Frank Bisignano leads the agency as CEO. In the release, the IRS said Bisignano is “successfully leading day-to-day operations and reporting directly to the Secretary.”

...

While Bessent appears to be complying with the Vacancies Act, it’s unprecedented for the position of IRS commissioner to remain vacant for a prolonged period.

According to the most recent IRS Data Book, the commissioner’s role has never been completely unfilled for more than a day since the role’s creation in the 19th century.

Treasury’s Bessent Drops Acting IRS Chief Title, Keeps Tasks - Erin Slowey, Bloomberg ($):

The 1998 Federal Vacancies Reform Act sets requirements for filling vacant positions that await presidential nomination and Senate confirmation. It generally sets a 210-day limit for serving in an acting capacity, which Bessent hit last week.

An agency that violates the vacancies law sets itself up for lawsuits since the leader’s actions have no force or effect, though legal challenges can become thorny. As a go-around, administrations have changed titles to senior officials performing the functions and duties of their positions instead of acting leaders.

Critics of this maneuver say it sidesteps the confirmation process and illegally lengthens the tenure of an acting official.

Tariff Refunds - The Portal, The Judge

Trump Tariff Refunds Portal Is 70% Complete, US Tells Judge - Erik Larson and Zoe Tillman, Bloomberg ($):

The Trump administration said it’s making progress on building a web-based portal to handle refund requests for almost $170 billion in global tariffs that were overturned by the US Supreme Court, though it remains unclear when exactly the system will go live.

The portal, which is about 70% complete, is part of a new system that will automatically verify and process an expected wave of refund requests before issuing payments electronically, a Customs and Border Protection official said in an affidavit Thursday with a judge overseeing thousands of lawsuits seeking refunds. No timetable was provided for completing the project.

In response, Judge Richard Eaton of the Court of International Trade issued an order saying CBP is “making satisfactory progress” in developing a system that indicates “refunds can be expedited to those importers who take the necessary steps to receive refunds electronically.”

The Obscure Judge Presiding Over $166 Billion in Tariff Refunds - Lydia Wheeler, Wall Street Journal:

Judge Richard Eaton got his start as a Village Justice for Cooperstown, N.Y., handling petty crimes and small-dollar disputes in the tiny rural region, with a population around 2,000.

His current position—as a judge on the largely overlooked Court of International Trade—seems nearly as obscure. Except he finds himself in a showdown with the Trump administration about how to hand out $166 billion in refunds now that the president’s sweeping global tariffs were ruled illegal.

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In Eaton’s eyes, the refund question didn’t look that complicated. The government had issued refunds to importers before and could easily do so again, he said. He successfully pushed the administration to kick off the process.

Penalties and Partnerships

AICPA pushes IRS to ease and expand first‑time abatement rules - Martha Waggoner, The Tax Adviser:

The IRS should expand the first-time abatement (FTA) program to cover more types of tax and information-return penalties and allow taxpayers to reverse an automatically applied FTA when they demonstrate reasonable cause, the AICPA said in a letter.

The AICPA seeks the reversal so that taxpayers “can save their one-time abatement for a future need,” a news release said.

“Our recommendations would alleviate significant tax administrative burdens on the IRS, increase taxpayer awareness of the availability of FTA relief, and promote voluntary taxpayer compliance,” Daniel Hauffe, AICPA senior manager–Tax Policy & Advocacy, said in the March 6 release. “Ultimately, expanding application of the FTA program and simplifying the procedures reduce unnecessary complexity and reinforce the fairness of penalty administration.”

Access the AICPA letter here.

Caution for Partnerships Urged, Even With IRS Effort Pared Back - Michael Rapoport, Bloomberg ($):

Treasury and the IRS moved closer last week to scrapping requirements for partnerships to report potentially abusive “basis-shifting” transactions, which some have used to cut their tax bills. Nonetheless, a senior Treasury and IRS official said the agencies still plan to pursue such abuses, using guidance and a recent US Tax Court ruling that bless their use of the “economic substance doctrine” as a basis for cracking down on partnerships.

As a result, partnerships will have to stay cautious, and be conscious about undertaking transactions that the government might audit or otherwise question, tax observers said.

”The IRS may have let up on the accelerator pedal, but they have not put on the brakes,” said Pete Sepp, president of the National Taxpayers Union, a taxpayer-advocacy group.

Democrats Float Tax Cut Ideas

Capitol Hill Recap: Democrats Unveil Tax Plans - Alex Parker, Eide Bailly:

Democrats are a long way from being in control of the levers of power in Washington. But they've already started to plan for what policies they'd like to push when the time comes, especially regarding the tax code.

Two high-profile Democratic senators and potential 2028 presidential contenders released proposals last week to reduce the number of Americans paying income tax. According to the Washington Post, a bill from Sen. Chris Van Hollen, D-Md., would eliminate income tax for individuals earning $46,000 or less, or couples earning $92,000 or less. Sen. Cory Booker, D-N.J., announced on Tuesday the “Keep Your Pay Act,” which would expand the standard deduction to $75,000, effectively negating income tax for those earning less than that amount.

The plans come as many Democrats have mulled how to come up with their version of "no taxes on tips"—a provision that's intuitive and easy-to-identify by voters, even if it's not ideal policy.

Indeed, many tax and policy experts in the Democratic sphere have reservations about these approaches, claiming it continues an anti-tax trend that Democrats should be fighting to reverse, not accelerate.

Blogs and Bits

Washington state leaving the no-individual-tax club with its millionaires’ tax - Kay Bell, Don't Mess With Taxes. "Once in effect, the new levy would impose a 9.9 percent annual tax on personal earnings of more than $1 million. The law would apply to 2028 amounts, with affected taxpayers’ first payments due in 2029."

California Is Pursuing Tax Cases, Some With Criminal Charges - Robert Wood, Forbes. "You guessed it, and now, the California Department of Tax and Fee Administration (a key California tax agency with the ungainly acronym CDTFA) and the California DMV are cracking down on car dealers who facilitate tax evasion by enabling their customers to use the so-called 'Montana Loophole.'"

Out of fashion - Allison Schrager, Known Unknowns:

My other controversial opinion is the move to DC plans from DB worked. It expanded access and retirement wealth because they are cheaper to administer, fund, and are more portable. They also benefited from a great run in the stock market. Can we expect that for the next 45 years? Who knows? That’s why we need to think about better insurance options rather than pushing riskier assets or another government hand-out to the wealthiest cohort in America.

I feel like we are losing the plot when it comes to financial regulation. DC plans were successful because they steered individuals to well-diversified, low-fee funds. But now there is a movement to get people into much riskier assets: betting markets, sports betting, private equity, and the like.

"DC" = Defined Contribution; "DB" = Defined Benefit, the old-style plans that now survive primarily in governments.

Threatening the Judge is Seldom a Good Strategy

Federal judge convicts man who fraudulently received $32 million business tax refund check - IRS (Defendant names omitted, emphasis added):

A federal judge has found an Atlanta-area man guilty of wire fraud and theft of public funds. In a separate bench trial, a second man was also found guilty of filing a false, retaliatory lien against a different federal judge.

Defendant, fraudulently converted two businesses’ IRS accounts to his name and address. The defendant received tax refund checks – including one for more than $32 million – that were to be paid out to these two businesses.

Two months after Defendant’s arrest on the tax crimes, Defendant B filed a false lien in the Maryland Department of Assessments and Taxation claiming that Senior U.S. District Court Judge Thomas M. Rose owed Defendant $32 million. Judge Rose was originally presiding over Defendant’s fraud case.

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According to court documents and trial testimony, Defendant fraudulently submitted IRS forms claiming to be the responsible party for two separate companies.

In December 2024, the IRS processed eight Change of Address or Responsible Party-Business forms associated with Defendant. Defendant’s requests for changes were completed and accepted. He ultimately received two tax refund checks for those companies: one in the amount of $32,495,888.58 and one in the amount of $26,156.50.

This case reminds us that ID theft can be a problem for businesses as well as individuals. Be careful with confidential documents and monitor your business tax accounts via EFTPS and a Business Online Account.

It also reminds us that retaliatory filings against federal judges tend not to be well received by other federal judges.

What day is it?

It's National Panda Day! Even though they aren't real bears.

Tax News & Views Pandas and Partnership Deadline Roundup

Make a habit of sustained success.

Joe B. Kristan, CPA