The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, was signed into law on July 31. In addition to providing continued funding for federal transportation projects, the law includes several tax-related provisions which will affect businesses and individuals alike. This highway fund law changes the due dates for several types of federal returns.

Large estates must report fair market values

Under the highway fund law, executors of large estates (those subject to estate tax) must provide the IRS and each of the estate’s heirs with statements identifying the fair market value of the inherited property as reported on the estate tax return. Any underpayment of tax resulting from an overstatement of basis under this provision will be subject to a 20% accuracy-related penalty.

These requirements are intended to ensure consistent reporting for estate and income tax purposes. The changes apply to any estate tax returns filed after July 31, 2015.

Overstated basis qualifies as understatement of gross income

The highway fund law also clarifies the statute of limitations for overstated tax basis. In 2012, the U.S. Supreme Court held that the extended six-year statute of limitations — which applies when a taxpayer “omits from gross income an amount properly includible” in excess of 25% of the gross income — didn’t apply to the overstatement of basis in sold property.

The new law amends the tax code to clarify that an understatement of gross income due to an overstatement of unrecovered cost or other basis is an omission from gross income. The amendment applies to returns filed after July 31, 2015, as well as previously filed returns that are still open.

Veterans do not count as employees for ACA purposes

The highway fund law has several provisions related to veterans. One specifies that veterans who are enrolled in the Defense Department’s TRICARE or the Veterans Administration’s medical programs shouldn’t count as employees for purposes of determining whether an employer is considered an “applicable large employer” under the Affordable Care Act (ACA).

Applicable large employers are generally those with 50 or more full-time employees or the equivalent. And they’re subject to information reporting requirements and at risk for penalties under the ACA’s shared responsibility (or “play or pay”) provision.

Exempting veterans from the 50-full-time-employee-or-equivalent calculation provides an added incentive for businesses near the threshold to hire them. Why? Hiring veterans rather than nonveterans can minimize their reporting requirements and risk for play-or-pay penalties.

Employers have more time to transfer excess pension assets

The highway fund law gives employers four more years to transfer — without adverse tax consequences — excess defined benefit plan assets to a retiree’s health benefits account or group term life insurance that’s part of the plan. To make such transfers (which are allowed only once a year), a defined benefit plan must have assets of at least 125% of their funding target. The new law extends the deadline to the end of 2025.

Tax law changes fund transportation spending

The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015” is a somewhat misleading name. The new law is about more than just transportation funding and veterans’ health care services; it will also result in noteworthy changes to the income tax obligations and reporting requirements for business owners and individuals. If you have questions about how these tax provisions are likely to affect you, we can help.

See our previous blog post about this topic discussing how this law affects:

  • Partnership income tax returns
  • Corporation income tax returns
  • Foreign Bank and Financial Accounts
  • Trusts and Estates
  • Employee Benefit Plans
  • Foreign Trust and Foreign Gift reporting