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TAS Recommendations Worked into Tax Bill

Typically, this blog doesn’t report on proposed legislation until it’s actually signed into law, However, three recommendations from the National Taxpayer Advocate’s 2024 Purple Book were incorporated into a recent proposed tax bill. The legislation was introduced in June by Representative Darin LaHood (R-IL).

The Tax Administration Simplification Act (HR 8864), if enacted, would make three fixes to the tax code to streamline the filing process by applying the mailbox rule to electronic submissions, updating the estimated tax payment schedule, and revising the S corporation election process for new small businesses. The bill has support from LaHood’s House Ways and Means Committee colleagues on both sides of the aisle.

The bill incorporates the following three recommendations from the National Taxpayer Advocate:

Electronic submissions. The Taxpayer Advocate recommends the tax code be revised to treat payments and returns as timely if they are submitted electronically by midnight on the due date — even if the IRS does not receive or process them on that date. This change would align treatment of electronic submissions with that of mailed submissions, which are deemed timely if postmarked on the due date under the “mailbox rule” in §7502.

Estimated tax payments. Currently, estimated tax installment payments are due at uneven intervals under §6654(c)(2). According to the Taxpayer Advocate, the current varied two, three, and four-month intervals “make it more difficult for many taxpayers to calculate net income and save appropriately to make estimated tax payments and thus may reduce compliance.” A better option would be to set payment deadlines 15 days after the end of each quarter, on April 15, July 15, October 15, and January 15.

Subchapter S elections. Small businesses currently can elect to be treated as pass-through entities up until the 15th day of the third month of a tax year under §1362(b). Meanwhile, income tax returns of S corporations are due March 15 if made on a calendar year basis, and on the 15th day of the third month after the close of the fiscal year if made on a fiscal year basis.

As a result, new small businesses may miss the opportunity to elect pass-through treatment in their first year  because the deadline to do so passes before they learn about the ramifications of S corporation status when they hire a tax professional to prepare their corporation’s income tax return for its first year of operation.

The Taxpayer Advocate recommends the tax code be revised to allow small businesses to elect S corporation treatment via a box on their first timely filed tax return, Form 1120-S.

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