IPOCAMPUS

The Internal Revenue Service said it will be making changes to the filing requirements for corporate and partnership taxpayers with assets of between $10 million and $50 million in an effort to lighten the burden.

The changes pertain to the Schedule M-3 filing requirement for taxpayers with assets between $10 million to $50 million for Forms 1120, 1120-C, 1120-F, 1120S, 1065 and 1065-B.

These business taxpayers will be permitted to file Schedule M-1 in place of the Schedule M-3 Parts II and III. The changes will be effective for tax years ending on Dec. 31, 2014, and later.However, the IRS added that no changes are currently planned to the Schedule M-3 requirements for Forms 1120-L or 1120-PC, nor for Form 1120 taxpayers filing as a mixed group.

The IRS said the reason for the changes is to reduce filing burden and to simplify reporting for these corporations and partnerships. The changes affect the filing requirements for Schedule M-3, “Net Income (Loss) Reconciliation for Corporations with Total Assets of $10 Million or More.”

Effective for tax years ending Dec. 31, 2014 and later, corporations and partnerships with at least $10 million but less than $50 million in total assets at tax year end will be permitted to file Schedule M-1 instead of Schedule M-3, Parts II and III. Schedule M-3, Part I, lines 1-12 will continue to be required for these taxpayers. Those taxpayers electing to file Schedule M-1 must report book income on Schedule M-1, line 1, equal to the book income amount reported on Schedule M-3, Part I, line 11. Corporations and partnerships with $10 million to $50 million in total assets may voluntarily file Schedule M-3 Parts II and III rather than Schedule M-1. This change applies to corporations and partnerships filing Forms 1120, 1120-C, 1120-F, 1120S, 1065 and 1065B.

Corporations and partnerships filing Forms 1120, 1120-C, 1120-F, 1120S, 1065 and 1065B with $10 million to $50 million in total assets will not be required to file Form 1120 Schedule B, Form 1065 Schedule C or Form 8916-A.

The IRS’s Large Business & International Division is continuing to consider changes to Schedule M-3 and to the requirements for the book-to-tax reconciliation for corporations with $10 million to $50 million in total assets filing Form 1120-L, 1120-PC, or filing as a mixed group including the requirement that mixed groups sub-consolidate and file Form 8916, the IRS noted. In addition, the IRS LB&I Division is considering changes to Schedule M-3 and to the requirements for the book-to-tax reconciliation for corporations and partnerships with $50 million or more in total assets.

Schedule M-1 detail is currently filed electronically as four attachments, one each to Schedule M-1 lines 4, 5, 7, and 8.  This will not change, according to the IRS.

Partnerships with less than $10 million in total assets that are currently required to file Schedule M-3 (adjusted total assets of $10 million or more, total receipts for $35 million or more, or a reportable entity partner also required to file Schedule M-3) will continue to file Schedule M-3, Part I and may elect to file Schedule M-1 in place of Schedule M-3, Parts II and III.  Partnerships with less than $10 million in assets will not be required to file Form 1065 Schedule C or Form 8916-A.

Corporations and partnerships with less than $10 million in total assets that are not otherwise required to file Schedule M-3 are currently allowed to voluntarily file Schedule M-3. These taxpayers can continue to voluntarily file Schedule M-3, according to the IRS, and they may elect to file Schedule M-3 Parts I, II, and III or to file Schedule M-3 Part I and to file Schedule M-1 in place of Schedule M-3 Parts II and III. Such corporations and partnerships will not be required to file Form 1120 Schedule B, Form 1065 Schedule C, or Form 8916-A.

House and Senate lawmakers on May 10 blasted the IRS after learning that the Service had targeted approximately 75 conservative groups for additional scrutiny. In February 2012,

Tea Party organizations reportedly received letters from the regional IRS office in Cincinnati, demanding hundreds of pages of documents with little indication of the criteria being applied.

The IRS released the following statement: "Between 2010 and 2012, the IRS saw the number of applications for section 501(c)(4) status double. As a result, local career employees in Cincinnati sought to centralize work and assign cases to designated employees in an effort to promote consistency and quality. This approach has worked in other areas. However, the IRS recognizes we should have done a better job of handling the influx of advocacy applications. While centralizing cases for consistency made sense, the way we initially centralized them did not. Mistakes were made initially, but they were in no way due to any political or partisan rationale. We fixed the situation last year and have made significant progress in moving the centralized cases through our system."

The statement noted that, "[t]o date, more than half of the cases have been approved or withdrawn. It is important to recognize that all centralized applications received the same, even-handed treatment, and the majority of cases centralized were not based on a specific name. In addition, new procedures also were implemented last year to ensure that these mistakes won’t be made in the future. The IRS also stresses that our employees—all career civil servants—will continue to be guided by tax law and not partisan issues."

"While I’m glad to see the IRS apologize for unfairly targeting conservative groups, this frankly isn’t enough," said Senate Finance Committee ranking member Orrin G. Hatch, R-Utah, in a statement issued to the press. "We need to have ironclad guarantees from the IRS that it will adopt significant protocols to ensure this kind of harassment of groups—whether liberal, conservative or moderate—that have a constitutional right to express their own views never happens again."

The White House immediately condemned the IRS action, saying it was inappropriate and was under investigation by the IRS Inspector General. "This matter is under investigation," White House Spokesman Jay Carney said at a briefing. "What we know of this is of concern and we certainly find the actions taken, as reported, to be inappropriate, and we would fully expect the investigation to be thorough and for corrections to be made in a case like this."

Senate Republican Leader Mitch McConnell, R-Ky., had earlier called on the Obama administration to do a government-wide review in the wake of the IRS’s acknowledgment that the Service targeted conservative groups during the 2012 national election. "Today’s acknowledgment by the Obama administration that the IRS did, in fact, target conservative groups in the heat of last year’s national election is not enough," said McConnell. "Today, I call on the White House to conduct a transparent, government-wide review aimed at assuring the American people that these thuggish practices are not underway at the IRS or elsewhere in the administration against anyone, regardless of their political views."

House lawmakers followed suit, immediately declaring that they would start an investigation. House Majority Leader Eric Cantor, R-Va., announced that the House will investigate the IRS for targeting conservative tax-exempt organizations for their political affiliation. "The IRS cannot target or intimidate any individual or organization based on their political beliefs. The House will investigate this matter," declared Cantor.

House Ways and Means Subcommittee on Oversight Chairman Charles W. Boustany, R-La., said there is an ongoing investigation by his committee of the matter. "When I was made aware the Internal Revenue Service may be unfairly targeting conservative groups based on their political beliefs, I immediately directed the subcommittee which I lead, the Ways and Means Subcommittee on Oversight, to conduct a thorough investigation into this matter," said Boustany. "As we learned today, the concerns of these conservative groups who felt they were being unfairly targeted have been justified." Boustany sent a letter to the Service insisting the IRS provide copies to the House Ways and Means Committee of all correspondence containing the words "tea party," "patriot" or "conservative," as well as the names and titles of any Service employees involved in delaying the approval of the applications in question. "Since the inception of this investigation, the Ways and Means Committee has persistently pushed the IRS to explain why it appeared to be unfairly targeting some political groups over others—a charge they repeatedly denied," Boustany wrote. "My greatest concern is what would have come from this blatant abuse of power if members of Congress, as well as others, had not spoken up and stepped in to question the IRS about these activities."

In August 2012, 10 Senators sent a letter to then-IRS Commissioner Douglas H. Shulman asking the Service to clarify its intentions for 501(c)(4) organizations. In March 2012, a dozen Republican senators called on the IRS to prevent politics from playing a role in any action taken on nonprofit 501(c)(4) organizations after several groups applying for the status received excessive follow-up inquiries from the Service. A similar group of senators questioned the Service’s preservation of privacy protections for these groups in June 2012.

In the early hours of January 1, 2013, the Senate passed, by an 89-8 vote, the American Taxpayer Relief Act of 2012 (P.L. 112-240), which, along with many other provisions, permanently extends the so-called Bush-era tax cuts for low- and middle-income individuals.

The House followed with passage by a 257-167 vote late in the day on January 1, 2013. Thus, the more than decade-long fight over the fate of the tax cuts, originally enacted under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) (P.L. 107-16), accelerated under the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) (P.L. 108-27) and extended by Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Relief Act) (P.L. 111-312) comes to an end. President Obama signed the bill into law on January 2, 2013.

When EGTRRA and JGTRRA were originally enacted, they were subject to a sunset provision that helped satisfy budget requirements and caused all of the changes to expire at the end of 2010, including a return to pre-2001 law for estate and gift taxes. After a long battle at the end of 2010, the 2010 Tax Relief Act extended the Bush-era tax cuts for two years and set the estate tax at a maximum 35-percent rate with an inflation-adjusted $5 million exemption. Now, in 2012, after an even longer battle featuring a lame duck Congress and newly re-elected President, the 2012 Taxpayer Relief Act was passed just in time to spare a majority of taxpayers a significant tax hike.

The legislation preserves the existing lower rates on capital gains and dividends for low- and middle-income individuals, but increases those rates on higher-income individuals. It also locks in a maximum 40-percent rate on estate and gift taxes (with the same inflation-adjusted $5 million exemption effective in 2011 and 2012). The Act includes permanent AMT relief, extends bonus depreciation one year to property generally placed in service before January 1, 2014, increases the Code Sec. 179 dollar and investment limitations for tax years beginning in 2012 and 2013, provides the Medicare “doc” fix for 2013 and extends unemployment insurance. Finally, dozens of other expired or expiring provisions, including some not subject to the EGTRRA and JGTRRA sunsets, are extended, including:

Marriage penalty relief

Deductions fo rstudent loan interest, and tuition and fees

Enhanced child tax, and child and dependent care credits

Simplified earned income credit

Deductions for primary and secondary school teacher expenses

Deductions for state and local sales taxes

Research credits

Energy-efficiency credits for homes and vehicles, and

Many more provisions

The expiration of the Bush-era tax cuts was just one portion of what had become known towards the end of 2012 as the “fiscal cliff.” Other non-tax provisions that carried a December 31, 2012 deadline included budget sequestration mandated by the Budget Control Act of 2011 and various subsidies related to agriculture. The American Taxpayer Relief Act of 2012 also addressed those issues.