Highway and Transportation Funding Act of 2015: Tax Changes

The Highway and Transportation Funding Act of 2015, also known as the Fixing America’s Surface Transportation (FAST) Act, was enacted to provide long-term funding for federal highway and transportation infrastructure programs. To offset the costs, the legislation introduced several permanent changes to the U.S. tax code affecting various taxpayers, including business entities, individuals, and estates.

Tax Return Due Date Modifications

The Act overhauled tax filing deadlines for several business entities to create a more logical sequence for tax return preparation. Previously, partners in a partnership often faced challenges because their personal income tax deadline arrived before they received the necessary Schedule K-1. The Schedule K-1 is the document that reports a partner’s share of the partnership’s income, deductions, and credits, which is required to complete their individual Form 1040.

To resolve this timing issue, the due date for partnership tax returns (Form 1065) was moved one month earlier, from April 15 to March 15 for calendar-year taxpayers. This aligns the partnership filing date with the deadline for S corporations, which was already March 15.

Conversely, the due date for C corporations (Form 1120) was shifted. For C corporations with a calendar year-end, the deadline was moved from March 15 to April 15. The legislation also adjusted the available extension periods to align with these new deadlines, generally allowing for a six-month extension from the new due dates.

New Partnership Audit Regime

The Act repealed the long-standing Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) rules for auditing partnerships, establishing a new, centralized audit system under the Bipartisan Budget Act of 2015 (BBA). This new regime changed how the Internal Revenue Service (IRS) assesses and collects taxes from a partnership audit, shifting the burden directly onto the partnership entity.

Under the prior TEFRA framework, if an IRS audit of a partnership resulted in a tax adjustment, the IRS was required to pass that adjustment through to each individual partner. The agency then had to separately assess and collect the resulting tax deficiency from every partner, a process that was often administratively burdensome and inefficient for large partnerships.

The BBA regime streamlines this process by allowing the IRS to assess and collect any underpaid tax, interest, and penalties directly from the partnership in the year the audit is completed. This means the current-year partners bear the economic burden of adjustments related to a prior year, a concept known as an “imputed underpayment.” The partnership is required to pay this amount at the highest individual or corporate tax rate.

This new system also introduced the role of the “Partnership Representative,” who replaces the former “Tax Matters Partner.” The Partnership Representative has the sole authority to act on behalf of the partnership and all its partners in an audit proceeding with the IRS. This representative does not need to be a partner, and their decisions are binding on all partners, who have limited rights to participate in or be notified of the audit.

Consistent Basis Reporting for Estates

The Act introduced a new rule to ensure that the basis an heir uses for inherited property is the same as the value reported by the executor on the decedent’s federal estate tax return (Form 706). Basis is the value of an asset used to determine gain or loss for tax purposes when the asset is later sold.

This change was implemented to prevent a tax-avoidance strategy where an heir might claim a basis for inherited property that was higher than the value the executor reported for estate tax purposes. A higher basis reduces the taxable capital gain when the heir eventually sells the property.

To enforce this consistency, executors of estates required to file a federal estate tax return must now file Form 8971, Information Regarding Beneficiaries Acquiring Property From a Decedent, with the IRS. This form details the final estate tax value of the property being distributed to each beneficiary.

Furthermore, the executor must provide a copy of the relevant schedule from Form 8971 to each beneficiary who inherits property. Failure to file Form 8971 with the IRS or to provide the required statements to beneficiaries can result in penalties for the estate.

Tax Enforcement Provisions

The legislation also included measures to strengthen tax enforcement. One provision grants the State Department the authority to deny a new passport application or revoke an existing passport for any individual with a “seriously delinquent tax debt.”

A seriously delinquent tax debt is defined as an unpaid, legally enforceable federal tax liability exceeding an inflation-adjusted threshold, which is $64,000 for 2025. Before the IRS certifies a taxpayer to the State Department, the taxpayer is notified in writing and has the opportunity to resolve the debt, such as by entering into an installment agreement.

Another enforcement provision required the IRS to use private debt collection agencies to collect certain inactive tax receivables. These are federal tax debts that the IRS is no longer actively pursuing due to a lack of resources or other factors. Certain taxpayers are excluded, such as those in a combat zone or victims of identity theft.

Taxpayers whose accounts are transferred to a private collection agency receive written notification from both the IRS and the private firm. However, any payments must be made directly to the U.S. Treasury, not to the collection agency itself, to protect taxpayers from potential scams.