Superseded returns — essentially a replacement for an originally filed tax return — can be a useful tool, especially as it relates to partnership returns which operate in the centralized partnership audit regime (CPAR). Learn more about when these “do-over returns” should be considered and what implications they may have for statutes of limitations. 

AICPA resources

Superseding returns and statutes of limitations, July 1, 2021, The Tax Adviser

BBA Partnership Audit and Adjustment Rules FAQ — Gain answers to frequently asked questions about the centralized partnership audit regime under the Bipartisan Budget Act of 2015 (BBA).

Other resources

Amended and Superseding Corporate Returns — Information from the IRS on filing a superseded return electronically  

April Walker: Hello everyone and welcome to the AICPA's Tax Section, Odyssey podcast, where we offer thought leadership on all things tax facing the profession. I'm April Walker, a lead manager from the tax section, and I'm here today with Colin Walsh. Colin is a partner and firm leader at Baker Tilly in tax advocacy and controversy services.

Colin, today we're going to talk about a topic that is very timely as we're recording here on March the 4th and March 15th is coming up very, very soon. We wanted to get this in prior to March 15th, so thank you, Colin, for agreeing to be with us today and let's just get started and talk about what is a superseded return.

It might be a new term for some of you listening, but hopefully it won't be by the end of our conversation today and [let’s] just talk a little about basics and how it differs from an amended return.

Colin Walsh: Sure, thanks for having me, April. Superseded returns are incredibly important this time of year. A superseded return, by definition, constitutes a timely filed original, keyword, original tax return. You essentially are replacing the originally filed tax return with a second originally filed a tax return and as an originally filed a tax return, the superseded return carries certain rights and privileges that an amended income tax return does not carry.

Walker: Perfect. Let's talk about some of those. What are some of those characteristics of the superseded return and how do I actually do a superseded return?

Walsh: Historically, when we think about superseded tax returns, some of the more important items that taxpayers look at are things like statutory or regulatory elections that are required to be on an originally filed tax return. Certain types of elections cannot be on amended income tax returns. For purpose of making an election, it's important that those elections be on a timely return and the superseded return allows you to do that.

Likewise, we've seen a lot of clients that as some of us in practice may see those harsh penalties for late foreign information filings like 5471s and 5472s. Once again, because a superseded tax return constitutes an originally filed tax return, you can file a superseded income tax return, attach a foreign information reporting, and be absolved of those harsh penalties.

More recently, in the partnership context, we've seen some new life, if you will, that's been breathed into the superseded tax return, and this really deals with the centralized partnership audit regime or the BBA for Bipartisan Budget Act. It's critical in terms of how partnership tax returns need to be amended under CPAR BBA, that we preserve the ability for our clients to file superseded tax returns instead of having to file administrative adjustment requests under CPAR.

Walker: We were talking a little bit before we started this conversation about sort of a policy that you guys have around partnership returns and I'm sure some of our listeners, you're familiar with BBA and AARs, but it's still a new concept. We're still learning about the complexities around that so talk a little bit about how you've decided to do superseded returns for your partnerships.

Walsh: Baker Tilly has developed a firm policy that without written consent to the contrary from our partnership clients that all of our Forms 1065 must be extended even if the clients are going to timely file their Forms 1065 prior to March 15th and we do that strictly for purposes of preserving the ability to file a superseded return. Really the policy at issue there, I think, is two-fold.

First and foremost, the BBA CPAR rules are esoteric and evolving, and so just the administrative costs and the time that it makes to file an AAR under CPAR as opposed to, for lack of better term, amending the old-fashioned way via a superseded return, the superseded return is going to take a lot less time.

I know this isn't a BBA call, but the second reason is that under the centralized partnership audit regime, to the extent that a partnership files an administrative adjustment request, the partners in that partnership no longer receive amended Schedules K-1, so the partners can never go back and file amended reviewed year tax returns. Instead, partners in CPAR partnerships have to account for any adjustments that are made to a Form 1065 in what we call the adjustment year, meaning the year in which the administrative adjustment requests [are] filed.

By way of example, if we were filing an administrative adjustment request on a 2023 Form 1065 today, the partners would account for those changes on their 2024 income tax returns, they don't get to go back and file amended 2023 tax returns anymore, so that comes with a host of logistical problems that are unique to CPAR. It's because of those considerations and many others, our clients are essentially mandated to extend to preserve the right to supersede.

Walker: Got it. Are there any other circumstances you can think of for other types of returns that it might make sense to file a superseded return — and just as a second part to that question, I know for partnerships we’ve talked about why it makes sense to do that, but any other types of returns and situations where it might be in the client's best interests, also in your best interests, in having to deal with all the complexity.

Walsh: Any situation where you're filing an income tax return, whether that be at 1065, an 1120-S, an 1120, or even a 1040 to the extent that income tax return has statutory or regulatory elections on it, many of those statutory or regulatory elections cannot be on amended income tax returns. They need to be on timely filed original tax returns.

One that we saw a lot that came up last filing season was clients who are Qualified Opportunity Funds (QOFs). The way that you elect to be a Qualified Opportunity Fund is on a timely filed original tax return. To the extent that a client's income tax return missed that election, had they superseded and discovered it over the summer months, that client would have preserved the right to make the Qualified Opportunity Fund election and avoided a very costly and time-consuming private letter ruling with the Office of Chief Counsel.

Walker: That's what your clients are looking to you for, is that advice and help. You're making taxes not be such a horrible experience, or that sort of thing.

I was thinking again, here we are in early March, there's discussion of this pending legislation that has passed the House and is in the Senate. Not sure where that's going to go. Lot of angst. I've been hearing about the retroactivity of it. Again, we're not sure where that's going to go, but to me, that was another reason I started really thinking about and talking about this topic and want to make sure, what are your thoughts about that?

Walsh: As it relates to potential tax legislation, like yourself, I have gotten out of the game over the last five years of predicting what Congress will do, but I would say that our clients should not be afraid to extend and just wait to file. I think a lot of us have this temptation or clients want to get their tax returns filed as soon as possible and certainly, I understand the need to get some closure on the 2023 tax filing season and be over and done with.

Filing a superseded return can be helpful, but it does cost time and money and filing superseded returns, while in a legal sense are protected and honored by the IRS and no one doubts them. They can create some confusion at the service centers.

To the extent you are filing an income tax return that you felt could be changed via retroactive legislation that's going to come in the next few months here, I would be inclined to wait first, then supersede, then amend, but waiting is probably the most prudent thing right now in terms of time and professional fees and sending two originally filed income tax returns to the service center.

There's the law of it and again, superseded returns are acknowledged by taxpayers and the courts and the government, but as we know, filing two tax returns with the IRS can present its own problems administratively.

Walker: For sure. I've been with the AICPA for eight years and I felt like in that time, I've been part of that discussion of extension is not a bad thing. Sometimes it's hard to help both parties. Sometimes CPA tax practitioners want to get it done and just be done with it instead of extending the workload.

Sometimes it feels like the client doesn't understand an extension so that's part of your obligation is to explain to them and help them understand that it does not extend the time to pay the tax, but you can help them with that. There's a lot rolled up in that for sure, but I completely agree with you. It doesn't make sense to hurry, in my opinion, hurry up and file at this point.

Walsh: You used a key phrase there, which is, I want to be done with it. I think that's what the client actually wants and I think what we're saying is that hurrying to file an income tax return today that could be subject to legislative change, you aren't done with it.

Actually, now you have to go back and amend it or supersede it, which brings its own problems so there's the aspect of checking a box today and feeling like we've done all that we can but in the large scheme of things, rushing to file just for sake of checking that box could create issues you're dealing with well into 2025 and after.

Walker: You mentioned this a little bit, but filing a second return might cause confusion with the IRS, even though they're absolutely allowed to do it. I was thinking about and I was reading, I think, the Taxpayer Advocate had a blog about this, about some of the confusion and about statute of limitations and how that actually works with superseded returns, because I think that might be a confusing issue.

Walsh: Two questions baked into there. In terms of the IRS processing superseded tax returns, and then we'll talk about the statute of limitations.

But on the processing side, the IRS is so understandably sensitive to things like identity theft right now, and to the extent that there are two income tax returns with the same EIN filed in relatively close proximity to one another. We've seen superseded returns set off the alarm bells at the IRS in terms of identity theft. Understandably, and we're always able to work through those things but once an income tax return is with the identity theft unit at the IRS, it's going to take quite a bit of time to process that.

The other issue that we've seen with a superseded partnership return was that we did receive some matching notices because the IRS's system was essentially — they had processed both K-1s. The IRS was saying, “Hey, you didn't pick up this Schedule K-1 and we were saying, “We did pick it up. Tt was superseded and replaced with another one.”

In both instances, we were able to work through those things with the IRS, but of course, it takes a little bit of time and effort. Superseded returns are a do over, if you will, and it's helpful in that respect, but you can run into some administrative hiccups where I wouldn't rely upon it if you don't have to.

In terms of the statutes of limitations, there is some conflicting advice, some chief counsel advice out there in terms of what effect a superseded tax return has on the IRS's assessment statute under Section 6501 and the taxpayers refund claim statute under Section 6511. There were some chief counsel advice that I think caught the practitioner community a little bit off guard that said— the taxpayers refund claim statute and the IRS's assessment statue followed the originally filed tax return, not the superseded tax return.

Of course, chief counsel advice is not the law, it's not binding on taxpayers, it's the IRS's interpretation of the law, but it seems like there's at a minimum — there's some gray here or some confusion about whether or not when you file a superseded tax return that actually extends refund claim statute.

Say you file a superseded 2023 tax return this fall, I would not assume that you have until the fall of 2027, the superseded tax return date, to claim a refund. I would conservatively assume that the government is going to take the position that it was the originally filed return that starts to running of the statute.

Walker: That's good to think about and know. Sometimes things might come up and it might really matter. But like you said, it's some conflicting advice and it's good to think about these things. Do you have any examples we've talked a little bit about all of these things, but where filing a superseded returns significantly impacted the taxpayer situation?

Walsh: The centralized partnership audit regime, so going back to CPAR. Under the centralized partnership audit regime, to the extent that — let's try not to get too technical here — but that we're filing an administrative adjustment request and it's called a negative adjustment, a taxpayer favorable adjustment. We want to file an administrative adjustment request to claim a credit to reduce income, to increase expenses, something that goes in the taxpayer's favor. Under CPAR, those items are reported in the adjustment year, but CPAR creates in the adjustment year non-refundable credits that do not carry forward.

We call this the CPAR doomsday scenario. We've had clients that were on extension and we're able to file a superseded Forms 1065 and instead of filing an AAR under CPAR, they received second K-1s and were able to claim the benefit of the second K-1 when they timely filed their partner level income tax return prior to October 15th.

Without the superseded return, best case, they wouldn't get the benefit of that until they filed their 2024 return next year and enter the worst case scenario under this CPAR doomsday scenario, the benefit of the AAR could go away.

Walker: That's a big deal. Definitely, again, as I came into this, I knew that it was about AAR, but I didn't know how much. Definitely a Part 2 I feel is coming where we delve into all the things about AAR and the things people need to know because I'm still learning about it for sure.

Walsh: Well, if everyone follows our advice and they extend their 2023 returns, we could do that podcast after 9/15 because they could supersede up until then. If they're like most CPAs and tax attorneys, they want to know what they need to know today and that is you need to extend even if you're going to timely file.

Walker: Absolutely. Colin, this has been great and super informative. Do you have any final thoughts as we're thinking about superseded returns — the March 15th date coming up?

Walsh: Yeah. I think we've gone a long way as a professional community and dispelling the notion that filing an extension triggers IRS inquiry or your audit rate goes up or the IRS doesn't like extensions. That's simply not true and I think we should continue to dispel that notion. Let's squash that one right away. Some of the examples that we've come up with here may seem esoteric and rarely applicable, and that's true.

I think maybe nine times out of 10, you could accomplish the same things in an amended return that you could accomplish in a superseded return.

But for that 1 out of 10, where it really matters, where you need a regulatory or a statutory election or you've got the CPAR mess, it can be very helpful. I encourage everyone to extend. It is rare in tax that we get a chance for a redo and you will get a chance for a redo. That's my message heading into next week here.

Walker: Wonderful. That's great advice. Colin, you're a first-time guest. Welcome. We're so delighted to have you.

On these podcasts, I like to think about us taking a journey. It's the Tax Section Odyssey we're taking a journey together towards a better profession. And in doing so, I'd like to get a glimpse of my guests other journeys outside of tax. I don't know if you like to travel or you have any trips planned or anything like that or a bucket list trip. What's on your mind on that today?

Walsh: I have three children under the age of six, so there will not be a lot of international travel on my horizon here.

This summer, I live in beautiful Madison, Wisconsin, and my family's actually doing some construction in our home and we're going to spend a month traveling around Wisconsin. We're going to start in Door County, Wisconsin, which is one of our favorite places.

We're going to head over to Lake Superior and spend a week up there and then end in Northern Minnesota. I'm going to be taking three children under the age of six on the road. Say prayers for me, but we're excited to do it in a few short months here.

Walker: For sure. It's a part of the country that I haven't been to very much. I'm a UNC Tar Heel and we're playing Minnesota this fall and I'm like, we need to go up there because I've never been to [that area].

Walsh: We call it the upper Midwest. It's quite beautiful. A lot of lakes and mountains and it's great. Definitely get out to Minnesota and check it out. I encourage you.

Walker: Thank you again so much, Colin. Again, this is April Walker from the AICPA tax section. This community is your go-to source for technical guidance and resources designed especially for CPA tax practitioners like you in mind.

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