Income Tax Updates

Auto Dealers Must Register with IRS to Receive Advance Clean Vehicle Credit

To submit time-of-sale reports and receive advance payments of the Clean Vehicle Tax Credit, auto dealers and sellers must register their business with IRS Energy Credits Online. Dealers and sellers must use this tool to submit all time-of-sale reports for vehicles placed in service in 2024 and future years.

How to register

To register or access a previously registered business, dealers and sellers can go to IRS Energy Credits Online. The step-by-step instructions found in IRS Pub 5867, guide them through the process to register, submit time-of-sale reports and enter advance payment information. It may take 15 days or longer for the registration to process.

Once registered, dealers and sellers must use this tool to enter time-of-sale reports and provide the buyer certain required information that’s outlined in IRS Pub 5900.

What happens after registration

When a dealer successfully submits a time-of-sale report, the vehicle is eligible for the credit. A submission is successful when the dealer receives a copy of the report and a confirmation of acceptance by IRS Energy Credits Online. Buyers should use the copy of the report when they file their annual federal tax return.

Find out more about the Clean Vehicle Credits at IRS.gov/cleanvehicle.

Alabama Court Rules BOI Unconstitutional for Some Businesses

A federal district court in Alabama recently ruled that requiring certain businesses to report beneficial ownership, as enacted under the Corporate Transparency Act (CTA), is unconstitutional. The judge granted summary judgment to the plaintiffs in the case of National Small Business United d/b/a the National Small Business Association, et al v. Janet Yellen, Case No. 5:22-cv-1448-LCB. 

Essentially, the court ruled that Congress exceeded its authority when it mandated that certain businesses reveal who their owners are. But that doesn't mean all businesses are off the hook. On March 4, 2024, FinCEN issued a notice announcing that it will not enforce the BOI reporting requirements against the plaintiffs – the National Small Business Association (NSBA) and its 65,000 members and an Alabama businessman. This means that if your business is not a member of the NSBA, you are still required to file a report with FinCEN.

As a reminder, entities established before January 1, 2024, are not required to file a report until January 1, 2025. For entities established on or after January 1, 2024, they only have 90 days from creation under state law to file an initial BOI report.

What You Should do if You Receive a 1099-K

If you sold goods or services in 2023 and received payments through certain payment apps or online marketplaces or accepted payment cards, you could have received a Form 1099-K, Payment Card and Third Party Network Transactions. You may receive this form even if your transactions are below the $20,000 in payments and over 200 transactions thresholds. 

Regardless of whether you received a Form 1099-K or not, you must report all your income. This includes payments you receive in cash, property, goods, digital assets or foreign sources or assets. It’s important to note, just because a payment is reported on a Form 1099-K does not mean it’s taxable.

What to do with a Form 1099-K received in error

• People may get a Form 1099-K when they shouldn’t have if it:

• Reports personal payments from family or friends like gifts or reimbursements.

• Doesn’t belong to them.

• Duplicates a Form 1099-K or other information reporting form they already received.

If this happens:

• Contact the issuer immediately – see “Filer” on the top left corner of Form 1099-K to find out the name and contact information of the issuer.

• Ask for a corrected Form 1099-K that shows a zero amount.

• Keep a copy of the original form and all correspondence with the issuer for your records.

• Don’t wait to file taxes. File even if a corrected Form 1099-K is unavailable.

What to do with an incorrect Form 1099-K

If the payee Taxpayer Identification Number (TIN) or gross payment amount is incorrect taxpayers should request a corrected form from the issuer.

• See “Filer” on the top left corner of Form 1099-K to find the name and contact information of the issuer. If a taxpayer doesn’t recognize the issuer, they should contact the Payment Settlement Entity (PSE) identified on the bottom left corner of the form above their account number.

• Keep a copy of the corrected Form 1099-K with other tax records, along with any correspondence from the issuer or PSE.

• Don’t contact the IRS. The IRS can't correct Form 1099-K from an issuer.

Don't wait to file taxes. To file a tax return, take these steps:

• If the Payee Taxpayer Identification Number (TIN) is incorrect report payments from the Form 1099-K and any sources of income on the appropriate tax return.

• If the gross payment amount is incorrect report the amount from your incorrect Form 1099-K on Schedule 1 (Form 1040), Additional Income and Adjustments to Income.

Small Tax and Accounting Businesses Subject to BOI

The Beneficial Ownership Information (BOI) rules require most businesses owners to file a report with FinCEN indicating specific information relative to their business. The Reporting Rule, issued on September 30, 2022, implements Section 6403 of the Corporate Transparency Act. The rule describes who must file BOI reports, what information they must provide, and when they must file the reports. As a reminder, existing entities which were created or registered before January 1, 2024, are required to report by January 1, 2025. Companies created or registered on or after January 1, 2024, but before January 1, 2025, have 90 days to file. Those entities created or registered after January 1, 2025, have a 30-day reporting requirement.

Domestic and foreign entities that have filed formation or registration documents in a state are required to report unless they qualify for one of 23 exemptions. Although one exemption applies to accounting firms, not all firms are exempt. An exemption is only available to public accounting firms that are registered in accordance with Section 102 of the Sarbanes-Oxley Act of 2002.

Because most tax preparation firms providing accounting services in addition to tax preparation are not subject to Sarbanes-Oxley, they must comply with the reporting requirements under the Corporate Transparency Act. 

FinCEN opened an E-Filing website for reporting beneficial ownership information on January 1, 2024. More information is found here.

Seven Warning Signs ERC Claims May be Incorrect

With a key March 22, 2024 deadline quickly approaching, the IRS highlighted special warning signs to help small businesses that may need to resolve incorrect or questionable Employee Retention Credit (ERC) claims.

The agency alerted businesses about seven suspicious warning signs that could signal future IRS problems involving ERC claims. The indicators, built on feedback from the tax professional community and IRS compliance personnel, center on misinformation some unscrupulous ERC promoters used. Many of these groups urged taxpayers to ignore advice from trusted tax professionals and claim the pandemic-era credit even though they may not qualify.

The alert comes as the March deadline approaches for the ERC Voluntary Disclosure Program for anyone that filed a claim in error and received a payment; the disclosure program allows businesses to repay just 80% of the claim. Taxpayers who filed a claim previously that hasn’t been processed should also review the guidelines and quickly pursue the claim withdrawal process if they now see their claim is ineligible.

Seven suspicious signs 

Here are some of the common red flags being seen on ERC claims that the IRS is focusing on:

1. Too many quarters being claimed. Some promoters have urged employers to claim the ERC for all quarters that the credit was available. Qualifying for all quarters is uncommon, and this could be a sign of an incorrect claim. Employers should carefully review their eligibility for each quarter.

2. Government orders that don’t qualify. Some promoters have told employers they can claim the ERC if any government order was in place in their area, even if their operations weren’t affected or if they chose to suspend their business operations voluntarily. This is false. To claim the ERC under government order rules:

   1. • Government orders must have been in effect and the employer’s operations must have been fully or partially suspended by the government order during the period for which they’re claiming the credit.

      • The government order must be due to the COVID-19 pandemic.

      • The order must be a government order, not guidance, a recommendation or a statement.

The frequently asked questions about ERC – Qualifying Government Orders section of IRS.gov has helpful examples. Employers should make sure they have documentation of the government order related to COVID-19 and how and when it suspended their operations. Employers should avoid a promoter that supplies a generic narrative about a government order.

3. Too many employees and wrong calculations. Employers should be cautious about claiming the ERC for all wages paid to every employee on their payroll. The law changed throughout 2020 and 2021. There are dollar limits and varying credit amounts, and employers need to meet certain rules for wages to be considered qualified wages, depending on the tax period. For details about credit amounts, see the Employee Retention Credit - 2020 vs 2021 Comparison Chart.

4. Business citing supply chain issues. Qualifying for ERC based on a supply chain disruption is very uncommon. A supply chain disruption by itself doesn’t qualify an employer for ERC. An employer needs to ensure that their supplier’s government order meets the requirements. Employers should carefully review the rules on supply chain issues and examples in the 2023 legal memo on supply chain disruptions.

5. Business claiming ERC for too much of a tax period. It's possible, but uncommon, for an employer to qualify for ERC for the entire calendar quarter if their business operations were fully or partially suspended due to a government order during a portion of a calendar quarter. A business in this situation can claim ERC only for wages paid during the suspension period, not the whole quarter. Businesses should check their claim for overstated qualifying wages and should keep payroll records that support their claim.

6. Business didn’t pay wages or didn’t exist during eligibility period. Employers can only claim ERC for tax periods when they paid wages to employees. 

7. Promoter says there’s nothing to lose. Businesses should be on high alert with any ERC promoter who urged them to claim ERC because they “have nothing to lose.” Businesses that incorrectly claim the ERC risk repayment requirements, penalties, interest, audit and potential expenses of hiring someone to help resolve the incorrect claim, amend previous returns or represent them in an audit.

Resolving incorrect ERC claims

Businesses that are not eligible for ERC but have received it – as a check that’s been cashed or deposited, or in the form of a credit applied to a tax period – may be able to participate in the IRS’s ERC Voluntary Disclosure Program. The special program runs through March 22, 2024, and allows eligible participants to repay their incorrect ERC, minus 20%.

If a taxpayer’s ERC is incorrect and is paid after Dec. 21, 2023, they aren’t eligible for the ERC VDP. They should not cash or deposit their check. They can withdraw the claim, return the check and avoid penalties and interest.

The withdrawal option lets certain employers withdraw their ERC submission and avoid future repayment, interest and penalties. Businesses can use this option if they haven’t received the payment, or they've received a check but haven’t deposited or cashed it. If a taxpayer’s withdrawal request is accepted, the IRS will treat the claim as though it was never filed.

Beware of EFIN Scam

The IRS Security Summit partners are warning tax professionals of a scam email impersonating various software companies in an attempt to steal Electronic Filing Identification Numbers (EFINs).

Scammers are posing as tax software providers and requesting EFIN documents from tax professionals under the guise of a required verification to transmit tax returns. These thieves attempt to steal client data and tax preparers’ identities, creating the potential for them to file fraudulent tax returns for refunds.

The IRS has already received dozens of reports of the scam targeting tax professionals. Be alert for a scam email that includes a U.S.-based area code for faxing EFIN documents providing instructions on how to obtain EFIN documentation from the IRS e-Services site if unavailable. Scam variations being seen use different fax numbers for software vendors. Other warning signs of a scam include inconsistencies in the email wording and a German footer in the email.

The IRS cautions tax professionals who receive these should not respond to the email and should not proceed with any of the steps displayed in the email. The body of the fraudulent email states:

Dear [recipient_email_address],

Help us protect you.

Because many Electronic Filing Identification Numbers (EFINs) are stolen each year and used to file fraudulent tax returns, the IRS has asked software vendors, such as Software A, to verify who the EFIN owner is by getting a copy of the IRS issued EFIN document(s). Our records show that we do not have a document for one or more of the EFINs that you transmit with.

What this means for you: Until your EFIN is verified, you will be unable to transmit returns. Please provide a copy of your EFIN Account Summary from IRS e-Services, with a status of ‘Completed’, to Software B for verification.

To send us your EFIN Summary document:

Fax to Software B at 631-995-5984

PLEASE NOTE THAT YOUR PREPARER TAX IDENTIFICATION NUMBER (PTIN) APPLICATION CANNOT BE USED AS DOCUMENTATION FOR YOUR EFIN.

If you do not have the above documentation you can get a copy of your IRS Application Summary from IRS e-Services by following the below steps or call the IRS e-Services helpline at 866-255-0654.

1. Sign in to your IRS e-Services account

2. Choose your organization from the list provided and click Submit

3. Click the Application link to access your existing application

4. Click the e-File Application link

5. Select the existing application link that applies to your organization

6. Click the Application Summary link for the area of the application you wish to enter

7. Click the Print Summary link at the bottom of the summary presented on the screen

If you have any questions please contact the Compliance Department at xxx-xx-xxxx for assistance.

Thank you for your business. We look forward to serving you this coming season. Software B (edited)

Tax pros who receive the scam email should notify the Treasury Inspector General for Tax Administration (TIGTA) to report the IRS impersonation scam. They should also save the email and send it as an attachment to phishing@irs.gov.

E-Filing Exemptions Due to Religious Beliefs

The IRS has issued Notice 2024-18 addressing the availability of administrative exemptions from the requirement to file certain returns and other documents in electronic form and the procedure to request a waiver of the requirement to file electronically. 

Under the updated electronic filing regulations (T.D. 9972), most filers claiming the religious exemption have the option to submit Form 8508, Application for Waiver from Electronic Filing of Information Returns. However, filers of Form 1120, Form 1120-F, Form 1120-S, and Form 1065 claiming the religious exemption do not file Form 8508 and should instead file the tax return in paper form, printing in bold letters “Religious Exemption” at the top of page 1. Filers who qualify for the religious exemption for the above listed forms are not subject to the electronic filing waiver procedure that is available to other filers. The updated electronic filing regulations are generally applicable beginning January 1, 2024.

IRS Launches Simple Notice Initiative

The IRS sends around 170 million notices to individual taxpayers every year to help them claim the credits and deductions they are eligible for and meet their tax obligations. These notices are often long—with extraneous inserts—and difficult for taxpayers to understand. They are filled with complex legal jargon. And they do not clearly and concisely communicate the next steps a taxpayer must take.

As part of ongoing modernization efforts made possible by the Inflation Reduction Act, the IRS is launching the Simple Notice Initiative to review, redesign, and deploy hundreds of notices, with an immediate focus on the most common notices that individual taxpayers receive. The rollout of the redesigned notices will span the next few years. 

This initiative builds on the Paperless Processing initiative announced in August 2023 to advance the goal of providing world-class customer service to taxpayers. With these initiatives, taxpayers have the option to go paperless and conveniently submit necessary responses online, and taxpayers will receive clearer and more concise notices from the IRS, so they better understand the actions they need to take. 

During the last year, the IRS reviewed, redesigned, and deployed 31 notices in time for this year’s tax season. The IRS sent around 20 million of these notices in the 2022 calendar year.

These include notices to taxpayers who served in combat zones that may be eligible for tax deferment, notices that remind a taxpayer that they may have unfiled returns, and notices that remind a taxpayer about their balance due and where they can go for assistance. 

By filing season 2025, the IRS will review, redesign, and deploy the most common notices that individual taxpayers receive. The IRS will focus on up to 200 notices that make up about 90% of total notice volume sent to individual taxpayers. This represents about 150 million notices sent to individual taxpayers in 2022.

These include notices to propose adjustments to a taxpayer’s income, payments, credits, and/or deductions, notices to correct mistakes on a taxpayer’s tax return, and notices to remind a taxpayer of taxes owed.

The IRS is actively engaging with taxpayers and the tax professional community to gather feedback on how these notices should be redesigned. 

During the 2026 filing season and beyond, the IRS will review, redesign and deploy notices sent to businesses taxpayers as well as less common notices sent to individual taxpayers. Additional detail on the plan to redesign these notices will be shared in future updates.

The IRS is committed to delivering a better taxpayer experience through notices, over the phone, online and in-person. While taxpayers will always have the option to call, the IRS also wants to make it easier for taxpayers to resolve issues without having to pick up the phone. Plain language notices can help the IRS achieve this goal. 

For example, the IRS recently conducted a pilot that sent redesigned versions of Notice 5071C to a subset of taxpayers. Notice 5071C asks taxpayers to verify their identity and tax return online or over the phone to prevent the processing of fraudulent tax returns. As part of the redesign, the IRS shortened the 5071C notice from seven pages to two pages. The IRS improved readability of the notice by updating the font and adding visual enhancements such as headers, icons, and step-by-step instructions. The IRS also clarified instructions and added a QR code that directs taxpayers to the IRS webpage where they can respond to the notice online instead of responding over the phone. 

The IRS sent the redesigned Notice 5071C to 60,000 taxpayers. Compared to taxpayers who received the original notice, there was a 16% reduction in taxpayers who called the IRS as their first action, and a 6% increase in taxpayers who used the online option. The IRS will apply lessons learned from this pilot, among others, to the Simple Notice Initiative. These changes to this notice will be put in place during the coming months.

Reminder: The IRS Never Goes Phishing

Phishing is the practice of sending fraudulent communications disguised to appear to be from a reputable source. These attacks, usually through email but increasingly through text messages, are an attempt to try to steal your personal and financial information.

The IRS does not request personal or financial information from taxpayers by email. This includes any type of electronic communication, such as text messages and social media channels.

If you receive a suspicious IRS-related communication:

• Don’t reply to the sender.

• Don’t click, save, or open any attachments. They can contain malicious code that may infect your computer or mobile phone.

• Don’t click on any links. Visit our identity protection page if you clicked on links in a suspicious email or website and entered confidential information.

• Immediately forward the entire message, with the full email headers, to phishing@irs.gov. Don’t forward scanned images because this removes valuable information.

• Delete the original email.

For additional information and resources, please visit Report Phishing and Online Scams.

Guidance Issued for Employers Setting up Savings Accounts for Employees

The IRS issued Notice 2024-22 providing initial guidance to help employers with implementation of pension-linked emergency savings accounts (PLESAs) for their employees.

Authorized under the SECURE 2.0 Act of 2022, PLESAs are individual accounts in defined contribution plans, such as 401(k) accounts, and are designed to permit and encourage employees to save for financial emergencies.

Employers can offer PLESAs in plan years beginning after Dec. 31, 2023. This means that, in some cases, eligible employees could have begun contributing to a PLESA as early as Jan. 1, 2024. Subject to certain restrictions, matching contributions are made with respect to PLESA contributions at the same rate as contributions to the linked defined contribution plan.

Employees who are eligible to participate in an employer’s defined contribution plan and qualify to contribute to a PLESA, if their employer offers one, may contribute to the PLESA even if they don’t participate in the employer’s defined contribution plan. In general, the maximum balance in a participant’s PLESA (attributable to contributions) is $2,500, though employers can choose to set a lower limit.

PLESAs are treated as designated Roth accounts. This means that contributions are not tax deductible, but withdrawals are generally tax free. Participants can withdraw funds held in the PLESA at least once a month, as necessary.

The IRS and Treasury Department are seeking comments on the implementation of these rules until April 5, 2024. Details on how and where to submit comments are found in Notice 2024-22.

What Happens if You Can’t Pay Your Taxes?

The IRS offers several options to help taxpayers, who can’t pay their tax bill, meet their obligations. Taxpayers struggling to pay their taxes may consider these options:

• Payment plans – Taxpayers who owe but cannot pay in full when they file don’t have to wait for a tax bill to set up a payment plan. Most taxpayers who owe can set up a payment plan through the Online Payment Agreement tool as well as by using the IRS text/voice bots. There’s no paperwork and no need to call, write or visit the IRS. Setup fees may apply for some types of plans.

•  Offer in Compromise – An Offer in Compromise allows qualifying taxpayers to settle their tax liabilities for less than the total amount they owe. To help determine eligibility, taxpayers can use the Offer in Compromise Pre-Qualifier tool. To help them prepare their own valid Offers in Compromise, the IRS created an OIC video playlist – also available in Spanish and Simplified Chinese – that walks them through the necessary paperwork.

•  Temporarily delaying collection – Taxpayers can contact the IRS to request a temporary delay of the collection process. If the IRS determines a taxpayer is unable to pay, it may delay collection until the taxpayer's financial condition improves. Penalties and interest continue to accrue until the taxpayer pays the full amount.

What happens if taxpayers don’t make arrangements to pay their taxes?

The IRS may file a federal tax lien. A federal tax lien is the government's legal claim against a taxpayer's property when they neglect or fail to pay a tax debt. The lien protects the government's interest in all taxpayer's property, including real estate, personal property and financial assets.

A federal tax lien occurs after the IRS:

• Assesses their tax liability;

• Sends them a bill that explains how much they owe (Notice and Demand for Payment); and

• The taxpayer neglects or refuses to fully pay the debt in time.

When conditions are in the best interest of both the government and the taxpayer, other options exist for reducing the impact of a lien.

• Notice of Federal Tax Lien. The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to a taxpayer's property.

• Levy. A levy is a legal seizure of property, or rights to property, to satisfy a tax debt. When property is levied, it will be sold to help pay the taxpayers tax debt. If wages or bank accounts are seized, the money will be applied to the taxpayer's tax debt.

• Notice of Intent to Levy and Notice of Right to a Hearing. This notice is typically one of the actions the IRS must take before a levy can be issued.  Generally, before property is seized, the IRS will send a taxpayer this type of notice. If they don't pay their overdue taxes, make other arrangements to satisfy the tax debt or request a hearing within 30 days of the date of this notice, the IRS may seize the taxpayer's property.

• Summons. A summons legally compels a taxpayer or a third party, to meet with the IRS and provide information, documents or testimony for an IRS investigation.

• Passport actions. The Department of State will not issue or renew a passport to anyone who has been certified by the IRS as having a seriously delinquent tax debt. Seriously delinquent tax debts are legally enforceable, unpaid federal tax debt (including assessed penalties and interest) totaling more than $59,000 (adjusted yearly for inflation). They may also revoke a passport previously issued to these taxpayers. For information on passports, refer to Revocation or Denial of Passport in Cases of Certain Unpaid Taxes.

IRS Provides Penalty Relief for 2020 And 2021 Tax Returns

Taxpayers who had a balance due for tax years 2020 and/or 2021 and did not receive balance due reminder notices due to the pandemic-related pause, may be eligible for automatic penalty relief.

The IRS will automatically waive failure to pay penalties on assessed taxes less than $100,000 for tax years 2020 or 2021.

Individual, business, estate, trust or tax-exempt taxpayers are eligible for automatic failure to pay penalty relief if they:

• Filed a Form 1040, 1041, 1120 series or Form 990-T tax return for years 2020 and/or 2021,

• Were assessed taxes of less than $100,000, and

• Received an initial balance due notice, typically the CP14 or CP161, between Feb. 5, 2022, and Dec. 7, 2023.

Taxpayers do not have to take any additional actions to receive this relief:

• If they made payments on their account or their balance is paid in full, they are eligible for automatic failure to pay penalty relief on assessed taxes less than $100,000 per year. 

• A credit will automatically be applied to any other tax year with a balance due, otherwise they will receive a refund. 

• If their address has changed, they'll need to update their account to make sure they receive any IRS refunds or notices. 

Taxpayers with assessed taxes of $100,000 or more are not eligible for automatic relief and can apply for penalty relief under the reasonable cause criteria or the First-Time Abate program. Go to IRS.gov/penaltyrelief for details.

Taxpayers can find details about their penalty relief by viewing their transcript. Taxpayers with questions on penalty relief can contact the IRS after March 31, 2024.

New Webpage has FAQs on ERC Voluntary Disclosure Program

The IRS launched a new webpage and released a set of FAQs regarding the recently announced Employee Retention Credit (ERC) Voluntary Disclosure Program.

The new program was announced on December 21, 2023, aimed at assisting businesses that claimed the ERC erroneously. The program is part of the IRS’ continuing efforts to combat doubtful ERC claims. This special disclosure program allows taxpayers to repay 80% of the claim received. The program runs through March 22, 2024. 

The new webpage provides information on the advantages of participating in the program, who can apply, how to apply, and next steps. 

The FAQs provide detailed information on eligibility, the program process, calculating and paying the amount due, installment agreements, amending employment tax returns to account for the ERC repayment, and information for preparers and third-party payers.

2024 Standard Mileage Rates Increase

On Dec. 14, the IRS issued the 2024 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2024, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 67 cents per mile driven for business use, up 1.5 cents from 2023.

• 21 cents per mile driven for medical or moving purposes for qualified active-duty members of the Armed Forces, a decrease of 1 cent from 2023.

• 14 cents per mile driven in service of charitable organizations; the rate is set by statute and remains unchanged from 2023.

These rates apply to electric and hybrid-electric automobiles as well as gasoline and diesel-powered vehicles.

The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, unless they are members of the Armed Forces on active duty moving under orders to a permanent change of station.

Taxpayers can use the standard mileage rate but generally must opt to use it in the first year the car is available for business use. Then, in later years, they can choose either the standard mileage rate or actual expenses. Leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen.

Notice 2024-08 contains the optional 2024 standard mileage rates, as well as the maximum automobile cost used to calculate the allowance under a fixed and variable rate (FAVR) plan. In addition, the notice provides the maximum fair market value of employer-provided automobiles first made available to employees for personal use in calendar year 2024 for which employers may use the fleet-average valuation rule in or the vehicle cents-per-mile valuation rule.

Practitioner Diligence Obligations and FBAR

The IRS Office of Professional Responsibility (OPR) has issued an alert reminding practitioners of their Circular 230 responsibilities regarding Reports of Foreign Bank and Financial Accounts (FBARs).

What is the FBAR? 

The FBAR (FinCEN Report 114, Report of Foreign Bank and Financial Accounts) is an information return US persons must file when they have a financial interest in, or signature or other authority over, a financial account in a foreign country, and the aggregate value of the account(s) exceeds $10,000 at any time during the calendar year. U.S. persons who are required, but fail, to file an FBAR may be subject to civil and criminal penalties for not filing.

Tax professionals and FBAR compliance

Under Circular 230, practitioners who prepare income or information returns for clients have a duty of due diligence. Thus, they must obtain the information necessary to file a complete and accurate return for the client. This includes sufficient information to prepare correct responses to the foreign-account questions on the clients’ tax returns. 

Generally, for purposes of due diligence, a practitioner may rely on information from a client. However, a practitioner may only accept the client’s responses at face value if it’s reasonable to do so. A practitioner must ask the client additional questions if the information provided by the client appears to be incorrect, incomplete, or inconsistent with other facts the practitioner knows.

Additionally, if a practitioner learns that a current client did not report their foreign accounts for past tax years, the practitioner must promptly inform the client of the “noncompliance, error, or omission” and any penalty or penalties that may apply.

Finally, in the FBAR context, a practitioner acting as a preparer or adviser to a client and who then determines that one or more foreign accounts must be reported in designated places on the client’s tax return, should prepare the return or advise the client accordingly. While the practitioner is not obligated to prepare the FBAR for the client, the practitioner does have an affirmative obligation to advise the client of the need to file an FBAR and the consequences of failing to file.

FinCEN Extends Beneficial Ownership Reporting Deadline

The Financial Crimes Enforcement Network (FinCEN) issued a final rule that extends the deadline for certain reporting companies to file their initial beneficial ownership information (BOI) reports with FinCEN. Reporting companies created or registered in 2024 will have 90 calendar days from the date of receiving actual or public notice of their creation or registration becoming effective to file their initial reports. FinCEN will not accept BOI reports from reporting companies until January 1, 2024 – no reports should be submitted to FinCEN before that date.

This extension will give reporting companies created or registered in 2024 more time to become familiar with the guidance and educational materials located at www.fincen.gov/boi, and to resolve questions that may arise in the process of completing their initial BOI reports. FinCEN also anticipates that this deadline extension will make compliance easier for these first filers under the new reporting requirement and will promote the creation of a highly useful BOI database, as required by Congress.

Reporting companies created or registered before January 1, 2024, will continue to have until January 1, 2025, to file their initial BOI reports with FinCEN, and reporting companies created or registered on or after January 1, 2025, will continue to have 30 calendar days to file their initial BOI reports with FinCEN.

IRS Announces Delay in Form 1099-K Reporting

The IRS released Notice 2023-74 announcing a delay of the new $600 Form 1099-K reporting threshold for third party settlement organizations for calendar year 2023.

As the IRS continues to work to implement the new law, the agency will treat 2023 as an additional transition year. This will reduce the potential confusion caused by the distribution of an estimated 44 million Forms 1099-K sent to many taxpayers who wouldn't expect one and may not have a tax obligation. As a result, reporting will not be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023.

Given the complexity of the new provision, the large number of individual taxpayers affected and the need for stakeholders to have certainty with enough lead time, the IRS is planning for a threshold of $5,000 for tax year 2024 as part of a phase-in to implement the $600 reporting threshold enacted under the American Rescue Plan (ARP).

Following feedback from the tax community, the IRS is also looking to make updates to the Form 1040 and related schedules for 2024 that would make the reporting process easier for taxpayers. Changes to Form 1040 are complex and take time; delaying changes to tax year 2024 allows for additional feedback.

The ARP required third party settlement organizations (TPSOs), which include popular payment apps and online marketplaces, to report payments of more than $600 for the sale of goods and services on a Form 1099-K starting in 2022. These forms would go to the IRS and to taxpayers and would help taxpayers fill out their tax returns. Before the ARP, the reporting requirement applied only to the sale of goods and services involving more than 200 transactions per year totaling over $20,000.

Reporting requirements do not apply to personal transactions such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill. These payments are not taxable and should not be reported on Form 1099-K.

However, the casual sale of goods and services, including selling used personal items like clothing, furniture and other household items for a loss, could generate a Form 1099-K for many people, even if the seller has no tax liability from those sales.

This complexity in distinguishing between these types of transactions factored into the IRS decision to delay the reporting requirements an additional year and to plan for a threshold of $5,000 for 2024 to phase in implementation. 

What this means

This means that for 2023 and prior years, payment apps and online marketplaces are only required to send out Forms 1099-K to taxpayers who receive over $20,000 and have over 200 transactions. For tax year 2024, the IRS plans for a threshold of $5,000 to phase in reporting requirements.

Taxpayers should be aware that while the reporting threshold remains over $20,000 and 200 transactions for 2023, companies could still issue the form for any amount.

It's important to note that the higher threshold does not affect the actual tax law to report income on your tax return. All income, no matter the amount, is taxable unless it's excluded by law whether a Form 1099-K is sent or not.

Who gets the form

The Form 1099-K could be sent to anyone who's using payment apps or online marketplaces to accept payments for selling goods or providing services. This includes people with side hustles, small businesses, crafters and other sole proprietors.

However, it could also include casual sellers who sold personal stuff like clothing, furniture and other household items that they paid more than they sold it for. Selling items at a loss is not actually taxable income but would have generated many Forms 1099-K for many people with the $600 threshold.

This complexity contributed to the IRS decision to delay the additional year to provide the agency time to update its operations to make it easier for taxpayers to report the amounts on their forms.

What to do

The IRS Understanding your Form 1099-K webpage provides resources for taxpayers who receive a 1099-K, including what to do with a Form 1099-K and what to do if you get a Form 1099-K in error.

Taxpayers who receive a Form 1099-K should review the forms, determine if the amount is correct, and determine any deductible expenses associated with the payment they may be able to claim when they file their taxes.

The payment on a Form 1099-K may be reported in different places on your tax return depending on what kind of payment it is. For example, someone who is getting paid as a ride share driver could report it on a Schedule C.

The IRS issued a Fact Sheet with additional information on Form 1099-K reporting.

Practitioner’s Obligation to Have a Written Security Plan

To fulfill their professional obligations, practitioners—attorneys, certified public accountants, enrolled agents, and tax return preparers who participate in the IRS’s Annual Filing Season Program, must comply with Circular 230, which is administered and enforced by the Office of Professional Responsibility (OPR).

Several provisions of Circular 230 implicate a practitioner’s obligations when dealing with data security and confidential client information. These provisions complement not only the privacy and penalty provisions of the Internal Revenue Code, including the penalties in §6713 (civil) and §7216 (criminal) for unauthorized disclosure of taxpayer information, but also nontax legislation enacted in 1999 that gave the Federal Trade Commission (FTC) authority to prescribe regulations establishing requirements of data safeguarding for various businesses including professional tax return preparers. This article discusses how the FTC’s implementing regulations and complementary guidance issued by the IRS affect the duties and restrictions imposed on tax practitioners by Circular 230.

Circular 230

Section 10.35 provides that a practitioner must possess the necessary competence to engage in practice before the IRS, and overall competence has been construed in related contexts to encompass technological competency. In addition, §10.36 imposes an obligation on practitioners who have or share the principal authority and responsibility for a firm’s tax practice to have in place “adequate procedures” to ensure compliance by its members, associates, and employees, including contractors, with Circular 230. While not framed as a mandatory requirement (“must”) but as an aspirational standard (“should”), §10.33 provides that tax advisors should adhere to “best practices” in providing advice and preparing or assisting in the preparation of a submission to the IRS, including compliance with Circular 230’s standards of practice and the obligation to maintain client confidences.

Gramm-Leach-Bliley Act and the FTC’s Safeguards Rule

Under the Financial Services Modernization Act of 1999, more commonly called the Gramm-Leach-Bliley Act, financial institutions, companies that offer consumers financial products or services like loans, financial or investment advice, or insurance, must comply with the FTC’s Standards for Safeguarding Customer Information. Accountants and other firms in the business of completing income tax returns are defined as covered financial institutions in section 314.2(h)(2)(viii) of the Safeguards Rule. Accordingly, they must implement safeguards, including a “written information security plan” (WISP), to protect the security, confidentiality, and integrity of  information. The Safeguards Rule also explains that companies covered by the rule are responsible for taking steps to ensure that their affiliates and service providers also safeguard customer information in their care.

WISP: Practical Guidance for Safeguarding Confidential Taxpayer Information

To protect the tax system from tax-related identity theft and fraud, in 2015, the IRS created a public-private partnership that works to safeguard confidential taxpayer information. The IRS Security Summit consists of the IRS, state tax agencies, and the commercial tax community, including tax preparation firms, software developers, payroll and tax financial product processors, tax professional organizations, and financial institutions. In furthering the FTC’s Safeguards Rule, the Security Summit continually reminds tax professionals to establish and maintain an up-to-date Written Information Security Plan or WISP. To assist tax professionals, the Security Summit prepared a document providing guidance on creating a WISP along with a sample template, which the IRS published as Publication 5708.  The 28-page, easy-to-understand document was developed by and for tax and industry professionals to keep customer and business information safe and secure. The sample template is designed to help tax professionals, especially smaller practices, make data security planning easier.

A related IRS document, Publication 4557, Safeguarding Taxpayer Data: A Guide for Your Business, seeks to help tax professionals understand basic security steps and how to take them, recognize the signs of data theft and how to report data theft, respond and recover from a data loss, and understand and comply with the FTC Safeguards Rule.

Data Security Protocols

A good WISP should identify the risks of data loss for the types of information handled by a firm or company and focus on employee management and training, information systems, and detecting and managing system failures. There is no static, “one-size-fits-all” solution to tax practitioners’ data security challenges. Rather, a security plan should be scaled to the business’s size, scope of activities, complexity, and the sensitivity of the customer data it handles and should be updated as business or technology changes dictate. That said, as a general matter, certain protocols should be considered:

• Do not collect more “Personally Identifiable Information” (PII) of clients than is necessary for your business operations, and do not retain PII longer than necessary or legally required for business purposes.

• Protect the PII you collect, use, disclose, and retain. For example, store PII in a locked room or file cabinets (with information secured at the end of each workday).

• Restrict access to PII to only those individuals with a business need to access the information.

• Dispose of PII appropriately, such as shredding documents and wiping (or destroying) old hard drives, fax machines, printers, and other equipment.

• Use qualified and vetted contractors, including physical and data security consultants.

• Instill awareness and train employees (professional and nonprofessional alike) on properly handling PII.

• Establish security protocols for electronic programs and files, including server locks, password policies,[4] guidance on phishing / malware schemes, and laptop and mobile device security.

• Develop and enforce email policies and procedures that comply with federal and state laws.

• Continually monitor computer networks to identify and redress potential security issues (e.g., software updates, antivirus software, firewalls, security patches, scan engines).

• Establish guidelines related to Internet browsing, use of “smart” devices, and use of social media and professional networking sites.

• Maintain good records and have policies and procedures in place for what to do in case of a data breach (including timely notification of the business’s insurance carrier).

• If your employees work remotely, adopt policies relating to the use of virtual private networks (VPNs) to securely conduct business; separate personal and business computers, mobile devices, and email accounts; and “smart” devices.

• Establish security policies related to physical files and other records kept at home.

Conclusion

Federal law, enforced by the FTC, requires tax preparers to create and maintain a written data security plan. Having a WISP protects businesses and their clients while providing a blueprint for action in the event of a security incident. In addition, a WISP can help if other events seriously disrupt a tax professional’s ability to conduct normal business, including fire, flood, tornado, earthquake, and theft.

Failure to maintain a WISP to protect private financial information may not only put clients at risk for identity theft and fraud, it may also expose a practitioner to liability for violating the Safeguards Rule and the terms of their malpractice insurance coverage. In addition, it could subject a practitioner, in circumstances of willfulness, to discipline under Circular 230. Given section 10.35’s competence requirement and the obligation imposed by section 10.36 to have procedures in place to ensure compliance with Circular 230 by everyone involved in a tax practice, the IRSA encourages practitioners to pay heed to the requirement to adopt a WISP and implement appropriate data security programs.

IRS Releases Official 2024 Inflation Adjustments

The IRS has issued Rev. Proc. 2023-34 that contains various 2024 inflation adjusted amounts, including the individual tax rates, capital gains rates, standard deductions, §179 expensing limits, and inflation-adjusted figures for health, charitable, compliance, and other specialty items. Some of the more notable adjustments are below.

Standard Deduction

$29,200 – Joint return or surviving spouse

$21,900 – Head of household

$14,600  – Single

$14,600 – Married filing separate returns

$1,300 – Dependents (or $450 plus the individual’s earned income, whichever is greater. 

$1,550 – Married taxpayers 65 or over or blind

$1,950 – Single taxpayer or head of household who is 65 or over or blind

Exemption Amount

$5,000 – While the dependency exemption deduction under §151 is reduced to zero from 2018 through 2025, this reduction isn't taken into account for other purposes of the Code, such as who is a qualifying relative for family credit purposes, and eligibility for head-of-household status. 

Kiddie Tax Exemption

$2,600  –  A parent will be able to elect to include a child's income on the parent's return for 2024 if the child's income is more than $1,300 and less than $13,000

Business Expensing

$1,220,000 – The amount that may be expensed under §179

These and all the other inflation adjusted figures are found in Rev. Proc. 2023-34.

IRS to Shut Down E-file on November 18, 2023

The IRS will shut down its Modernized e-File (MeF) system on Saturday, November 18, 2023, at 11:59 p.m. Eastern time, to prepare the system for the upcoming Tax Year 2023 Filing Season.

Only "Send Submissions" for 1040 (both State and Federal) will be affected by this shutdown, all other services such as "Get Acks" and all state services will not be affected by the shutdown and users should be able to continue to use those services.

2024 IRA and 401(k) Limits Increase

The IRS issued technical guidance in Notice 2023-75 regarding all of the cost‑of‑living adjustments affecting dollar limitations for IRAs, pension plans and other retirement-related items for tax year 2024.

$23,000 –Contribution limit for 401(k), 403(b), most 457 plans, Thrift Savings Plans 

$7,500 – Catch-up contribution limit for individuals aged 50 and over 

$7,000 – The limit on annual contributions to an IRA 

$1,000 – Catch-up contribution limit for individuals aged 50 and over 

$16,000 – Contributions to SIMPLE plans

$3,500 – Catch-up contribution to a SIMPLE plan for employees 50 and over

The income ranges for determining eligibility to make deductible contributions to traditional IRA, to contribute to Roth IRAs, and to claim the Saver's Credit all increased for 2024.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or the taxpayer's spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) 

The phase‑out ranges for 2024 are between:

$77,000 and $87,000 – For single taxpayers covered by a workplace retirement plan. 

$123,000 and $143,000 – For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan.

$230,000 and $240,000 – For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered.

$0 and $10,000 – For a married individual filing a separate return who is covered by a workplace retirement plan.

$146,000 and $161,000 – For taxpayers making contributions to a Roth IRA for singles and heads of household.

$230,000 and $240,000 – For married couples filing jointly. 

$0 and $10,000 – For married individual filing a separate return who makes contributions to a Roth IRA.

The income limit for the Saver's Credit is:

$76,500 – For married couples filing jointly

$57,375 – For heads of household

$38,250 – For singles and married individuals filing separately

Additional changes made under SECURE 2.0 are as follows:

$200,000 – The limitation on premiums paid with respect to a qualifying longevity annuity contract to $200,000.

$105,000 – Deductible limit on qualified charitable distributions.

$53,000 – Deductible limit for a one-time election to treat a distribution from an individual retirement account made directly by the trustee to a split-interest entity.

IRS Extends Electronic Signatures and Encrypted Email

On March 27, 2020, the IRS issued guidance allowing for the acceptance of digital signatures and the receipt and transmission of documents via email during compliance interactions. The IRS also permitted the use of electronic or digital signatures on certain paper forms that required a handwritten signature. These digital flexibilities were subsequently extended to Oct. 31, 2023. The IRS has extended these temporary flexibilities. The acceptance of digital signatures is extended indefinitely until more robust technical solutions are deployed, and encrypted email when working directly with IRS personnel has been extended until Oct. 31, 2025.

Activated during the COVID-19 pandemic, the flexibilities promoted secure and effective communications and were well received by tax professionals and taxpayers who reported that allowing for the use of electronic or digital signatures saved time and resources.

As a result, Internal Revenue Manual (IRM) 10.10.1 was updated to allow the acceptance of alternatives to handwritten signatures for certain tax forms and the ability to accept images of signatures and digital signatures in compliance interactions. A listing of allowable signature options can be found in IRM Exhibit 10.10.1-2.

In addition, Interim Guidance Memorandum PGLD-10-1023-0002 provides for the receipt and transmission of documents through Oct. 31, 2025, using email with encryption when working person-to-person with IRS personnel to address compliance or resolve issues in ongoing or follow-up authenticated interactions (primarily with field compliance, Independent Office of Appeals, Counsel and Taxpayer Advocate Service personnel). This guidance remains in effect until the IRS fully implements long-term solutions for secure electronic communication channels with taxpayers as alternatives to encrypted email.

IRS Direct File Available in 2024 as a Limited Pilot

The Inflation Reduction Act of 2022 directed the IRS to study the possibility of a free, direct e-file program, commonly referred to as "Direct File." The IRS submitted the results in a report to Congress on May 16, 2023. The report found that a majority of taxpayers are interested in using a free IRS-provided tool to prepare and file taxes, and that the agency is technically capable of delivering a Direct File program.

As directed by the Treasury Department, the IRS is taking steps to implement a limited, scaled Direct File pilot in the 2024 filing season to further assess customer support and technology needs as well as evaluate successful solutions to the potential operational challenges identified in the May report.

The service will be mobile friendly, available in English and Spanish and will let taxpayers request available language and accessibility preferences for written communications from the IRS.

For the 2024 filing season, Direct File will serve as a pilot with a goal to learn both about the Direct File service itself and the needs of taxpayers who use it. The tax scope for the pilot is still being finalized.

Eligibility to participate in the pilot will be limited to filers with relatively simple tax returns reporting only certain types of income and claiming limited credits and deductions. The pilot scope is subject to change, but the IRS currently anticipates it will include:

Income reporting

• W-2 wage income 

• Social Security and Railroad Retirement benefits 

• Unemployment compensation 

• Interest of $1,500 or less 

Credits

• Earned Income Tax Credit 

• Child Tax Credit 

• Credit for Other Dependents 

Deductions

• Standard deduction 

• Student loan interest 

• Educator expenses

The Direct File pilot is projected to be available to eligible taxpayers residing in Alaska, Arizona, California, Florida, Massachusetts, New Hampshire, New York, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming.

Direct File will only cover individual federal tax returns; it is not going to prepare state returns. However, once a federal return is completed and filed, Direct File will guide taxpayers in Arizona, California, Massachusetts and New York who want to file a state return to a state-supported tool that taxpayers can use to prepare and file a stand-alone state tax return, while taxpayers in Washington can apply for the Working Families Tax Credit. For this reason, participation in the 2024 pilot for people living in states with an income tax will be limited to those states that are actively partnering with the IRS on the pilot.

More information about the pilot will be available at IRS.gov/directfile.

IRS Announces Employee Retention Credit Withdrawal Process

The IRS has announced the details of a special withdrawal process to help those who filed an Employee Retention Credit (ERC) claim and are concerned about its accuracy.

This new withdrawal option allows certain employers that filed an ERC claim but have not yet received a refund to withdraw their submission and avoid future repayment, interest and penalties. Employers that submitted an ERC claim that's still being processed can withdraw their claim and avoid the possibility of getting a refund for which they're ineligible. 

The IRS created the withdrawal option to help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims. Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest.

The new withdrawal process follows the announcement on September 14, 2023, of an immediate moratorium on processing new ERC claims. The moratorium, which will last until at least the end of this year, follows an abundance of ineligible ERC claims. Payouts for claims submitted before Sept. 14 will continue during the moratorium period but at a slower pace due to more detailed compliance reviews. With stricter compliance reviews in place, existing ERC claims will go from a standard processing goal of 90 days to 180 days – and much longer if the claim faces further review or audit. The IRS may also seek additional documentation from the taxpayer to ensure the claim is legitimate.

Employers can use the ERC claim withdrawal process if all of the following apply:

• They made the claim on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).

• They filed the adjusted return only to claim the ERC, and they made no other adjustments.

• They want to withdraw the entire amount of their ERC claim.

• The IRS has not paid their claim, or the IRS has paid the claim, but they haven't cashed or deposited the refund check.

Taxpayers who are not eligible to use the withdrawal process can reduce or eliminate their ERC claim by filing an amended return. 

How to withdraw an ERC claim

To take advantage of the claim withdrawal procedure, taxpayers should carefully follow the special instructions at IRS.gov/withdrawmyerc, summarized below.

• Taxpayers whose professional payroll company filed their ERC claim should consult with the payroll company. The payroll company may need to submit the withdrawal request for the taxpayer, depending on whether the taxpayer's ERC claim was filed individually or batched with others.

• Taxpayers who filed their ERC claims themselves, haven't received, cashed or deposited a refund check and have not been notified their claim is under audit should fax withdrawal requests to the IRS using computer or mobile device. The IRS has set up a special fax line to receive withdrawal requests. This enables the agency to stop processing before the refund is approved. Taxpayers who are unable to fax their withdrawal using a computer or mobile device can mail their request, but this will take longer for the IRS to receive.

• Employers who have been notified they are under audit can send the withdrawal request to the assigned examiner or respond to the audit notice if no examiner has been assigned.

Those who received a refund check, but haven’t cashed or deposited it, can still withdraw their claim. They should mail the voided check with their withdrawal request using the instructions at IRS.gov/withdrawmyerc.

Builders of New Energy Efficient Homes May Qualify for Expanded Tax Credit 

Recent guidance provided in Notice 2023-65 explains how eligible contractors who construct or substantially reconstruct and rehabilitate qualified new energy efficient homes can claim a tax credit of up to $5,000 per home. The actual amount of the credit depends on eligibility requirements such as the type of home, the home's energy efficiency, and with respect to multifamily dwelling units, whether prevailing wage requirements are met.

To qualify, eligible contractors must construct or substantially reconstruct and rehabilitate a qualified new energy efficient home located in the United States. They also must own the home and have a basis in it during the construction, and they must sell or lease the home to a person for use as a residence.

Requirements and credit amounts for 2023 and after

Homes must be eligible to participate in certain Energy Star programs and meet applicable energy saving requirements based on home type.

For homes acquired in 2023 through 2032, the credit amount ranges from $500 to $5,000, depending on the certification achieved and standards met, which include:

• Energy Star program requirements

• Zero Energy Ready Home program requirements

• Prevailing wage requirements (for multifamily dwelling units only)

The energy saving requirements incorporate certain Energy Star program requirements and certain Zero Energy Ready Home program requirements. For homes acquired in 2023 and after, refer to the tables on the Energy Star website for the minimum Energy Star program versions eligible under section 45L. For more information on the relevant Zero Energy Ready Home program in effect, refer to the Department of Energy DOE Zero Energy Ready Home (ZERH) Program Requirements.

Reminder: Beneficial Ownership Reporting Begins January 1, 2024

Starting January 1, 2024, corporations, limited liability companies and certain other entities must begin reporting information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). A final rule implementing the beneficial ownership information reporting requirements of the Corporate Transparency Act (CTA) was issued in September 2022. 

The (CTA) establishes uniform beneficial ownership information reporting requirements for certain types of corporations, limited liability companies, and other similar entities created in or registered to do business in the U.S. The CTA authorizes FinCEN to collect that information and disclose it to authorized government authorities and financial institutions, subject to certain safeguards and controls. 

Under the final rules, entities created or registered before January 1, 2024, have one year to file their initial disclosure reports. Entities created or registered after January 1, 2024, will have 30 days after formation or registration to submit their initial disclosure reports. Once an initial report has been filed, both existing and new reporting companies will have to submit updates within 30 days of a change in their beneficial ownership information.

NOTE: FinCEN is proposing to amend its final BOI Reporting Rule to provide 90 days for reporting companies created or registered in 2024 to file their initial reports, instead of 30 days.

Beneficial ownership information that must be reported by an entity includes: the full legal names, dates of birth, and addresses for all individuals who have "substantial control" over the entity or who own at least 25% of it. The rules require FinCEN to establish a database to hold all this beneficial ownership information. 

Additional BOI reporting guidance. FinCEN has updated its BOI FAQs to include new questions about beneficial owners, initial reports, FinCEN identifiers, and third-party service providers. FinCEN also has posted on its website Small Entity Compliance Guide on the new federal reporting requirement for BOI.

IRS Reduces Fees to Obtain or Renew a PTIN

On September 30, the IRS released regs that reduce the user fees paid by tax preparers to obtain a preparer tax identification number (PTIN). Under these new regs the cost for obtaining or renewing a PTIN will fall to $11 (plus $8.75 for a third-party contractor). The fee to obtain or renew a PTIN was $30.75 in 2022. 

The IRS requires certain tax preparers to include a PTIN on a return, statement or other document required to be filed with the IRS.

Treasury regs (TD 9501) require that certain return preparers include their PTIN on any returns, claims for refund or other documents they prepare that are filed with the IRS. A PTIN is used instead of the preparer’s social security number to identify the preparer. The IRS charges practitioners a fee to obtain or renew a PTIN to cover its direct and indirect administrative costs for providing the PTIN.

This year the IRS is using a new cost model to determine the costs that the government incurs for providing PTINs and administering the PTIN program. The IRS devised the new cost model after the District of Columbia Circuit determined that the PTIN fee the IRS was charging preparers was too high.

IRS Adds New Capabilities to Tax Pro Account

IRS Halts Employee Retention Credit Processing

Using a Durable Power of Attorney rather than a Form 2848

What You Can Do if You’ve Been Hacked

You Received an Incorrect 1099-K. Now What?

Understanding the Different IRS Officials

IRS Issues Final E-Filing Regulations

IRS Issues Guidance on Home Energy Audits

IRS Nixes Unannounced Compliance Visits

Tax Benefits for Businesses Employing People in Certain Groups

Final RMD Regs Provide Transition Relief

Student Loan Debt Relief on the Horizon

IRS Sends Special Mailings to Taxpayers in Certain Disaster Areas 

In July, the IRS plans to send a special follow-up letter, a CP14CL, to taxpayers in several states affected by disasters to let them know that they have additional time to pay their taxes. 

The IRS is taking this additional step to help reassure taxpayers affected by disasters that they do have extra time to file and pay their taxes. This new mailing is going to residents in Alabama, Arkansas, California, Florida, Georgia, Indiana, Mississippi, and Tennessee in designated disaster areas that received a CP14 notice from the IRS in late May and June. The CP14 mailings are for taxpayers who have a balance due, and they are sent out as a legal requirement. While the notice received by taxpayers says they need to pay in 21 days, these taxpayers actually have until later this year to timely pay under the disaster declaration.

The IRS has also updated the insert that will accompany upcoming CP14 balance-due notices to make it clearer that the payment date listed in the letter does not apply to those covered by a disaster declaration, and the disaster dates remain in effect. The plain language insert, which is in English and Spanish, includes a special QR code that takes people to the IRS.gov disaster page.

Why Tax Professionals Should Pay Attention to the Corporate Transparency Act

The Corporate Transparency Act (CTA) is a federal law enacted on January 1, 2021, that expands anti-money laundering laws and is intended to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity. The Act aims to enable law enforcement agencies to detect and prevent financial crimes more effectively by creating a national registry of beneficial ownership information for “reporting companies”. The CTA requires businesses to become more transparent about their ownership structures. 

Starting in 2024, under the CTA, the Financial Crimes Enforcement Network (“FinCEN”), housed inside the Treasury Department, will require most businesses to file a statement detailing ownership information, which will be collected and stored in a data warehouse that FinCEN will share with law enforcement, the IRS, and other federal and state departments. The CTA tasked FinCEN with creating regulations to govern the collection of the beneficial ownership information. The highly anticipated final rules were issued on September 30, 2022.

Reports must be filed by domestic and foreign “reporting companies,” which are defined as follows:

1. Domestic reporting company – any entity that is a corporation, a limited liability company, or otherwise created by the filing of a document with a secretary of state or similar office.

2. Foreign reporting company – any entity formed under the law of a foreign country and registered to do business in any U.S. state by the filing of a document with a secretary of state or similar office.

The reporting procedure goes into effect on January 1, 2024. The due date for the initial report depends on when the entity was created:

1. If the company is created on or after January 1, 2024, then the initial report is due within 30 calendar days of the date the entity is created.

2. If the company was formed before January 1, 2024, then the initial report is due no later than January 1, 2025.

In other words, effective January 1, 2024, new entities will have to file a report within 30 days of their creation. Entities already in existence on January 1, 2024, have until January 1, 2025, to file a report.

Reports include information about (1) the reporting company, (2) the reporting company’s beneficial owners, and (3) “company applicants” who made the filings to create the entity. A beneficial owner is any individual who, directly or indirectly, either exercises substantial control over the company or owns or controls at least 25% of the company’s ownership interests.

Information about the reporting company includes:

• Full legal name

• Any trade name or “doing business as” (d/b/a) name

• Current address

• Jurisdiction of formation

• Federal taxpayer ID number

Information about individual beneficial owners and company applicants includes:

• Full legal name

• Date of birth

• Current address

• Unique identifying number and issuing jurisdiction (e.g., U.S. passport or driver license)

• Image of document with identifying number

Alternatively, individuals and entities may apply for and obtain a FinCEN identifier, which can be included on subsequent filings in lieu of this information. This could make the filing process more efficient for those who file frequently.

If there is any change with respect to information previously reported, the reporting company is required to file an updated report within 30 calendar days after the date on which the change occurs. Examples of changes that would require an updated report include the following:

• Changes in who is a beneficial owner, e.g., due to transfers of ownership or sales of additional ownership interests.

• A reporting company becoming exempt from the reporting requirements.

• Transfers of ownership interests due to an owner’s death.

• Transfers of ownership when a minor child reaches the age of majority.

• Any changes to an identifying document previously submitted, e.g., changes in name, address, or identifying number.

In addition, if the reporting company becomes aware of mistakes or inaccuracies in a report that has already been filed, it must file a corrected report within 30 calendar days after the date on which the reporting company becomes aware or has reason to know of the inaccuracy.

Reporting companies should be mindful of the various penalties associated with noncompliance with the CTA or providing inaccurate or misleading information to FinCEN. Any person that commits reporting violations may be held liable for up to $500 per day, not to exceed $10,000, and may face up to two years in prison for violating the CTA.

Need continuing education and want to learn more about this topic? Attend the Back to Basics 2023 Business Issues Update and Review. Click here for dates and locations.

IRS to Restart Collection Notices this Summer 

During the COVID-19 pandemic, the IRS temporarily halted Automated collection notices. In February 2022, the IRS announced the suspension of more than a dozen additional letters, including the mailing of automated collection notices normally issued when a taxpayer owes additional tax and the IRS had no record of a taxpayer filing a tax return. During the pause, taxpayers stopped receiving notices that would move them farther along the enforcement activity track while allowing payments and installment agreements to be set up online or over the phone. Penalties and interest still accrued, however.

In November 2022, National Taxpayer Advocate Erin Collins hinted that the affected notices would restart on a gradual basis. More recently, IRS Deputy Commissioner for Collection and Operations Support, Darren Guillot repeated this, saying that the slow restart was coming but could not provide a determined start date. Other IRS officials hinted at a late summer start date. 

Individuals receive in total four collection notices, concluding with a notice of intent to levy, while businesses get two. Instead of just flipping the switch, the IRS is taking a bit of a softer approach, redesigning some notices to encourage taxpayers to contact the agency instead of, for example, moving forward in immediately levying unpaid taxes from those who received a final notice before the temporary suspension.

Early in the pandemic, the IRS made changes to allow impacted individuals and businesses to enter short- or long-term payment plans. Under the Taxpayer Relief Initiative, the IRS gave those in a short-term agreement up to 180 days to settle their account instead of 120. 

The IRS is urging taxpayers to work with the IRS and utilize available options, such as installment agreements, to resolve outstanding balances. 

IRS to Safeguard Employee Names

In an effort to reduce threats aimed at IRS employees, the IRS will start limiting workers’ personal identifying information on communications with taxpayers. The IRS said that it will remove worker’s first names from correspondence, but their last names and phone numbers will still appear. 

A recent report released by the Treasury Inspector General for Tax Administration (TIGA) revealed that during walkthroughs at IRS tax processing centers in fiscal year 2022, IRS employees told TIGTA that their managers, whose full names and office phone numbers appeared on manual correspondence, were being contacted on their personal telephone lines or through social media rather than through normal business methods. TIGTA initiated a review to see what actions could be taken to minimize the risk of potential harm to employees whose personal information is used in tax processing correspondence.

The move comes as threats to IRS employees have increased over the past year after passage of the Inflation Reduction Act last summer provided $80 billion in extra funding for the agency for tax collection efforts.

Employee Retention Credit Scammers Prey on Taxpayers

Small businesses owners and tax-exempt organizations should be aware of scammers promising big money by claiming the Employee Retention Credit (ERT). The ERC is a legitimate tax credit and the only way to claim the credit is on a federal tax return.

The IRS and tax professionals continue to see a barrage of aggressive broadcast advertising, direct mail solicitations and online promotions involving the Employee Retention Credit. While the credit is real, aggressive promoters are wildly misrepresenting and exaggerating who can qualify for the credits.

These scammers may lie about your eligibility. They might charge a big fee to “help” you claim the credit. They line their pockets and leave you with potential tax issues because if you claim the credit when you don’t qualify for it, you have to pay it back, possibly with penalties and interest, when you file your tax return. 

When properly claimed, the ERC is a refundable tax credit designed for businesses that continued paying employees while shut down due to the COVID-19 pandemic or that had a significant decline in gross receipts during the eligibility periods. The credit is not available to individuals.

Warning signs of aggressive ERC marketing

There are important tips that people should be wary of involving the ERC. Warning signs to watch out for include:

• Unsolicited calls or advertisements mentioning an “easy application process.”

• Statements that the promoter or company can determine ERC eligibility within minutes.

• Large upfront fees to claim the credit.

• Fees based on a percentage of your refund created by the ERC claimed. 

• Aggressive claims from the promoter that the business receiving the solicitation qualifies before any discussion of the group’s tax situation. The ERC is a complex credit that requires careful review before applying.

How the promoters lure victims

The IRS continues to see a variety of ways that promoters can lure businesses, tax-exempt groups and others into applying for the credit.

• Aggressive marketing. This can be seen in countless places, including radio, television and online as well as phone calls and text messages.

• Direct mailing. Some ERC mills are sending out fake letters to taxpayers from the non-existent groups like the “Department of Employee Retention Credit.” These letters can be made to look like official IRS correspondence or an official government mailing with language urging immediate action.

• Leaving out key details. Third-party promoters of the ERC often don’t accurately explain eligibility requirements or how the credit is computed. They may make broad arguments suggesting that all employers are eligible without evaluating an employer’s individual circumstances. For example, only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021, but promoters fail to explain this limit.

• Payroll Protection Program participation. In addition, many of these promoters don’t tell employers that they can’t claim the ERC on wages that were reported as payroll costs if they obtained Paycheck Protection Program loan forgiveness.

Properly claiming the ERC

There are very specific eligibility requirements for claiming the ERC. These are technical areas that require review. They can claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020, and Dec. 31, 2021. However, to be eligible, employers must have:

• Sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel or group meetings because of COVID-19 during 2020 or the first three quarters of 2021,

• Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021, or

• Qualified as a recovery startup business for the third or fourth quarters of 2021.

Eligible employers who need help claiming the credit should work with a trusted tax professional; don’t mistakenly rely on the advice of those soliciting these credits. Promoters who are marketing this have a vested interest in making money and are not looking out for the best interests of those applying.

Don't apply unless you believe you are legitimately qualified for this credit. Details about the credit are available on IRS.gov, and again a trusted tax professional – not someone promoting the credit – can provide critical professional advice on the ERC.

Fraud Victims Notified by IRS Letter 

With fraud and other forms of identity theft becoming more prevalent, it’s often difficult for taxpayers to determine if the threat is real, or from whom it’s coming. Scammers will use stolen social security numbers to file fraudulent tax returns and collect refunds. To prevent this, the IRS scans every tax return for signs of fraud. If the system finds a suspicious tax return, the IRS reviews the return and sends a letter to the taxpayer letting them know about the potential ID theft. The IRS won’t process the suspicious tax return until the taxpayer responds to the letter. The IRS will not send an email, or call the taxpayer to notify them of potential fraud. 

The IRS may send these identify fraud letters to taxpayers:

Letter 5071C, Potential Identity Theft with Online Option: This tells the taxpayer to use an online tool to verify their identity and tax return information. If the taxpayer didn’t file, they can let the IRS know with the online tool.

Letter 4883C, Potential Identity Theft: This tells the taxpayer to call the IRS to verify their identity and tax return information. If the taxpayer didn’t file, they can call the Taxpayer Protection Program hotline number on the letter.

Letter 5747C, Potential Identity Theft In Person Appointment: This tells the taxpayer to verify their identity and tax return information in person at a local Taxpayer Assistance Center. If the taxpayer didn’t file, they can call the Taxpayer Protection Program hotline number on the letter.

Letter 5447C, Potential Identity Theft Outside the U.S.: This tells the taxpayer to use an online tool or to call the IRS to verify their identity and tax return information. If the taxpayer didn’t file, they can let the IRS know with the online tool.

The identity theft letter will tell the taxpayer the steps they need to take. Taxpayers should follow those steps to resolve the matter with the IRS.

Victims of identity theft can find more resources on reporting and recovering from ID theft with the Federal Trade Commission: identitytheft.gov. 

If taxpayers need to give the IRS a heads up that they’re a victim of identity theft or that they think they may be a victim, they can file Form 14039, Identity Theft Affidavit. If a taxpayer has already received an IRS letter about identity theft, they don’t need to file an affidavit.

More information:

Identity Theft Central

How IRS ID Theft Victim Assistance works

SECURE 2.0 Technical Corrections Bill 

A bipartisan bill containing some technical corrections to the language of the SECURE 2.0 ACT will soon be ready for introduction in both chambers of Congress, according to the Chairmen and Ranking Members of the two tax writing committees.

The lawmakers stated that they want to ensure that “Congressional intent is carried out with respect to several provisions of recently enacted retirement legislation.” The provisions, sections 102, 107, 601, and 603 of the “SECURE 2.0 Act of 2022” (“SECURE 2.0”) (Division T of the Consolidated Appropriations Act, 2023), were enacted on December 29, 2022 (PL 117-328).

Among the provisions requiring a correction, Section 603, includes an error pointed out in January by the American Retirement Association that inadvertently would eliminate both future and existing retirement plan catch-up contributions. Section 102 addresses startup tax credits for small employers, Section 107 focuses on the required minimum distribution age and Section 601 clarifies rules regarding SIMPLE IRA and SEP plans. 

Provisions requiring correction include:

• Section 102, which increases the credit for small employer pension plan startup costs (“startup credit”), in part by allowing eligible employers a credit for a portion of employer contributions made to the plan. This section could be read to subject the additional credit for employer contributions to the dollar limit that otherwise applies to the startup credit. However, Congress intended the new credit for employer contributions to be in addition to the startup credit otherwise available to the employer.

• Section 107, which increases the age at which required minimum distributions from a retirement plan are required to begin, could be read to increase the applicable age from age 73 to age 75 for individuals who turn 74 (rather than 73) after December 31, 2032, which is inconsistent with Congressional intent.

• Section 601, which permits SIMPLE IRA plans and SEP plans to include a Roth IRA, could be read to require contributions to a SIMPLE IRA or SEP plan to be included in determining whether an individual has exceeded the contribution limit that applies to contributions to a Roth IRA. However, Congress intended that no contributions to a SIMPLE IRA or SEP plan (including Roth contributions) be considered for purposes of the otherwise applicable Roth IRA contribution limit.

• Section 603, which requires catch-up contributions under a retirement plan to be made on a Roth basis, for tax years beginning after 2023, if the participant’s wages from the employer sponsoring the plan exceeded $145,000 for the preceding calendar year, could be read to disallow catch-up contributions (whether pre-tax or Roth) beginning in 2024. However, Congress did not intend to disallow catch-up contributions nor to modify how the catch-up contribution rules apply to employees who participate in plans of unrelated employers. Rather, Congress’s intent was to require catch-up contributions for participants whose wages from the employer sponsoring the plan exceeded $145,000 for the preceding year to be made on a Roth basis and to permit other participants to make catch-up contributions on either a pre-tax or a Roth basis.

FTC Safeguards Rule Takes Effect June 9 

The FTC Safeguards Rule requires non-banking financial institutions, including accountants, enrolled agents, bookkeepers, and CPAs, to develop, implement, and maintain a comprehensive security program to keep their customers’ information safe. The rule was initially set to take effect on Dec. 9, 2022, however, a lack of enforcement personnel extended the deadline to June 9, 2023. 

The provisions of these amended rules specifically affected by the six-month extension include requirements that covered financial institutions:

• Designate a qualified individual to oversee their information security program.

• Develop a written risk assessment.

• Limit and monitor who can access sensitive customer information.

• Encrypt all sensitive information.

• Train security personnel.

• Develop an incident response plan.

• Periodically assess the security practices of service providers.

• Implement multi-factor authentication or another method with equivalent protection for any individual accessing customer information.

2024 HSA Contribution Limits Announced 

The IRS released Rev Rul 2023-23 announcing the inflation-adjusted health savings account (HSA) limits and the maximum dollar amount that may be made newly available for excepted benefit health reimbursement arrangements (HRAs) for plan years that begin in 2024.

For calendar year 2024, the annual limitation on deductions to an HSA for an individual with self-only coverage under a high deductible health plan is $4,150.The annual limitation on deductions under for an individual with family coverage under a high deductible health plan is $8,300.

A “high deductible health plan” is defined under §223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,600 for self-only coverage or $3,200 for family coverage, and for which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $8,050 for self-only coverage or $16,100 for family coverage.

For plan years beginning in 2024, the maximum amount that may be made newly available for the plan year for an excepted benefit HRA under § 54.9831-1(c)(3)(viii) is $2,100.

Preparing for Natural Disasters

Natural and man-made disasters are occurring more frequently, so it bears reminding taxpayers to protect important tax and financial information as part of a complete emergency preparedness plan.

So far in 2023, the Federal Emergency Management Agency (FEMA) has declared disasters for mudslides, landslides, severe storms, tornadoes and more. Disasters can have an immediate and lasting impact on individuals, organizations, and businesses. Year-round preparation is critically important.

Keep key documents safe. Original documents such as tax returns, Social Security cards, birth certificates and deeds should be placed inside a waterproof container in a safe space. Taxpayers are encouraged to also make copies of these important documents and store them in a secondary location such as a safe deposit box or with a trusted person who lives in a different area. In addition, scanned documents can be stored on a flash drive for easy portability.

Create a record of valuables and equipment.  All property, especially high-value items, should be recorded. A simple list with current photos or videos may also help support claims for insurance or tax benefits after a disaster. 

Reconstructing records. Reconstructing or replacing records after a disaster may be required for tax purposes, claiming federal assistance or insurance reimbursement. The more accurately the loss is estimated, the more loan and grant money there may be available. Taxpayers who have lost some or all their records during a disaster should visit IRS's Reconstructing Records webpage as a first step.

Employers should check fiduciary bonds.  Employers using payroll service providers should check if the provider has a fiduciary bond in place that can protect the employer in the event of default by the payroll service provider. 

IRS can provide tax relief after a disaster. After FEMA issues a major disaster or an emergency measures declaration, the IRS may postpone certain tax filing and payment deadlines for taxpayers who reside or have a business in certain counties affected by the disaster. The IRS provides details on states and counties that have been issued relief on the IRS disaster relief page.

Taxpayers in the affected areas do not need to call to request this relief. The IRS automatically identifies taxpayers located in the covered disaster area and applies filing and payment relief. Those impacted by a disaster can contact the IRS at 866-562-5227 to ask their tax-related questions of an IRS specialist trained to handle disaster-related issues.

Taxpayers who do not reside or have a business in a covered disaster area but suffered impact from a disaster should call 866-562-5227 to find out if they qualify for disaster tax relief and to discuss other available options.

Tax Professionals Need ID.me Account to Access e-Services 

Effective May 17, 2023, The IRS will no longer support the use of existing Secure Access usernames and passwords to access IRS e-Services. All tax professionals must create a new account under ID.me to access e-Services after May 17. 

ID.me specializes in digital identity protection and helps the IRS make sure you’re you and not someone pretending to be you – before they give you access to your information. You’ll be able to use your account to access multiple IRS tools and at other government agencies that also use ID.me.

If you haven’t already created a new ID.me account, go to IRS.gov Your Online Account and click on “Sign In to Your Online Account.” Then, click on “ID.me create an account” to create a new account. This landing page also has answers to some frequently asked questions. If you need help verifying your identity or to submit a support ticket, visit the ID.me IRS Help Site.

This summer, the IRS plans to migrate the e-Services suite of ta professional online applications and products behind ID.me. The following applications and tools will be affected by this summer's migration to ID.me log-in authentication: 

• Affordable Care Act (ACA) for Transmitter Control Code (TCC)

• Application Program Interface (API) Client ID Application

• e-File Application

• Information Returns (IR) for TCC

• Income Verification Express Service (IVES) Application

• TIN Matching, including Bulk and Interactive TIN Matching

• Transcript Delivery System (TDS)

• Secure Object Repository (SOR)

• Modernized e-File (MeF)

• ACA Information Returns (AIR)

If you need to create a Secure Access account but can’t authenticate their identity through the online Secure Access process, should contact the e-Help desk for assistance. If the e-Help desk can’t help you, then you will need to make an appointment at a Taxpayer Assistance Center (TAC) to prove your identity in person. You must complete your in person ID proofing and contact the e-Help desk by June 15 in order to complete the Secure Access process. If you do not complete this process by June 15, you will have to wait until the e-Services migration to ID.me is completed later this summer.

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