Clearing up BOI confusion and other tax advocacy updates

Melanie Lauridsen, AICPA & CIMA VP of Tax Policy & Advocacy, provides an update on several key tax initiatives that are top of mind right now. Highlights include the latest updates on beneficial ownership interest (BOI) reporting as well as what to expect from pending tax legislation.

 

 AICPA resources

• Decision holding Corporate Transparency Act unconstitutional appealed, The Tax Adviser, March 12, 2024
• Federal court holds Corporate Transparency Act unconstitutional, The Tax Adviser, March 5, 2024
• Plaintiffs: FinCEN should pause all CTA enforcement, The Tax Adviser, March 5, 2024
• Beneficial ownership information (BOI) reporting resource center  — Access resources to learn about the beneficial ownership information reporting requirement under FinCEN’s Corporate Transparency Act (CTA).
• Client letter and FAQ for a government shutdown during tax season — Share some considerations with your clients as the potential for a government shutdown looms, and IRS services will be affected during tax season.

Transcript

Neil Amato: Welcome back to the Journal of Accountancy podcast. This is Neil Amato with the JofA. I'm again joined by Melanie Lauridsen, Vice President ­– Tax Policy & Advocacy for the AICPA. This is a special episode — a special collaboration episode between the JofA podcast and the Tax Section Odyssey podcast. Melanie and I are going to talk about a host of tax topics that are on the minds of practitioners as we record in early March. Melanie, first, welcome back to the JofA podcast. How are you?

Melanie Lauridsen: I’m good. Thank you for having me back.

Amato: Tell me first, what’s new in the world of tax advocacy these days?

Lauridsen: As you’re probably aware, there are some big things happening on tax, and sometimes with tax, it can linger and sometimes they move super, super quick, so it’s an interesting world.

But right now, the big issues that we're tackling are beneficial ownership information, ERC, which is employee retention credit, there's the government shutdown, which hopefully there won't be a government shutdown. We do a lot of work behind the scenes, but that may never come to light.

Of course, there's the House Ways and Means tax bill, but that doesn't mean there aren't a lot of other pieces of work that we're working on.

For example, this year, we've already started working on guidance for SECURE 2.0. We have the FBAR extension for those affected by the disasters. We have virtual currency. There's limitations of excess business losses. There's just a lot of work that's happening.

Amato: You've touched on some of those issues. I guess, through comment letters and other advocacy, what would you say are some of the highlights of those important issues right now that members should be aware of?

Lauridsen: Well, off the top of my head, the biggest one right now is beneficial ownership information. The interesting thing about this topic is every time we connect, something new is arising, something new has happened. Then of course, that creates a flood of activity, sometimes confusion, and people needing a little bit more guidance with that. Most recently there was a court case that has impacted BOI.

With employee retention credit, there are some tax bills that are impacting the timing of how long people can submit claims for it, and there's a flood of activity and some confusion also associated with that. It just depends on the topic that we're touching base on what you want to dive into.

Amato: On the topic of beneficial ownership information or BOI — I guess that falls under the Corporate Transparency Act — a court ruling a week ago today as of this recording, deemed the Corporate Transparency Act unconstitutional. Tell me a little more about what that means, how it changes or doesn't change what the AICPA is advocating for, etc.

Lauridsen: The court ruling — there have been different press releases that have come out. Again, I can't stress enough that it's created a lot of confusion. There was a court ruling from a lower court, and it comes from the state of Alabama, in which it did deem the Corporate Transparency Act — CTA is what I call it sometimes. It did deem the CTA to be unconstitutional. But the thing that people need to understand with that ruling, there was an injunction associated with it that was very narrow and limited in scope.

FinCEN has actually come forward and said that based on this court ruling, it is only the plaintiff, the association, National Small Business Association and its members, which is roughly [65,000] members, that do not need to file the BOI report.

Everyone else still has the requirement to file, and FinCEN has said that they will be enforcing that.

Now, what that means too from FinCEN's perspective is we've heard on good authority that they will appeal the court case, and they will also ask for a stay of the injunction.

One of the questions I do get is like, “Then we're going to become NSBA members because then we don't have to file the BOI reports.” That's not actually accurate. It's of members as of March 1, which was the date of the court ruling. Rushing out and becoming a member isn't going to help people.

Our position and what that means for our members, if you are not an NSBA member, it means that you are still under the requirement to file the BOI reports. I would say it's business as usual.

I would also clarify that for the existing entities, that was an entity that was created before 2024, that they have a full year to file. Like I said earlier with BOI, things keep changing and they seem to change rapidly. I would encourage those people to not rush out to file right now but to go ahead and take their time. They have time. Use that time until we can get more clarity and take that time necessary to file.

Amato: To clarify on that, entities formed before 2024, do they have until 12/31/2024 to file a BOI report?

Lauridsen: They have till January 1 of 2025, which is interesting. That extra day matters to some people.

Amato: Well, it's a leap year, so, get the extra day. Whether it's fast or slow, there probably will be some change as the year progresses.

What are the differences between the customer due diligence rule and BOI. And, I guess, are both needed? Can you explain a little more about that?

Lauridsen: Absolutely. In tax, as CPAs, we are bound by certain ethical requirements, whenever we do a tax return. One thing to keep in mind is BOI is not tax. A lot of people think it is tax simply because the entities — you know, it’s a form, it's got numbers — they’re going to be turning toward their tax preparers for help on this form. But, to be clear, BOI is not tax. Anyhow, CPAs, they're bound by due diligence.

When they get a client, they look at the client and make sure it is a valid client. They verify information, driver's license, Social Security numbers. They know the client, and CPAs also have tendencies to have long-running trusted relationships with the client. In other words, as a CPA, I'm not going to have a client who is running all these shady business dealings. I would know my client, and I would have that due diligence.

So, BOI, its intention is anti-money laundering. They're trying to capture those shell companies and trying to capture, really, money laundering associated with it. I think people believe, “Well, we have the due diligence piece. Why do we need the BOI piece?” And, is that necessary?

The first thing is keep in mind, CPAs already have that due diligence piece from our perspective. But not everybody is a CPA, and not everybody is working on ethical levels. That is the intention of BOI and why some people in our worlds, I completely understand why they think, “What's the point of it?” But there is a purpose.

Amato: That makes sense. Thank you for that. Let's talk some about the tax bill that you mentioned at the top. It's with Congress right now. It's in committee still. What does that bill mean for practitioners, and what do you expect to come next?

Lauridsen: The tax bill, officially named the Tax Relief for American Families and Workers Act, which is a very long name. I have a tendency to just call it the House Ways and Means bill. Essentially, what's happened is House Ways and Means. It's Chairman [Ron] Wyden and Chairman Jason Smith who came together. They had been working together on this bill for over a year and they came together, and it passed the House with lots of support there.

The core of this bill really is the expansion of the child tax credit, which is a Democratic priority. But in exchange, they also agreed to some business tax provisions of some fixes from the Tax Cuts and Jobs Act business tax provision, some extensions there, which is the Republican priority. What the bill entails, just high-level, it would allow essentially the refundable portion for the child tax credit to be increased in time for taxpayers who work.

As far as the business taxes, what that means is it would reinstate the 100% bonus depreciation. It would also allow for immediate deduction of the Sec. 174 expenses, and Sec. 174 expenses are the research and experimentation expenses. It also allows for victims of disaster relief to be able to deduct those casualty losses without meeting the [adjusted gross income] 10% threshold. They also don't need to itemize. They can take what's called an above-the-line deduction for it.

The real big kick of the bill is ERC, where the bill would be retroactive at this point if it were to pass through, as it stands, which is saying that ERC claims would be stopped as of Jan. 31. The reason this is such a big deal is because ERC, stopping the credit claims, that is the “pay for,” meaning that is what would allow for all the other provisions to go through. That piece is nonnegotiable in the way it's written in the bill. There's a lot of questions associated with retroactivity in the bill

Amato: Again, as we're recording early March, you mentioned the word “shutdown” a little bit earlier. What would be the effect of a government shutdown during tax season? I guess the next deadline we're facing is March 22 for funding several agencies of the government.

Lauridsen: Well, let me start by saying there is never a good time for the IRS to shut down. There's just a lot of lost efficiencies or inefficiencies, I guess, within the IRS in shutting down and then opening back up again.

With all the IRS service issues that our members face, it would never be a good time. Having said that, having a shutdown in the middle of a filing season would be first of all, unheard of. It hasn't happened. The closest that we've come to a shutdown in a filing season is when we delayed the start of a filing season by two weeks, which is very different than having a shutdown right before tax returns are due. That would be, in my opinion, detrimental.

The AICPA has positions to maintain the IRS 100% open for them to provide all the necessary services to people. But all of this depends and hinges on the IRS’s contingency plan. The IRS did release a contingency plan at the end of last year, but that contingency plan is for nonfiling season. We don't actually know what's going to happen with the IRS, were it to shut down during filing season. And they would issue that plan if the government shutdown was imminent.

Amato: Well, we will have to wait and see on that. We’ll know more, again at this recording, in a few weeks. Melanie, there's always plenty going on. Clearly, by this conversation, there's a lot going on, but anything else you'd like to touch on before we conclude?

Lauridsen: Yeah. Touching back again on the tax bill that I was referencing, there are some retroactive provisions in there. Some of them would be great to see passed and then, of course, the ERC, there's a lot of question. And we get a lot of questions from the members regarding should we file, should we extend. We don't really particularly want to amend.

So couple of things that I do want to say what the bill is right now — at this moment in time and things change when it comes to legislative bills, so tomorrow it could be a different answer — but as of right now, it's not looking great that the bill would pass the Senate and it would become effective.

Even if it could pass and become legislative rule, what would end up as the final bill would probably be different than would have some edits made to it. Meaning, would it be retroactive, take the ERC provisions to Jan. 31? I don't know.

Would people have to do amendments? We don't know. But again, it's not looking great for the bill. The IRS has made it very clear people should go ahead and file and file now. We support “go ahead and file and file now.” We understand amending can create some roadblocks and some issues, but just things are up in the air in a way that, right now, it's not looking good for the bill.

Amato: Melanie Lauridsen, thank you very much for that update.

Lauridsen: Thank you, Neil.