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Jul 12, 2024 • 23min

Tax policy deep dive — ERC, BOI and IRS performance

In this joint episode, Neil Amato, host of the JOA podcast and Melanie Lauridsen, VP of Tax Policy and Advocacy for the AICPA discuss recent updates on three key tax topics: the Employee Retention Credit (ERC), Beneficial Ownership Information (BOI) reporting, and a member survey about IRS performance during tax season. Melanie highlights the IRS’s recent actions and proposed regulations regarding ERC, the implications of BOI reporting requirements, and the mixed feedback from AICPA members on IRS service improvements.   AICPA resources AICPA Employee retention credit guidance and resources — Access resources providing the latest updates on the employee retention credit (ERC). 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). Transcript Neil Amato: Welcome back to the Journal of Accountancy podcast. This is Neil Amato with the JofA. I'm joined again by Melanie Lauridsen, Vice President–Tax Policy & Advocacy for the AICPA. This is a special collaboration episode between the JofA podcast and the Tax Section Odyssey podcast. Again, welcome back. Melanie Lauridsen is our guest. She is a repeat guest. Melanie, today, as we record, it's early July, and we're going to focus in particular on three topics: The employee retention credit or ERC, beneficial ownership information reporting or BOI reporting, and then a member survey about IRS performance in tax season. It sounds like there have been more than a few updates recently on those topics. Let's dive in. ERC first: What's the latest from the IRS and what does that mean for our members? Melanie Lauridsen: Neil, thanks for having me back and yeah, there definitely have been some updates. As you know, the IRS did make an announcement around ERC and there are a couple of main points that they wanted to bring out. The first one is that the IRS made a call to action for Congress specifically asking to retroactively stop processing ERC claims. Also, the second piece of it is for Congress to extend the statute of limitations, but very narrowly defined, and it really is only for IRS assessments. In other words, if a taxpayer wants to make an amendment on their own free will, the statute of limitations will not be extended to that. But if the IRS notices something, says something, or is talking with you, and they recognize there needs to be an adjustment, then you can move forward and make that amendment. This has some implications, obviously, for our members, specifically the retroactive aspect of it. Now, they worded it differently because there's the Wyden-Smith bill, which we've talked about where that is retroactively stopping making valid ERC claims. In this case, it is that the IRS has no longer to process claims. It still has that same effect with members and does bring a little bit of nervousness to people. What that really means is that our members really need to have conversations with their clients if they have a valid ERC claim that hasn't been filed. [In] those conversations, people need to make it clear to the client that, yes, we can do the work, but there could be either the retroactively where the IRS stops processing claims, or there could be a bill that says that no longer, since a certain date, they don't have to accept claims. There's a little bit of risk associated with that. I think in the last time we spoke, we spoke about how there's an unknown around that date and therefore there's uncertainty around it, and clients need to be aware of the risks associated with that. The other important aspect of this announcement is where the IRS indicated that they have bucketed all these claims into three groups. There's the low-risk, medium-risk, and high-risk. The high-risk is where there are clear signs of error within the claim. Now, couple of things I need to make sure people understand. We don't know the criteria that the IRS is using to categorize people. They are not making that public. The other thing, too, is you cannot call the IRS and ask what bucket you're in. You just won't know. They can't help you on that front. What that means is if you're low-risk, the IRS is trying to process that claim as quickly as they can so that people can get the refunds back. If you're a high risk, they're trying to process that claim also as fast as they can to be able to deny those claims. Now, if you're medium-risk, that's the bucket where you're stuck and it will be a while before they actually look at those claims. Amato: That medium-risk bucket, do you recall: What's the approximate percentage that maybe that has? Lauridsen: I know that the IRS in their announcement gave a broader range of it, but in a conversation with IRS executives, I was told 57%. Amato: Good to know. Lauridsen: That's a big number. Amato: It is a big number. A lot of people still in limbo. And maybe lost in the shuffle: Can claims still be submitted during this period? Lauridsen: I get that question quite a bit, and there's a little bit of confusion around it. Some people think that claims, you can't file them. If you have a legitimate claim, you can still file it. The problem is centered around is the IRS going to process it or will it not be considered a valid claim? It goes back to those conversations that our members need to have with clients because we really just don't know what will happen with the claims. Amato: Does it surprise you the number that were labeled high-risk? Lauridsen: Not based on feedback that we've seen from our members and other external stakeholders. We do know that there were ERC mills out there promoting the claims and they would tell people "you absolutely qualify," when they absolutely didn't. We also know of some of our members where they flat out told the client "you don't qualify," but the ERC mills were telling them, "you do." Then they went off to the side to go get that claim because it was a lot of money for some of these people, and money was talking. Amato: Now, I guess also related to the ERC, on July 1 the IRS published some proposed regulations, so it's hot off the presses for us. What can you tell me about these proposed regs.? Lauridsen: The IRS did drop proposed regulations. These proposed regulations, they provide that the IRS will assess an underpayment of tax on any overpayment interest paid to the taxpayer on an erroneous ERC fund. In other words, not only would you need to pay back the overpayment of the interest portion that you received of a claim, but you would then also have interest penalties on top of it. One thing to note with the proposed regs. is it recognizes that the current regulations don't address the recapture of interest paid. They also note that the proposed regulations are to apply only to interest paid after the issuance of the proposed regulations, so not before. It's still very unclear as to the payments – what about the payments are already went out with or without the interest, and whether the IRS will attempt to recapture that interest? There's just still a lot of confusion around it. As we get more clarity, we will also provide that to our members. Amato: We will post some pertinent resources and also recent JofA coverage of this news and other news we mentioned. Melanie, I mentioned JofA resources, are there other resources that you'd like to recommend that maybe I'm not aware of? Lauridsen: Absolutely, Neil. The Tax Section Odyssey podcast will be doing a deeper dive around the questions that our members and their clients may have, and that should be posted around the same time as this podcast. (Editor's note: The episode Lauridsen mentioned is scheduled to publish the third week in July). Amato: Excellent. Now let's talk a little bit about BOI, beneficial ownership information, that reporting requirement. What's new on the BOI front? Lauridsen: There's quite a few different little updates here. But most recently [the] Maryland attorney general did actually provide and release an opinion on whether assistance by a CPA, with the beneficial ownership information reporting requirement of the Corporate Transparency Act, would constitute the unauthorized practice of law [UPL]. The Maryland attorney general made it very clear that the determination of UPL is fact-specific and that the opinion is only a guideline because, again, they have to take a look at each and every single case. Making clients aware of the BOI reporting requirements, guiding them through FinCEN's FAQs, through the compliance guide, helping [the client fill out] the BOI reporting form, guiding them through questions and answering questions for them — all of that is not considered unauthorized practice of law, according to the Maryland attorney general. If you were to fill out the report on behalf of a client without connecting with the client, there might be some issues there. Also, if there's just a lot of uncertainty and you know that legal knowledge is needed, a legal analysis to determine who a beneficial owner is, then you really should be turning to a lawyer to help you answer those questions. What I'm telling people is what we've been telling members all along, that a CPA will need to use their professional judgment when they engage or work with a client, and they'll have to determine where that line gets drawn as to whether or not a lawyer is needed. If it's a very complex business arrangement, most likely, you will want to include a lawyer. Again, this is all very in line with what we've been telling members, and it's also similar to what other states have said. But no other state has actually put it into writing, and there have been no other opinions. So far, Maryland is the first. Amato: Thanks for that update. Now, I understand also that I guess you're working with congressional staffers on a bill being drafted on BOI. What is that bill designed to do? Lauridsen: Actually, we are working with Congressman [William] Timmons' office and that bill actually works well with the Maryland opinion. The hope is that the bill would be able to avoid having to go to all the many multiple jurisdictions and the bill would be able to take care of all this all in one fell swoop. Specifically, the bill offers two aspects of relief which are a big concern to our members. Number one: The bill would offer a safe harbor for CPAs who do their due diligence when filing the BOI report on behalf of a client. In other words, if you get information, you have a conversation with the client, you do that due diligence, and yet the client gives you some fraudulent or false information, that you would not be held liable for that. The second piece that the bill does: The bill flat out states that services under the Corporate Transparency Act are not considered unauthorized practice of law. That really does go a long way in helping with the various states because when the federal [government] gives that nod, an indication, a lot of the states would most likely fall in line with that. Also, I do want to connect on the other types of work we're doing, not only with Congress. We have worked with a lot of external stakeholders and external coalition members because this concern is not a specific AICPA issue. This is a broader issue for all small business entities. Those two points that I brought up from the bill, those take care of the biggest pain points. But the third pain point really is the 30-day period to update the BOI report for an error or a beneficial owner's updated information. We're working with FinCEN on this since FinCEN actually has authority to make this change. Collectively, we are working with [Capitol] Hill, we are working with external stakeholders, and also FinCEN, and we've actually pulled everybody together to start having conversations so that there is awareness of what our pain points are, and what exactly we can do to be able to resolve a lot of these issues. FinCEN does have concerns, and they've made it very clear that this year they're focusing on awareness and not enforcement. Part of the reason is, so far, keep in mind we're seven months into the year, FinCEN has only received just over 2 million BOI reports. Remember, they're asking for 32.6 million, so awareness is definitely something of a concern for them. Stay tuned, there will be more to come. Amato: Thank you for that. You mentioned Congressman Timmons, that's, I guess, Rep. William Timmons from South Carolina, is that correct? Lauridsen: Correct. Amato: Great. Yes, we're talking about all these updates and potential changes and things that people want to do but currently the BOI reporting requirement, it remains the same for most small businesses, right? Lauridsen: It does and that's what makes it very scary. A lot of people have heard about the court cases where they said the Corporate Transparency Act was unconstitutional. But again, that only applied to a small sliver of the population of the members of [the National Small Business Association]. So, it's very confusing. The rules themselves are confusing. But unfortunately, everything remains the same, and people, unless you're one of those 23 exceptions, you still need to file. Amato: Moving on to IRS survey results. It's not an IRS survey, but it's a survey about the IRS. In our previous podcast, we discussed how the IRS perceived how the filing season went. The IRS released some data showing that they answered [88]% of calls that came to the IRS. The AICPA conducts an annual member survey immediately after the filing season to see how the members felt about IRS service. What does the feedback say, and is it in alignment with what the IRS said? Lauridsen: Oh, Neil. No, it's not in alignment with what the IRS said. This year, overall, the IRS did better than last year, which was also an improvement from [the] prior year. But even so, the bottom line is we are not at pre-pandemic levels. The IRS really has a long way to go for us to get to the service that we deserve. For example, the PPS line did show improvement from our members' perspective, but approximately 56% of our members were able to get through to the IRS on a consistent basis, while 29[%] of our members had hit-or-miss calls, and 15% of our members couldn't get through at all. The wait times, again, keep in mind the IRS is saying it's about three-minute wait time, those did improve. This year, only 28% of our respondents had to wait an hour or more, compared to 63% just two years ago. Yes, that's an improvement, but 28% of our members having to wait over an hour? That's a little bit painful there. The biggest pain point is the quality of service our members are getting. Is the IRS able to answer your question, or do you need to be transferred? At which all of us know that if you get transferred, you pretty much get transferred multiple times, and, of course, there's no guarantee of a resolution. Sadly, we found that only 37% of our members were able to get consistent support from the IRS, meaning a resolution, while 37% rarely or never were able to get a resolution. Amato: Among our members who are tax practitioners, are they satisfied with the service the IRS provided during filing season? Lauridsen: Neil, surprisingly, our members are feeling more optimistic about how the IRS is doing, and they've improved for the last two years with the IRS. It has definitely helped that the IRS is answering the calls. However, to your point, almost half of our membership does not think the IRS is on the right path. I should also let you know, too, that when we get these survey results, we actually communicate this directly with the IRS and we let them know. Our work is cut out for us as to what we need to be able to continue moving forward with IRS services, and we've definitely portrayed that to the IRS. Amato: Speaking of moving forward, for the 2025 filing season, what would you say are the top concerns facing AICPA members? Lauridsen: Given that it's an election year, no shocker that the number one concern for our members, and number one concern comes in about 29%, is the impact of legislative changes. What I was surprised to see was that the lack of guidance actually came in only at 17%. But I actually expect that to go up considerably once we start to see those legislative tax packages becoming law and we are going to need guidance from the IRS and Treasury. Number two on the list, coming in at about 27%, also no surprise, is the continued delay, which includes the written correspondence and processing of information with the IRS. I should also note that we did have an option on this survey for people to click "other" and fill in the response, and that came in about 5%. Overwhelmingly, everybody was talking [about] the delay of the brokerage statements and delayed K-1s, which create workload compression areas. That is definitely something that we've been monitoring and we're starting to work again, and we've been keeping an eye on it for a few years. Neil, all this is really to say that we have identified some issues. There's a lot of work that needs to be improved upon with the IRS, and we're moving forward with it. Amato: K-1 in particular, that was a term I hadn't even thought about or heard in a while, so I guess it's still out there, along with others. Melanie, we appreciate this update as we close out our July recording. Again, we're recording early July. This is due to publish in mid-July. What would you like to leave listeners with as a closing thought? Lauridsen: I think our members should be aware that we are monitoring, we definitely love hearing from them, we take it to heart, and we definitely push for their needs to be able to find resolutions. Sometimes the work is very slow. But we do start to see results and we do start to see the needle moving. Hopefully soon, we'll have some resolution with ERC and some answers and guidance, and we'll start seeing resolutions for BOI, too. Amato: That's great. Melanie, thank you very much. Lauridsen: Thank you, Neil. Keep your finger on the pulse of the dynamic and evolving tax landscape with insights from tax thought leaders in the AICPA Tax Section. The Tax Section Odyssey podcast includes a digest of tax developments, trending issues and practice management tips that you need to be aware of to elevate your professional development and your firm practices. This resource is part of the robust tax resource library available from the AICPA Tax Section. The Tax Section is your go-to home base for staying up to date on the latest tax developments and providing the edge you need for upskilling your professional development. If you’re not already a member, consider joining this prestigious community of your tax peers. You’ll get free CPE, access to rich technical content such as our Annual Tax Compliance Kit, a weekly member newsletter and a digital subscription to The Tax Adviser.
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Jun 27, 2024 • 46min

Unpacking Supreme Court decision — Moore v. U.S. with Tony Nitti

Tony Nitti, a partner at EY National Tax and tax law expert, breaks down the significant Supreme Court ruling on Moore v. U.S. He discusses the implications of the mandatory repatriation tax and how it shapes future discussions on unrealized gains and wealth taxes. Nitti emphasizes the value of understanding both the majority and dissenting opinions for a richer grasp of tax law evolution. Listeners will find insights on historical context and the potential future of taxation in America, complete with references to landmark cases.
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Jun 19, 2024 • 29min

ENGAGE download – Wins and takeaways

Get a snapshot of the AICPA & CIMA ENGAGE 24 conference held in June at Las Vegas. Conference attendees share their experiences at this premier accounting event along with the knowledge that they gained from various sessions. Highlights include discussions on professional growth, finding balance, mental wellness and the importance of networking. Register now to attend AICPA & CIMA ENGAGE 25. Transcript April Walker: Hello everyone, and welcome to the AICPA's Tax Section Odyssey podcast, where we offer thought leadership on all things tax facing the profession. I'm April Walker, a lead manager from the tax section. Today's episode is a little different as it contains snippets and recordings from several participants at the AICPA and SEMA Engage conference, which was held last week in Las Vegas. I have actually been to this conference as a staff member of the association every year. I believe this is the eighth. 2020 was virtual, of course, but I've been every year and somehow it just always gets a little bit better and better to me. But rather than hear me drone on and on about how great it is, please listen to those who attended. I have with me Ashley [Francis]. Ashley was in person with me. We're recording this on Tuesday, June 11th. We were together last week at the Engage Conference in lovely, hot -- very hot - Las Vegas last week. Ashley, I'd love to hear your overall impression. How was your week at the conference? Ashley Francis: So, my overall, overall, is that I am so exhausted, but it is that good exhaustion. Like you go and you do something, and you do the things that you want to do and you have such a wonderful time. That you're tired, but it was a good experience. Walker: Wonderful, yes. Were you there all four days? Francis: Oh, I was there longer because I did one of the pre sessions. Walker: Look at you. Francis: I did the PFS live pre session, sat for my PFS certificate, and passed the test. Walker: Congratulations! Francis: Thank you! Walker: [Go] you with your new credential. Francis: I know, it's very exciting, Walker: Yeah, I think one more day might be do me in. Francis: I agree, one more day, Walker: It's wonderful… Francis: [Five]days was enough, yeah. Walker: Yeah, it's just a lot. I'm wondering in all of the sessions that you went to, if you had one particular takeaway or one session that really meant something to you. I guess meant something to you professionally or personally. That [included something] you are trying to implement into your life. Francis: Absolutely. And this is a challenging question because there were three sessions that stood out to me, that I could go back and listen to again and again, but the one that impacted me the most, I would have to say, is Andrea Miller's session on balance and mental wellness. Because I think a lot of times, especially for me, everything is just go, do the next thing, do the next thing. Without stopping to think, wait... is this next thing the thing I actually want to be doing? And so even though it was a big room, it was full of folks, her session did such a great job, having folks walk through that experience themselves in a very individual way. When I left that session, I was like, holy cow, what am I going to do with my life now? So, it was really big. I ordered [about] 30 books from the library because of it. Walker: Nice, that's always a good session that creates more work for you to do after the fact. I didn't see that session. I have a long list of sessions that I want to go back to and watch for the first time or watch again. I'm sure you know she used to be staff here at the AICPA and I loved working with her. Francis: She's great. Her career turn has been exciting to watch also. Can I give a shout out to the other two sessions that I would love? Twyla and Barbara Richardson, their session on “making wow client engagements” that was really good. And then Keila and Carrie talked about bringing in non-accountants to help support and sustain and build our firms. That one was brilliant as well because it hit on so many different, important things that we need to think about. Walker: Neither of those which I attended. again, there's so much going on, all the time, which is, not necessarily a negative of engage, but it's just. It's almost like you have FOMO. It's oh, I can't do all this stuff. Yeah. all thank you so much, Ashley, for hopping on and recording with me today. I hope to see you at, if not before, at next year's Engage Francis: You definitely will. Walker: Welcome, Brandon. I have with me Brandon Lagarde, who is a wonderful volunteer with me. [He]does a lot of different things, and he was with me at Engage last week. We had a lot of fun, but Brandon, I'd love to hear about your experience overall at the conference last week. Lagarde: Yes, absolutely. Thanks for having me. Last week was the Engage Conference, and I believe this is the 8th Engage, is that correct? Walker: yeah, that seems right. Lagarde: 8th Conference? It's been many of them, and I think I've been to every one of them, and every time I go, I'm just amazed at the scope of what is provided. It just seems every year it gets bigger and bigger. The speakers are incredible. the exhibitors are getting, better and better, and even, just so much out there. The people that are going. It’s a great experience overall. One thing we hear [a lot] about the accounting population and aging population. I was shocked to see the amount of young people at the conference and excited about accounting and excited about the practice. Also really getting to meet a lot of other people who are trying to do the same thing we're doing. Just this practicing and learning from each other and it was a great experience. Walker: Yeah, it was. It was a lot of energy and a lot of enthusiasm. And sometimes it doesn't come from the older generation. It comes from the younger generation. But I like to be a hanger on [of the younger generation]. Brandon, are there any connections you made from a networking perspective during the week that you would like to share with us? Lagarde: As I mentioned, this is my eighth Engage conference. And this is I believe the second annual AICPA Foundation Golf Tournament that was held Sunday morning before the conference kicked off. This year I looked at my schedule and I'm attempting to play golf, trying to get better and improve. And I've been told that the only way to improve is to play a lot. So, I thought, let me sign up for this tournament. So I actually played in the golf tournament, Sunday morning. Fantastic tournament- I highly recommend it to anyone who's going out there. And got to meet some really great people. You get put with three other people to play with. Didn't know these people before and played a round of golf. Had some good shots, had some bad shots, enough good shots to go back out there. We did not win the tournament, unfortunately, but we made some good friends and I continued to network with those individuals and keep in touch with them throughout the conference and ran into them multiple times. I ran into him at the Old Red event, which was an event that was sponsored by AICPA, on Tuesday night at the conference. This was another great time just to network and to listen to the band. Although, it was a little hard to network there because it was a bit loud. I tried to talk to Damian Martin a couple times, and I think we were screaming at each other at one point just because of the volume of the music. But it was a great place to just meet people. At the exhibit hall, I'm always amazed at the [number] of vendors that are there that are sure They're there to support the AICPA and their product. But it's just amazing the technology that's out there and the things that are happening. Getting to meet some of the people there and getting to make connections with some of the platforms out there and learning more about people. A lot of generative AI conversations, a lot of generative AI companies - some better than others- but, just a lot of opportunity out there to meet people. And that’s the benefit of going to something like this and going to a conference like this. It's not just tax people. It's not just audit people. It's people from all different areas of the CPA practice. At the end of the day, all we're trying to do is help our clients and help our practices improve and getting to see what's out there and getting to meet people who are dealing with the same experiences we're dealing with is you can't put a price tag on that. Walker: Yeah, I agree. Brandon, thanks for joining me for a quick little snippet of your week. It’s one of my favorite weeks of the year. I look forward to Engage 2025. What shenanigans will we get up to? Time will tell. Lagarde: We've already started, we've already started [ENGAGE 2025] to do list. Walker: Yes, we have. Things we didn't get to that we want to accomplish. Most of them are very responsible types of to dos. Lagarde: Absolutely, I already have it in my calendar next year too. I'm already down to go. Walker: Wonderful. Lagarde: [Looking] forward to it. Walker: Thanks for joining me, Brandon. Lagarde: Thank you. Walker: Welcome, Mark. Mark Gallegos was at the ENGAGE conference. We're recording this on a Tuesday, June 11th. Mark, tell me, I know it was not your first time, you've been to ENGAGE several times, but, what specifically, was a highlight for you about last week's ENGAGE conference? Gallegos: Yeah, I think from the ENGAGE conference, it's the human aspect to me. Meeting people, interacting with people, and really getting to listen and learn from others. The way I look at it is, you get to learn from experts in the field in areas that you think you know a little bit about, and you learn that you have a lot of learning and growth to go forward with. Learning on the latest trends in the profession, strategies, and regulatory updates from a tax perspective. And then, learning from these experts and staying relevant in the current tax landscape and the changing tax landscape. But also learning from others in other areas, whether it's accounting and financial planning and estate trust and areas that maybe I don't do enough work in. But it enhanced my growth opportunity while there. At the same time, you just become a more well-rounded person by being inundated with that for a week. Walker: Yeah, I know that's one thing that is possibly a negative for people about ENGAGE. It is so big and there are so many different topics. But to me, that is a positive, because you're not just meeting tax people. You're meeting people from all across the industry. I completely agree with you that the human aspect of conferences is something I'm really excited was able to survive the pandemic and come out strong on the other side. Gallegos: That's right. And I think networking within the conference, whether you're in the classes, between sessions or early in the morning or Walker: Or late at night, let's just say. Gallegos: Whatever your flavor is, or maybe all the above, I think that is a great opportunity because you're meeting people from various sectors within the profession. These valuable connections last beyond the conference. You can even be meeting potential clients, people you could work with or vice versa. And more importantly, thought leaders- people that have great ways of collaborating with others and learning how you can help them, or they can help you. I think that's a huge takeaway for me. Walker: I think so too. Thank you for sharing your insights. Hopefully, we give people who were not there a little bit of FOMO. And it will happen again next, next June. Thanks again, Mark. Gallegos: You're welcome. Walker: I have with me now Dan Moore, who was also out at ENGAGE with me last week. Dan, what's your overall impressions and thoughts about the Engage conference last week? Moore: Hey, April. Thanks for having me on today. I don't know why the feeling seemed to be different this year. I don't know if it was just the great keynote that we had kick off the conference Monday morning- Eric Weinmayer, who really spoke to me and spoke to a lot of people. But I just felt like there was a massive amount of energy. At this year's Engage, several of the speakers were just so excited to be there to get up and speak and talk to participants after their sessions. They were excited to meet up with their colleagues and go out to dinner. there just seemed to be so much. Excitement within the room. The energy was great. And I am still a week later I'm just still really excited about how the event went. Walker: Yeah, I had the same feeling I was trying to describe to my team members who unfortunately were not able to be out there with me and I said - it's just a vibe. That’s what the kids say. It just a vibe. It is hard to explain, but it’s just a good word for the energy and excitement. Moore: Our speakers were excited to be there, and that was great to see. Some were speaking on new material, some had revised and revamped some older material. [They were] just so excited to present. Everyone really kept my attention, as much as we were getting tired near the end of the week and day four. They were still keeping my attention and the energy just was everything. Walker: That's great. We know you did a lot of things during the week, but was there anything that you didn't have time to do? It's hard to make time for everything, but was there anything specific that you have on your to do list, for next year's Engage? Moore: Several things stick out in my mind. I've already started my to do list for next year's Engage of the things I want to remember to do. Some of them are directly content related. But others are the other activities that are available to you during Engage. First, it's getting up at 6am and participating in either yoga or the run. I know a group of people get together, they do a walk/run, they go out on the strip, and I didn't take advantage of that this year. So that is definitely on my to do list for next year. But also I felt like I didn't go into the conference as prepared as I wanted to really go out and explore the exhibit hall, as well as explore the solution sessions that were available with many of our vendors. We are kicking off a project within my office to reevaluate our tech stack, and I really wish I would have taken the time to. start the conversations internally within my firm so that I could go out and seek out the vendors that are on the short list of solutions that we are looking at implementing in our firm. Because what a great opportunity to meet the frontline of those technology solutions. That was the big thing that I really walked away thinking, next year, I want to take the opportunity to meet people. There's a number of solution sessions, I want to say there was probably at least 4 or 5 running every morning, also solution sessions during lunch, where you could go out and hear specific presentations from various vendors and I missed out on that opportunity. But you know what? I'm not going to beat myself up about that. That's next year. but I think it takes a lot of planning. To come to the conference, you get the exhibit hall list ahead of time. So, you can go ahead and take a look and see what vendors are going to be in the exhibit hall and start thinking about those vendors that you want to visit. You can make the list up ahead of time to seek them out and not only get to meet them, but see, hey, are they offering some sort of special pricing for attendees? And, hey, you can also fill up your swag bag. Go home with free stuff. Walker: That's right. I know that they were doing demos of certain things, and that would be cool to do. But like you said, you have to go into the conference planning exactly what you're going to do almost every minute, which is hard to do. It's hard for somebody like me to do, because I'm more of a wing-it kind of person. But if you plan, you can really take the full opportunities for what's available there. Moore: The other thing too, if you're talking to a vendor and one of their the vendor's customers, come up, you can start the conversation with another firm owner. They're like, oh, I'm using this solution. Later on, you can meet up with them, and you can say, hey, now that we're alone, can I ask you some questions, how did you implement this into your firm? What works? What doesn't work? What are some best practices you would suggest if you're thinking of implementing a new solution? And so that's also a great help. If you know a firm that said, hey, this is a great solution, but if I had to do it again, what would it be? I would have approached it this way. That connection really is invaluable. Walker: Alright, thanks so much for sharing, Dan and we look forward to hearing more. Dan is the chair of the Tax Strategies conference, he will definitely be there next year, no question. Truly, in a couple of months, we start planning for next year's conference. Looking forward to doing that. Looking forward to seeing all the new and exciting stuff we can incorporate for the 2025 conference. Moore: Thank you, April. Walker: Yep. Thanks so much. Walker: I have with me Kelly Rohrs. Kelly, it was your first time at Engage, so I would love for you to share kind of your initial impressions and also what was your favorite part about being at the Engage conference. Rohrs: Hi, April. Thanks for having me on today. The first time at Engage, first time in Vegas. I couldn't believe how big it was. There were over 4, 500 people were there. Massive. I ran into so many people, so many familiar faces. It was really just such a wonderful event. Walker: Yeah, one of my favorite things about, that just because it's such a big conference, you do run into people that you've probably only known necessarily through social media or things, so like putting a face to a name is really just the coolest thing. Rohrs: Absolutely. Totally agree. Walker: All right, any other kind of takeaways or thoughts you have about the Engage conference? Will you come back? Rohrs: I think that people think that conferences like these are for large firms, especially put on by the AICPA. People don't think that this would be beneficial for the small firm owner, but I think that is an absolute misconception. I think a lot of the classes were geared towards the small professional, the smaller firm, how to advance your firm, what sort of services. That you should provide or develop to keep up with the times and, besides the continuing education portion of it, the networking piece and meeting the vendors that were there was phenomenal. to have the two huge Showrooms filled with the best vendors in the country who are willing to, a lot of them are giving demos, handing out free demos, free months of subscriptions. That is really the power of an event like this. To take away all of these new software or to hear what other people are doing in the hiring space. It’s priceless. It's worth every penny. Walker: Yeah, it is, it's hard to describe, but it is like two giant rooms of vendors. And then also the vendors do, we call them solution sessions or education labs. And so even more you're able to get like a deeper dive into their services and things, which I think is, like you said, it’s cool and it's not something you can get just anywhere. Rohrs: Yeah. It's so much better than being behind the screen. You're in person. You're watching these people who are super passionate about what they're doing. You're building true relationships. And I don't think I met anybody I didn't like. Walker: Oh, that's always a positive. It was delightful. It was our first-time meeting in person, even though we've known each other for years. So that's always delightful to experience that. Next time we'll schedule and spend some more time together. I think we were all both just running around, crazy. Thank you so much, Kelly, for sharing your experiences with us on Engage. Rohrs: Thank you. Walker: I have with me now Damian Martin. Damian was also at the Engage conference last week. Damian, you have been at Engage a couple of times. What was your general impression about last week's conference? Martin: General impression, is just how inspired I am and, how great it is to see all the things going on in the profession and all the people in the profession, I'll have to say a highlight for me, aside from getting to hang out with my favorite tax podcast host, which is you, obviously, It was watching Tony Nitti accept the Sid Kess award and his acceptance speech and all of that. That was just, just incredible and a highlight on, on, on many fronts, I'll just say. Walker: I love those five minutes was like a lot of nuggets in there. If you have access to Engage and you can go back and listen to it, I would listen to it for that first couple of minutes. He's very inspiring, and makes you want to reach out and do bigger and better things. Martin: Yes. And I'd be remiss if I didn't say too, that it was followed by a very, very good business tax update as well. Walker: Absolutely, hang on, I wasn't just saying, Martin: Yeah. No, I know you weren't. Walker: Brian did an excellent job with the, Brian Lovett, with the business tax update, so yes, hang on for the whole session, the whole 75 minutes. Damian, did you make a networking connection? To me is my absolute favorite part about Engage, seeing people in person and, getting in that face to face connection. Did you make a connection that you'd like to talk about? Martin: Absolutely. And I completely agree, right? Like it's nice to interact, especially, remotely and whatnot. But just there, there's something to being in person and maybe putting a face to a name and all of that, that happens every year. But this is actually a connection I'll say that even goes back to last year. So last year at Engage, I reconnected with a group from the firm I started with, which is Bowman Company in Stockton, California. They were the ones that kind of gave me the chance in public accounting, got me inspired. Really the path that, that I got on to where I am today, I attribute all back to them. And then coming back this year, I have to say, it just, it warmed my heart and it just really meant a ton to me to see Daryl Petrick and, Jeannie Rusick, who are, partners at that firm, sitting in the front row at my session on Monday, for the individual tax update. It just speaks volumes about them. Back to your point about just the great people that are in this profession, and I generally walk away with, I know there's headwinds and whatever else, that you can focus on, but there's just, there's good people in the profession. So, it's really hard for me not to conclude that there's great things that continue to come for the profession as a result of people like, like Daryl and Jeannie. Walker: Well said. Yeah, I think there's a lot to be said. There's a lot of positive energy that I feel when I'm at Engage that makes me excited about the profession and about changing and evolving. Martin: That's right. Walker: Thank you so much, Damian, for sitting down with me for a quick little interview. We'll have to, we'll have to have you back for a longer discussion at another time. Martin: Happy to do it. Thank you, April. Walker: Thank you so much. Usually when I close these podcasts, I always talk about taking a journey together towards a better profession. And I ask my guest what their bucket list travel destination is. But while I didn't take the time to ask all of our guests today to answer that question specifically, I think it's safe to say that based on their discussions, we'll all be back together in Las Vegas, again, at Engage 2025. Again, this is April Walker from the AICPA Tax Section. This community is your go to source for technical guidance and resources designed especially for CPA tax practitioners like you in mind. This is a podcast from AICPA and SEMA. Together as the Association of International Certified Professional Accountants. You can find us wherever you listen to your podcast, and we encourage you to follow us, so you don't miss an episode. If you already follow us, thank you so much. And please feel free to share with a likeminded friend. You can also find us at aicpa-cima.com/tax and find our other episodes as well as any resources mentioned during this episode and others. Thank you so much for listening. Keep your finger on the pulse of the dynamic and evolving tax landscape with insights from tax thought leaders in the AICPA Tax Section. The Tax Section Odyssey podcast includes a digest of tax developments, trending issues and practice management tips that you need to be aware of to elevate your professional development and your firm practices. This resource is part of the robust tax resource library available from the AICPA Tax Section. The Tax Section is your go-to home base for staying up to date on the latest tax developments and providing the edge you need for upskilling your professional development. If you’re not already a member, consider joining this prestigious community of your tax peers. You’ll get free CPE, access to rich technical content such as our Annual Tax Compliance Kit, a weekly member newsletter and a digital subscription to The Tax Adviser.
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May 24, 2024 • 16min

What you need to know about BEPS 2.0: Pillar One and Pillar Two

The OECD BEPS 2.0 project consists of two pillars. Pillar One applies to the biggest and most profitable multinational enterprises and reallocates part of their profit and taxing rights to the countries where they sell their products and services. Pillar Two introduces a global minimum corporate tax of 15% to prevent tax avoidance and base erosion.   The U.S. has not yet adopted the OECD project into its tax system, but it will still impact U.S. multinational businesses that operate abroad. Practitioners need to know about the OECD project because it is a major change in the international tax system that will affect many multinational enterprises and their tax compliance.   AICPA resources OECD BEPS 2.0 - Pillar One and Pillar Two — The OECD BEPS 2.0 sets out to provide a tax reform framework allowing for more transparency in the global tax environment. Advocacy Comments to Treasury on tax issues of OECD Pillar Two, Feb. 14, 2024 Comments to Treasury on Amount B of OECD Pillar One, Dec. 12, 2023 Other resources  OECD BEPS – Inclusive Framework on Base Erosion and Profit Sharing Transcript April Walker: Hello, everyone, and welcome to the AICPA's Tax Section Odyssey podcast, where we offer thought leadership on all things tax facing the profession. I'm April Walker, a Lead Manager from the Tax Section, and I'm here today with my friend and colleague, Henry Grzes. He's a colleague here with me on the AICPA's Tax Practice & Ethics team. Welcome back, Henry. Henry Grzes: Thanks April. Happy to be back. Walker: Wonderful. The aim and goal of this podcast is definitely not to teach you everything you ever wanted to know about OECD and Pillar One and Pillar Two because we certainly couldn't do that on this podcast. But, we would like to talk about why you need to care, why you do need to know high level what this framework is about, and I'm going to try to listen also because I know when I start hearing this, I definitely tend to turn off my listening ears. Everyone turn on your listening ears, as they say in preschool, and let's get going. First, I've been saying and I've said it a couple of times, and I know that we as accountants love acronyms, OECD. Who is this, and what are their goals? Grzes: We're going to start basic, as you said. OECD stands for the Organization for Economic Co-operation and Development. Now from their website, they describe themselves as an international organization that works to build better policies which result in better lives. Their goal is to shape policies that foster prosperity, equality, opportunity, and well-being for us all. Together with governments and policymakers and citizens, they work on establishing evidence-based international standards and finding solutions to a range of social, economic, and environmental challenges. These include economic performance, creating jobs to foster strong education, and fighting international tax evasion and international standard setting. The goal of the OECD project we're talking about today is to reform the international tax system and provide a more transparent environment for tax. The official title of the project is referred to as the OECD BEPS 2.0, Pillar One and Pillar Two. By the way, BEPS stands for Base Erosion and Profit Shifting. Walker: Thanks, Henry. I think we can all agree that transparent tax environment sounds like a good goal, but when I start hearing about pillars, I think about building buildings, but that's not what this is about at all. So tell me more about Pillar One and Pillar Two. Grzes: Each pillar addresses a different gap in the existing rules that allow multinational enterprises, also referred to as MNEs, to avoid paying taxes. First, Pillar One applies to the biggest and most profitable MNEs and reallocates part of their profit and taxing rights to the countries where they sell their products and provide their services. In effect, where their consumers are. It deals with transfer pricing issues and the allocation of profits and adopts new nexus and profit allocation rules with the objective of assigning a greater share of taxing rights over global business income to market countries. Without these rules, these companies can earn significant profits in a market without paying much tax there. It is a plan to reallocate some taxing rights to countries based on where their customers are located. Pillar One originally targeted large, profitable digital companies, but now applies to most large profitable multinationals. The G20 OECD project on addressing the taxation of digital economy began in 2019, building on the final reports issued in 2015 in the earlier projects on BEPS. Pillar Two was released in December 2021, and when adopted, would apply to a much larger group of MNEs with global annual revenue of 750 million EUR. These companies would be subject to a global minimum corporate tax. With these new rules, companies organizing their affairs in a way that their profits, in a given jurisdiction, whether that jurisdiction is deemed to be a low tax one or otherwise, are subject to an effective tax rate lower than the minimum rate. If that is the case, those profits would be still taxed at the minimum rate of 15%. Walker: In April-language, Pillar One is talking about transfer pricing, which transfer pricing obviously has been an issue for the whole time I've been doing tax, which is a long time, and then Pillar Two is a minimum tax, and it's a high level, 750 million EUR. Where does this regime stand in the United States? Grzes: Currently, there are no enacted laws that incorporate Pillar Two into the U.S. taxing system. There has been proposed legislation, but the implemented laws abroad will still affect U.S. multinational businesses. U.S. adoption of these pillars would require Congress's approval. While countries are already adopting Pillar Two without a U.S. agreement, Pillar One would likely require U.S. approval to go forward since a large fraction of the income affected is from U.S. multinationals. The deadline for the agreement on Pillar One was extended for a year through 2024. Canada was considering a digital service tax, also known as a DST, and delayed adoption while Pillar One was under consideration, but it is now continuing with a retroactive DST. According to the Congressional Research Service, which is a nonpartisan shared staff to congressional committees and members of Congress, if Pillar One is adopted, there will likely be a revenue loss to the U.S. due to the reallocation of taxing rights, and increased tax on U.S. firms, and an associated increase claim of foreign tax credits. If Pillar One is not adopted, DSTs that have been adopted over the past few years in other countries would likely remain in effect and proliferate in other jurisdictions. There is no current proposed regulation in the U.S. that incorporates Pillar Two into the U..S taxing system, as I mentioned earlier. The IRS issued a notice released in December of 2023 which barely scratches the surface on the relation of Pillar Two with foreign tax credit and dual consolidated losses. But Pillar Two has not yet been enacted in the U.S. Despite the lack of adoption in the U.S. at this point, the laws impact MNEs because they do business abroad, but there is still much needed guidance in the U.S. on these taxes. Walker: Quick summary, no U.S. taxes have been implemented by this minimum tax so far for Pillar Two, but still, we'll talk about this in a few minutes, still we can't ignore this and we'll talk about why. A question came up for me, again, I'm no international tax expert by any means, but I hear minimum tax and I think how does this relate, if at all, to the corporate alternative minimum tax, CAMT, I think it's also called, affectionately, imposed by the Inflation Reduction Act a few years ago. Are they connected or like each other in any way, and also how about the GILTI regime that was added as part of TCJA? I know that's also an international tax provision. Grzes: The two taxes CAMT and Pillar 2 are completely unrelated. Inflation Reduction Act imposed a Corporate Alternative Minimum Tax, as you mentioned, CAMT is the acronym equal to the excess of 15% of a corporation's adjusted financial statement income. Keeping with the theme of acronyms, that would be AFSI over its corporate alternative minimum tax, foreign tax credit. AFSI is the net income or loss set forth on an applicable financial statement with certain adjustments. This tax is effective as of December 31, 2022. Pillar 2, however, is a 15% effective tax rate and CAMT is a 15% tax based on AFSI, which is effectively booked income. In regards to GILTI as part of the Tax Cuts and Jobs Act, the U.S. adopted various changes to its international tax rules, including this new tax, which we refer to as GILTI, which stands for Global Intangible Low Tax Income. These rules apply to the revenue of non U.S. companies that U.S. corporations and other citizens control. These entities are referred to as controlled foreign corporations or CFCs. GILTI is a CFC blended tax regime under Pillar 2, but it's important to note the taxing of GILTI is much different than Pillar 2, even though Pillar 2, as it was being developed, used GILTI as its basis. GILTI is based on a blended tax regime versus Pillar 2, which is based on a country-by-country one. Walker: That's helpful to help me understand. Definitely still no expert on this, but I certainly want people to understand why they need to know to be able to talk intelligently about these different regimes and taxes. Tell me, give me a case for why I need to know more and care about these developments? Grzes: Well, that's a great question, and as we all know, the world is becoming a smaller place by the day. Although these rules primarily impact large corporations, the accounting profession has a role because many practitioners will need to understand these rules and stay abreast of the changes which are happening quickly so they can guide their clients through the complexities of compliance. Walker: Got it. Definitely more to come on this issue. Let's talk through the challenges that we'll face in the businesses that we serve and represent in working through these new regimes. Grzes: As you indicated, there are many challenges and those include understanding the rules and the compliance associated with that. That's a big one. Increased reporting and tracking requirements, including increased documentation burdens and reporting. There's also the cost of implementation, administrative burden of complying with Pillar 2 will significantly increase compliance costs. Also understanding the transfer pricing rules, especially when it comes to Pillar 1. We think all practitioners anticipate some form of tax law changes in conjunction with the numerous provisions of the Tax Cuts and Jobs Act scheduled to expire at the end of 2025. And it is possible that these OECD rules may be addressed as part of this anticipated legislation. Walker: Perfect. We're definitely continuing to do more work in this area with resources and we're definitely following all the potential legislation that's coming up or that we expect will come up either towards the end of this year, end of 2024 or certainly towards the end of 2025. There's so many provisions that are expiring, so we will continue to follow this. Henry, I like to have a little fun with my guests. In closing, I like to think about is taking a journey together. Today on our journey, we're taking an international journey, but it doesn't have to be -towards a better profession. In doing so, I love to hear about your bucket list items or a trip you have planned. You are a well-traveled individual, I know, because you are a friend of mine, but I'd love for you to share something that you're excited about. Grzes: My wife and I will be spending a week or so the summer in the Azores, which are the islands off of Portugal, as well as within Portugal on the continent itself. Very much looking forward, we've never been, we know people who have visited those places and they loved it. We're very much looking forward to visiting the country and experiencing the culture and everything that it has to offer. Walker: Very nice. You speak Portuguese? Grzes: I do not, but I will find a way between now and then to expose myself to the language. So that I can at least… Walker: At least ask for a drink. Grzes: Ask for a drink and identify where the bathroom is. Walker: Very good. Those are the important things. Thank you again so much Henry, for sitting down with me and talking about this very complex topic. Again, we really just wanted to give you a nice highlight of what you need to know and that there's more to come from us on this topic. Again, this is April Walker from the AICPA Tax Section. This community is your go-to source for technical guidance and resources. Designed especially for CPA tax practitioners like you in mind. This is a podcast from AICPA and CIMA together as the Association of International Certified Professional Accountants. You can find us wherever you listen to your podcast and we encourage you to follow us so you don't miss an episode. If you already follow us, thank you so much and please feel free to share with a like-minded friend. You can also find us at the aicpa.com/tax to our other episodes, as well as get access to the resources mentioned during the episode. Thank you so much for listening. Keep your finger on the pulse of the dynamic and evolving tax landscape with insights from tax thought leaders in the AICPA Tax Section. The Tax Section Odyssey podcast includes a digest of tax developments, trending issues and practice management tips that you need to be aware of to elevate your professional development and your firm practices. This resource is part of the robust tax resource library available from the AICPA Tax Section. The Tax Section is your go-to home base for staying up to date on the latest tax developments and providing the edge you need for upskilling your professional development. If you’re not already a member, consider joining this prestigious community of your tax peers. You’ll get free CPE, access to rich technical content such as our Annual Tax Compliance Kit, a weekly member newsletter and a digital subscription to The Tax Adviser.
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May 9, 2024 • 14min

Post-April 15: Top-of-mind tax advocacy topics, including the ERC

Melanie Lauridsen, AICPA & CIMA VP of Tax Policy & Advocacy, provides an update on IRS service improvements and the impact of the Inflation Reduction Act funding. She also discusses other key tax advocacy tax initiatives that are top of mind right now.   AICPA resources Employee retention credit resource center — Access resources to learn the latest on the employee retention credit (ERC). 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). Transcript Neil Amato: Welcome back to the Journal of Accountancy podcast. This is Neil Amato with the JofA. I'm joined again by Melanie Lauridsen, vice president–Tax Policy & Advocacy for the AICPA. This is a special collaboration episode between the JofA podcast and the Tax Section Odyssey podcast. Melanie and I are going to talk about some tax topics that are top of mind for practitioners. This is the third such update in calendar year 2024. First, Melanie, welcome back to the podcast. We're recording in late April. In the tax community – I’m more the general consumer, not a practitioner – but I'm wondering, is there a sigh of relief maybe for the tax community? Or maybe a setting of those out-of-office emails and packing of bags for vacation when busy season ends? Melanie Lauridsen: Neil, absolutely. There definitely is. I think of filing season like running a marathon in a two-hour timeframe. It's very intense, and at times you just don't know if you're going to make it. It feels very exhausting. But you do, and it's hard to keep up that pace. So, a quick shout-out to everyone and congratulations to those that did just wrap up another filing season. They've definitely earned that break and that vacation time. Amato: Again, we're recording late April, April 26 to be specific. This episode will air in early May. Correct me if I'm wrong on this, but it feels like this year is the first sort of normal March and April for tax season that we've had since 2019. Is that accurate? Lauridsen: Neil, last year was also a relatively smooth filing season. We did have uncertainty about how things were going to go. However, the IRS did receive the Inflation Reduction Act funding, which allowed last year to show improvements to their services. This is actually the second filing season in which the IRS has had access to that IRA funding. According to the IRS stats, they had a really strong filing season. Now, I also believe this is in part because the IRS had a smooth runway for this filing season. There really weren't new laws, and, of course, the government shutdown did not occur, which forced the IRS to shut down. Collectively, like I said, it's a smooth filing season for the IRS to be able to show more improvements. Now, most notably, according to the IRS, they've reached an 88% level of service, which is an increase from 84% level of service at the same time last year. They also answered over a million more calls this year with shorter wait times. That's all really good. However, I do need to caution that the IRS's numbers are a snapshot of a moment in time. That 88% level of service on their phone lines really captures a limited number of phone lines that they have and only a subset of the callers of those limited number of phone lines. For example, last year they had that 84% level of service that I mentioned. When looked at the entire year and looking at all the calls the IRS received, they really only answered about 34% of all the calls. I also have to plug in that each year, we also deploy our own survey immediately after filing season, and we reach out to our members and ask them how they felt finally season went. Those responses oftentimes align more so with that 34%, and they also align with Erin Collins’ report to Congress on how the IRS did overall. Hopefully, for the next podcast, we can go over the results that we get from our members. Amato: That's great, and it definitely does show that while there has been a smooth runway, it doesn't necessarily mean everything's going smoothly. It's certainly not all calm as it relates to issues affecting taxpayers, tax practitioners. What are some of those topics that are still popping up, that are top of mind for practitioners as we head into May and beyond? Lauridsen: I do have to say BOI is a hot topic, beneficial ownership information. However, during the filing season, it got put on the back burner. But now that filing season is over, I've had a flood of people reaching out on the issue and really asking about the impacts regarding the court case with the National Small Business Association and what that really means. Also, unfortunately, we're starting to enter the natural disaster season as we head particularly into the October filing season, so people start to ask questions about that. Actually just this past week, we endorsed a bipartisan legislation to provide additional tax relief to victims of natural disasters. Specifically, what we're supporting is when the IRS extends a filing deadline due to a disaster declaration, it would allow the taxpayers to claim and recover refunds not only within those three years but also that extended period of the disaster-related extension. Again, very helpful for victims of relief. Changing topics again, another area that we're also working on, it has to do with digital assets. The IRS is beginning to ramp up more and more with that, and we're trying to find clarity around that tax framework for digital assets. Amato: Yes. In the Journal of Accountancy, we recently wrote about the posting of the Form 1099-DA. Is that the draft, or the final form? Lauridsen: Neil, you're right. It is the draft form, and they did release it. The intention is to show the report of the information of the sale or disposition of digital assets. That's going to be kicking off Jan. 1 of 2025, so that is coming soon. Amato: Thank you for that. Tell me your reaction or response to this IRS news. Commissioner Danny Werfel said recently that the IRS still receives 20,000 employee retention credit claims a week. That's even though the processing of those claims has been halted since September. Seems like a lot. Lauridsen: It is. Well, Commissioner Werfel actually told the Senate Finance Committee on April 16 that the tax bill passed by the House in January would actually help the IRS combat ERC fraud claims. That's where they're asking for ERC claims to be retroactively stopped. From his perspective, he said that eligible claims, they do exist, but they're very hard to find and it's finding a needle in a haystack. He's not very happy with that aspect. If you see the statistics of their moratorium, the withdrawal program, and the voluntary disclosure program, there's real money at stake here. We've been told that it's costing the government something about $3 billion per week to maintain the ERC claims open. Now, all of this is to say that I personally wouldn't be surprised if that provision in that House bill to stop ERC claims retroactively, if it were to get stripped out from that bill, and it were to become a stand-alone bill that gets passed. There's just a lot of support for this provision, especially with that amount of money associated with it. Amato: I heard that was spoken about in the most recent AICPA Town Hall, April 25. That $3 billion number definitely stands out. Clearly, a lot still to be wrapped up as it relates to ERC claims. You mentioned that tax bill; that was going to be my next question. What's the update on that? I guess it's now in a committee in Congress, and for clarity, which committee exactly is it that has the bill, and where does it stand? Lauridsen: It's with the Senate right now. The House passed the bill, and it went to the Senate. The last I heard was that the Senate wanted to do their own markup. But ultimately, if you look at what's happening in the world around us, there are a lot of things going on that the Hill has to focus on, and it takes precedence over this bill. It was also my understanding that this bill, as it stands, was barely on life support. Which it's not to say that it can't be revived in other iterations or eventually it could get passed, but as it stands right now, the likelihood of that bill pushing through is not very high. Amato: If it doesn't go through, what happens? How does it restart if there's a new tax bill? Lauridsen: On something like that, it really comes down to what I mentioned with the ERC provision. That has a lot of support, and people can then strip certain pieces out of the bill and either pass them as standalone bills, which is probably what would happen with the ERC bill, but you can also introduce it with other packages, different pieces of it. So like I said, it could be different iterations, different portions of it. It doesn't mean it's completely dead, particularly with the ERC piece. Amato: If it's a 600-page bill, but not all of it's going to pass, then maybe the 60 most important pages here and the 30 most important pages there could be repackaged into a new bill? Lauridsen: Yes. Something like that. Yes. Amato: I realized those are just my estimates and oversimplification, but helps me understand. I hope it helps the listeners understand. You've mentioned disaster legislation, obviously, the news topics we've been following, ERC, digital assets, BOI, beneficial ownership information. But elsewhere from an advocacy standpoint, what are some of the top AICPA priorities for the second half of this year? Lauridsen: Well, Neil, as you're aware, it is an election year, so we're absolutely going to be seeing tax reform coming up. We already know we have TCJA provisions that will begin to sunset. We have also heard of an IRS tax administration procedural package, which is going to have, we've heard things like potentially the Safe Harbor Act, some disaster relief provisions, or things along those lines with the IRS. Then, of course, there just is the 2025 tax reform package we'll see from the elections. Taxes are the way we generate income and money for our country, so we are bound to see a lot of potential tax changes coming up in this next year, and so we have to gear up and prepare for that. Amato: Melanie, thank you for this rundown. Anything you'd like to add in closing? Lauridsen: Just to pay attention. Changes are coming, and we're here to help. We're trying to continue to help them, supporting the profession but also taxpayers in finding fairness and equity in the tax laws.
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May 2, 2024 • 21min

From filing cabinets to cloud — Records management in the digital age

Mark Gallegos, CPA, MST, Partner — Porte Brown LLC, discusses the importance of having processes around retaining documents for accounting firms as well as advising clients on what information is important for them to maintain. It is imperative to manage files in an efficient manner, and, often, there are different considerations for physical storage versus digital storage.   AICPA resources Document Retention FAQs for Tax Practitioners — Having a written document retention policy for your firm is a must-do along with advising clients on taxpayer record retention. Document Retention Policy Template for Tax Practitioners — Formalize your tax firm’s policies about retaining documents related to firm operations and client records. Optimizing your tax practice — Explore tools to manage a more efficient tax practice, enhance your operations, add value to your service offerings and reinforce client relationships. Transcript April Walker: Hello everyone and welcome to the AICPA's tax section Odyssey podcast, where we offer thought leadership on all things tax facing the profession. I'm April Walker, a lead manager from the Tax Section. I'm here today with Mark Gallegos from Porte Brown in Chicago. He is a second-time guest, but welcome back, Mark. Mark Gallegos: Thanks for having me, April. Walker: Today's topic is about document retention, and this came to my mind for two reasons. One, on a practical level, we at the AICPA just updated some resources around this, some FAQs, as well as a document template, which of course I will share in the show notes. But second, on a more personal level, recently my family has been cleaning out my in-law’s house and it was pretty clear that their document retention policy was to retain all documents. Either they didn't have one or that was their policy to retain everything. That was fun. But I thought this doesn't seem like a super sexy topic, but it's an important topic. Mark, I thought maybe let's talk about the importance of a firm having a document retention policy. Maybe talk about some risks associated with not having one or maybe you have one to check the box, but you're not following it. What are your thoughts on that? Gallegos: I know with clients I always run into either they save everything forever and then they have no idea what they've actually saved in all the boxes. Then there's ones that don't save anything. Document retention policy is so important. It's critical, especially to a CPA firm, but even beyond that to individuals, to businesses. Because you're dealing with sensitive and regulated information, and when you're looking at that, there's different areas you need to break it down to. Many industries we work in, including the accounting profession, you're highly regulated and you need to keep documents and you need to have a defined policy that helps define what are the legal obligations for keeping these. You don't want to be fined. You want to make sure you are the trusted adviser that can provide the information, but also you don't want to be the one that's keeping things for 20 or 30 years, that is just keeping up space. It makes you efficient as an organization because you're basically organizing your documents. You can easily access them, and you can pull them when you need to. It's a good way of keeping security on those documents. Because at the end of the day, you want to be able to secure them. Obviously, you can secure them in paper form, we can secure them in digital form, and we'll talk about all that. But I think there's different ways, because it is sensitive information, to make sure that you're also doing that. I think one of the most important things is from my perspective, from an accounting firm perspective, is client trust. They trust us with their information. They trust us with their documents and so we want to make sure that we maintain a systematic approach to handling their information in a sensitive way. We have that responsibility, and our reputation is on the line to make sure that we're holding up to that. But beyond that, there's a lot of risks that can go involved in this. You're talking about sometimes just legal risks and regulatory risks, like we mentioned. If you don't have a policy, you might retain the documents [for] too long or too short, or maybe you don't have a policy, so you destroy them after a year when really you should have kept them for a period of time that was in fact what you should have kept them for. Also, now, someone needs them, and you don't have them. Operationally, it's good to have it because without a retention policy, these documents can accumulate [and that] can lead to your whole organization being disorganized. Then when you need to find something, you can't find it. That I find is a very common occurrence out there. On top of that, security. Walker: Lots of reasons to have one. This never happened to me when I was in practice, but I don't know if it has happened to you, or you've heard about it anecdotally. Again, hope it never happens to you, but if in a lawsuit, your records are subpoenaed and you have a document retention policy and you're following it, then maybe if you are asked to produce documents and they're outside of your document retention policy. You're not required to provide them. But if you do have them, then you have to provide them and maybe provide even more. I think that's like a firm liability risk, also, like so many risks around this. I don't know if you have any thoughts on that piece. Gallegos: That alone is why you need the policy. I have not run into that. I've had other colleagues and other firms run into this policy problem, where they've been subpoenaed to provide, we'll call it tax documents, tax work papers and they don't have them. The first thing that people asked for when they start getting more into a litigation situation is providing your retention policy and they realized they don't have one then. Now, whether they've kept them and destroyed them in the proper amount of time, now their reputation, potentially, they could be on the hook for other fines and penalties. It's just unnecessary legal action that they get drawn into, when at the end of the day, if they actually had a policy, they can say, we kept it for, we'll say seven years and then we destroyed them. Here's the record of us destroying them and you can provide all that information. It helps the entire situation, which I think is very important. Walker: I think so. We've talked about the importance of having a policy. What about the guidelines? Are there very firm and fast guidelines on how long you keep certain documents? Gallegos: One of the things, for us, tax returns — you want to keep indefinitely. I tell my clients that all the time, but there are workpapers and bank statements and payroll documents. Typically, seven years is the policy. But you want to make sure that you are adhering to what are the rules. And for whether it's a permanent document or whether it's just a work paper. [Determine] what kind of document it is and make sure your policy identifies what your policy is to keep them and then how are you taking steps to make sure that you're following that. When you're looking at different guidelines. Obviously, the legal requirements are based on what kind of document. Is it a federal tax law mandate? Is it something that is more HIPAA, health care type stuff? Is it SEC regulations and finance? Is it legal? Then you want to establish those categories to identify those different types of documents so that you can put them into different buckets. I think that's very important in this process. Walker: I mentioned that we have a template for it. It's again, just those general guidelines that you can use for your firm and share with your clients. But as Mark said, we want to make sure that you understand that there could be different reasons — Government grants or something like that or different state requirements related to keeping certain types of documents. You need to be able to think through that and understand it. [Let’s talk about] document retention in general, in this digital age. I feel like there's still paper. We talk about offices being paperless. My house is certainly not paperless. I wish it was, but I just remember, I started practicing in the mid '90s, which makes me feel like an ancient crone at this moment. But anyway, it was like file cabinets. I can still close my eyes and think about going into the file room, pulling out drawers and things. These were the files that need to be destroyed and we moved files around. I don't know, it’s just bananas to think about. But [hopefully] your policy is not that the cabinets are full, and we need to go through them. How do you think about digital storage and what are your thoughts about managing that? Digital storage seems like you have an unlimited amount. Again, you go back to, it feels like, oh, I don't need to care about this. But you really do for the reasons we mentioned earlier. What do you think about digital storage, Mark? Gallegos: I'm with you. I started in the '90s, I think '97, and I remember filing cabinets full of paper and everything was paper. Now we as a firm, we're very paperless. But you still see paper and I still go places where I see nothing but paper. I think it's just all over the board, but there is definitely a shift from the physical to the digital document storage. It's altered the landscape out there. We're seeing more and more of that because everything's pretty much digital. But that's good and bad. You've got to look at it as scalability and space availability. In the past, if I had lots of documents, I had rows and rows of file cabinets or rooms just filled with it and then off-site storage. They were paying an enormous amount of money to keep that paper. Then now with digital, it's all in the Cloud, we'll say, or in some sort of format. However, without a policy, you can store so much stuff digitally and you don't know how to get to it. Searchability and being able to access what you saved because I could save one thousand documents in the cloud. But if I have no way of really knowing how I documented it, how do I search for it? How do I find that stuff once it's there? I think that's a big thing. Also with digital storage, it's out of sight, out of mind in some respects. At least with physical, I can start digging through and have people go through these drawers and see what you can find on this. But sometimes when it's out of sight, out of mind, it just keeps building. If I have a firm of tens of people, thousands of people and now everybody's storing and we don't have a policy, we don't have any method. Boy, that's going to be a messy digital storage facility for us. I think the most important thing in this is data breach, security risks. What happens if I have the greatest storage system, but I haven't protected it from outside security measures? That can be a big problem. Walker: That's probably a different podcast topic, but every time I have a chance to talk about it, I remind our practitioners that they need a written information security plan. It's required — one reason to have it, but it's also, you just have to have it because of all this data…that you hear about these breaches all the time and it's really scary. You talked about digital files — they're just everywhere. They could be [hard to find] if you don't have a really good system. Do you have any tools or software or things that you use to help with this, with retention in your firm? Gallegos: Yes. We have a number of things within the cloud, but we predominately use our CCH products and the document products there. We have a very sophisticated way of how we save things and how they get archived, and we have people who manage that. There's an elaborate system of how data flows and gets stored and when it gets destroyed at the same time. We're very lucky to have the resources to be able to have a great system. But also, there are other ways out there. There's so many, whether it's accounting platforms, even Microsoft’s SharePoint, Google Workspaces. There's a lot of software out there that can provide different tools. I think it's finding the right tool that works for your organization. What documents am I managing? Is it industry-specific? What are the integration capabilities of my system with this? Then I think [about] stuff we do and I think other people do too, is just regular training and updates. How do you maximize the effectiveness of these tools? Because just like anything, you'd go out and put on your phone the greatest app in the world but if you don't actually know how to use it, it's really not going to provide you any value. Walker: Useless. I've done the same thing trying to keep up with my to-do list and things. There's some great stuff out there, but then it's all human-dependent at a certain level. The robots haven't taken over the world yet anyway. We touched on this, but I think it's important to touch on it again, and that is recommendations to clients about their records. I feel like that was a common question that I got and I'm sure it is for you too, Mark. How long should I keep my tax return? Like you said, indefinitely for the tax returns, but that doesn't mean every piece of paper associated with that tax return. How do you help your clients think about the importance of maintaining those records without going overboard and going into a hoarding situation, and then also the digital? Something sticking in my mind is that you as a firm are not your client's document retention [policy]. They should keep copies of their tax return. At a certain point, you're going to get rid of them and they can't ask you, do you have my 2000 tax return or whatever the year is? No, I don't have that, even if you've been a client for that long. How do you help that? We've talked about security, so you need to preach that to your clients too, of course. But what are your thoughts on that, Mark? Gallegos: This is a question I get quite a bit, guiding our clients on document retention. It's more of a balancing act sometimes, ensuring compliance, but also helping them. A lot of them are hoarders, whether they want to be or not with that information. I'll have clients to call up, for example, and say, I've gone through my basement, and I have 30 years of boxes of tax documents. So you have to specify what kind of tax documents. Is it the actual tax returns or is it maybe all the work papers? W-2s, 1099s, etc. I think that's where the template that the AICPA has is great for giving some guidance on what you should do. But I always tell my clients, look, tax returns, keep them indefinitely for yourself. Whether you want to know or not, it's just good to have in case you ever have to pull it out. But basic document storage of your records that support the tax returns, the seven years, or whatever makes sense for your situation is what you should keep. But I agree, we keep our records for ourselves, it's not because we're keeping them for the client. I think that is where, again, circling back to the whole idea of having a policy is important. From a legal standpoint, assessing business needs, making sure that document management system is efficient. How are we handling it, whether it's paper or digital? Who's managing that? We have some key champions or practice leaders that are involved in that. What are the risks? What are the costs involved in making sure our system is up to date? But also, just constantly promoting how do we keep it clean? How do we keep it moving forward? By having that, when clients ask you for their own, whether it's their business or individual, you can give them the same insights and then help them determine what policy they should have. Even if you're not a client, you just sit at home, and you've got all kinds of records. Say, I’ve got phone records going back 10 years, should you have that or not? Maybe you should create your own home policy, those things. Walker: Good advice. Mark, as we're wrapping up, [do you have] final thoughts [to share] on this topic as you're thinking about document retention. Gallegos: I think it can be a generic topic where people go, whatever. But I think it's more important. Where I see this [being critical] is [due to] all the legal things that come out. Unfortunately, there's a lot of lawsuits that fly in a given year, whether someone is involved or not involved or it's indirect. But needless to say, the one thing that will always come out of it is provide documentation or memos. If you were supposed to have that and you destroyed it or if you have a policy that says you should have kept it — If you should've destroyed it and now you still have it, you still got to produce it. It's all these things that come along that are very important. But also the security risks, the challenges that are involved in that, and sometimes just the cost that's involved. There's a lot involved there that you’ve got to really make sure of in the regulatory and compliance area. I think so, staying compliant, enhancing your efficiency, helps minimize your risk and at the end of the day, from an accounting standpoint, it builds our trust. Our clients know, hey, you're the trusted advisor. You got our information and you're doing everything you can to make sure that is taken very seriously. Walker: That's great. Just had another thought as you were talking, and that we didn't specifically talk about is emails and maybe other methods of communication with your clients, text messages. Again, I feel like that's a whole another podcast topic. Why are you texting with your clients? But anyway, at least there are ways to do document retention on emails. But I feel like that's where I've heard things can really go awry with liability situations, so make sure you're thinking about your emails and your email correspondence and any other correspondence with your clients when you're thinking about document retention. You're a second-time guest on here so you know this question is coming, but I like to think about us taking a journey together towards a better profession and I love to hear about your other journeys outside of tax. What have you got on the horizon? We're at least having a pause in tax season, hopefully, you have something fun planned. Gallegos: Obviously, busy season and tax season coming to a close is always not only a relief but it's like a celebration in your soul. For me, it's taking a step back to enjoy family and friends, to just thank everyone more intentionally that you maybe didn't get a chance to. But also, I think for me, it's all the soccer games to go to, it's all the school events, it's all the vacations that are coming up. In the summer, we're going to take my family to the Outer Banks. We go every year. It is one of the most, for me, the relaxing week of my life because I just unplug and I literally get to enjoy beach sun and just relaxation. It's the one time a year more than any time that I really recharge. Not that I need a lot of recharging, but it does help. Walker: Everyone needs recharging in some way. You have a graduating senior just like I do, where I'm sure there's stuff going on around that as there is at my house too. Gallegos: Absolutely. Walker: Thank you so much, Mark. I appreciate your time today and hopefully, we have provided some great information for our listeners. Again, this is April Walker from the AICPA Tax Section. This community is your go-to source for technical guidance and resources designed especially for CPA tax practitioners like you in mind. This is a podcast from AICPA and CIMA together as the Association of International Certified Professional Accountants. You can find us and listen to us wherever you find your podcast and we encourage you to follow us so you don't miss an episode. If you already follow us, thank you so much and please feel free to share with a like-minded friend. You can also find us at aicpa-cima.com/tax and find all our other episodes as well as the resources mentioned in this episode as well as others. Thank you so much for listening. Keep your finger on the pulse of the dynamic and evolving tax landscape with insights from tax thought leaders in the AICPA Tax Section. The Tax Section Odyssey podcast includes a digest of tax developments, trending issues and practice management tips that you need to be aware of to elevate your professional development and your firm practices. This resource is part of the robust tax resource library available from the AICPA Tax Section. The Tax Section is your go-to home base for staying up to date on the latest tax developments and providing the edge you need for upskilling your professional development. If you’re not already a member, consider joining this prestigious community of your tax peers. You’ll get free CPE, access to rich technical content such as our Annual Tax Compliance Kit, a weekly member newsletter and a digital subscription to The Tax Adviser.  
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Apr 18, 2024 • 22min

A radical approach to client relationship building

In this episode, listen to a conversation with Jody Padar, the Radical CPA, about the evolving role of CPAs in the face of technological advancements. Jody emphasizes the need for proactive communication, year-round tax planning, and restructuring business models to prioritize client needs so that CPAs can maintain their relevance in the accounting industry. To learn more about Jody and her new book coming out soon, please visit her website.   AICPA resources Reimagining your tax practice — Tackle today’s top practice management issues with insights and tips from pioneers in the tax community. Transforming Your Business Model — “Transform” indicates a dynamic but collaborative change that our business models will support. This concept invites firms to join the discussion and explore their businesses through the lens of the five focus areas. Transcript April Walker: Hello everyone and welcome to the AICPA's Tax Section Odyssey podcasts, where we offer thought leadership on all things tax facing the profession. I'm April Walker, a lead manager from the tax section and I'm here today with Jody Padar. She is the Radical CPA. I can't wait to hear more about that. I think we’ve both heard of each other, but we've never officially met. I'm excited to chat with you today. I saw a LinkedIn post that you did sometime during last week about communication gaps between clients and tax advisers. It really just resonated with me and so I reached out and I'm super appreciative that you sat down with me, we're actually chatting on April 15th. I'm happy to not be scrambling around doing tax extensions today, but I think we will have a great conversation today. Let's start off with a quick summary about your observations that led you to that post and just where you're coming to this conversation from. Jody Padar: Sure, I'm Jody Padar, the Radical CPA, and probably one of a handful of branded CPAs. I've been creating disruption in the industry for years now and really it began as a small innovative firm owner almost 15 plus years ago. I was at early cloud adopter, disrupted the space around cloud and technology. Fast-forward, I owned my own firm for 14 years. I sold it in 2020 right before the pandemic. I joined Botkeeper for a couple of years, so I went to the tech side and then I was recruited away from Botkeeper to April [which] is the name of the software company. I started to build tax software from scratch. Now I currently work as a senior adviser to April and then I'm all-in on being the Radical CPA and helping firms evolve to the next level of, I'll say, disruption — it's not really just disruption. The next level of relevance, really, as AI and all the new technologies come into firms to evolve them to stay relevant in the future. How I got to that post was, I sold my firm in 2020. A couple of clients last week reached out to me because they were actually resold. When I sold, they didn't join Botkeeper. They actually went to another practitioner and then that new practitioner was sold again. Fast-forward, they're in a new firm and they reach back out to me because where they landed in the new firm, they are not feeling heard. Ultimately, they do not feel that this new firm is listening to them and I don't think that they're unusual on that. When you see the post, and it got over 150 responses, a lot of tax practitioners feel that not all firms treat clients the same way from a feeling perspective. When I talk about it, I'm talking about in [terms of] small businesses under a million in revenue. I know it could go up, but that's my sweet spot. I think what happens is practitioners get the technical right and they get the deadlines, but they forget that the consumer that they're serving really doesn't care about that. They don't know any different, but they do know how you make them feel and they're not feeling heard. They're not feeling they're getting the right explanation and they're not feeling that CPAs are giving them what they're paying for. It was interesting because there was a little bit of scuttle on it saying — you sold your firm pre-pandemic — what do you know? That was the feeling and I get it. It's been a rough few years. But if we're not selling and we're not meeting our customers needs where they need to be due to product market fit, what value are we to them? We can't complain about deadlines. We can't complain about lack of talent. We can't complain about all that other stuff because ultimately, we're here to serve our customer. If our customer is not getting the feeling that they need and the understanding that they need about their tax situation, guess what? We're not going to be relevant because there are technology companies coming into the space that are meeting those needs. I think that's the hard part for practitioners to hear. Again, I'm the person who's pushing the bleeding edge, but I think it's a real eye-opener to say, your competition is not the firm down the block. It's someone else in a technology space whose meeting their needs from a feeling perspective and a communication perspective and an understanding perspective and if we want to still be relevant and do business as tax preparers in the future, I think we need to up our game. Walker: I love all of that and I call myself a recovering tax practitioner because I'm on the other side now. But I love, it's really a passion of mine, to think about, we can re-imagine this. We can rethink the way it traditionally worked. It didn't work for me to stay as a tax practitioner and why was that? But I love it — asking the hard questions and making people think, hey, maybe it's not everybody else's fault. Maybe you need to look in the mirror a little bit. Let's think about when back when you were in the trenches and a firm owner, what strategies did you use to build those strong relationships with clients? Because that's really what we're talking about today. We're talking about communication and relationships. And no, an AI bot is not going to be able to do all the tax returns. That's not what we're saying. I know that's not what you're saying, but technology is going to be able to do a lot of things. The relationship is where we've got to figure that piece out. Padar: The more technology comes in, the more human we have to be. We have to up our game on relationships. One of the reasons I'm so radical is because I threw out the billable hour. I was all about fixed fee pricing. How do you price a tax return upfront by getting paid up front for the work you're going to do, making sure that you're talking to the client quarterly at least, if not monthly, from a tax perspective and doing planning year-round. I didn't let just tax returns come into my firm. You had to come in for at least quarterly projections, if not more. Restructuring your business model so that it is meeting the customer's demands and where they want to be. It's very hard to appease a customer when you're only talking compliance because the value in tax [work] is in the planning, it's not in the return. How do you position yourself to do that? How do you set your pricing? How do you set your sales process? How do you set all of those other things? Then when it comes to communication, it's about scheduling those calls ahead of time and having those conversations year round. If the customers are cranky in March, it's because they haven't been communicated through the whole year. Because we know in March, that compliance document shouldn't be a surprise. Because you should have done planning before year-end and you should have had conversations the prior June about where that taxpayer was standing. Again, it's how do we re-imagine who it is we're serving, what it is we're selling and how we deliver it so that our customer is the focal point of it. Because I think in years past, it was always like, that’s the end result and that’s not it. We need to re-imagine the whole process. The thing is we can schedule these things. We can put in strategies to have conversations four times a year. Again, if you think about pricing and how [changes to the model can be] very disruptive to a firm. But if you price upfront for it, then the customer, they see it as part of what it is they get and you're not chasing them down. You send them an email and say, it's time to schedule our quarterly appointment. They put it on their books and you have that tax planning conversation as opposed to asking them to ask for it. Because they won't ask for it because they don't know it's important to them. They don't know what to ask for. Walker: True. Another thing I was thinking about was, and this is a topic that's come up on this podcast before, is talking about active listening. It's definitely something that is a skill that I'm working on. In my life, in my family, in my dealing with listening to what people need. But let's talk about how important it is or how important you feel it is and building that bridge really between being that compliance [focused]: I asked you questions, you tell me things, I prepare a tax return, I check it off and I'm done and being a true business advisor. Padar: That's where, again, I think it comes into scheduling these conversations and making tax a year-round conversation and restructuring your firms. That is part of what you do in the off season. Have these conversations at least quarterly- could be more- so that you’re used to talking to this customer and they’re used to calling you when they need you. I would argue that most of this comes down to pricing because I think pricing is the number one thing that pushes people from calling their CPAs. If they think they're going to get billed by the hour or if they think there's going to be an extra charge for this, they don't call and it's very hard to be proactive when you're not getting called. When you fundamentally shift that pricing model, now all of a sudden your customers are calling you all the time and you can be proactive and you can actually even sell more services. Because now you can step back and say, you need that calculation, happy to do it for you. Whereas in traditional firms, what happens is the customer doesn't call, they make some decision and now you're trying to figure it out in March. Then the taxpayer is mad at you because now they have this huge tax bill and they think it's your fault when ultimately in reality, you can't do anything after December 31st. Had you called me in August, we could have planned for this. But we get the blame, because we're the one who prepared the tax return. I would argue, but if your customer felt there was an open-door policy where they knew they could call you all year and they weren't going to be nickeled and dimed for those phone calls, they would call you and you could then get proactive around tax planning. We've created this problem ourselves, but we can undo it. It's just a matter of restructuring our firms to be radical. This is stuff that I've talked about for years. This is not new to me. What I think has happened though, is that the market has changed so much and I would argue that tax practitioners have felt it for a while, but it seems to be more extreme these days. It seems to be that more customers are demanding more and they want more, I'll say post-pandemic. How do we adapt to them? Because if we want to be relevant, we truly have to have product market fit. I do’'t believe that CPAs have product market fit anymore. I think that they used to, but I think today professional service firms, the way we operate is not conducive because our customers are used to dealing with an Amazon type of experience, and they want that experience. Most firms, you send them documents and maybe you ask a question, it might be three days before someone gets back to you. Unfortunately, I think part of the reason firm owners haven't changed is because it's not just the front side of the house, it's the back-end of the house that we have to reorganize. We have to standardize, we have to productize our service offerings on the backend so that we can have a clear front end. There's packaging and pricing on the front, but firm owners have to get their act together on the backend with the way they standardize the way they collect documents, the way they set meetings, they have these advisory conversations with their clients, the way they standardize all of those activities. They can't have seven different partners doing seven different ways in a firm. Unfortunately, it's still like that today. Walker: Definitely. I was just thinking as you were talking, I feel like where the push is that these traditional firms and practitioners have all these clients. They don't have time to service all of them or they don't take the time. This is a general statement. You don't take the time to figure out what is my actual right fit [client]? That means getting rid of some, I think it has to be, if you're going to truly give the same experience that we want to give, an Amazon type experience, it has to be fewer people. Padar: There's a talent shortage. There absolutely is a talent shortage, but that's supply and demand. Either you have to raise your prices and hire more people and pay a premium for them or you have to cut some of the clients you are serving today. That was some of the scuttle in the LinkedIn post saying who's going to serve them? If you can't serve them to the level they should be served, you are doing a disservice to your firm and to the customers who are paying a premium price and that's reflective of your brand. I get it, you're trying to be nice to these customers you've served for all these years. I get it. I was in that place and I had taken over my dad's clients, so I had some of those legacy clients. But a certain point, they either have to pay more to get that level of service or they have to find another alternative. It may be a do-it-yourself product or it may be something else, and that's okay. But you can't let your business suffer because you're trying to help these people who "can’t afford it.” They’re making decisions every day about their priorities and what they’re willing to pay for. Some will be willing to pay for your services and some won’t be, and that’s okay. I think that's the place we're at today. Firm owners have to really embrace that mindset and say, okay, who am I serving and how am I serving them? Because right now, taking everybody and giving them all not right level of service is not the right business move because now your good customers get annoyed with you too, and they'll go find somewhere else because they're not getting the service level that they want so that you can take care of these people who have been with you for years, who I would argue most of them will pay more because they trust you, they love you, they want to stay with you. You just have an ask them to pay a premium price. Walker: This is really a tough love conversation right after the tenderness of April 15th. But sometimes we need to have these conversations. I'm also thinking about professionalism and customer service versus creating boundaries like clients that'll text you at all hours of the day and night. We're saying customer service, and then we're also saying, you've got to have boundaries because this is a business relationship. What are your thoughts on that or how to tackle some of those concerns? Padar: Well, I think that depends again, on your pricing model, because you can have first-class clients who you will respond to at all hours of the night because they're paying a premium for that service. They want that service. They want the white glove service. But the other services, when you get to packaging and pricing, you can have a standard SLA service-level agreement where you'll respond to an email in 24 hours, but you'll spell it out. I think that's the other piece of it is like, how poor are we at communicating what the expectations are for how our customers are going to interact with us? If we don't lay it out in a service level agreement and say, look, this is the price you're going to pay and we're going to respond within 24 hours or we're going to respond within 48 hours or whatever it is for your firm, then everybody's on the same expectation. If they don't follow it, you can always go back to them and say, hey, look, this is the price you're paying and you said that you were good with 48-hour turnaround and now you want me to respond in a half-hour, guess what? You're going to either pay more for that or if they're really abusive in it, may be the conversation to have, hey, maybe we're not the right fit anymore. But these are all clarity around expectations that unfortunately CPAs never did before because it was always like, Oh, I'll bill you by the hour because the pricing model didn't make you rethink these things. If you rethink them and you think about it from a different lens, now all of a sudden you can set those boundaries. Again, I think people always get freaked out and they're like, oh, I don't want them calling me all the time. Guess what? Nobody wants to talk to their CPA every day. You can put unlimited calls in and guess what? They're not going to call you every day. People don't call every day, they really don't. Yet it gives them peace of mind and they'll pay a premium for that because they want access. It's like when you look at these concierge doctor practices. People will pay a premium to be able to be seen within a couple of days or that day. It's funny too, because when you think about it, if you're sick and you call the doctor, like to me, there's never tax emergency. Walker: We're not saving lives is what I say. Padar: How many notices happen before that became an issue? Walker: Right,100%. This has been great. I feel like we're on the same page with this, so we just need to get everybody else on the same page and then it will be a lovely world. Any final thoughts on any of these topics as we're wrapping up? Padar: No, I just think that you have to realize that it can be done. I think so often we come out of this rat race of tax season and we're overwhelmed and we think, oh, we've got to change something. Then we take our vacation and then with summer, and then it's fall, and then we have extensions and then we're back to another tax season. The reality is you can't live in that world anymore, you have to change something and it has to happen right away. Because if you don't, you blink and it's another tax season. There are lots of firms out there who are doing things like this. It's not like years ago when I was preaching a lot of this stuff, people said, oh, you can't do it. Oh, it's not proven. It is proven now. And there are lots of firms who are proactive and have redefined these new business models. Look to them, see what they're doing. Most of them are willing to help and talk you through it. Because ultimately, we became CPAs because we wanted to serve our clients and ultimately that's at the core of this. How do we serve our clients better? How do we still have lives? We can work less hours and actually enjoy the things that we do. Walker: Wonderful thoughts. In closing on these podcasts, I like to think about us taking a journey together toward a better profession. Shoot, being radical. I love that part. In doing that, I like to get a glimpse of my guest's other journeys outside of tax. Jody, I'd love for you to share a page from your travel journal or a bucket list trip or something like that you have on your mind. Padar: I recently got back from Australia and it was amazing. I would encourage anyone who hasn't been to Australia to make the trek on the airplane, which I was a little bit nervous about, and it was definitely worth it and it was amazing. Walker: Super. Thank you again, Jody. This has been delightful. Again, this is April Walker from the AICPA Tax Section. This community is your go-to source for technical guidance and resources designed especially for CPA tax practitioners like you in mind. This is a podcast from AICPA and CIMA together as the Association of International Certified Professional Accountants. You can find us wherever you listen to your podcasts and we encourage you to follow us so you don't miss an episode. If you already follow us, thank you so much, and please feel free to share with a like-minded friend. You can also find us at aicpa-cima.com/tax, and find our other episodes, as well as resources mentioned during the episodes. Thank you for listening and I hope everybody has a nice deep breath relaxation before they get into some of this hard work that Jody has pushed us today. Keep your finger on the pulse of the dynamic and evolving tax landscape with insights from tax thought leaders in the AICPA Tax Section. The Tax Section Odyssey podcast includes a digest of tax developments, trending issues and practice management tips that you need to be aware of to elevate your professional development and your firm practices. This resource is part of the robust tax resource library available from the AICPA Tax Section. The Tax Section is your go-to home base for staying up to date on the latest tax developments and providing the edge you need for upskilling your professional development. If you’re not already a member, consider joining this prestigious community of your tax peers. You’ll get free CPE, access to rich technical content such as our Annual Tax Compliance Kit, a weekly member newsletter and a digital subscription to The Tax Adviser.    
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Apr 4, 2024 • 19min

Deadline Dilemmas: Navigating Tax Extensions and Risks

Elizabeth (Liz) Young,  the new Director of the AICPA & CIMA’s Tax Practice & Ethics team joins the podcast to discuss the importance of clear communication with clients, especially during the tax filing season. Liz emphasizes the need for valid contracts and signed engagement letters before filing extensions. Common  risks and pitfalls associated with not having them in place include improperly filed extensions, missed deadlines, fee disputes and potential loss of revenue. Sharing her passion for safeguarding the profession and futureproofing it for upcoming generations, she is focused on initiatives to recruit, retain and support young practitioners.     AICPA resources Say "I do" to engagement letters — Understand the importance of establishing parameters of client relationships and detail the scope of services to be provided. Tax Extension FAQ for Clients — Do you have clients who are hesitant about filing an extension to file their tax return? Communicate the who, what, when and how to ease their minds. Annual Tax Compliance Kit — Engagement letters, organizers, checklists and practice guides help you manage your tax season workflow Tax season resource center — Access the AICPA’s central hub for guidance, tools and developments throughout the tax filing season. Transcript April Walker: On today's podcast, listen for some important reminders for the upcoming April 15th deadline. Hi everyone and welcome to the AICPA's Tax Section Odyssey podcast, where we offer thought leadership on all things tax facing the profession. I'm April Walker, Lead Manager from the tax section, and I'm here today with Liz Young. She is my new boss and the new director of tax practice and ethics team here at the AICPA. Welcome, Liz. Liz Young: Thanks, April. It's great to be here with everyone. Walker: Here we are. We're actually recording this on April 1st, but it will post later in the week, and April 15th is coming up very quickly. I'm sure our members have everything handled and in order and ready to go. But in case you don't, I thought we could talk through some deadline oriented questions that we get a lot and get your thoughts on them, Liz, especially considering your most recent position which was in KPMG and risk management. To start off, let's talk about filing extensions. Because in the next week or so, you're either filing extensions or you're wrapping up returns. I thought that'll be a good starting place. I'm thinking about two different scenarios. First, your clients that you've had forever. You're sure they're going to sign the engagement letter, but they haven't signed it yet. You've been in contact with them for this and that reason, but the return's not going to be completed before the deadline. It may be that their tax returns is always on extension. What are the risks and pitfalls in this situation with filing an extension without having that signed engagement letter? Young: Thanks, April. It's great to be here today and it's wonderful to have the opportunity to talk about this topic with you. It's certainly a topic that is very important to me. First off, I would like to say I'm extremely happy to be back on board with the AICPA and the tax practice and ethics group. I used to be in the policy and advocacy group at the AICPA for four years. It's really great to see another side of things here as well. But previously, as you mentioned, I was in KPMG and their risk management group, and I got to see a number of issues that practitioners face, specifically in this area. Our group at the firm always took a pretty strict approach here when looking at both professional standards and applying risk policies to these types of scenarios. I'll address a few things that I think are important to consider specifically. For example, there are both reputational and professional risks that come into play here and that can arise with regard to performing work when the taxpayer is not actually a client or is no longer a client because the terms of the contract are no longer valid. Really the fact of the matter is if there is not a valid contract in place, then there's not a valid client relationship, and you should not be filing an extension on behalf of the taxpayer. There are certain nuances that can arise, but really, we recommend taking a strict approach in this type of situation. Further, take into consideration that contracts typically last for a set period of time. For example, a standard term can be 15 months. That's typical of what we would see at KPMG and would have in place at the firm. If returns or extensions are filed without proper contracts in place or when there are lapses in contract terms, because you go over that 15 month period, then a number of things can happen. For instance, an extension may be improperly filed because the extension is not reviewed by the taxpayer before the filings occur. Deadlines might be missed if the wrong extension is filed. For example, what if there was a structural change that occurred and the firm who prepared the extension was not aware of the structural change? The wrong extension might have been filed for the wrong entity. Perhaps if you're looking at an extension for a state return the wrong state was included, you might not be aware of this. There can also be issues such as fee disputes that can arise subsequently when the client comes back and will not pay because there was not an agreed upon fee structure in advance for the work. Ultimately, there may be time lost that needs to be written off by the team, and ERPS (enterprise resource planning system – a billing system) might need to be adjusted downwards when the expected fees cannot be collected. Really, these are just a few examples of pitfalls that can occur and traps for the unwary in this area. Walker: As you were talking, I was just thinking that never happens – that our client doesn't tell us stuff that happens during the year, like a structural change. But really it doesn't [always] happen, [and this could be the result]. I know our listeners are probably a wide range of firms. We've acknowledged that KPMG is certainly one of the top four firms. People who are listening are not necessarily in that situation. In thinking about that, yes, I appreciate you bringing up the risks, but then looking at it from the other side, what about that long-term client? That they expect you to file an extension. You don't file an extension. What are the risks there? Young: Sure. Yeah, we definitely see that a lot in small to mid-size types clients or firms sizes. There are definitely risks to consider here as well with all types of firms sizes when an extension is not filed. First of all, I would say business risks impact everyone in this type of situation. You mentioned the client relationship can be hurt long term. If the taxpayer believes they are your client, has an expectation that an automatic filing may occur on their behalf, say, due to history, but then ultimately it does not, you could lose out on long-term work. This directly impacts fees and revenues to the firm if there is this damaged or lost relationship. There are other things to consider as well. Another element that's very important to consider is that if a filing is missed, then the client, no matter how large or small, will also face penalties imposed by the IRS potentially from missing the filing deadlines. You could have failure to file penalties, failure to pay penalties. This may be a surprise to the client. If they didn't know they missed a deadline because they were expecting you to file. That's a main point of consideration as well. There's also statute of limitation concerns to be aware of. The statute of limitation typically starts to run three years after the return is filed. If you have an extension that's properly granted until October 15th, then three years would run from then if the return is filed on October 15. But if the extension has never filed, then the extension of limitation would begin to run three years after the tax return initial due date. The client may believe that their statute of limitation is different. That's something to be aware of as well because that's definitely a cause for concern. I think the bottom line is that it's very important to be proactive with your clients, no matter how big or small with regard to communication about these potential risks that can develop and the importance of entering into a valid contract because of that. Walker: That's what we were talking about when this came up. Just [having] better communication - I think will be a theme of this podcast today. Just making sure you're communicating exactly what your expectations are, and if your expectation is, "Hey, we're not going to file an extension until you sign this engagement letter." Even if we've done not a stitch of work for you that we're just not going to do it. I’m thinking about another kind of set of circumstances and that would be clients, you really just haven't heard from at all. You're aren't 100% sure they are are going to be a client. You addressed some of these in earlier conversations, but I feel there's two steps. I've got a client list and I haven't heard from them and you're really busy. What are the risks or pitfalls in this particular situation about filing an extension? Again, when you haven't heard from them. And then recommendations that you might have [considering the] limited amount of time [remaining]. What would you recommend in this case? Young: Thank you, April. I think as we have been emphasizing so far - communication is really key. The firm needs to be clear with the taxpayer that if the they are going to continue to be a client and the firm is going to continue to do work for them, then both parties need to have a contract in place by "x" date or the firm is not going to be able to do the work. This communication really needs to start as early as possible and well in advance of the due date for any tax filings, so we're not down to the very last-minute. That really goes into planning for this in advance of the due date for filings that are going to incur, because it's critical and it should really be part of the annual planning process. If the firm doesn't hear from the taxpayer after continued outreach, the best practice here is to not do the work and assume that the client relationship is no longer in place. Again, a pretty strict viewpoint should be taken related to this, but communications should be undertaken continuously to try and be as clear and concise as possible to try to resolve any ambiguities with regard to if there is in fact a client relationship in place or not. One thing that can be considered is upfront is to enter into multi-year engagement contracts, so that any work would be covered for a longer period of time without a risk of lapse to the engagement occurring. When you get up to that deadline that's coming up in a couple of days, you'll know that you're already covered because you have a multiyear contract in place. If you tend to have a client that tends to be on the quieter side, you can negotiate more upfront originally to try to get a longer contract term in place that would offer better coverage. Or if the client doesn't want to sign or they are lingering because there's terms in place that they don't like, you can allow for time upfront to go back and forth with them. If there's legal counsel available at all to work on contract term modifications that are acceptable to all parties, that'll help prevent scenarios from arising where you aren't sure if a taxpayer will still be your client or not for the upcoming compliance season. Walker: Those are good thoughts. Again, some of this might not be realistic as we're talking about really short-term, but again, hopefully something will stick in your mind and maybe it's- we'll do better next year. I'm also thinking about quality control and accuracy during this crunch time. I remember when I was in practice and I was working a lot, and my brain at certain point just started getting really fuzzy. [What] advice, support, encouragement for practitioners [would you like to share for] this next week or so. Young: Sure. I think because of the short turnaround, the time-frames that happen at the end, is why it's even more of the utmost important to just be cognizant of this type of risk during filing season. My advice again would be to make sure that you're taking time to properly address the situation at hand. There are, of course, inherent pressure related to trying to rush through and finish before 4/15 or whatever the deadline is that you're looking at. But it's always a best practice to take a step back to make sure that you have the proper engagement letter in place that clearly covers the term of the work before the work is commenced because as you mentioned, mistakes can easily be made, especially during this time of year. I know here at the AICPA, we actually have specific resources that can assist in this area. For example, I believe we have a number of best practices for engagement letters, tax return extensions, access to numerous engagement letter templates. I don't know if maybe you can comment more on those for our audience as well in terms of tools that they can leverage to help during this situation? Walker: Absolutely, and I'll put some links to those in the show notes. Also, when thinking about this upcoming deadline, I feel like extensions [are a good idea], even if your client is expecting for you to finish your return. It may be in your best interest to file an extension and just wrap the report in the next couple of weeks. We hear a lot of times that clients are not understanding of what an extension means for them, so that we do have some resources around that, which I'll put in the show notes about dispelling myths and that sort of thing. We'll definitely put those in there. Then my next thing I'm thinking about is as far as deadline-oriented questions, the seemingly constant requests for tax return updates that are happening right now. People probably were on spring break either last week or this week, but then they start thinking about, Oh my gosh, my tax return is due. Just want some thoughts again for our listeners thinking about all those contacts. Young: Absolutely great questions and points of interests for consideration. But what I would say is absolutely leverage the team that you have in place, use your administrative staff to help with communications to your client, to put together filing deadlines, schedules to help set clear expectations while in advance, set deadlines for your clients and stick to them and have your clients stick to them as well. [Make sure] you're holding them accountable if you aren't receiving the documentation that you need from your client to move forward successfully or answers to questions that you're putting out for them and try to set clear boundaries and expectations so that they're aware that there's a risk to the work being completed timely and accurately. They need to be able to meet obligations on their end in order for you to meet obligations on yours. Make sure you have a good staff in place as well to help with workflow and updates coming through and that their workloads are managed and planned out as much as you can as possible. I know, of course, easier said than done but building in any extra time for these updates that may occur can be extremely helpful, especially as you close in on that deadline. Walker: Already knew this, but I'm really glad we're all on the same page with this. I've been preaching this for some time and I'll continue to shout it from the rooftops. Let's pivot a little bit and Liz, I'd love to hear from you. [You are] a couple of weeks into this new role and [we know] how important it is supporting our members and our tax practitioners. Do you have anything special passion projects that are on your agenda or what you're thinking about as you're transitioning? Young: Oh, yes, there are so many interesting things here that we get to work at the AICPA. That's actually one of the things I loved when I was here for four years previously too, every day is dynamic, every day is challenging when you get to work with such great people and our members are so wonderful and we have such a great impact. But I think in particular I have always had a great interest in working on how to safeguard our profession and future proof it for generations to come, which I know is a big initiative here. I believe the AICPA has an opportunity to make a material impact on the profession for the future, starting with our young accounting folks and encouraging them to seek careers on this wonderful field. I know I've had a wonderful career myself and as we face an ever-changing and dynamic landscape, I hope to directly be involved with efforts to recruit, retain, and support our young practitioners coming in. I think it's really important to showcase our great field and to address the accounting shortage head-on to really help young people realize how great a need there is for skill sets in this area and that there can be vast opportunity for success long term. I know myself, I've definitely been a tax nerd my whole life and I love taxes specifically, of course, shouldn't everyone? No. But I would say I try to be a fun tax nerd. I love to help others see potential as well and all the opportunity available to them. Probably one of the most important initiatives I'm looking forward to working on directly here. Walker: We're always excited to do that and same, I love talking about, how many different things you can do, different roles you can play as being a tax practitioner and being just a CPA in general. There's so many different things you can do and trying to encourage our younger generation. I have a getting-ready-to-go-to-college child myself, who is not very interested in accounting, but I still try to offer it up as, hey, it's a cool career. So we'll see if that sticks one day. Liz, it’s so fun to be with you here today. In closing on these podcasts, I like to think about us all taking a journey together towards a better profession. The Tax Section Odyssey -we're journeying together. I like to get a glimpse of my guest other journeys outside of tax. Liz, tell me something from your travel bucket list or a recent trip you've been on, or something that you enjoy doing. Young: I would say my family are avid Disney fans. We have a membership to the Disney vacation club and we get to spend a lot of our time or a lot of our free time down there. I have a four-year-old and a two-year-old and they're just really great ages where they love it. We spend a lot of time in Florida looking for Mickey Mouse and I have a vast ear collection- Minnie Mouse ear collection- that I love to sport while I'm down there. I love to travel in general, I've lived in France twice and love to get back as much as possible. Yes, there's always somewhere new to see, I would say my bucket list is ever-growing. Walker: Disney is definitely fun. It's the happiest place on earth, and that is mostly always the case. Young: That is true, mostly always. Walker: Alright. Thank you again so much, Liz. This is April Walker from the AICPA Tax Section. This community is your go-to source for technical guidance and resources designed especially for CPA tax practitioners like you in mind. This is a podcast from AICPA and CIMA together as the Association of International Certified Professional Accountants. You can find us wherever you listen to your podcast and we encourage you to follow us so you don't miss an episode. If you already follow us, thank you so much and please feel free to share with a like-minded friend. You can also find us at aicpa-cima.com/tax and find our other episodes, as well as getting access to all the resources we mentioned during this episode. I wish everyone a happy almost April 15th and thank you so much for listening. Keep your finger on the pulse of the dynamic and evolving tax landscape with insights from tax thought leaders in the AICPA Tax Section. The Tax Section Odyssey podcast includes a digest of tax developments, trending issues and practice management tips that you need to be aware of to elevate your professional development and your firm practices. This resource is part of the robust tax resource library available from the AICPA Tax Section. The Tax Section is your go-to home base for staying up to date on the latest tax developments and providing the edge you need for upskilling your professional development. If you’re not already a member, consider joining this prestigious community of your tax peers. You’ll get free CPE, access to rich technical content such as our Annual Tax Compliance Kit, a weekly member newsletter and a digital subscription to The Tax Adviser.
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Mar 21, 2024 • 26min

Digital asset playbook: Part 3 — Reporting requirements

Steve Turanchik from the AICPA’s Digital Assets Tax Task Force discusses upcoming reporting requirements for digital assets. Sec. 6045 will require brokers to report transactions involving digital assets, similar to how they report securities transactions currently. This is meant to combat anonymity concerns and improve tax compliance. However, the reporting rules have been delayed multiple times. The AICPA continues advocacy efforts in this area, providing comments to highlight issues and gaps in reporting requirements. AICPA resources Digital assets and virtual currency tax guidance and resources — This hub is your go-to library for AICPA guidance and resources as well as current legislation, IRS initiatives and tax advocacy projects.   .  Advocacy ·      AICPA submits additional comments on the proposed Sec. 6045 regulations on gross proceeds and basis reporting by brokers and determination of amount realized and basis for digital asset transactions, March 4, 2023   ·       AICPA comments on the proposed Sec. 6045 regulations on gross proceeds and basis reporting by brokers and determination of amount realized and basis for digital asset transactions, Nov. 8, 2023   ·       AICPA comments on virtual currency reporting under Sec. 6045 and Sec. 6050I, Form 8300 and instructions, Oct. 28, 2022 Other resources IRS Digital Asset page — Recently redesigned page to provide the latest IRS information on digital assets Treasury and IRS announce that businesses do not have to report certain transactions involving digital assets until regulations are issued, Jan. 16, 2024 Transcript April Walker: Hello everyone and welcome to the AICPA's Tax Section Odyssey podcast, where we offer thought leadership on all things tax facing the profession. I'm April Walker, a lead manager from the Tax Section. I'm here today with Steve Turanchik. He's an attorney with Paul Hastings in their tax, litigation, and controversy practice. He's also a member of the AICPA's Digital Assets Tax Task Force. That is a mouthful. We are wrapping up this three-part series, I hope you've been listening, but you can always go back and listen to the first two parts, on digital assets here on the Tax Section Odyssey. It's been a wild and fun ride. In today's episode, we're going to focus on reporting for digital assets. We're going to be talking about when that's scheduled to happen, what it will mean, what it will not mean, when it will actually happen as far as we know, at least at this moment, and what you need to do to help businesses and individuals that you work with in this space. Steve, always, especially with this topic, I like to start off at a foundational level. I'm still learning terminology in this world and I bet our listeners are also, but talk to me about what we need to know about Sec. 6045 and 6050I. What are the key things that we need to be paying attention to? Steve Turanchik: I'm happy to address it. Let me say, information reporting is rarely a fun topic. But for our members, it's going to be incredibly important because as information is reported to the IRS and to their clients, the practitioners are going to need to decide how they handle that information that's reported. You've got to account for it someplace. If you don't, the IRS sends you notices asking — hey, where is this information? Let's step back prior to these code sections dealing with digital assets. We'll just talk about them generally. [Sec.] 6045 is in the code because it requires brokers — that is the JPMorgans, the Schwabs of the world — to report when their customers have transactions involving securities. If you have an account at JPMorgan and you sell a security during the course of the year, JPMorgan will report that to you and the IRS on a Form 1099-B that is dealing with the reporting of securities. There was a bit of a hullabaloo when that first came into play so far as information reporting to making sure basis was reported. This was one of the tools in Congress's toolbox to get people who are dealing in digital assets to report those transactions dealing in digital assets. Remember the big concern about this. When you go back to Bitcoin and the Blockchain and the various types of protocols that exist in the world, the concern from the government's perspective, including the IRS, is that these transactions were taking place anonymously. There was no real way to go about tracking these transactions. Congress, in its infinite wisdom, has put into place an amendment to [Sec.] 6045 that requires people who are dealing in transactions on the Blockchain to report those transactions to the IRS. We're going to get into what hazards are going to come along with that and the various snafus that we are invariably going to see in a few minutes, but the basis of [Sec.] 6045 reporting was the brokerage reporting. That is, your JPMorgan and Schwabs reporting securities transactions to the IRS to assure that people who had money or had assets on those exchanges would report them to the IRS. Now let's turn to [Sec.] 6050I. [Sec.] 6050I is historically been used to report transactions in cash. That is, greenbacks. If an individual or business comes into an art dealership or an automobile dealership and they bring in more than $10,000 in one transaction or a series of transactions, that trade or business was required to report those transactions to the IRS on a Form 8300 within 15 days of receipt of that cash. For those businesses that dealt heavily in cash, it just became a relatively standard way to go about reporting those transactions. Like it or not, if you're dealing in cash, you're receiving cash and you fail to report those, the penalties can be pretty severe. With that in mind, that's where these two sections come from. Under the new legal requirement, if any person who in the course of their trade or business, it is important to note that it is part of your trade or business, receives more than $10,000 in digital assets in a single transaction or series of transactions, that needs to be reported to the IRS within 15 days. It's not limited to whether it's a taxable transaction. If a borrower is repaying a loan in digital assets, that needs to be reported. If funds are being raised in a capital raise, a venture capital firm, or an investment fund, if they're receiving digital assets as part of an investment, that also needs to be reported to the IRS. The penalties for failing to report that get to be pretty severe. I understand the policy reason for it is that the IRS wants to see more and more reporting about a part of the economy that they believe is anonymous, that it's running under the radar. [Sec.] 6050I was put in place really to combat two different things. First was tax evasion. If you're dealing in cash, it's hard to track. But the other part of it was money laundering. That certainly remains a concern here, which is why the IRS and frankly Treasury wants to root out potential money laundering by requiring those transactions to be reported. The reporting requirement involves obtaining the name, the social security number or tax identification number of the transferor. From a policy perspective, I get why they're trying to do that. One thing that I've seen for frankly clients of mine, a question that routinely comes up, and I know for practitioners these are not the clients they want — but they exist out there — is, hey, Steve, I understand this requirement to report the received digital assets within 15 days, is that only for US businesses? If I locate my operation to the Caymans or Malta, do these rules apply to me? The short answer is the IRS could try, but enforcement is going to be very difficult. You see a light bulb go off in the guys who are in this area. They're like, guess what? I'm going to start a foundation in Malta and forget the United States, which is discouraging if we want to see this infrastructure develop here in the US. But for our practitioners, for our members, when this reporting comes in, there's going to be a deluge of information for the IRS. There will be every incentive for recipients of digital assets to be careful. That is, more conservative and over-report. If your clients are the ones providing digital assets, they are going to need to deal with the fact that the information is reported to the IRS and be able to explain why it wasn't a taxable transaction or if it was a taxable transaction, that they'll need to report it. Remember if the person has, let's say $1,000 basis in Bitcoin and Bitcoin is now at $10,000. When they transfer that in exchange for goods or services, that itself is a taxable event for the transferor. [If it is an] event for the transferee, it depends upon the nature of the transaction. [Sec.] 6045 is, at least in its initial drafting, was extremely broad. [Sec.] 6045 requires any person who for consideration is responsible for regularly providing any service, effectuating transfers of digital assets on behalf of other person. When we first read that as practitioners, we said that's going to encompass a lot of people that have no ability to comply. It's not just wanted to be exchanges or financial institutions. It could be anyone who develops software, anyone who is validating blocks on a Blockchain. The good news is that, at least in the proposed regulations this past fall, the IRS has said, we don't intend this to apply to validators. We don't intend for it to apply to miners, or for people who have no ability to comply. Rather the requirement to the extent we're looking at one is for custodians to report this. Now, what's troubling about this is you're going to have reports of transactions that may not be taxable. If the assets are moving from my account at custodian A to my account at custodian B, that's not a taxable transaction. The problem, of course, is because of the anonymity of the Blockchain, the brokers are not going to know whether it's a taxable transaction. You as the practitioner, are going to need to root out with your clients whether or not it's a taxable transaction for them. The sad reality is that many account holders and many clients don't keep the best of records and trying to get those records off the Blockchain while doable is going to be labor intensive. That is the landscape we're looking at on a going forward basis. Walker: That's a lot to unpack there. I was just thinking about as you were talking, I was in practice and I remember when the basis started having to be reported on the 1099-B and all the concern it caused with all the different codes and things. Now that's just old hat and it just happens. It seems like a whole different ball of wax for digital assets. But spoiler alert, these reporting requirements have been started, [saying] they're going to be in place now and then they've been pushed back. Let's talk about where we stand now with the timing of their reporting requirements. I say where we stand now because I feel like we've just continued to push back because maybe the IRS isn't quite ready to deal with all the questions, but where are we right this minute? Turanchik: April, the short answer is, we are in limbo. Walker: That's not a fun place to be in the tax world, but here we are. Turanchik: It is not. We were expecting rules to become effective January 1 of 2024. That is this past year. The reality is on the [Sec.] 6045 broker reporting, those rules will not become effective until the regulations are finalized. Proposed regs were issued last fall. They took comments last summer, they took comments through the fall. It's not entirely clear when the [Sec.] 6045 regulations will be finalized, in part because the IRS has received more than 30,000 comment letters. Now, the backstory behind that and it's a little nefarious. A lot of those comment letters were likely AI or chatGPT generated, but they weren't generated by folks like the ABA or the AICPA. We did provide comment letters. The vast majority of them were created by artificial intelligence and explicitly meant or intended to slow down the IRS's rulemaking procedures. It is my understanding from talking with folks who are working on the final regulations that they will have a way in which to sift out the more bogus comments. The reality is as part of the Administrative Procedures Act, the IRS needs to issue the regs, issue the notice, receive comments and take those comments into play. If the IRS disregards the comments entirely and it's likely the regulations is invalid and that of course, throws everything in a haywire. With all that said, my contacts at Treasury estimate…they expect to have final regulations the summer of 2024. That might be a little ambitious because even if you throw out the bogus comments, there are still really substantive commentary from serious groups explaining — here all the areas that we think you guys need to provide guidance in and because it is a brand new area. We see potential for reporting transactions that are not taxable and for potentially double reporting. Because remember the standard for the brokers is, any person who regularly provide any service effectuating transfers. You can have more than one person providing the service of effectuating or a transfer from place A to place B. If let's say three or four parties report the same transaction and that assumes it is even a taxable transaction. You now have a potential gain that's four times what should be reported to the taxpayer. That is a recipe for chaos. That's assuming that you have a taxpayer with good records whose straightforward with their return preparer about here are all forms I got. By the way, the same transactions reported twice, three times, four times. You're the return preparer. What do you do with that? You report it four times and then back it out as duplicative. Maybe. I think you probably have to. But when I say it's a recipe for chaos, I'm not kidding about that. Let's imagine you're the IRS examiner and you're either newly trained, let's say you're well experienced in this area. You see the transaction shows up four times on a 1099-B or 1099-DA, which stands for digital assets. Are you going to take the return preparers word for it? That's a dupe. For all you know, you had four transfers of Bitcoin on that day and all of them are taxable. When you pull the Blockchain out and give it to the examiner who can't understand the Blockchain. Just think about that in the course of an audit. Is the examiner going to understand the Blockchain you give to them and even if they do, are they going to trust you? Walker: Potential for, like you said, chaos, yeah. Turanchik: If I had to guess, it is a wild guess, I would suggest we're going to see reporting on the brokers for transactions beginning January 1 of 2026. That's my current best guess. The problem is, let's say the regs come out final this summer. If you make it January 1, 2025, the people who are required to report are not going to have the infrastructure in place. Some might, the established exchanges might, but everyone who's going to be required to comply will not have that capability. Walker: [Sec.] 6050I, I was going to say, with a little bit of the same story but a little different. Turanchik: Little different, because there, there are no proposed regs and under the statute that was to become effective in the express language of the statute was January 1, 2024. That is just at this point two months ago. No proposed regs, nothing from the IRS saying we're delaying this. It wasn't until mid January that the IRS said, without implementing regulations, this cannot be effective despite the express language of the statute. One area that gave me as a practitioner some comfort and I say some comfort, is that there's a lawsuit pending against the enactment of these particular provisions claiming violations of privacy, Fourth Amendment rights and in a brief to the District Court, the Department of Justice said [Sec.] 6050I will not become effective until final implemented regs are promulgated. It gave me some comfort, but just some comfort. Can I really use litigating position from the Department of Justice to justify my clients failure to file the Form 8300, despite the express language of the statute? As a lawyer, that gives me the heebie-jeebies. Walker: Technical term, right? January is the time when people are trying to gather and get their reporting together. The fact that it wasn't delayed until the middle of January, there was this new form that was maybe going to be out there and then anyway, so like you said, some comfort that, okay, it's going to be delayed until we hear more from the regulations. Turanchik:When the regulations are finalized. Regulations have not even been proposed yet. Unfortunately, unlike the broker reporting which takes place in January of the following year, the [Form] 8300 needs to be filed 15 days after you receive your digital assets. The [Form] 8300 currently does not have a place to report digital assets. Walker: A lot of things. We talked a little bit about what the reporting is supposed to accomplish, and we talked about some of the gaps already, but what are some things that are probably not going to be fixed? You talked about tracking records and that sort of thing. Why is it still important for taxpayers to be able to track the cost basis or track their digital asset activity even once this reporting happens, whenever that might be? Turanchik:The concern is if you don't track your cost basis, and you can't prove it up, the IRS's default position is, your cost basis is zero. Yes, zero. I have seen that, and I know this from my days at the Department of Justice, where there would be an IRS audit that came to my desk where the taxpayer simply didn't respond in the course of the examination. Where the IRS had the gross proceeds recorded and until the taxpayer went to prove the cost basis, it was assumed to be zero. Now, one thing that was a success story of sorts. My particular taxpayer was deceased and her executor was a parish priest. He said, Steve, I don't know how to prove my cost basis. I said, don't worry, Father, I have subpoena power and I issued a subpoena to the custodian, and they provided the cost basis. After that, we got to the right tax result and the taxes paid. But look, in the digital asset space, the IRS isn't going to subpoena Coinbase for you, that's going to be on you. You got to be able to track and prove up your cost basis if it becomes an issue. I had one client I brought through the streamline voluntary disclosure and the cost information, I won't say it was unreliable. But we took the conservative position that we're going to treat all of it as gain. The cost basis frankly was nominal to start with, but rather than trying to go through and track all that was a cost basis zero, whatever the proceeds are, and we have that number, that we're going to report as gain. It can be done from an administrative perspective, it is more conservative. But look, the reality is the prices of digital assets have dropped in the last 18 months or so. You might find yourself without significant gains and if you don't have your cost basis information, you may find yourself paying tax on something that you lost money on. Walker: Not a good situation. We talked on part 1 of the podcast with Nick. We talked to a decent amount about possible options for people. Go back and listen to that one again, if you want to learn more about why you need to track, and maybe an Excel spreadsheet, not your best idea. I mentioned at the top that you're on the digital asset tax task force and so let's talk a little bit about the continued advocacy work that's being done in this area throughout this time, and will definitely continue. Turanchik:We have provided comments on the [Sec.] 6045 proposed regs in an effort to highlight areas where we think there are real issues, gaps in reporting, the double reporting is a problem. The cost basis tracking, the more guidance the IRS can provide for practitioners, the more fluid it's going to be for tax compliance. The simple reality is tax return preparers, we are the first guideposts. We are the first guardians of the Fisc, that if the return preparer is getting it wrong, you're less likely to have good compliance and the appropriate amount of tax reporting and payment. That guidance for return preparers provides us with the tools we need to tell our clients what needs to be done, and the reality is the IRS, even with the increased funding, doesn't have the ability to audit all taxpayers. Rather, they're going to rely upon return preparers to ensure at least, the best compliance as possible for their clients. I also expect that we will be providing some comments on [Sec.] 6050I regs. On a personal matter, I think they should be repealed, but I don't think that's going to happen. I think the amount of information that's going to be reported to the IRS is going to be entirely overwhelming, and I will tell you in my conversations with folks both on the Hill and Treasury that they're not concerned. Their worst-case scenario is fine, we have more information we know what to do with, we'll figure it out or not figure it out. Walker: I just go back to — it's not the same — but the whole discussion about the 1099-K and $600 is not a lot of money to have all these forms out there. Reporting is important. We're on this podcast to talk about reporting, and it is important. But also we have to think about the reality of the world. Turanchik: I've done a fair amount of consulting on the 1099-K issues with third-party seller organizations, and it's a real issue. The biggest issue for me on the 1099-Ks is the payment for goods or services. Because a lot of transfers on those payment services, whether it's Venmo or PayPal, it's friends sharing expenses for dinner. Walker: They just don't mark the right box or whatever it is. Turanchik: They're not income events and the problem is if the wrong box is marked or worse, no box is marked, the [1099-] K gets reported to the IRS and the taxpayer now has received the form. They've got to go to their accountant. Walker:What do I do with this? Turanchik: I've got to deal with it in some way, shape or form. I think you report it and then back it out. Walker: Again, we're talking about reporting. It's important. We'll just end on that note. Steve, any final thoughts to share with our listeners on just this topic of digital asset reporting, we'll definitely be talking more about this as things get finalized. Turanchik:It's more a stay tuned because things will be changing. There will be additional developments. It's hard to say what they'll be. There's a lot out there, that still needs to be decided and we're still - early stages. This hasn't gone through litigation, it hasn't been tested. The good news, did I say there's good news? Treasury and the IRS at least are willing to listen to us and that is a good thing. It's actually one thing I like about being in the tax community is that the folks at Treasury often times used to be in private practice and vice versa. The conversation is there not because practitioners are trying to help their clients evade taxes. It's that we are trying to make it as easy to be tax-compliant as possible. We want our clients to follow the law. We don't want them to get in trouble. Will there be bad actors? Of course, there will be. Walker: There always are, in some worlds. Absolutely. Turanchik: The vast majority want to be good actors, and that includes practitioners as well. Walker: Absolutely. In closing on these podcasts, I like to think about us taking a journey together towards a better profession and in doing so I like to get a glimpse of my guests other journeys outside of the world of tax and digital assets and all of those things. Steve, share a page from your travel journey bucket list or a trip you have planned or something on your mind in that area. Turanchik: During the pandemic, the year 2020, I turned 50, and I was supposed to go on a Safari with my wife that summer. That did not happen for a variety of reasons. Didn't happen in 2021 either. But in 2022, we did go on a Safari in Kenya, and it was the experience of a lifetime. It was absolutely amazing. I love the big cats, and we saw leopards, lions, elephants, zebras of course, and we were there for part of the migration, that was absolutely intense. It was always on my bucket list and my wife, you know what? I'll humor him. I'll go on it. She also absolutely loved it. It was fantastic. The downside is I'm not sure, I need to go at and again, I've seen everything I wanted to see. It was absolutely intense. Walker:That's amazing. We had another guest who said the same thing. I can't remember which country they were in but said that the Safari was amazing. My husband also turned 50 in 2020. You and him are the same age. I'm a little bit younger, just a little bit. Thank you so much, Steve, for chatting with us today. We talked about reporting and all the things that are up in the air, but we're trying to help you learn what you need to know next. This is April Walker from the Tax Section. This community is your go-to source for technical guidance and resources designed especially for CPA tax practitioners like you in mind. This is a podcast from AICPA and CIMA together as the Association of International Certified Professional Accountants. You can find us wherever you listen to your podcast, and we encourage you to follow us so you don't miss an episode. If you already follow us, thank you so much, and please feel free to share with a like-minded friend. You can also find us at aicpa-cima.com/tax and check out our other Odyssey episodes, as well as getting access to any resources we mentioned during the episode. Thank you so much for listening. Keep your finger on the pulse of the dynamic and evolving tax landscape with insights from tax thought leaders in the AICPA Tax Section. The Tax Section Odyssey podcast includes a digest of tax developments, trending issues and practice management tips that you need to be aware of to elevate your professional development and your firm practices. This resource is part of the robust tax resource library available from the AICPA Tax Section. The Tax Section is your go-to home base for staying up to date on the latest tax developments and providing the edge you need for upskilling your professional development. If you’re not already a member, consider joining this prestigious community of your tax peers. You’ll get free CPE, access to rich technical content such as our Annual Tax Compliance Kit, a weekly member newsletter and a digital subscription to The Tax Adviser.      
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Mar 14, 2024 • 16min

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.          

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