Daniel Moore, CPA, Owner — D.T. Moore and Company, LLC, discusses the recent Department of Labor rule on determining the classification of workers as either employees or independent contractors under the Fair Labor Standards Act. He also highlights the potential legal and financial risks associated with worker misclassification. The rule, effective on March 11, 2024, aims to align with judicial precedents, reduce misclassification risks and offer more flexibility for businesses engaging with independent contractors. Factors for worker classification under this rule are: Opportunity for profit or loss that a worker might have Investments of resources by the worker and potential employer Degree of permanence of the work relationship Nature and degree of control an employer has over the work Extent to which the work is integral to the employer's business Skill and initiative of the worker Dan highlights the importance of considering both IRS and Department of Labor rules when advising clients on worker classification and how to best communicate this change to clients.  AICPA resources   ·       Tax season resource center — Access the AICPA’s central hub for guidance, tools and developments throughout the tax filing season.   ·       Employee or independent contractor? DOL issues new guidance, Journal of Accountancy, Jan. 10, 2024   Other resources   ·       RIN 1235-AA43 published in the Federal Register — Department of Labor (DOL) rule   Transcript April Walker: On today's podcast, listen to hear more about a recent Department of Labor rule that talks about independent contractors and employees. 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, lead manager from the Tax Section, and I'm here today with Dan Moore. Dan is an owner of D. T. Moore and Company in Ohio, and he is another great volunteer friend of mine. And he's been on this podcast before, so welcome back, Dan. Dan Moore: Thank you. Walker: Today I thought we could spend a few minutes letting our listeners know about a new rule that the U.S. Department of Labor recently published in January. We're still in January when we're recording this, so very recent. It revises guidance on determining who is an employee and who is an independent contractor under the Fair Labor Standards [Act]. Just to set the stage a little bit, I'm not and Dan's not, an employment attorney, nor do we pretend to be one on TV or on this podcast. We're going to approach this discussion as CPA tax practitioners and communicating this change to your clients. Because I'm sure you'll know and I'm sure as you're listening, you have clients who have struggled with this issue. It's not a new issue. It’s just, it’s a hard one to wrap our heads around. So, we're going to talk a little bit about that. I will provide a link to the rule in the show notes. If you want to read more, it's very long, but we're not going to cover all the aspects and background about that rule. But just a quick little background on it. In January 2021, the Department of Labor released a rule that was subsequently rescinded. This recent rule that was announced on January the 9th of this year, 2024. It replaces that guidance. It maintains that it's doing is [being] is more consistent with the judicial precedent. The rules that have been challenged in court and how the courts have come down on it. It also will reduce the risk that employees are misclassified as independent contractors, but also more flexibility, for businesses that still do engage with people who are in business for themselves and consider themselves independent contractors. Let's start with an easy question, Dan. I'm sure it's easy. Maybe it's not easy. What's the definition of an independent contractor? Moore: Thank you, April. It's always great to do these podcasts with you and I always enjoy the topics that you pick for me. This one's a little bit challenging because independent contractor — it just depends to me where you're standing in the conversation. And although you can maybe reconcile and come to some conclusion under one aspect of the definition of an independent contractor, say, in the world of tax, when you step over to Department of Labor and you look at the Fair Labor Standards Act, you're standing in a different conversation. And so, I may have figured it out on the tax side, but now I'm looking at it from the Fair Labor Standards Act. And now I've got to re-reconcile this whole concept as to whether or not someone is an independent contractor. Independent contractors fall under a bunch of different names. You could call yourself an independent contractor. You could consider yourself to be self-employed. You could be doing freelance work. You could be involved in the much broader gig economy that is very popular and talked about frequently now. The tax aspect is going to be a little bit different about the Fair Labor Standards Act. And first, before I define an independent contractor to the best of my ability based on the new announcement, I do want to touch on what the Fair Labor Standards Act is. The Fair Labor Standards Act establishes a minimum wage for employees. It establishes the qualification or the right to pay overtime, record keeping. It discusses child labor law. It covers nursing mothers, 40-hour work weeks, breaks, how tips are to be paid to employees that are in an industry in which they receive tips as part of their compensation, and it prevents retaliation by an employer against an employee. There's a lot of things that the Fair Labor Standard Act covers, and the Fair Labor Standards Act covers employees, but it doesn't cover independent contractors. So now we have to define — what is an independent contractor? — to see whether or not these set of rules do apply to independent contractors? And what we'll see as we go through this conversation today is although someone may seem like they're an independent contractor, once you apply the rules, for Fair Labor Standard Act purposes, they may be considered an employee in which you now have to apply all the Fair Labor Standard Act rules — an overtime payment would be one big one…a time and a half paid over 40 hours worked in a work week. A lot of these things are now going to apply to someone who may be sitting in the seat as an independent contractor, but fair labor standards are going to still apply to them. So the easiest way — not necessarily easy — is we need to define what is an independent contractor. And that really isn't an easy question, and we have lots and lots of court cases to define it. [What] it really comes down to, is whether or not there is a matter of economic reality, and that the worker is economically dependent on the employer for work, thus an employee, or are they in business for himself and therefore potentially an independent contractor? Like I said, there's a lot of different names, but also think of this too on the employer side with the Fair Labor Standards Act. The Fair Labor Standards Act is also there to protect the employer. Because if all employers are playing on the same level playing ground, then —your competition — it creates fair competition. By establishing a 40-hour work week and overtime rules, that all plays a standard playing ground for all employers in which we're all going to play by the same rules in the sandbox. So now we have to look at who does this apply to? It implies to employees. But how do we handle independent contractors and are independent contractors considered to be an employee? And that's the big question of the day that this announcement in January (lovely time for new announcements to come out) This new announcement sets into play of, okay, independent contractor, are they subject to the Fair Labor Standards Act? Walker: Gotcha. I was not trying to give you a trick question to start off with. I did know it was not a super easy question, but yeah, that's clear as mud for me. However, thank you for that — doing a good job of setting the stage for us. Now we know where we're going, how would one determine whether someone is an employee or an independent contractor under the Fair Labor Standards Act — once this rule is effective, which, noting that it is March 11th when the rule is effective. Moore: Yes. First, we have to determine if an employee is a worker or an independent contractor. The rule came out with these six factors that you need to consider in determining whether or not someone is going to fall under employee versus independent contractor. Now, this is not a true-false question. This is not, select A, B, C, or D as your answer. These are all subjective interpretations of these rules. And really, not one factor is weighted against the other. You have to just look at the rules [as a] stand alone. Try to apply them to your situation. In my opinion, it almost comes down to, we have six factors. Do we have four to two, yay or nay, in determining whether or not someone should be really considered an employee for purposes of the Fair Labor Standards Act? So, you have to analyze them all on their own. This is going to lead back to court cases and precedents that is from the past, but also looking at the future at all of these tests. So there's 6 factors I'm going to just go through real quick — each 1 of the 6 factors — and then I'm going to go back to each 1 and just add a little bit more detail to each one. So, as you're sitting there, and from my standpoint as a practitioner, when I'm sitting there talking to my client, I'm going to say, okay, let's look at the six factors. The first 1 being the opportunity for profit or loss depending on managerial skill. Factor 2 is the investments by the worker and the potential employer. Factor 3 is the degree of permanence of the work relationship. Factor 4 [is] the nature and degree of control. Factor 5 is the extent to which the work performed is an integral part of the potential employer's business. Factor 6 [is the] skill and initiative [of the employee]. Now, again, subjective and many factors. Subjective on both the independent contractor, employee side versus the employer side. To what level of skill or the ability to profit? It’s going to be dependent on a facts and circumstances test, and it’s going to be dependent for each employee. Lots to think about as I'm talking to someone, [to determine] whether or not they're an independent contractor for the Fair Labor Standards Act. Factor 1 — I have to look at, okay, rule number one, what is the opportunity for profit or loss depending on managerial skill? I almost think of this as, are you punching a time clock and getting paid based on the number of hours worked? That's probably going to be an employee situation. Or are you approached by a company to provide a service in which you, as the contractor, evaluate that project? You look at what, you think, the amount of time is going to be, the materials, the labor…do you determine what your profit margin is going to be on that job, what level of profit margin you're going to bid out that job for? There's a lot of factors in which you're looking at the actual profit and loss of that project, in which you probably would be sitting more in an independent contractor situation. The common industries — not to beat up on the construction industry — would be typical, whether or not someone is sitting as an independent contractor. In this case, if you're really just showing up and doing the job as you're instructed by the company that you’re doing the work for, you’re probably going to fall under the employee test. But if you're bidding out the job and you're determining how quickly you can [do] the job, determining how much profit you want to make on that job, you're using your managerial skill, then you would probably fall under independent contract. So again, that's just one of six tests that you're looking at. [Factor 2] Now you have to move on to the next test, which is investment by the worker and the potential employer. And in this scenario, if you're showing up and the employer is providing mostly all of the tools and materials that you need to do the job…You're showing up and they're providing you, say they're providing you software, they're providing you office space, computer equipment, supplies, all of that's provided. You're just showing up and doing the work. You're probably going to be sitting in the employee side of things. Whereas, on the flip side of it, you have your own equipment, you have your own tools, you're purchasing better equipment to make you more efficient as you're doing these jobs. In this scenario, you would be sitting more on the independent contractor side of the conversation. So again, the amount of investment and the type of investment you're making in that job would determine whether you're an [independent contractor] or an employee. [Factor 3] After investment of the worker and the potential employer, let's take a look at the degree of permanence of the work relationship. This is the third prong of the question. And you're looking at if you're going to the same work location day after day and it seems to be more permanent. That is almost as if you're going to work like anyone else, it's as you're looking at it as your job, and you're really not going out to work with another company. Your priority is given to this one company. You're going to have a degree of permanence with that relationship that's going to lean towards more of an employee relationship. The flip side would be, you know what, I'm going to work maybe Monday, Tuesday this week, and Wednesday. I'm going to go do some work for another contractor on another project. Thursday/Friday, I might go work for someone else on a different project. The following week the makeup of that work could be completely different. And so there isn't a degree of permanence. And so that would lead more towards an independent contractor relationship. Again, that's factor three. [Factor 4] Which then leads us into factor four, which is the nature and the degree of control. And when you're looking at the degree of control of the employer, the company that the individual is doing work for, are they setting the schedule? Are they, having the independent contractor/employee show up every day to the same location at which they are given their duties for the day…sent out to various projects? Throughout the day, they're being monitored. They're doing check-ins with the company to see where they are on the project. That level of control is really going to lead towards more of an employee status versus an independent contractor. Where an independent contractor may say, okay, I'm going to work on this project for you for the first part of the day. Then I'm going to go work on different projects for another contractor and switch it up. Or maybe they have their own project that they're working on. [Factor 5] Now we move into the fifth factor is the extent to which the work is an integral part of the employer's business. If the individual is showing up to work and the work that they are doing is very integrated into the overall process. Maybe it's manufacturing and they're coming in every day and they're doing a very integrated part of the overall product development or what they're creating. That integrated part really is part of that process in which that would lead to, in most cases, the individual being treated as an employee, unless it's a very skilled process that is very infrequently used. If someone's coming in and stepping in, integrated into the process, they're most likely going to step into an employee versus the independent contractor side of things where they're doing work for the company. Your accountant that is doing bookkeeping work for you that's not integrated into the overall process of what the business is in making money doing, then that individual would be sitting in an independent contractor standpoint because they're not integrated into the process of the overall product that the company is making. [Factor 6] Then finally, we're looking at that sixth factor, and that is the skill and initiative. So again, skill and initiative, that's very subjective. What level of skill is the individual providing for the job? If you have an independent contractor coming in to do something that is very technical, that very few people do…it's an integrated part of the job, but it's something very technical, and you may only need them on an infrequent basis to complete a project, that situation would generally lead to someone being independent contractor. However, if they're coming in, they don't require specialized skills in performing the work. They don't necessarily require training in doing the work. They're being supervised. They're being trained on the job. That really could lead to being an employee relationship. So again, very subjective to the level of skill that the individual is doing. And you have to look at it…and I think by industry. I'm just thinking, looking at my clients, I have some clients that are independent contractors. The work that they do is very specialized. And in some cases, there are very few, maybe in the region, individuals that are doing that type of work. They pick and choose who they're going to work for and they freelance, they go out, they do that job, it is an integrated part, but they're very specialized, and they're not frequently used. They sit in an independent contractor position versus an employee position. Somewhat clear as mud. Six factors that we're looking at, trying to say thumbs up, thumbs down. I don't think it's still an easy answer to that question. Really, at the end of the day, I'm looking at this [and saying] — do I need to apply these rules? Do I need to make sure that if someone comes in and bids a job for me, [do] I need to do some record keeping to see how many hours they're working for me? And if they go over 40 hours, I'm going to have to renegotiate maybe that bid or that contract or figure out what the hourly rate is for that job to determine whether or not you paid them a minimum wage and whether or not they've been paid time and a half for that project. If they're sitting in the independent contractor seat, but really when you look at the factors, they would be considered an employee for the Fair Labor Standards Act. And this is a very broad definition. Walker: Great. just to recap a little bit, for our listeners. You have to think about this from your perspective as you're hiring people. Obviously, we're going to talk more about why do you care about this? Why are you spending time talking about this? And we'll delve a little bit into that, in a second. Dan did a great job of going through all the six things, but it's each six things could be their own probably 30-minute conversations about what they mean, but that was great. Something I, as I was preparing for this, I'm not sure that I necessarily understood this, and I think we alluded to it a little bit, but I want to make sure we're clear. This six-factor test, this new rule that's effective March 11, does it override, or does it change the way the IRS determines worker classification, or other federal, state, or local laws that may provide standards for employee classification? How am I thinking about this? Moore: This is an answer that we don't [know] often in the world of tax. Our answer is usually — maybe, or it depends, we need more information. When the Department of Labor comes out to answer this question, the question of whether or not does this override, does this change IRS determination of worker classification, when the Department of Labor comes out and says no, that is a pretty stern answer. It's not an "it depends” situation. It doesn't override or change IRS classification because IRS uses its own classification. [It’s] own standalone set of standards, the Common Law Test, which is completely different than the Fair Labor Standards Act and the rule that just came out. When we're looking at the Common Law Test, and just real quick on the Common Law Test as IRS looks at it, you're looking at relationship considerations, behavioral considerations and financial consideration. We may determine that someone is an independent contractor from a tax standpoint, from an IRS standpoint, but that doesn't mean they're not considered an employee for Fair Labor Standards Act when we apply those six tests that we just went over. So, a hard no on the IRS standards. Does that make things any easier for us? Absolutely not. It does not. And then you have to look at federal law, there's state law, there's local law, and all these laws apply to employees. The best rule to follow and the rules that you should follow, again we're not labor law attorneys, but you want to apply the law that has the most protections for the employee. So certain laws may have higher standards than others, and you're going to follow the law that protects the employee the most in this situation. And so again, still confusing. We’ve got two bodies of law, when we’re looking at IRS and Department of Labor. There's so many other factors and other things to consider when you're looking at employee versus independent contractor, but this is not changing the IRS law. Walker: Okay, that's helpful. Let's talk about why as a tax practitioner, you care about this classification enough to spend time talking about it with your clients. Moore: I get this question all the time. I work with a lot of startups, in particular. The startups that are like, I have this person, they're coming in, they're helping me out. They make their own schedule. I'm just, I'm scared. I'm not ready to put them on payroll. They're fine with being an independent contractor. But that doesn't work. And a lot of times I find, particularly small businesses that are starting out, I look at them and I say, the first thing is that person could change their mind when it comes time for them to file their tax return and you may have had this wonderful agreement that they're an independent contractor and they go to file their tax return, guess what? They may not think they're an independent contractor any longer when they realize the impact of the self-employment tax. I have that conversation [that] you need to put your individuals that are working for you on payroll. They need to be part of payroll. And then as the business grows, I have the discussion that, you know what, you started out, you had a friend helping you out. You have this independent contract relationship. That relationship has grown into something. more than what it originally was, and now it really seems to me like this independent contractor person is really an employee, and now you've hired more people, and you put them on payroll, but you have someone else doing really the same work that you're paying as an independent contractor, and I really think you can't have two people sitting in the same position doing the same work, treating one as an independent contractor and one as an employee. These are all challenges that startup businesses have. We particularly have these conversations with our clients that are in the construction industry. [There] really [are] no bright line test here on who should be an employee versus an independent contractor? And you have to look again, these six factors, you have to look at the IRS rules to determine whether or not they're considered an employee versus an independent contractor. Walker: Very good. When you get those red flags that arise as you're having those conversations, and you think that there's an issue, you talked about that — that you're having the conversation — but how do you put them on notice? What are your recommendations? Do you refer them somewhere? What are your next steps? Moore: You try not to scare your clients into compliance, but we have a lot of stories that we can tell that are very scary that have turned companies upside down. They have turned small family-owned businesses upside down. In a recent case, I had a construction company that had really what seems to be an independent contractor relationship with someone that was doing work for them. This individual had their own LLC — their own construction company. They came together to work on a job and that independent contractor fell, was severely injured and passed away. Now this construction company is having to deal with the fact that there were workers comp issues and are being sued over this issue from the family — the surviving family of the individual that passed away. Maybe at the end of the day they'll rule and say, you know what, you did have this, independent contractor relationship with this individual. They [won’t] fall under workers comp laws and there won't need to be a payout under workers comp, but it's cost tens of thousands of dollars. There's a lot of legal fees involved with that time and stress of this is massive. And so those are just the war stories. I say, you really need to sit down with someone that is skilled and understanding about labor law to find out what your real risk is in the worst-case scenario. Those are rare situations, but when they [happen], they affect your business. They affect your family and they affect your health. And you have to make a very hard decision, on making that relationship with an independent contractor. There's so many factors. There's fair labor. There's IRS rules when it comes to independent contractors. You have to look at unemployment laws, workers comp laws, the list goes on and on. And to make sure that you're properly protected, you have to really think. I think a lot of companies need to think very hard about that independent contractor relationship. And many will probably discover, you know what, I want to sleep at night. I'm going to flip this individual to an employee. Walker: Great. yeah, like you said, it's not about horror stories and it's not about scaring. But part of our job as trusted advisers are to let people know, hey, there's potential payroll tax obligations and liabilities, but then there could be also these [other consequences]. You don't want them to come back to you and say, hey, you never questioned this. You never said anything was wrong with this. I think that's important. And that's the point of why we're talking about this today. Any final thoughts as we're wrapping up, Dan. Moore: Yeah, so I'll remove the gloom and doom. The scenario could arise that you have someone doing work for you as independent contractor, under these rules, the individual would be able to go to the Department of Labor and say, okay, I really, truly believe that I fall under Fair Labor Standards Act, and I was not paid overtime by this company that I was doing work for. Department of Labor comes in, they do a ruling, you may have to hire an attorney to help you navigate this situation. Then you have to pay overtime, calculate that, look at your record keeping. That could be penalties assessed with it. So that's just a simple, someone said, you know what? I worked 45 hours, not 40 on that job and I didn't get paid time and a half. And so, a very minimal kind of situation that could eat up a lot of time within the company. Walker: Thank you so much for walking us through this conversation today. It was not an easy, breezy conversation, but it was one that I think we needed to have as hopefully our listeners will take something away. In closing on these podcasts, as you know, since you're a repeat guest, I like to think of us taking a journey together. An Odyssey, if you will, towards a better profession. In doing so, I like to hear about our guests other journeys outside of tax. So, please share a page from your travel journal or bucket list or something you've got on the horizon, Dan. Moore: So, I won’t do a travel, but I will say just on my own personal journey and pursuit to mindfulness and clear mind. I love to collect audio books that I'm going to find the time to listen to and I never find the time to listen to them. This morning I did a swim and this morning I was pretty excited I finally got my new headset to work. That I can now listen to books while I'm swimming. This morning I got a 40-minute workout in and also got to listen to 40 minutes of a book that I would not otherwise have made time. Walker: Tell us the name of the book. Moore: it's on NLP, Neuro Linguistic Programming. I should probably listen to that definition a little closer, but it's just really looking at our reactions, the words we use and also listening to how your employees and your clients are speaking and the way they're speaking really can help you to better understand their thought processes that are going through something. I think it's a great tool to have this time of year when we are face-to-face with all of our clients. Walker: Wonderful. You’re improving your body, you're improving your mind, all at the same time, that seems like a win-win for everyone. Thank you again so much, Dan. I'm sure we'll have you again. I'll try to pick an easier topic next time. 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 feel free to share with a like-minded friend. You can also find us on aicpa-cima.com/tax to listen to our other episodes as well as get access to resources mentioned. Thank you so much. 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.

On this podcast, Mark Gallegos, a partner at Porte Brown, provides advice for getting ready for tax season. He discusses the importance of preparing staff, communicating with clients, managing workloads, taking care of yourself, and setting expectations. With the right preparation and mindset, the next few months leading up to April 15 don't have to be too difficult. AICPA resources   Tax season resource center — Access the AICPA’s central hub for guidance, tools and developments throughout the tax filing season.   Beneficial ownership information (BOI) reporting — Access resources to learn about the beneficial ownership information reporting requirement under FinCEN’s Corporate Transparency Act (CTA).   Transcript On today's podcast, listen to hear how to get a jump on your to-do list for tax season. April Walker: Hello everyone and welcome to the AICPA's Tax Section Odyssey podcast. Happy 2024. On this podcast we offered 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 Mark Gallegos. Mark is a partner at PorteBrown. He's on the Tax Practice Management Committee, which I'm the liaison for and he's quickly become one of my favorite volunteers. Don't tell any of the other volunteers, Mark, but I do mean that. Welcome. Mark Gallegos: Thank you for having me appreciate it. Walker: We're recording this today on January the 17th and as always, there's a lot of noise in the tax world. There's potential for tax legislation, there's an impending government shutdown, there is filing season is getting ready to start in a couple of weeks. I thought it would be nice to remind our listeners to take a deep breath, first of all. But, then I'd love to hear what's on the top of your mind as we're getting ready to take a leap into tax season. How does that sound Mark? Gallegos: Sounds great. I think there's a lot to unpack there. Walker: Absolutely. Start at the very beginning. What are the top couple of things on your to-do list today? What are the most urgent items that you're trying to get accomplished in the next couple of weeks. Gallegos: Yes. Right now, there's a number of things. One, from the firm's standpoint, making sure everyone's up to speed on everything we do to get ready for tax season. We're already in the flow of it as a firm from the audit department and accounting and consulting department. But for the tax side, really getting them up, ramped up and ready to go. As a firm, we are very processes- and procedure-driven. We break out into teams and trying to figure out what's the best practice for us as a firm to truly make sure everybody is prepared as we go into the preparing business returns, trust returns, individual returns, and everything else that goes with that. We spend a lot of time trying to meticulously make sure that our system is proper, so we're doing a lot in that area. Then you have making sure everyone's up to date on all tax law changes that are effective for this filing season. The good thing is headed into the beginning of this year, there's not a massive amount of tax law changes. However, yesterday there was an agreement between Senate Finance Committee and the House Ways Committee regarding a potential tax legislation. Again, just an agreement, not law. But as I look at that and I start to communicate with the firm, some of these things could create issues within our firm, in our planning. One, if these provisions are enacted, when would that happen? How does that impact our tax season? How does that impact the software provider we use to be able to roll out any changes so that we can be streamlining this process. You have that going on. At the same time as a firm, dealing with our clients. One of the things is communicating with your clients. So at the early part of this stage, letting clients know, there's potentially is a government shutdown that's looming. We've let them know in the fall, but here we are on January 17th and we still have this throughout tax season that we may have to deal with, which affects a lot of things, not only the client, but also us. If there was a shutdown of the IRS [could] furlough two-thirds of its employees and then you would have assistance centers closed. But the reality is if you have to paper file returns or if you have to call the IRS or if you [hear] I got this notice. We set the response in on behalf of the client. Clients say, Mark, what is the status of this and you can't talk to the IRS now. You can't get a response, but they keep getting a notice saying, you owe money, just automatically coming out. Those are the headaches that I always say could take your tax season as a preparer off track. It's the client is assuming you're handling something, you're relying on the IRS hopefully to resolve something and in the meantime, you're just that middle person trying to field the questions and resolve it. If they get shut down in some form or fashion, it really comes into play where we get hampered. Communicating with the clients, communicating with the staff, communicating with just everyone in general [that] this is looming out there. Let's do everything we can to get on top of it now, let's not wait on things, let's be proactive. I think that's one thing I believe that's very important. The other thing is that we can't file a tax return until I think January 29th…is when they opened the E-file system I thought I saw. We got time before we have to file returns, and even with having software completely ready, not every form is out of draft yet. But with that being said, small clients, rentals, and small businesses, get those books in. If they're using QuickBooks or whatever, get it in and let's get going on this stuff. Let's not all push it off [and then say] wow, it's February 28th and we got all these returns we want to try to get out the door. The more you can do up front, the more you are going to make your life easier as the season goes on. Again, we don't want anyone working so hard that they're all stressed out right now, we need their energy for later. On the other hand, it's not a sprint, it's a marathon, and we need people in the firm to really manage their time. Sometimes we have to, as partners and as managers, manage their time for them. We need them at the end when we're trying to get all these extensions done or filing returns. How do we do that? All these things come into play [and] that's on my mind right now. In addition to that, we got this new thing that's out there, beneficial ownership interest, part of the Corporate Transparency Act that started in January and we've dealt with as a firm. I'm sure every firm, every practitioner out there in some form or fashion is dealing with this right now. As a firm, we have taken the position that we're not going to prepare it, we're not going to advise on it. We're not going to do anything. What we've done is we're letting all our clients know that. There's plenty of people in where we are in Chicago land area that do this and we're happy to refer them to attorneys if they don't have one, to other groups that do this, but we're not taking that work on. We've come to that conclusion based on discussions internally with our outside counsel. But everyone needs to do that on their own to determine is this best fit for you and everything else going forward. If you are listen to this and you don't know anything about the beneficial ownership interests, recommend there's plenty of information out there on it. Walker: We'll point to a couple of podcasts; we'll point them to the resource center. Absolutely. ASAP, you need to get on board with what's going on with that. Gallegos: But it's an area that again, without getting into [the details of it], it doesn't really fall on the tax preparer side as far as the compliance aspect of it, from an IRS standpoint. However, what I have seen [with] questions coming from my client, is this part of FinCEN? You guys file my foreign bank account reporting the FinCEN [Form]114, so why wouldn't you do this? Having those conversations, educating your clients as to what you can do, what's in your purview as a preparer and what's not. I think the more you communicate, the more your clients will value your service but also know that you're still their trusted adviser and you're here to help them get to the right people to do so. That’s it. Walker: You gave me a lot to unpack there, Mark. Let's see. Let's start with you said you're getting your staff ready and you're communicating with your clients. There probably isn't a one-size-fits-all. But what's your best tips for communicating with clients if you're trying to do either mass communication or how do you wrap your head around that? Gallegos: We can do mass communication as easily as an email blast. We have our news blog that goes out every week and so from that standpoint, we sent out. You and I know not every client reads emails or ignore them and you know how it is. From that standpoint, it requires everybody in the firm to be on top of things. Meaning, we like to go out to the clients. We want to be in communication with the client. It's not like, April, you're my client. I'll talk to you next year. See you then. We're all year round. We do a lot of year-end tax planning for everybody. We really are heavily involved. [There are] a lot of touches throughout the year. With that being said, this time of year where you have clients, whether it's making sure they're getting their books in order or [they need] 1099s or whatever the case may be from a compliance standpoint in January. [We] reach out to them, not just on making sure you're getting things together, but here's some other things that I want to make you aware of based on the filing season, based on everything else. Because what I have seen, at least with our client base, is most clients want to get things rolling and get done with this aspect of it. Whether they ought to extend later or not, that's a different story, but they want to know where they sit. Like I said, so we have this system where we have not just the partner but managers and people that are in charge of clients and all the staff that are on those particular clients. It's all budgeted and all put together. And there's a team that literally is reaching out to all these clients. For example, my clients, there's no way I can sit around just talk to every client all day, I would never get off the phone. So I have to rely on people and delegate that work down so that people feel empowered to do that. In doing so, one, it gives them the ability to build that relationship with the client. But two, really shows that as a firm, it's just not me and a few partners — it's everybody…has a key role in making sure that the client is up-to-date on what's going on. Not only what we want to communicate, but vice versa — what's coming from the client and so we are aware of whatever concerns they have. Very important. Walker: Not everybody listening to this is going to be a big firm so they aren’t going to have a lot of people. But I feel as I talked to members and as I talk to CPAs, you hear so much about you doing everything. I think that's a good lesson learned. Maybe you can't change that in January for this year but try to figure out ways that you can delegate work and client responsibilities and it's okay to let it go. I feel like that's a message that a lot of people need to hear if you're proactive about it and you're still staying in the loop, of course. Gallegos: Very important there, April. One of the most important things, I don't care if you're a small firm or a large firm, I guess the bigger you are, you have more resources. But as a firm we even use, we have interns, we bring in. We have admin. We probably have more admin than most firms our size and we use the admin for all kinds of functions. The reason why is the more I can delegate down. I think sometimes as a partner we can get to these assumptions of how important we are. Oh, everyone needs me and I'm that important, blah, blah, blah and all this. Maybe it strokes our ego or whatever. But the reality is, if you stepped away for a few weeks, these clients will be taken care of. You really not as important as you think you are. I think the more you learn to delegate — I have learned in my career — the more free you are to say I'm working not in the business, I'm working on the business so I'm truly helping this place grow and I think that's important. Walker: Yeah, great point. You also talked about starting strong in January, like having a good January and that to me leads into hopefully a smoother tax season. Again, there are some out of your control. Is there going to be a tax law that's going to have retroactive changes? We don’t know right now yet again, Wednesday the 17th; we don’t know. Hopefully we'll know more soon. I liked you [saying] it's a marathon, not a sprint. How do you manage that increased workload? People like to control their own schedule. I certainly like to control my own schedule, but I also sometimes I need to understand what are my priorities. How do you make that balance work? Gallegos: One of the ways is we budget. Every client got a budget, whether if I'm using taxes for an example, tax prep, tax review, partner review, signer review to admin. Every step of the way, we’ve got a workstream step and we got to put some time to it. Again, it's not a perfect science, but the more you do it, the more you realize how much time [things take]. Then from that we have some amazing people in our firm that take all that and budget. Okay, April, you are one of my staff, I'm going to assign this client to you and it's for X amount of hours, it's going to fall in this week or this particular day, or I need you to be at this client. We're managing schedules that way. Workload management, the planning that is involved is all year round. Again, things happen, people get sick, people leave, people come in. It’s constantly changing — it's fluid. But understanding how we work and do the workload management that makes sure that if I have two staff and one person's working a crazy amount of hours and the other person's not. The person not working most likely is because they just don't have the work assigned to them. As a partner, I can get caught up [with] my own work and I know I need to get work [done] but I'm just not pushing to do that. When we have people managing this process, we know that it gets spread out more evenly. It helps the workload management so no one is truly working more than the other person. That's important, very important. We're a team and everyone needs to help out in some aspect of it. I think that is probably one of the best things we do as a firm to help our employees and keep that longevity. We don't work crazy hours and because of that, we get a lot of work done. I wouldn't say it's the easiest amount of hours, but a reasonable amount compared to what I’ve seen out there. Walker: Got you. Yeah, that's good. That's probably a whole another podcast episode where we can talk about and delve into that. Because that's not a 20-minute conversation, but great point. How are you personally handl[ing] the stress and long hours that come with tax season? I know because I've gotten to know you over the last little bit how much you love your job and tax and so you probably work a lot, but hopefully you also take some time for yourself. How do you manage that? Gallegos: Yeah, I do love my job. I love what I get to do. I find it a privilege. On the other hand, making sure that I'm healthy in the process because if I'm not healthy than all this is for naught. I wouldn't say I'm mechanical, robotic, I guess it could be viewed sometimes, but I get up early in the morning and go to the gym and workout. Again, depending on the day, the week and where it is in the season, I go and I feel great. Even if it's like just stretching and light or whatever, I feel great. It kicks my day off on a positive note. Then from there, you head into the office and you just manage your day properly. Whether you're going to clients or whether you're dealing with staff or whatever the case may be. Then making sure that eating somewhat properly. It's so easy to like, I don't have time to get lunch or I didn't bring anything so let's hit a vending machine and that can get ugly quickly. You could just be eating sugar and carbs and everything that's probably you're not supposed to do. The idea is to try to manage your eating. And then get some sleep There's no sense in work[ing] into two, three in the morning and then turning around and trying to do this again day after day. I know I talked to professionals that do this. I don't know how they do it and function. Get a solid night's sleep, whatever. If you need six hours, eight hours, whatever it is, you've got to figure out how to get that. At the same time while you're doing all this, whatever your hobbies are outside of work, you still got to do it. I've always had the habit of Monday through Thursday I work my hard, longer hours within my little schedule. Then Friday, I’m always done at five. I don't care what's going on. I don't care if the deadline is Monday. I'm done at 5:00 and I'm gonna enjoy Friday night, whatever that looks like. Saturday I'll work, but I'm out working past 3:00 or 4:00 in the afternoon. I've done that my entire career no matter whatever other pressure [there] is, and it's just my own way of keeping tax season in balance. So again, I always say everyone is different and everyone's got to figure out what works for them, but truly keeping things you like in your life. Just because it's tax season, it doesn't mean the rest of your world shuts down and it shouldn't. I think some of the stress that gets created in this is probably from our own doing. I'll give you a prime example. You're working and you're like, I'm going to get all this done this week, and then a client calls, no, I'm going on vacation, I need my return now. And then okay figure out how to get this done even though it's not scheduled. And oh, there's another issue. All these things pop up and we just let all that stress just get to us. Oh my gosh, how am I going to handle this. Instead of just, hey, it's fine. Take a deep breath and let's just put it into a process, and let's just get it done in the order, and communicate what expectations look like, etc. You feel so much better because everyone's on the same page. No one's putting the pressure on you, we're just doing it mostly internally and you feel better. So again, we sometimes just got to get out of our own way to make things happen. Walker: You're right. I probably needed to hear that today myself. Because even though I don't work in practice anymore, I still have like crazy things going on and deadlines, so I also need to hear that. Take a deep breath. Step-by-step. Wonderful. So I like to hear your best advice for our listeners to ensure a smooth and successful tax season. Gallegos: So number one, I think besides taking care of yourself, that would be number one, because if you can't take care of yourself, you're going to be no good to the rest of your team. That's number one, to manage your stress. Number two, make sure that people that work for you are valued. Make sure that they know they're valued. Whether you're providing mentoringship or coaching to them, giving feedback. If you're someone who reviews tax returns, and you find errors or you find things that need to be adjusted, make sure you let them know what those are. Not, “I'm so busy. I'll let you know after tax season”. Because you won’t, and everyone thinks they're doing a great job. The prime example of that — you could review a bunch of returns three weeks after a person prepared 20 returns, and they made the same error on all 20 of these returns. So the sooner you can get in and see, what little errors or what adjustments can be made and communicate that. Communicate it with some sort of grace of, it's okay, we all make mistakes. Because I know and I'm sure you did when you're a staff person, on the other end of these things, sometimes the feedback, especially if someone's in a hurry or maybe not in the greatest mood, can come across as the mistake I made is the worst thing in the world. Again, I want my people to understand, it's okay to make mistakes, that's why we have a review process, that's why we check things. Let's learn and grow from it together and have fun doing this. Making sure your people are taking care of. You see that they're struggling. Let them go home or wherever you need to do to make sure that this is a place that is not only trying to get a lot of work done, but it's a great place that they want to invest in for their career. Then beyond that, making sure you're managing your clients, they're not managing you. I know that's always a battle. The reality is they're paying you for a service because you have knowledge and you have the experience to provide them something that they can't get from someone else. Because of that, you have to let them know, based on my schedule that just because you called or emailed doesn't mean I have to drop everything now and turn to you and get it done. Then they have to understand expectations. But if you're always dropping everything to help them, then they're just always going to assume you're going to get it done. It's nothing against them, they're just like Mark responds to me. So why is he not now? So again, understanding that, setting clear expectations with your clients is great leadership for the rest of your firm too, so they see, if Mark's doing that, then maybe I can follow the same methodology. I think that's good. And learning from each other in the process. That to me if you can find a way, there's no perfect sauce to this, but if you can find a way to start working towards that, I tell you, this three-and-a-half months or whatever it is to April 15th, it's not that bad. Last week I was at Fort Lauderdale speaking, and then I flew back and then we had 14 inches of snow, and then it's been like -15 degrees here. I'm going to say tax season doesn't bother me when it's -15, but as it starts to warm, and the sun comes out and spring is in the year. Boy, it makes it harder, right? The more upfront we can manage some of this, we get to the end and everyone's going to be happy. Walker: Lovely. I think [that is all] great advice. If you are a listener of this podcast, you know what's coming next, which is in closing on the podcast, I like to think about all of us taking a journey together towards a better profession. Tax Section Odyssey — we're journeying. I like to get a glimpse of my guests other journeys outside of the world of tax. You said you were in Fort Lauderdale, but that doesn't count because that sounds like it was a work trip. Give me a page from your travel journal, or a bucket list, or something you've got planned for the horizon. Gallegos: For this year I have a beach house already reserved in July for the Outer Banks, North Carolina. Every year, I always go to the Outer Banks. I love the Outer Banks. Why? Because it's the ocean, the beach, and because I've gone there so much, I find it a place where I can relax. Where you could just sit back, relax, have a good food, spend time with your family, and just enjoy the water and the beach and the sand. Again, I look forward to that. I do other little things throughout the year, but that to me is like the one thing I look forward to more than anything. Walker: Wonderful. The Outer Banks is beautiful. I’ve been there many times being from North Carolina but highly recommended. Thank you so much, Mark. This was insightful, delightful. It was a great way to start off our podcast season for 2024. 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 podcasts. 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 this on the aicpa-cima.com/tax and check out our other Odyssey episodes, as well as find resources that are mentioned. Thank you so much and have a wonderful start to the tax season. 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.

The Corporate Transparency Act (CTA), enacted Jan. 1, 2021, requires many entities to file a beneficial ownership information (BOI) report with the Financial Crimes Enforcement Network (FinCEN) beginning in January 2024. Its goal is to increase transparency about who owns or controls an entity and deter money laundering activities. Tune in to this podcast episode to hear from Melanie Lauridsen, Vice President, Tax Policy & Advocacy — AICPA & CIMA, Roger Harris, President and COO — Padgett Business Services, and Larry Gray, Owner —Alfermann Gray & Co LLC, on the latest with regards to BOI reporting. What you’ll learn in this episode Background on BOI reporting (0:57) Professional risks associated with completing BOI reports for clients (1:50) Advice for CPAs considering an engagement (3:58) Roger’s take on the unauthorized practice of law (UPL) (5:32) Larry’s view on how he’s handling this UPL (7:33) How to communicate to clients about BOI reporting (11:00) Recommendations on managing risks (13:51) How to relay changes that would impact reports to clients (16:40) FAQ from fellow practitioners (19:02) Final thoughts (25:13)   AICPA resources Beneficial ownership information (BOI) reporting — Access resources to learn about the beneficial ownership information reporting requirement under CTA. Risk Alert: Navigating Corporate Transparency Act/Beneficial Ownership Reporting – Risk alert from AON, issued Oct. 17, 2023, and updated Nov. 30, 2023.   Other resources FinCEN's Beneficial Ownership Information — Access FinCEN’s comprehensive information on BOI reporting, including a reporting rule fact sheet, FAQ and newsroom. Transcript April Walker: On today's podcast, listen to hear more about the Corporate Transparency Act and beneficial ownership reporting. 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 AICPA Tax Section. Today I'm joined by Melanie Lauridsen, she's AICPA's VP of Tax Policy and Advocacy. I'm also delighted to be joined by Roger Harris. He is president of Padgett Business Services, who represents the interests of small businesses who are clearly impacted by this reporting regime that we're going to be talking about today. Larry Gray, Larry is a CPA who owns his own accounting practice and represents tax professionals and their considerations regarding BOI reporting. Just want to do a quick background before we delve into the questions today. As you likely know, the Financial Crimes Enforcement Network, which is also known as FinCEN, establish a beneficial ownership reporting requirement, which we will refer to today as BOI, under the Corporate Transparency Act and that requires many businesses to report information on their beneficial owners, and that starts January 1st of 2024. We're recording this today on December the 14th, and that January date is definitely rapidly approaching. We've actually done a podcast on this before, some other more details, but we wanted to provide some information based on what we know now around that reporting requirement, provide some clarity when we can on questions that we've been hearing. I'd love to start out with you, Melanie. Let's start off by talking about just general professional risks related to CTA that CPAs are facing right this minute. Melanie Lauridsen: Sure. As you know, a lot of people and firms, there's not a lot of information with BOI and they are debating is this something that they can or can't take on as an engagement for either themselves or the firms. There's a couple of things to know overarching and that there are risks, whether you choose not to or if you choose to take on this type of engagement and the first one is failure to advise the client that this reporting requirement even exists. You wouldn't want a client to come back to you and say, you knew about this. You didn't say anything to me and now I'm facing these fines and penalties and keep in mind, the fines and penalties are pretty steep, we’re talking up to $10,000, two years in jail time and you would never want somebody to come and point the finger at you if you knew that they had this filing requirement. The other overarching risk that people have is as we get closer and closer to the deadline, it's become more of a topic of conversation and people can just ask you for advice. There is hesitancy there that you should have because providing any off-the-cuff advice could lead to incorrect information if you don't have all the specifics and can also lead to violations because you don't know what is happening at that state level. There is something called unauthorized practice of law. I just need to be clear that no state bar has made this determination of whether it is unauthorized practice of law for non-attorneys to be providing advice or working within the BOI engagement. Well, I can also tell you is there is an AON members insurance program risk alert, and it really has outlined all the different risks and how to manage this engagement, so I highly encourage you to take a look at that. Walker: Yeah, that's great. We'll dig into some of those a little bit later and talk to Roger and Larry about them. But let's say that a firm is considering providing services related to BOI. What would you say to them, if they're asking you like Melanie, what should I do? Should I take on this engagement or not? Lauridsen: That's a common question that we get. But here's the thing about this engagement. There is no yes or no answer. It's not a blanket, yes, you should take it on, no, you shouldn't take it on. So we really encourage people to take a look at their scenario. The first thing that they need to know is they need to understand their own risk tolerance as to whether or not they want to take on this engagement. The second piece is they really need to understand their clients, and the needs of those clients and the level of service that you would be providing to that client. Then, of course, you would have to take a look at inventory. What are the realistic risks that I can mitigate to prevent unwanted outcomes? I need to say that with any engagement and I don't just mean BOI but every time we take on any engagement with a client, there are levels of risk associated. BOI is new. There's still a lot of guidance that needs to come and so I think a lot of people are a little bit panicked by it because they just don't know when we don't understand everything associated with it. I'll also say that different firms and different peoples can come to different conclusions and that's okay. It just depends as they take inventory within themselves. Again, I'm going to reference the risk of work that came out because that really does walk people through that. Walker: All right. Roger I'd like to bring you into the discussion now and just we'll start out with just a flat-out question. To lay your take on whether you believe engagements around BOI are considered unauthorized practice of law or UPL. Roger Harris: First of all, thank you for inviting me today. No, I don't think they are. I just recently had a discussion with our corporate attorney because the BOI, as you mentioned, it's right around the corner and people are questioning what should they do and what should they not do and I think we're going to find that our clients are going to fall in a couple of buckets. One is where it's pretty straightforward, it's a single member, corporate or LLC. There are no other owners out there that is remotely considered could fall under the bill, our rules. But then you get into a case where there may be this person lurking in the background that could have this substantial control or whatever the terms they use and we're trying to make a determination about how does this person's situation fit into the law. I think that's when we get into that case, that's when stretching over into whether it's practicing law or just giving advice that we're not qualified to give. I think we're going to find that the clients are going to fall in two basic buckets, ones that are pretty straightforward. We can probably assume into a lot of points Melanie made. We're willing to accept the risk because nothing is risk-free even if it's cut and dry. Those we can probably help and then there's going to be those others where we're going to have to defer to an attorney to make a determination because not only is it somewhat ambiguous, it's brand new, and we don't have any history or cases or guidance or anything to help us make a determination, so it's going to be in our best interests to let the attorneys take that risk. Walker: Even the form, we haven't seen the form, we will see it on New Year's day as we are recovering from New Year's eve, we all log in to FinCEN and look at the form. I don't know what I'm envisioning. Larry, I'd love to hear your take on this and how you're handling this issue with your clients. Larry Gray: Well, first, thank you for the invite, and just real quick, I think in parallels; I want to speak as a practitioner and a small community, but also I do Missouri Society of CPAs presentations. So, I presented this as late as of yesterday. They both come out the same way. I think first, we have to decide how we're going to assist the client, which means we're in this game because where the client's going to go. As far as I look at it as two groups and I'll say what I said yesterday to about 500 practitioners. I think first thing is this coming year our clients we currently have in business, we have 12 months to find out what happens and Roger and I in earlier conversation, we both are on the same page there. We're going to wait toward later in the year to let it flush out. FinCEN day before yesterday, updated the frequently asked questions; almost weekly, they update it. I think in that light, we got to first know our client and then know their business. And then that's when we take the risk assessment and I can say as a small practitioner, there’s going to be the majority of my clients, I'm going to be able to say, here's what you need. I don't really feel it’s unauthorized practice of law if you say put in your name, your address, and your driver's license number or your name, address and your company's ID number. It's when it's that section of the law that says substantial control. At that point in time, we got to pull the attorney in to do that. But again, I think every practitioner has a responsibility to service the client. I think first thing, and Melanie, I’m going to steal part of what you said. Speaking, I follow three different malpractice companies, I talk to attorneys, we had one law firm at every of the five locations, and they were talking about this same BOI. And, the fact is, the two biggest mistakes we can do is not advise it at all to make them aware, and then off-the-cuff advice. But in between that, we are a value resource, we want to keep our clients, we want to give them a professional service and I think part of that professional service is to keep them compliant without practicing law. And again, I will go back and summarize it. As long as we're not over there, and this is a lay person, I'm not an attorney. But as long as we stay away from what is substantial control and it is that sole proprietor. If it's a husband and wife — they're the company, they’re the beneficial owner. So, when I look at my clientele, the majority of my clients, I want to be able to say, here's a fact sheet, this is real facts. You can do this. Here's where you go. But if we have a question at that point in time, then I think risk starts to set in. Who is your attorney? That's the group we have now. The group that starts January 1st is the newbies and they have a time period 30, 90 days in order to get right. When they come in and say I'm a new client or I'm setting up a new entity, I'm going to say who is your attorney and I'm going to coordinate that and I have to do that starting January 1st. I think we have two types of clients, know your client, know their business, and you're going to be able to do this. Walker: Great. Thanks. And Roger, I'd like for you, we talked a little bit about this. There's such a lack of awareness about this issue with the businesses, with attorneys, and we're trying to do our best to really get information out there to make sure our CPAs and tax practitioners aware of this issue. What do you see as ways that you're reaching out to clients? Or what ways would you recommend reaching out to clients about this issue and thinking about that, the knowledge and awareness piece? Harris: I think that's probably…I've said this many times for something that impacts this many people, this is the most misunderstood law that I've seen in years. There's such a lack of understanding. Again, we're a couple of weeks away from the new year, there's, as you mentioned, attorneys that don’t know anything about it. I bet the awareness, and the small business community is minimal unless an adviser has actually come to them and make them aware of it. Within our community, I'm not sure that the awareness is where it needs to be, so we have a huge lack of awareness. One of the things that we're telling our people, I’ll refer to something that Larry references. He and I talked about…we're not in a hurry to fill out forms, but we are really in a hurry to inform that we're going to take this filing season. We will interact with almost all of our small businesses to make them aware of this requirement because most small businesses think most law exempt small businesses where this one targets. They probably, if they heard about it, felt like that doesn’t apply to me. I'm a small business; it doesn’t apply to me. We're going to spend the filing season to really inform people. Ask for their patience while we dissect liabilities and rules and ever-changing landscape, and take advantage of the fact that we have the entire year. But I know we worked early on with AICPA on developing some communication that has gone out because I think you guys recognized early on the lack of awareness and you’re to be congratulated, we're happy we could have helped with that. But I think everybody in our industry needs to really focus over the next few months on informing people about the law, the seriousness of it, the penalties that are available if you fail to comply and ask for their patience while we try to figure it out how to administer something that while well intended doesn't really fit well in anybody's business model. Not just the initial filing, but the potential for updated filings when subtle things, little things that have never been important to us change like somebody's driver's license changes. None of us, I don't think it probably ever been concerned about the exploration of our clients’ driver's license. But in the world of BOI, it might be pretty important. Walker: I want to talk about something, that is, if firms have decided, made the decision to evaluate the risk and decided to provide these services, what recommendations would you say on managing their risks, Melanie? You take that one to start with? Lauridsen: Absolutely. Just like any engagement, you need to have very thorough documentation. Documentation is a key. With BOI, I would recommend people to talk to legal counsel right off the bat to understand the nature of the work, particularly in their jurisdiction. Again, I can't stress enough that this isn't a yes or no, whether or not you should take on the engagement. There's a lot of factors that come into play, including your jurisdiction laws and also your insurance carrier. What are they saying? How are they handling this perspective? Again, have thorough documentation, acceptance procedures, make sure that you talk that through with the client if you are going to take it. I would say provide a distinct and separate engagement letter if you are going to do BOI to address specificity of BOI. And, if you're not going to take on this engagement, make sure you have very clear language and all your other engagement letters saying you are not doing BOI work with it. Then of course, you have to keep up-to-date, Larry. Gray: Just to follow up on the last two questions. One, Melanie, I think you had a very important point. The thing I stress is the engagement letter. This year we're putting in a paragraph in all of our engagement letters saying this engagement is not part of BOI. But I think it's so important even in our engagement letters for BOI. we’re very specific because, at this point in time where we're at, we're going to determine what we're going to look at with the client, look at their business and say, yes, we can help you and here's what we're going to do. Now we haven't gotten to the point of we're going to do a frequency update to keep compliant. If the client says we had to change, we want to educate them. But I think the engagement letter is so critical to be very clear to where it starts and where it stops. And, then Roger, back on the communications. We're putting it in our newsletter. We have a trifold out front. I'm doing a YouTube on it. I'm reaching out to do some local speaking engagements — free. Things like the real…we're offering it to banks because it is so critical. But one of the most important training elements and communication is our staff. The staff needs to know where we're at on this because my biggest concern with a staff of about 10 is the off-the-cuff advice. We have there inside the building, there's going to be three-point people to take care of that situation. I think communications and training. Walker: Roger, you mentioned about the change. We worry about change in somebody's driver's license or what have you.? How are you thinking about letting the client know that they need to let you know or how are you tracking that information or how are you not tracking it? I guess is a better part of that question. Harris: Yeah. That's something we're actually looking into right now because I think all of us have the desire to want to help our small business clients. Because, know they're coming to us to help them with this, and so we're trying to balance a client's desire and protecting ourselves. I think we're all going to settle in and find the right mixture of what we do, whether we just do advice, we do advice and initial filings, we do advise the initial filings and updates. Whatever we settled in, we have to be very clear in our communication what we will do, what we will not do.We can't leave anything for interpretation. Then we need proper engagement letters and whatever. We all start with the same goal; we want to help our clients. We know we are a resource that they want to call them. We're trying to find a way to help them, but also protect ourselves and we'll settle in on that. We don't have the answer yet. The only answer we were told about updates is be clear. Be clear that you're either doing it or not doing it. Don't leave it up to interpretation, so that when something doesn't get done, the excuse is I thought you were doing it. We're clear in that. Now we're trying to figure out how to be clear and whether or not we can do it or be clear and tell him we're not going to do it. Lauridsen: I'm going to chime in here and I'm going to add onto what Larry said and then what you said, Roger, about clarity. Also, with engagement letters and in communications with the client, be clear as to what your scope is. For example, you guys have talked about this straightforward entity arrangement where you know who the beneficial owner is. When they provide you that information, it's clear that you're not providing advice to them. They're giving you that information and you're handling it from an administrative perspective to help them out. It has to be made crystal-clear that you're not providing advice on that. Walker: Roger, I am on various webcasts doing Q&A and I get the same questions over and over again. I'd love if I could pick your brain on a few of the frequently asked questions that I get. Let's start with schedule C, disregarded entity LLCs, are they required to file? Harris: Probably the best way I can answer that is because it's like everything in the world we live in — it depends. That's the answer that we all give. Think about it this way. Did you register that entity with your state? I can't speak for all 50 states. I know here in Georgia, if you're a sole proprietor or single, you don't do anything, you just become one. But if you have any registration with the state and you meet the other qualifications about number of employees in size, then, I think it would apply to you. Again, it may be dependent on where you are, and do you need to register your entity? Again, this is part of the problem. We have no history of court cases, nothing to look back. I'm falling back on the broad rule. If you register with your state, this applies if you're within the size and others. Walker: I'm in North Carolina and if you create an LLC, you have a yearly LLC report requirement, which to me says you registered with the state. If you're having to continually file an annual report that feels like registering to me. But like you said, we're going to have to flush some of this out. Another question I get…because on one of the exemptions it says accounting firms, just very brief accounting firms. But then if you dig into the FAQs, it says something more specific. Are accounting firms which are people listening today for the most part, do they need to file? Harris: All the exemptions that are listed, be careful and read what they really mean. They're not as broad as we would like to think they are, there are very specific examples in there. I would say that most of the people listening to this podcast are not covered by that exemption, though there clearly are some. But Melanie, I'll let you speak from the AICPA standpoint, but it's like anything. When it's taxes or something we read until we get where we want, then we stop reading. Don't stop here. Keep reading because you're not going to be as happy. Lauridsen: So Roger, I think you'd make a good point. The FAQs within FinCEN’s FAQs, they have the list of the 23 exemptions and one of them says accounting firms. But that's just the title because when you actually read and dig into what that means, it's the accounting firms that are registered under Sarbanes-Oxley to be able to do public audits for public companies. There aren't too many of those companies that are registered to be able to do these audits, I would say, like Roger said, the majority of those listening to this most likely don't qualify for the exemption and do need to file. Walker: Another question I see a lot, what about inactive entities. There is an exemption. But again, like you said, you've got to follow through the whole thing. I think it's six things that have to be met. But what is your thoughts on things to consider for active entities? Then I'll add on, if you dissolved or terminated during the year, is there a requirement to report that? Do you have to say I'm done reporting? Harris: I'm going to be honest, I certainly hope so that you can take yourself out of this mess at some point if you're out of it. But those are some of the challenges. There's reporting agent requirements. If you become a reporting agent, you're there forever if you've set it up. But if you are a preparer or whatever they call it and you want to change, there's all of these things about how you change this or how you change that, what you do that I don’t think are crystal clear and I think we have some guidance that says if your entity has done that, you mentioned these six things, you're inactive, and a $500 a day penalty when you don't really know the answer, what's the safest thing to do? Hunt through an attorney or do it because it's cheaper to do it than to put yourself out there for penalty because again, we have no history of how a situation will be looked at by FinCEN and determine whether you complied or not complied. And that's why we find ourselves in a, listen, for all the criticism people give the IRS, at least they've got guidance, we've got history, we've got things to fall back on. For most of us, this is the biggest interaction with FinCEN. Walker: Only with FBARs and I think that's what trips a lot of people up is FBARs are reported on or can be reported with a tax return and so people are just so confused. Just to clarify, is there a report, is there something that can be filed with your accounting software? How do we think this is going to do? Melanie. Lauridsen: With regards to how you can file. When you start FinCEN, there is no form out there. They have not released it. There will be software on FinCEN's website, supposedly January 1st. We haven't seen it, it's not live, it's not out there. What FinCEN has also said is they are working to be able to provide third-party software similar to what they did with the FBAR, where third parties or third parties on behalf of, in this case, small businesses will be able to file for them, but that is coming down the road for right now. According to FinCEN, you have to go to their website and be able to file there. Again, this goes back to the whole point of there's just a lot of information…a lot of unknowns right now. Walker: Absolutely. I think that's maybe the theme of this. The theme of this podcast is the questions we can answer, the questions we can't, which seems to be more can't than can, but hopefully it's providing some information. Those are my main, I'll say, frequently asked questions for me. What to do now is, Roger, just think about any final thoughts you'd like to share with our listeners as we are evolving through this requirement. This is definitely not the last you'll hear from us. We are continuing to monitor and provide resources as we know more but just as here we are middle of December getting ready to approach this requirement, what would you like to share? Harris: I think the advice I would give to the listeners is the same thing I'd give to our people is, first of all, over-advise in terms of the requirement to make sure that everyone is aware of it. That we're aware of it more importantly, but we're going to take advantage of the time that we've been given to find out some of the details that we've discussed here. So be very aggressive in telling people about the requirement. Be a little hesitant in doing anything until some of these questions that we can answer, we hopefully get answers to and then make sure that you have all the bases covered when you decide how you want to offer this service. Make sure you have the engagement letters in place, make sure you have the errors and omissions insurance in place, make sure you have the attorney relationships that you need. We will help our clients. I think at the end of the day, this will settle to somewhere where we'll find our role, we'll find the attorney's role, we'll find the roles that we can all fit and we will help our small businesses comply. But let's take advantage of the fact that we have time to do it, let's be cautious. But I think, as I said earlier, we all want to help our clients. That's what they come to us for, that's what we want to do. But we have to do it in a right way. The thing that scares me the most is I had a practitioner tell me, how hard is this. It's a form. We fill in forms all the time and I thought this a like all the forms we fill out all the time, so be a little careful. Let's be careful, but let's try to help our clients. We'll find our role. I think we're just never land right now where we're still trying to let it settle, but we'll find our role and we'll do a good job and we have the best interests of our clients at heart and I think as long as we're cautious, that will serve as well. Walker: Wonderful. Thank you, Roger and thank you so much for joining us today. Larry, can you give me some final thoughts as we're thinking about this requirement? Gray: Yeah. The final plot would be as Roger and Melanie and I have said, you've got to decide what you're gonna do. You have to at least make the client aware, that's a given. I think beyond that, what you have to realize is be clear in the engagement letter. I think also, you have to stay current. As I said, FinCEN is updating the frequently asked questions. They updated eight of them, two days scope, but it's almost weekly. Now what I have to do is look at the small engagement guide that they have, which is very good. But there's frequently asked questions. That guide hasn't been updated yet. I would say clear communications including your engagement letter and I think the other thing is stay current on the FinCEN website. You can go online and ask to be sent out notifications. We will work through this and your current clients, you probably want to wait till later in the year. Melanie, April, I so thank you for including me. Walker: Thank you so much, Larry. Melanie, I'd love for you to give some final thoughts. Just as I'm thinking before you go, just there’s…and hopefully you'll hear today, there's a variety of approaches to this. There's a variety of ways that you can approach it and you don't have to know right now, but it would be helpful if you have thought about it and thought about the risk so that when you are dealing with your clients during tax season, you are able to say, here's the requirements. I'm not going to do it, but he can hear some alternatives, or I am going to do it, but you will have to provide me the information and I can help you with the reporting. If there's any advice that needs to happen. It cannot come from me, it has to come from an attorney. That's my final thoughts. What about you, Melanie? Lauridsen: I agree. This is new and it seems scary, but keep in mind back in the day, even the practice of tax was considered unauthorized practice of law. So things evolve and things change. I think once we get more clarity, it will settle and ultimately, Roger can talk about those too. When he's approached lawyers, a lot of the lawyers don't even know what they are. We've found that they don't want to take on this engagement and who does that leave the small businesses to turn to? I also know that CPAs and tax professionals, it is in their nature to want to provide services to their clients. Larry and Roger, and I echo the sentiment have said over and over again, we'll figure this out. We just need a little bit more time, a little bit more information, and I think we're going to get there to be able to help the client. I do think it's our responsibility to be able to provide a service and I'm not saying it has to be a why, but it did provide a level of service to our clients. Walker: Wonderful, thanks. Alright, thanks everyone. Again, this is April Walker from the AICPA Tax Section. This community 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 this 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 life founded friend. You can also find us at aicpa-cima.com/tax, and find our other episodes as well as resources mentioned during this episode and others. Thank you for listening and wishing everyone a safe and healthy holiday season. 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.

Marna Ricker, Global Vice Chair, Tax — EY, has held various leadership roles including most recently the EY Americas Vice Chair – Tax. She engages and inspires her team to provide unique client experiences and create digitally enabled services. On this podcast episode, Marna shares her insights on how to blend and balance soft skills with technical skills — touching on how to develop each set and how emerging technologies influence future accounting professionals. What you’ll learn in this episode How the tax industry has evolved over the years and advice Marna would give to her younger self (1:15) Key skills leaders are looking for in employees today (4:15) Can soft skills be learned? (6:18) Balancing technical changes while also developing leadership skills (8:23) How artificial intelligence (AI) is set to influence tax professionals’ skills (10:52) Final thoughts (16:00) A page from Marna’s travel journal (17:15) AICPA resources Reimagining your tax practice — Tackle today’s top practice management issues with insights and tips from pioneers in the tax community. The Reimagining Your Tax Practice webcast series will tackle these issues and more in a Q&A roundtable series with tax pioneers from the profession. Transcript April Walker: On today's podcast, listen to hear the importance of balancing soft and technical skills in a digital first world. 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 Marna Ricker, she's EY’s Global Vice Chair of Tax. Marna, I just listened to a podcast you did with Tax Notes where you really delved into some heavy-hitting international tax topics. But thankfully, today, our discussion is going to be a little bit softer. We're recording on a Friday so we're a little more relaxed. Your technical skills are definitely honed. Spent 28 years at EY and I think as I was doing some digging into your background, I think we're just about the same age or we’ve been in the career the same time. I was just at a conference earlier this week and telling my story about starting off in Big Four. Except it was Big Six at that time. Welcome and I'd love to hear your thoughts on how the tax industry has evolved over this time in your career and what you would tell that fresh-face, eager tax staff that you were, if you could give her advice knowing what you know now. Marna Ricker: First of all, thank you for having me and I agree it is a great Friday and we're in the holiday season, so it's really nice to be with you. Yes, 28 years of doing this and obviously similar tenure to you. It’s changed a lot and so let's just get into that. I really on this precipice of a once in a generation, maybe once in a century change. We're rewriting old tax codes and we're moving from a bricks-and-mortar world to a digital world and a multi-jurisdiction landscape and so we have government scrabbling with a poly-crisis stemming from COVID, a war climate crisis and many disasters. We have rising inflation, although maybe that's coming into control. I'll leave that to the economists. We have the geopolitical conflicts and all of that obviously is created really significant global economic impact. When you see that the administration's evaluating the role of tax plays in supporting fair and equitable recovery of economies and all while incentivizing green behaviors and decarbonization. Walker: That's a lot, right? Ricker: It's a lot. Exactly. Whenever you see that tax at the heart of that new global tax regulations such as BEPS. Finally, in all of that, a little bit more cloud and platforms and adoption of new technologies such as generative AI and you see the transformation of businesses around that. Tax and finance functions really end up at the heart of driving that. So, careers in tax are changing things. That's what technology and automation and no job looks and feels the same. That was the context of all of that. To answer your exact question, is that tax policy ultimately what I wish I knew was tax policy ultimately plays a big role in driving the outcomes for governments. What do they want to see? What is its place in economic, fiscal, and monetary policy? It's really a force for good. It plays a significant role in important invaluable role in the whole ecosystem. It's one that I love. It's one that I'm very proud of and really helping our teams, helping my younger self find a place inside our tagline at EY is, building a better working world. Finding that purpose is really fun and that's what I wish I knew when I was in my early twenties and bright eyed about going into tax. Walker: I feel exactly the same way. I really was never that involved in politics or really cared about legislation, honestly, until I came to the AICPA about eight years ago and I really was like, knowing this makes such a difference in knowing how the sausage is made just makes a huge difference. I think that's really cool. Marna, definitely you're a leader in tax. As we're talking about this evolving profession, what are the key skills you're looking for in employee's today? We hear so much about the pipeline issues and getting people excited about accounting. You've still got to do your job as like hiring the best people for your place. Where do you look for in skills in your employees as you're hiring them? Ricker: It's a great question and it's such a good career. April, you and I have loved our careers and so I'm passionate about this issue, and so attracting people into the profession, and I'd say there are three big things that I think we're always looking for and tax technical and tax accounting are table stakes. There just a price of entry into the profession and yet the industry and the way we're living our lives consuming, working at the technology advances, the conversation we're having today, we're seeing a lot on technology skills and so we're hiring cross STEM, mathematics as well. Because again, it's really high critical thinking skills and so a lot around technology, digital, math, STEM, skills as well. At the same time, we're certainly seeing the soft skills, leadership skills, communication skills, high collaboration skills, ability to work with others, are really important in communicating really complex topics. Tax technical topics are really important as well. Those three really critical thinking, tax technical, tax accounting, technology, STEM, math, and then obviously the soft skills around communication and collaboration ability to work with others. Empathy type skills are really important in this profession. Those were the top three I'd say that we're looking for in the hiring and development and successful professionals. Walker: I agree. I feel like I'm really primed to have this conversation because like I said, I was just at a conference that was talking about all of this stuff. I'd love to know what you think about, we are talking about balancing soft skills, technical skills, different skills like technology. Do you think soft skills can be learned? Or how do you find that person that maybe they have the start of it, but how do you develop that, what's your preference? If you have somebody who is like really strong technically and they had a glimpse of soft empathy. I don't know. I feel like it's like the spectrum and balanced. Ricker: I do. I think maybe only so far. That might be the way I'd say that and so I think we're a human centric organization and we've done a lot of work with Oxford. We really believe humans at the center if that's the right way to say it. You take your technical skill, and we add technology to that. We really understanding real human emotions and the way to drive the organization forward. Again, you are who you are ultimately, but I absolutely think you can round that out and you can deepen trust and you can deepen your skills around that. We spent a lot of time training around that. Anyway, so we really do spend a lot of time on that and your ability as a leader to foster diverse and inclusive environment where you can come and bring your whole self to work. You and I just even in our earlier conversations, you can just show up as who you are. You can be who you are and then you perform at your highest level as well. We spent a lot of time around that in investing in inclusive leadership skills and becoming better leaders, transformative leaders who bring their best selves to work every day. That's probably what I care the most about and certainly what I've had the opportunity to do for almost 30 years here at EY. That's the way I'd say. You're only going to go so far to rounding that out. But I think the environment and the culture is really what is most important and allowing that to come forward. Walker: Just quick follow-up on that for yourself personally, how do you balance, or do you have any tips on how to balance, like keeping up with all the technical changes, but then also making sure you're continuing to develop your leadership skills. Ricker: It's a great question. I'm highly focused on time management, which might be my superpower tip, but I'm going to jump on a truly like you have a certain amount of time every single day, every single week, every single month, every single year. I'm really focused on what is it I need to get done and how am I going to balance my time accordingly? You're only as good as the team around you as well and allowing them to have opportunities to grow and to learn. Maybe one thing I learned really early is if it's something you already know exactly how to do, don't do it twice. Pass that opportunity, that learning and growth opportunity on to somebody else who hasn't had that experience and that is something I think a lot about. If an opportunity comes to me that I've already done it already know how to do. I'm going to pass that on. Walker: I'll appreciate that too. Everybody wins. Ricker: Yes, exactly. I have an amazing team around me and I get to be on amazing teams too. I think that's building high-performing teams is I think the heart of it, that balancing, might be the right way to say it. The other thing I would jump into April that is I am a passionate person around technology, around generative AI in particular, that is obviously about a year old now. We're just passing that moment around gen AI. When we learned on ChatGPT-4, and in particular, and all that now that we're seeing out of other organizations. That is one where you think about the opportunity to have a second brain, a co-pilot next to you. I'm sure we'll jump into that topic a little bit. Like when you think about balancing and you think about being uber productive and the ability to really accelerate where we're headed. I'm really excited about that. Walker: I think it's funny. I was at breakfast with some friends this morning and they're like triathlete friends that I hadn't caught out whether awhile and somehow we got on this topic of AI and all the cool things it can do for you personally and professionally. I feel like it's such a booming every day, something new happens. But as you think about it, since you brought it up, I'd love to know what you think. How do you see AI and all of these emerging technologies that are happening? How do you see it changing the tax function? Ricker: I am so with you, I'm going to give up personal on really quick April since you said that this morning. Similarly, I set aside 30 minutes really early this morning to write a letter, a personal lawyer recommendation to somebody. I ended up just using Bing chat to do it and I just kept prompting and prompting to make it better. It took me seven minutes. I mean, to your point. Walker: No, that's amazing. Ricker: I had 23 minutes to drink my coffee.Anyway, so you got your question was how is it changing the tax function. To just to jump into that so I really feel like AI’s moment is now this is something that's here to stay it's making all of our lives. Like I said, I just gave a personal example it's making all of our lives better. It's a transformative technology it is really changing the tax world now and it's changing both obviously in our business, how are we going to deliver our services? It's changing obviously how tax departments ultimately will get their jobs done and then it's obviously changing governments and tax administrations and how they'll get done. We're seeing it, really seeing it everywhere. Maybe I'll just, here are some examples. I think that's I think about it, keeping up with ensuring compliance with laws and regulations as well. That's transfer pricing policies, ESG policies detecting discrepancies and real-time data using predictive analytics to spot challenges before those problems or risks. Think about it streamlining compliance processes and enabling real-time data sharing between taxpayers and tax administrators making that process even easier for both. Think about it lowering tax controversy. Because again, you're predicting ahead of time what we're going to see and able to make real-time adjustments. Then think about inside of an organization, a new era of forecasting and optimizing decision-making is because again, it's going to automate complex calculations and allowing tax departments in your organization so real-time adapt to changing regulations and market conditions. Because again, it's going to be predicting and analyzing and prompting you about what's coming. I could go on and on with examples, but really powerful and it's when its ability to predict and analyze as opposed to needing to be told. Again, we're seeing multiple applications of that already inside of our own organization. It's been really fun to do we have invested almost $1.4 billion. This will continue with a unifying platform that brings all that together called EY.AI, clever naming there, they're focused on obviously education, learning, and development our own professionals through what we call EY Tax Copilot and that's really where we're focused on getting our own people educated as quickly as possible so we can continue to take advantage of all the rapidly evolving technology that's out there so very fun for us moving forward. Walker: That's cool. We are advocates for all members of all firms sizes at our organization, of course. But we have a lot of small firm solve for our listeners and you guys have, like you said, you have money to put into a policy, but definitely, I think for smaller firms they'll eventually be able to benefit from some of that knowledge that you guys are working on now. I think our message is, don't be afraid to play around and figure things out and make sure that you're obviously using security measures and not putting personal information in there, but just because you're a small firm, your AI is not going to take away the role of a very important tax adviser. That there's still a role for or at least that's my opinion. But if you are shying away from this completely, saying, no, this is not good, then I feel like you're just really losing out on some of these really cool things that technology can do. Ricker: It's the opposite. I look, eat what I would say is think about the intellect, the tax technical in the judgment that comes with the work that we do. Tax work that we do, that will be even more in demand. Because that ultimately is what are the clients and what obviously individuals and companies value. The ability to have something that makes you even more productive and able to do that type of work, which is what gen AI does, it helps us be far more productive and being able to spend our time in that type of work is really powerful. When you were asking me about what would I tell my 30-year younger self that having that with me alongside me for this last 30 years, it makes you even better at that type of work. I can't wait to see what our young professionals, how smart they are going to be in, how experience they're going to be, and what their careers will look like. Having had the benefit of a copilot, a second brain right next to you for 30 years. They're going to be extraordinary professionals. Walker: Yes, I love that perspective. It's not one you always hear, but I'm an optimist and I look for the bright sunshine all the time. I appreciate that perspective. Marna, this has been great. I'd love for you, given a ton of advice, but one more piece of advice that you'd like to give to our next generation of tax leaders who are looking to build those soft skill, build the technical skills, lean into technology. What do you have for them. Ricker: Maybe it's again, this will be you and I as optimum optimism, maybe my number one would be reach for the stars. Just go for it. Whatever you want your career to look like as a tax professional, I would absolutely be that, but it's hard for me to do one. If I can just add one more, would be that would be one because I think it's an extraordinary career and I think it's so dynamic and interests and so that would be one. My second would be take good care of yourself. I take great care of yourself, take care of your family, and then take care of your fellow colleagues. I just think this whole concept of being great builders, a teams and great builders of your colleagues is the most important thing you could do because it'll continue to give you and it'll give those around you extraordinary opportunities. That would probably be my biggest piece of advice. Walker: Love that, yes, self-care and then just being kind and considerate to others. It always circles back. All right, I don't know if you've listened to this podcast before, but if you haven't, or even if you have, in closing, I liked the name of our podcasts is Tax Section Odyssey so I like to think about as taking a journey together towards a better profession. I love to hear a glimpse of my guests other journeys outside of tax. Share a page from your travel journal somewhere you recently been that was amazing or memorable trip you have planned. Ricker: I love that. So I just was in India, April, and talk about an amazing country truly. It is so on the rise from Old World to the New World and its blend of all of that together is one of my favorite countries in the world for that reason. The culture is so rich and it's, it's kind and it has such high ambition and where it wants to go and such work ethic to get there and so anyway, it's just a beautiful country and so anyway. I just got to spend, I was lucky enough to get to spend almost 10 days there and so I just it was just a joy. Walker: I assume it was a work trip, but hopefully you had some ability to do some fun things. Ricker: I always carve out time for fun and my family is my two great boys and amazing husband. But I also have a great work family and so it was just a joyous time and it's a very special country. Walker: I've never been. I keep a list as I'm doing this, I keep adding things to my travel bucket list. I'm going to have to add India there, awesome. Marna, this was so fun. I didn't even feel like work, so I hope you feel the same. Enjoyed it. Thanks again for listening. 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 please follow us so you don't miss an episode if you already follow us thank you so much. Please feel free to share with other like-minded friend. You can also find us at aicpa-cima.com/tax. We find our other Odyssey episodes, as well as getting access to resources that we mentioned. Thank you so much for listening and hope you have a wonderful holiday season. 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.

In 2017, Congress made several permanent changes to the taxation of foreign earnings with the enactment of the Tax Cuts and Jobs Act (TCJA), P.L. 115-97 . The TCJA imposed a deemed repatriation (Sec. 965). In the Moore v. United States case, the constitutionality of this policy is being challenged. Listen to Tony Nitti, CPA, Tax Partner — EY, and Damien Martin, CPA, Tax Partner — EY, discuss the pending case live from the 2023 AICPA & CIMA National Tax & Sophisticated Tax Conference, as well as the top tax cases of all time. What you’ll learn in this episode Background on the case and case law history involving U.S. taxation (0:44) Deeper dive into the history of U.S. tax law (11:41) Hylton v. United States, 3 U.S. (3 Dall.) 171 (1796) (20:38) Temporary income tax enactment (23:47) Pollock v. Farmers’ Loan & Trust Company, 157 U.S. 429 (1895) (26:06) 16th Amendment (28:36) Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955) (34:13) Lead up to the Moore case (35:20) Advice for how to explain the Moore case to clients (41:24) IRS resources Section 965 Transition Tax — IRS webpage detailing Sec. 965, including an overview, what taxpayers are impacted and what potentially impacted taxpayers need to know. Other resources Charles G. Moore, et ux., Petitioners v. United States — Case whether the 16th amendment authorizes Congress to tax unrealized sums without apportionment among the states. 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 in person at the National Tax Conference with Tony Nitty and Damien Martin, both partners at EY. They have a session here that's titled, “The Top Tax Cases of All Time.” If that's not a high bar to set, I'll be surprised, but I thought it might be fun to go over some of the highlights of that session on this podcast episode today. Damien and Tony, I'm going to be here if you need me, but otherwise, I'm going to let you guys talk about the top tax cases of all time. Take it away. Damien Martin: All right Tony, I don't know how we get better than that saying — the top tax cases of all time. But, I’ll let you set the stage here because we're not just going to geek out like we usually do. We're going to do that. Tony Nitti: Somebody likes his buddy. I don't know how high up our gratitude needs to go. I don't know if it's April or the AICPA planning committee. I don't know if it's the Supreme Court in the United States. I don't know if it's a power even higher than that, whichever one you believe in, but somebody is looking out for us because, like you said, the description for this class is Tony and Damien are going to talk about the top court cases of all time. As you alluded too, yeah, we were totally geek out on that. But, I know we were both a little bit worried that it would be more of an academic exercise and there wouldn't be any real practical takeaway. It's not like everyone's going to go back to their respective offices and be better off because they understand the finer points of Duberstein or North American Oil. We were a little worried. But then we get this gift. We get this gift out of the State of Washington. A little court case involving $14,000 in disputed tax that the district court dismisses in favor of the government. Ninth Circuit does the same. But the Supreme Court of the United States decides, we're going to listen to this case. Now it changes everything for you and me because when these oral arguments start in a couple of weeks, mid-December, everybody is going to be talking about this Moore case. And when I say everybody, I don't just mean like the people at AICPA National Tax, or people make their living in the tax world. It's gonna lead morning talk shows and it's going to be the front page of papers. It's because while it's a small case, the implications are potentially huge. If I were to have to convince you, Damien Martin, why you should be paying attention to Moore and why all practitioners going to have to be able to talk about this stuff with their clients? What if I were to tell you that if the Supreme Court rules for Moore gone from the code goes section 965, the mandatory repatriation tax that was born as part of the Tax Cuts and Jobs Act, and potentially along with it, a couple of hundred millions of dollars of, did I say millions, a couple of hundred billions of dollars of federal income tax collected by the government. Would that be enough to pique your interest? Martin: You had me at a Supreme Court tax case, but when you're going to add billions to the hundreds of billions at that I'm sold. Nitti: Okay, you're sold. I don't make my living much in the international regimes. So, if it were me alone, I don't know if that's enough to pay attention, but what if I were to then say that depending on how a Supreme Court were to rule, also gone for the Internal Revenue Code could be all of the Tax Cuts and Jobs Act. Everything we've spent the last few years getting our arms around lower individual rates, lower corporate rates, doubled the state tax exemptions, 199A, all of it gone. That would be interesting, right? So, I'm going to listen to this conversation. Then what if I were to layer on top, buddy, that depending on how the Court would rule, it would open up the possibility soon stripped from the code could be all of pass-through taxation. No more subchapter S, no more subchapter K, no more S corps, no more partnerships. Say goodbye to all the pass-through regimes. Now, everybody is going to be like, I need to stand up and take notice. How can one case potentially jeopardize all of that? Martin: That's like a third of the code or something, but I'm a little bit…and you have to help me out here, Tony, because you said $14,000 was like $14,729. A third of the Internal Revenue Code itself. I'm a little bit like those are not the same thing. You're going to have to bridge that gap for me here as to why something about $14,000 is in front of the Supreme Court. Nitti: I'll do that. You're not alone with that one-third number. I think that's the same ratio that Paul Ryan, the former Speaker of the House, put on this and said, depending on how Moore goes, we can be kissing goodbye to a third of our tax law. What makes this cool as we go through this process is in order to understand exactly the answer to the question you just asked, like, how is this possible, you and I need to go through the same cases that we would have been going through if Moore had never come to be only now we get to do it in a context that's meaningful for people here at the conference because they can take this information they're going to learn and then go back to the respective offices and actually use this in the coming weeks. That's why I say somebody likes us because we get to have the same conversation that we both would have loved anyway, but now feel better about ourselves that we're adding some value to the people who are actually listening. Moore, like this is not a complicated set of facts. There's nothing about the facts that speak to just how meaningful this case can be. It's a married couple out of the state of Washington. They retired, and in 2006, they have a friend and the friend sees a need in India to get small tools in the hands of farmers. He conjures up this idea to form a company based in India, and the Moore's are intrigued and so they invest right around $40,000 for a 13% interest in this corporation's stock. It's pretty much the facts right there. Now, time goes on and the corporation does well, I think better than anybody could have hoped it would do. It's making some income year over year, but none of that income was distributed to the Moores. In the international regime that we operated under at that time, when you have income being accumulated in a controlled foreign corporation, or CFC, generally speaking (and we'll get into one of the exceptions later in Subpart F), but generally speaking, U.S. shareholders don't pay any tax on that CFCs income until it's repatriated to the US in the form of a dividend. Years are going by and this Indian corporation is making money but it never once repatriated anything in the form of a dividend to the Moores, so the Moores is never once have any taxable income as it relates to this investment in this corporation. Then 2017 rolls around. Do you remember what happened in 2017, Damien Martin? What changed your life in 2017? Martin: It's quite interesting. I can remember a lot of late evenings reading a lot of texts and that's different than usual, I guess. I'm not exactly sure but we had the Tax Cuts and Jobs Act. Nitti: So the Tax Cuts and Jobs Act comes along. As part of that TCJA, and this is a world that you and I don't live in as much as others, but as part of that regime, they are going to switch us from a worldwide system of international taxation to a territorial system. Really as a way to shortcut that explanation — in this new territorial system, if US shareholders own stock of a controlled foreign corporation, some of that income is going to be subject to the GILTI regime. But when the money is eventually repatriated in the form of a dividend from the CFC to the US shareholder, it won't be subject to tax. But you can't just flip a switch and move from a worldwide regime to a territorial regime because there were trillions of dollars stashed overseas that had never been taxed in the US. Suddenly we put up a green light and say, you're free to repatriate those dollars and there won't be any dividend income at the US level, that income would never be subject to US tax. To prevent that windfall, what they did in the TCJA is they added Section 965, mandatory repatriation tax. The mandatory repatriation tax says, look, we get that you haven't gotten these distributions from the CFC but at the end of 2017, we're going to pretend that all 10 percent or more shareholders of a CFC have received their pro rata distribution of the CFC’s income accumulated from 1986 until 2017. You're going to pay tax on that deemed distribution and then now you can move forward in the future knowing that any distribution you get will be tax-free. We're going to pave the way for this move to a territorial regime. Now for the Moore's, that means my share of this income over the last 2006 to 2017, 11 years or so is about 132,000 bucks, as I recall and so we're going to pay tax on that right around $14,700. They get to thinking and they are like something doesn't sit right with me because I'm paying tax on $132,000 of income. I never touched the income. I never got a penny from this corporation. It doesn't feel right. And so they immediately challenged, as I said, and the district court dismisses and rules in favor of the government, appealed up to the Ninth Circuit. Ninth Circuit does the same. Now, the Supreme Court is going to hear and they're going to hear it because of why they're disputing it and why everyone has to stand up and take notice because it's not just a run-of-the-mill argument about $14,000. The Moores are saying, and when we first introduced this concept, it's probably not going to make a lot of sense to a lot of people, but we'll drill into it a little bit. The Moores are saying that Section 965, this mandatory repatriation tax, is unconstitutional. That's a big deal. They say it's unconstitutional because the 16th Amendment grants Congress the power to levy and collect taxes on income from whatever source derived without apportionment among the states and that's the part that's going to trip people up, but we'll get there. What they're saying here is, when's 16th Amendment says we can tax, income has to be realized. I have to have been made richer in my individual capacity to have to have something severable from my investment in the CFC that I can go and spend however I want. I never had any of that. If this 965 tax isn't taxing something that fits under the definition of income, then it is required to be allocated among the states based on relative population. Now, is that surprise you, or is that something where perhaps in your free time you are a constitutional scholar and I'm not privy to that, but I'm guessing for most of our listeners there, I don't know what you're talking about as far as taxes allocated based on population. Nitti: There's going to be a recurring theme. I think there's a lot of our knowledge about what's happening here comes from popular culture and that's okay. However you get it as long as you get it, that's what matters. What they're doing as we drill in a little bit more here, is we need to look at two clauses of the Constitution at a high level and then we'll understand how they came to be. But as I said, 16th Amendment says, you can levy and collect taxes on income from whatever source derived without allocating among the states. Then you have this Article 1, Section 9 Clause 4 of the Constitution that says all direct taxes must be allocated among the states or based on population. It's a very simple argument by the Moores. What they're saying is income has to be realized. You can see it right there in the 16th Amendment where it says is income from whatever source derived. That means it has to be derived from a source. There's this realization requirement, and here under 965, I never got a penny. You're just forcing me to pay tax on something that I never received and so it can't be a tax on income. What is it then? It's a tax effectively on my ownership of stock in this Indian company, and that is what we believe to be a direct tax on property. According to Article 1, Section 9 Clause 4, direct taxes have to be allocated among the states based on population. I know how weird that sounds but to understand if the Moores are correct in this argument, we honestly have to go back to the very birth of this nation and get a grip on how these two provisions of the Constitution evolved and then what subsequent court decision said that the Moores are ultimately relying on and so going back to the opening remarks here, that's why this works out so perfectly for us, because we would have been going through most of these cases anyway. Martin: That's right. It's fascinating because it seems like something like income, the income tax, direct tax, these would be defined things. But maybe as we often see, and this is why you said it's back to are going through the cases and whatnot it actually isn't clear and maybe that's exactly why we're talking about it now. Nitti: No, I think that's well said. We're going to get into an issue that I think has plagued the United States government for 200 years. This is a very meaningful piece of this country's history and to understand where it started, we truly have to go back to the constitutional convention in the late 1700s. Now, you were a music major, were you? Damien Martin: I was. Nitti: I'm guessing the extent of your familiarity with the Constitutional Convention is from your repeated viewings of the Broadway musical Hamilton. Martin: That definitely again, pop culture is what did you learn to write out. We're going to do a little Hamilton here, is that we're here to sing for us? Nitti: I will, but I would like to dispel a couple of myths about Hamilton. While undeniably entertaining, there are some historical inaccuracies. First of all, it turns out most of our founding fathers, not actually talented rappers. Nitti: You wouldn't know that, but that's the truth. But we're talking about that cast of characters here at the Constitutional Convention were talking about Hamilton and James Madison, William Paterson, they're all there and they're figuring out the road map for this new country. They recognize that they're going to have to generate revenue at some point, pay the bills, but they're particularly sensitive about the whole tax issue because of the whole relationship gone bad with England. They add a section to the Constitution, which the exact citation escapes me at the moment, but basically says, look, we can levy taxes, and then we also are going to look to primarily collected revenue from duties, excises and imports. The only requirement for things like duties, excises, and imports is that they've got to be assessed uniformly throughout the country. You can't have one rate on federal tax for something in New Jersey and a different rate in New York. Fair enough. But then there's that first part of that clause where they do have the ability in addition to duties, excises, and imports to collect taxes. What's that going to look like? They start to kick around what a tax regime may take shape as in this new government of ours, and right away, the southern states start to freak out a little bit. The reason they freak out is because that time in the country's history, what they thought would be the two most likely forms of tax, are one what we call a poll tax or just a tax per head or tax for being alive, being a person, so every person were going to have a tax or whatever, 50 bucks. Then the second most likely tax would be a tax on land. Just take acres of land and apply a rate per acre, and that's going to be your tax. To understand why both of those taxes scared the hell out of the South, it's probably best to take the second one first. Like this idea of a tax on acreage of land. The South relative to the North at that time and large swaths of relatively unpopulated land that wasn't highly productive, and so you had fewer landowners with more land and less income that would have to bear the burden of this tax on land if it were simply assessed based on acreage and the people on that acreage. Then, as far as why they were worried about a poll tax or tax per head, this is where you might say, Tony, and you just got done telling me that the South was more thinly populated than the North, so you would think that a tax per head would hurt the North more than the South, what the South was worried about was, when you're talking about tax per head, how would Congress view slaves? The South was very concerned that slaves would count in a poll tax. What the South did is they said, any other tax we're going to add here, that you might impose at some point in the future, we want a requirement that those taxes be allocated among the states based on population. That if Connecticut and Virginia have the same population, they will pay the same share of some national poll tax or national land tax. That seemed reasonable and the North was open to it. But the North said, even still, if we're going to allocate based on population, we would like to count all your slaves for your population for purposes of allocating this tax. The South said, if you're going to do that, then you got to count all our slaves for purposes of our representation in the House of Representatives, which the North wasn't nearly as keen on. What this led to is one of the darker moments of our country's history, but a compromise. You feel familiar with the 3/5 compromise Damien? Martin: I am. It came up in elementary school at some point, to your point about going back in history books here. Nitti: I only learned about it from a recent episode of It's Always Sunny in Philadelphia or Frank Reynolds was reading the Constitution on his phone to settle a dispute at the bar, but it is very much true and it is very much rooted in the tax law. The 3/5 compromise was when the North and South, looking at the way they did, at slaves and how they would count for purposes of the direct tax said, we're going to split the difference and slaves will count as 3/5 of a person for purposes of allocating these direct taxes. One of our darkest moments in our country's history is actually rooted in the tax law. Then what we're left with here is this provision. Article 1, Section 9, Clause 4, that says all direct taxes have to be allocated among the states based on population of free men and 3/5 of everyone else. It's all well and good, but here's the thing, buddy. It turns out, our forefathers were not altogether different than the people that you sit with in business meetings and the like. What I mean by that is you can't tell me it doesn't happen to you all the time. You're sitting in a meeting and people are using buzzwords and you're just going. I assume everyone else knows what these words mean, but I have no idea what they mean, and I'm just going to sit here and pretend that I do and nod my head. But it turns out that same thing man was happening at the Constitutional Convention, and we actually know this. Because here they are saying this very important term, direct taxes have to be allocated among the states based on population, but no one knew what a direct tax was. We know it because in James Madison's notes, he notes that Rufus King, the rep from New York, raised his hand and said, what exactly is a direct tax? In his notebook, it says, no one answered. We move forward with this unbelievably important term. Direct taxes have to be allocated among the states based on population and nobody has any clue what direct taxes are. A rough way to start our new country and its government, but we would not have to wait too long to get our first view of how the Supreme Court interpreted this direct tax law. Martin: It's actually fortuitous for our tax court conversation or tax case conversation here, because now you can get to a tax case here. Nitti: I think it's a case we would have gotten to anyway. The reason we would have gotten to it anyway is because we've already talked about what's at stake, depending on how the Moore case goes for existing law, but it also has implications for proposals into the future. When people think about things like a wealth tax, or even today I heard they're drafting up more language about a tax on unrealized appreciation for billionaires. That conversation and whether those types of taxes would be constitutional, would all start at this same origin. What is the direct tax? A couple of years after the Constitutional Convention, Congress decides to levy taxes on the ownership of carriages for the conveyance of persons. Instead, I guess, and then interpret that how you will you own a carriage, you've got one parked in the garage, you're going to pay a tax on it. There's this guy, Hylton, Daniel Hylton, H-Y-L-T-O-N, and he owned, I think it was 125 carriages, which struck me as being a bit excessive, but whatever reason he had 125 carriages. He's got a buck up on taxes for each of these carriages. Immediately he says, no, this isn't right because I shouldn't be bearing the burden of my carriage tax individually. This is a direct tax. It needs to be allocated among the states based on population and it lands in the Supreme Court. What's meaningful about that is, who are the dudes on the Supreme Court at this time in the country's history? The same dudes that we're just at the Constitutional Convention. We should get some pretty meaningful insight as to what they meant by direct taxes, and the court makes really quick work of this case. They say, look, we've got to look at this logic. It's requirement that direct taxes be allocated among the states based on population. The only things that could possibly be direct taxes are those things that can reasonably be allocated among the states and yield an equitable result. If we think about carriages. Let's just say for our sake that Connecticut and Georgia had identical population. They're going to pay the same share of this national carriage tax. But if there are 10 times more carriages in Connecticut than there are in Georgia, then the carriage owners in Connecticut are going to pay the tax at one 10th the rate as the carriage owners in Georgia. Because either way, both states are bucking up the same amount. If there's a lot more carriages to go around in Connecticut, the per carriage rate in Connecticut is going to be a whole lot less. The court said, no, this doesn't make sense. The only things that can be direct taxes are those that make sense to allocate among the states. Really that's going to be limited to a tax on people and a tax on land. Which reiterates what we gathered from the Constitutional Convention. It wasn't long decision made pretty quick work of it and for the next hundred years or so, nobody really questioned it and it really didn't come up as an issue again. But then we end up in the late 1800s and we need a temporary income tax. Congress enacts temporary income tax it doesn't look dissimilar from the one that we have today. Martin: Before that though, no income tax? Nitti: There may have been some brief moments, I don't know that they were income tax, I'm trying to remember. There was like an insurance tax that popped up for a couple of years. It's a bunch of different things, but they need this short-term income tax, so we got graduated rates, we got taxed on service income, doctors and lawyers, we gotten tax on rental income. Doesn't look very different than today. Of course, they start taxing income and a taxpayer called Farmers Trust says, once again, this is a direct tax, just like that carriage tax, it needs to be allocated among the states based on population. It's unconstitutional, I don't want to pay it. And it goes back to the Supreme Court. You would have thought, based on the precedent we just discovered in Hylton, that the Supreme Court would have made quick work of this too, because how can an income tax possibly be allocated reasonably among the states based on population? Go back to my example, Connecticut and Georgia, identical populations is going to pay the same amount of national income tax. Per capita income in Connecticut going to be a lot higher than per capita income in Georgia. The people in Connecticut are getting away with one because they're in total paying the same amount as people in Georgia, but they've got a lot more income to go around. It doesn't make sense. But in a case that's been, I don't want to use the word panned because it's the Supreme Court, but in a case that's gotten a lot of criticism, they find that this income tax is a direct tax and violates the Constitution because it's not being allocated based on population. The reason they did it was they said, look, we all agree that tax on the land itself, ownership of land is direct, so how's most income earned in late 1800s America? It's cultivating land, farming land, renting land, whatever it may be. What they ultimately said was that if we know that a tax on ownership of land is direct tax and it stands to reason that a tax on the income that flows from the ownership of land is also a direct tax. Now, here's where the relationship to the present day becomes very important, because what they could have done, as they could have said, we don't like all of these taxes on income from land. We're going to strip them out and say they're unconstitutional, but the tax is on the doctors and the lawyers, that can all remain behind. They didn't do that, they said we can't sever the part of this income tax bill that we don't like from the part that we do like, and so we're kicking the whole thing out. That's why we say the entire Tax Cuts and Jobs Act is potentially at stake because it is, depending on how the court would view things. Nitti: Because we're talking about one thing to your point 965. But if it's all inseverable, then that's how you lose the entirety of it. Nitti: There's your precedent for how that could happen from the Pollock v. Farmers Trust case where they said, "We don't like parts of this income tax law, so they all have to go." Now, the more interesting part of that case, if you people are ever inclined to read it, is the dissenting opinions because they go after the majority pretty harshly for the reasons we've talked about, just that it doesn't make much sense to think that an income tax could be allocated among the states. But nevertheless, it's gone and so that's, I don't know, 1895 or so. Congress is not going to take that lying down, they need their income tax. It takes them a while to get enough states on board, but they did something that would be unthinkable in modern times, they amend the Constitution. We get the 16th Amendment and what they could have done is just amend that previous Article 1, Section 9 Clause 4 about direct taxes and just do away with it or rewrite it in a meaningful way, but they leave that untouched and they create this third class of taxation. Now we've got rule 1 that you can have duties, imports, and excises as long as they're a uniform rate. We got rule 2, that says direct taxes have to be allocated among the states based on population. Now we get rule 3 which says, "Congress shall have the power to levy and collect taxes on income from whatever source derived without allocation among the states." We still have that direct tax provision, but in income tax isn't subject to that. That's what the 16th Amendment says and right now at this point you're probably going — The Moore’s argument is built on this concept, income has to be realized. Other than pointing at the language there that says from whatever source derived and saying it has to be derived from a source, which is the same as saying, realize, I don't know where their argument is coming from. We're going to find in a minute that it's coming from some case law. But now that the 16th Amendment is passed, 1913 rolls around, Congress adds the modern income tax like the one you and I apply our trade in day in and day out now. Just as we now have Section 61 which defines income, I think back then it was 22. But it did it in the same terms, a very catch-all that was meant to exert the full taxing power of Congress. It said, here's what's income and it lists out a bunch of stuff, interest, dividends, all that kind of thing, and then that catch-all at the end, or gains are profits from whatever source derived. Same language as the 16th Amendment and so it's meant to be very broad, at least it sounds like it. We've got our modern income tax and again, at this point, hard to argue that there is a realization requirement unless you're really reading into the construction of the 16th Amendment. But wouldn't take long, about nine years we end up back in the Supreme Court, a case we definitely would have been talking about today even without Moore and where this idea of a realization requirement comes from in Eisner v. Macomber. Martin: What happened in that case, what's the situation there? What's the setup? Nitti: Again, couldn't have a more simple set of facts. Taxpayer owns shares stock in a corporation and they get a stock dividend. Stock dividend, think about, simple, me and you. We each own one share in a corporation where the only shareholders, corporations worth 20 bucks so each of our shares worth $10. Corporation decides tomorrow, "I'm going to get Tony and Damien one more share each." Nitti: Company is no more or less valuable. We have, you and I more slices of pie, but the slices have gotten smaller. Instead of one share each valued at ten bucks, you and I now have two shares each value to five bucks, but nothing's changed. We just divvied-up the pie differently. The taxpayer here and Eisner v. Macomber gets a stock dividend, which we wouldn't think based on the logic I just relay there that it would be a taxable event. But the IRS they were still feeling things out and getting used to the new tax law. They say this is taxable to you. It ends up in the Supreme Court because taxpayers arguing that this stock dividend, how can this be income to me, I didn't really receive anything of value. So in Eisner v. Macomber they get the decision in the sense that it shouldn't have been taxable income. But in doing so, they did two things that are come under a lot of criticism in the 101 years that have followed. First, we've been talking about 16th Amendment income Section 22 from whatever source derived very broad definitions of income. Then Eisner v. Macomber comes along and says, income is gain or profit from labor or capital, or both combined. I know just hearing that off the top your head, you don't necessarily get a sense for how narrow and limiting that is. But when we get to Glenshaw Glass and a couple of minutes, we'll see just how narrow that is relative from whatever source derived concept. Eisner v. Macomber is saying, for something to be income, it's got to be derived from labor or an investment in capital or both combined. That's it. That's all. There's a lot of things that slipped through the cracks when you go with the definition that's that narrow. Not necessarily germane to this case, but still one of the major criticism of Eisner v. Macomber. The second thing they did, was they said in this case the reason the stock dividend is not income is because you have this investment in capital in a corporation. But getting the stock dividend, you have not extracted anything of separable value from the corporation itself, something that you can, like I said before putting your pocket and go spend as you want. You have gotten another share of stock and all it's done is reduce your per-share value, but you haven't actually extracted anything meaningful from the corporation. That's why this shouldn't be taxable. That has been what's always been pointed to as the birth of this realization required. Because in Eisner v. Macomber, they're saying you had investments stock. You didn't separate any value from that corporation in your individual capacity and so we shouldn't be taxing you on the receipt of a stock dividend. This is the big point the Moore's are building their case around that really the initial Supreme Court case after the birth of the modern income tax law interpreted the 16th Amendment is having a realization requirement and nothing that's happened after that should really change. But what's interesting about Eisner v. Macomber is pretty soon after it was decided, you started to see even lower courts chip away at it, which is unique when you have a Supreme Court defining something as important as income, but lower courts just saying, that definition of income was helpful for a stock dividend, but I don't know that it should apply to everything. It just got more and more distance from that concept. Then it all culminated in another case we absolutely would have been talking about anyway in 1955, Glenshaw Glass. Martin: Because of the significance. Nitti: It's the modern definition of income. But I will admit I teach Glenshaw Glass in my master's programs all the time. I do it as extra credit on my exams. What are the three components of income and Glenshaw Glass. But thinking about Moore has made me rethink what I've been telling people about Glenshaw Glass. Martin: While at the same time, I'm going to ask you whether or not you're also including Eisner v. Macomber and now we're just more of a Glenshaw Glass. Nitti: I always teach them Eisner v. Macomber. I was always down on the Eisner v. Macomber. But Glenshaw Glass, I think I was interpreting it in the way that the Moores do. I don't necessarily know that I think that's the right way to interpret. Another simple set of facts and Glenshaw Glass, you got a ccompany that's paying another company to manufacture equipment for them that they're going to use in their business. Deal goes bad, they sue, they win. In addition to whatever settlement they get punitive damages. Punitive damages are not designed to make anyone whole. They are designed to punish the offending party. If you're the receiving party, it's just a windfall. Glenshaw Glass gets a windfall, and I'm sure you or I would have done the same thing at that point in time where knowing the Eisner v. Macomber defined income as gains are profits from labor or capital. None of that stuff is present here. I've just got a windfall in the form of punitive damages. This shouldn't be taxable income to me. They believe it's not income. It ends up in the Supreme Court. This is where Glenshaw Glass really distanced itself from Eisner v. Macomber and said, Eisner v. Macomber was very helpful for determining if a stock dividend is taxable. But beyond that, it gave us the modern definition of income and says, hey, this is income here because one, it's session well, it's been two, clearly realized and three, over which the taxpayer has dominion and control. What's amazing about those three points right there is both the government and the Moores are looking at those three points to support their position about this case. The Moores are saying, look, it's said right there in problem Number 2, this is income clearly realized. Honestly, that's how I've always taught the modern definition of income. It has to be a session in wealth. It's clearly realized and over which you have control. But what the government is saying, which I think is the right interpretation for whatever that's worth. But what I think is the right interpretation is that saying that in this particular case, we have income because these punitive damages were clearly realized, is not the same thing as saying it had to have been clearly realized to be income. It's almost like they're just saying, we don't have to worry about realization here in this case because it's clearly been realized. But that's not the same thing as saying if it hadn't been clearly realized, you couldn't possibly be dealing with income here. You see that distinction. Both sides are pointing to that and supported their position, which is pretty fascinating. From the government's perspective, as you go from Glenshaw Glass and bridge the gap from there to now, what they're just saying is, it's hard to fathom that 965 is unconstitutional because there is this requirement that income be realized when we have half a dozen provisions that we can point to in the existing code where realization does not seem to be required. We already said, we have Subpart F that's existed since the 1950s. Let's say you own stock in a CFC that are in certain types of income, we're going to tax you on it even though it's not distributed. Yes, that's been pressure tested. All of these have except for 475, 1256 straddles that have an income recognition without realization has been pressured, tested in the courts and approved. Section 475, the mark-to-market regime for securities and dealers that hasn't been tested, but it was only recently enacted. One would think that would have been dealt with on committee level. Then of course, how do you marry it with flow through taxation. We know with partnerships or S corps doesn't matter if you get a distribution, if the entity generates income, your share of it is picked up on your tax return. What they're saying, and this is pretty fascinating when you think about it. The government is saying, we get that, by and large, we don't tax income until it's realize, but you know why we do that? Not because we are required to buy the 16th Amendment, but because it's a pain to tax income that hasn't been realized yet. It's simply a question of administrative convenience. If we wanted to tax Damien on his appreciation and is very substantial retirement portfolio every year we could. But it's just not easy. If we wanted to tax you every time your house value doubles, we could, but we'd rather wait for closed and complete a transaction. Not because we have to, but because it's easier to but if we ever need to divert from that, we can, case in point. Man, I don't remember the code section. It's up in the 800s I think we're I tried to stay out of, but if you flee the country. If you expatriate, you're treated on your last day as if you sold all of your belongings. You haven't sold them all, but you're treated as if you have on your way out the door, they collect their tax. No realization there. Now to the Moore's credit, they've tried to do some interesting things with their argument. Number 1, they've crafted in a way that they're not forcing the Supreme Court's hand to throw out, for example, the entire Tax Cuts and Jobs Act. They've crafted in a way where they really just focused in on 965 and not all of the Tax Cuts and Jobs Act. They're giving the Supreme Court a way out if the Supreme Court wants it to just say, hey, we're only going to focus our attention on 1965. The other thing that Moore's are doing is they're acknowledging that Subpart F exists and pass-through taxation exists and things like that. But in their brief, they're pointing out reasons why those might be constitutional, but 965 is not. For example, partnerships don't really exist. They're not a tax paying entity and S Corp, everybody affirmatively elects to be an S Corp. You get what you get what you ask for type of thing. They're saying that those are concept of what they call constructive realization. But with 965, there's none of that. We're just being forced to pick up income. I don't know that I necessarily agree with the distinction they try to draw between Subpart F in 965, but that's not for me to decide. But that's the big thrust of their argument. Whereas from a government's perspective, they're just saying that, listen, if you really want to get into the semantics here, we could argue that income has clearly been realized. It's just been realized by your corporation. There is nothing in 100 years of case law that prevents Congress from taxing shareholders on their piece of a corporation's income. You have all these different compelling arguments. Who knows how this is all going to play out, but what's at stake, we already talked about it. It's a third of the code is you said plus a whole batch of potential future cases. Martin: That's right. You just wound your way through history. You get Hamilton and I learned something new about the fact that all rapping…I guess at the time that they got the Constitutional Convention. But again, I always had a mentor that told me this really honest say, subscribe to the Wall Street Journal because whenever a tax story hits the Wall Street Journal, that's the day that you're going to get a bunch of calls from your clients. Now I'm sitting at my desk, Joe Client’s calling because of whatever article they've read winding through all of that, what do I tell him? Tony? How do I distill hundreds of years of everything you've just walked us through? Nitti: The big takeaways are just the fact that the Moores are suggesting that if you have income that has not been realized, it's not really income at all that's being taxed, it's property ownership and that falls under a different purview of the constitution. What really matters here is not whether 965 is going to go the way of the dodo, but what it would open up in terms of the potential for the rest of the code. Because as we said, you're talking about hundreds of billions of dollars at stake and 965 tax. Then people are going to want to know what does this mean that the next time I get a K1 from my S Corp and don't have a distribution that goes along with it? Can I sue that? It's unconstitutional. If I'm required to market my securities to market the end of every year in the 475, can I go in and sue and say that's unconstitutional? Does this mean, because I could tell you this, if Moore is decided in favor of the taxpayer, they can forget these proposals. They're kicking around for a wealth tax or like this billionaires tax on unrealized appreciation in assets under President Biden's proposal. They would fail this realization requirement, so it's a little case with huge implications. If you want to understand why we got to hop in the old way back machine and go back to the Constitutional Convention, and I'll take you through the evolution. But it's really interesting stuff and obviously the timing is perfect because all arguments start in just three weeks I think. I think you're right, I think everyone is going to be talking about it and I think to the extent that people who are listening to this podcast can feel like they understand what's at stake? Why the argument is what it is? Maybe have a few thoughts of their own on how the Supreme Court may look at this thing. The whole point is exactly what your mentor told you, which you don't want to have happen is somebody saying, we know about this Moore case and you look in with a blank stare and go. I'm too busy cranking out returns I don't know what you're talking about. It's very rare that tax law rises to the forefront of the public consciousness and when it does, we've got to be able to speak intelligently about whatever's being bandied about and that is about to happen next month I had no doubt about that. Martin: You want to be able to tell them more essentially is what you're saying. Yeah. I waited all this time but I guess that's ultimately why you say greatest tax cases of all time. How much bigger can you get in this concept of realization income? It's at the heart of what we do every day you and I. Nitti: Even just take a more simplistic view than that, there's a chance that if we were doing this same session next year more depending on how it's decided might be on a list of the most important tax cases of all time. We get a chance to deal with something in real time that I don’t think a lot of people are paying attention to now, but it could be all anybody's talking about in three or four months because no one knows how this is going to go. The Supreme Court has been, how should we say, unpredictable maybe a bit? Who knows what direction this goes? But we were not being overly dramatic at the intro about what is at stake here. Like you said it, Paul Ryan said it, maybe a third of the code potentially either be thrown out with the decision which I think is unlikely based on the way it's crafted, but absolutely opened up for attack. If it's true that the 16th Amendment requires realization, then yeah, there's a lot of, Subpart F, I don't get how that's any different. Nitti: When it opens up, although maybe it won't be the greatest case but there'll be like the greatest case that led to a lot of other cases, because you're talking about litigation that you're going to see if that happens. It's an interesting time and thinking about how all these pieces fit together. Even maybe the fact that I don't know if the thing that sticks with me, maybe as living in the individual, the human world. The fact that actually absent that they would've paid more taxes as an individual at the individual rate. It would have been paid like 49,000 instead of the 14,000, it's fascinating aspects to this to the international side. It touches basically everything so it truly is fascinating. Nitti: I know Annette Nellen said in her presentation today talked about how enjoyable it can be to actually read all these different briefs that have been filed and she's not lying. The arguments each one has their own interesting point and counterpoint. I know some people are arguing that the problem with the mentor repatriation tax is that it tax you on your share of the CFCs income 1986-2017, even if you only acquired the stock in 2016. I said, how can I be taxed on earnings that were accumulated before I became a shareholder? Allow me to introduce you to sub-chapter C because that's been happening for C corporations. If you and I buy stock in GE today and next month it makes a distribution out of income that was earned in 1914 doesn't change anything for us we have dividends income. That to me, that's again, something that's been pressured test it, so it's hard for me to understand that argument. It's going to be must-watch TV. Martin: It's a Super Bowl for us tax geeks I think in a lot of ways. Nitti: Like I said, this will extend beyond our little tax geek kingdom and go into the mainstream. Martin: Next year April, maybe we come back and we really evaluate was more what it was kept up to date. But thank you April for hanging with us here. Walker: I kept thinking that if Moore turns out a certain way then and the S Corp it goes away, then I don't know if Tony be employed next year. That's what I was thinking. Anyway, thanks Tony for the history lesson, thanks Damien for walking us through this was so fun for me to hear it. Hamilton's one of my favorites and the only thing missing a little bit of rapping. Maybe that'll happen next. Thanks again, you guys it was great. 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 please follow us so you don't miss an episode. You can also find us at aicpa-cima.com/tax and find other Odyssey episodes. I think Tony sneaks in there on a couple of those, so you can go back and listen to some of those and get access to the resources mentioned during the episode. I guess once this airs we might have more information on the case, so we'll have to see how to follow along. Thanks everybody for listening and have a great day. 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.

The employee retention credit (ERC) continues to be a topic of conversation amongst taxpayers and their trusted advisers. Now that the IRS has placed an immediate moratorium on processing new claims to at least the end of 2023, additional considerations and challenges have manifested. Justin Elanjian, CPA, Managing Director — Disputes, Claims & Investigations, Stout, chats with April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, and shares best practices for navigating the current ERC environment. What you’ll learn in this episode Current ERC developments and how Justin is assisting his clients (0:50) Tips for taxpayers who have already claimed the ERC (4:55) How to advise clients contemplating withdrawing their claim (10:31) Advice for helping clients that have not yet filed for the ERC (16:22) Statute of limitation issues and recommendations to consider (19:50) Office of Professional Responsibilities (OPR) guidance around professional responsibilities around claims (26:23) What Justin is seeing in ERC examinations (33:05) Final thoughts (41:34) A page from Justin’s travel journal (43:45) Related resources  ERC guidance and resources — The rules to be eligible to take this refundable payroll tax credit are complex. This AICPA resource library will help you understand both the retroactive 2020 credit and the 2021 credit. ERC suspended: What happens next | Tax Section Odyssey — October 16 has sunset. Tune in to this podcast to hear fellow CPA practitioner Brandon Lagarde’s experience with the 2023 extension season and what to expect in 2024. Employee Retention Credit (ERC): Fact or Fiction? — Use this guide to educate yourself and others on common misconceptions surrounding the ERC. Employee Retention Credit Decision Tree — Download the ERC decision tree to help you with various decision points when working with clients to protect yourself/your firm from significant risk. IRS resources IR-2023-169 — IRS news release on Sept. 14, 2023, ordering the immediate stop to new ERC claim processing. IRS ERC resource center — IRS hub for ERC information, including links to guidance, FAQs and the latest news. ERC eligibility checklist: Help understanding this complex credit — IRS chart is used to help taxpayers figure out if they may be eligible for the credit. Use this chart if you are considering claiming the credit or have already submitted a claim to the IRS. Transcript April Walker: On today's podcast, listen to hear more about next steps with the ERC. 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 realized that today is our 100th episode, so I'm pretty excited about that. I'm April Walker, a lead manager from the Tax Section. I'm here today with Justin Elanjian. He is at Stout, and he works as a managing director in disputes, claims and investigations. You can see where his angle might be coming from with the ERC. Welcome Justin. Let's talk today about the current landscape of ERC and how you're assisting businesses today in your current role. Justin Elanjian: Sure. Thank you, April, for the opportunity to be here and to the rest of the AICPA as well. It probably helps to start with the current landscape and setting the stage as it informs how we are assisting businesses and CPA firms in navigating the employee retention credit. As we've seen over the last several months and, in particular, over the last six weeks, there's been some significant changes to the program, particularly as it relates to the processing of claims. Six weeks ago, we had the moratorium on processing new ERC claims, which has produced a flurry of additional questions that may not have existed previously. Then, we also have the additional scrutiny that is being placed on service providers on taxpayers who were claiming the credit. That's coming through in the form of communications from the IRS, for example, when they announced the moratorium and issued a number of warnings over the last several months, but also notably through the increased level of enforcement in the form of independent claim exams. With all of this, there has been this delay in processing ERC returns that have been filed before the moratorium. Of course, we have the hold on processing claims submitted after the moratorium was announced on September 14th, that creates some additional challenges for taxpayers who are in need of the assistance with ERC refunds. With the concerns pertaining to promoters and aggressive tactics, the IRS has asked on multiple occasions at this point for tax professionals to step in and that's really where we're getting involved. When it comes to taxpayers or CPA firms — frankly it's both where we're providing opportunity and support, is we're evaluating a taxpayer's position as to whether or not they have a basis to submit a claim. So that upfront analysis and in particular as it relates to the full or partial suspension criteria. As we know, that's the subjective one and the increased level of diligence that's required. But what we’re also seeing here that’s not drastically different, are circumstances in which taxpayers, at their own will or at the direction of an adviser, are seeking a second opinion. Or perhaps they've submitted a claim and want to understand the adequacy of their claim documentation, the associated risks, the opportunities to augment the documentation, etc. Most recently, where we're spending the majority of our time is in providing audit support. That's coming through in the form of these taxpayers that are in receipt of an IDR (information document request) pertaining to one or more of the ERC claims that have been filed. For the CPA firms that have offered ERC services, there's a suite of risk mitigation services and risk management services that we offer to assist them in protecting both their firm and their clients that they may have assisted. Walker: Wonderful. Thanks, Justin. That's a great introduction into where we are and like you said, the landscape. You mentioned the moratorium and mentioned the scrutiny by the IRS. Let's talk first about taxpayers who have already claimed the credit. How are you advising them and what considerations do you think are really important for them to be considering as you are the CPA working with those types of businesses? Elanjian: Sure. Like many situations and this one not being drastically different, the first item to really focus on is assessing the current reality. When it comes to the employee retention credit, that's heavily focused on the basis for the claim that was filed. That's inclusive of the nature and extent of the documentation that has been produced to support that basis or substantiate that. Since the inception of the program and frankly, even since the issuance of the various notices throughout 2021, we've continued to see this evolution from the IRS. Frankly, we've seen it from the ERC market as a whole, and interpretations of the statute and changes to such. We've seen that through updates to the IRS FAQs. We’ve seen it through public comments by the IRS or press releases. And there may even be further extended into the supply chain general legal advice memorandum that was released in late July. It's further observed by the IRS’s approach and the positions that are being taken in these claim exams that I mentioned or audits. We'll use those terms likely interchangeably throughout the course of this discussion. I know we'll talk about that in further detail later. But when it comes to the taxpayers that have filed the claim, the first step is reviewing the nature of the agreement they have with whichever ERC service provider they sought assistance from. To understand the responsibilities of the taxpayer as well as those of the ERC service provider. Service providers have mainly consisted of your tax incentive firms, your law firms, accounting firms, consulting firms and payroll processors. The nature of services and the extent in which they're offered vary not only by the type of business, but even within the type of businesses, the scope of services may differ and likely does. It's a critical item to understand as we continue to see taxpayers that are operating under the assumption that the ERC service provider, whoever that was — I'm just referring to a third party that was engaged. That may have an assumption that the eligibility information and documentation to substantiate [ERC claim] was produced or evaluated by the ERC service provider. There are various third parties who rely on taxpayer attestation and that the taxpayer understands the rules of the program. They've made a determination that they're eligible for the credit. They have asserted to the fact that they've identified and maintain the relevant documentation to support their claim. It's a really important component to understand — where might this documentation come from and who was responsible for producing it — as we consider the substantiation requirements in [IRS] Notice 2021-20 and specifically Q&A 70. Then, once we understand where the information comes from, it's a matter of understanding the completeness of the documentation. We've continued to experience situations in which taxpayer has a narrative regarding our full or partial suspension of operations, but they don't have any supporting schedules, there's no details or evidence that corroborates the commentary. And during exams, the IRS is certainly seeking this information, as well as copies of the government orders that were determined to be relevant to causing the business' limitation or restriction or other modification of the taxpayers’ operations. Really getting hands around the documentation that exists, so then we can then move into the next step, which is understanding the reasonableness of the position. Now, short of very limited circumstances, the program, as we know it, is highly subjective and lack of case law and situations that some may perceive to be moving the goalpost. Insert supply chain glam here, only makes that more challenging. I know we'll probably talk more about the OPR Guidance and tax preparer responsibilities. I'll just briefly note that here, but we don't see this as necessitating or recreating the wheel or reperforming the analysis. But reviewing the documentation in the position to determine if there's a reasonable basis for the position, recognizing there's differences in interpretation of the guidance and applicability to the taxpayers’ factors and circumstances. That's really step one if you've claimed or you're working with a taxpayer who has already submitted a claim for the credit. Walker: Another set of clients, [we’ve talked those who have already] filed the claim. Now let's shift to how you're advising clients contemplating the withdrawal program. Also, we don't have the details yet about the settlement program, but just in thinking about what are their options and what are their considerations? Elanjian: It's a great question. I think this is where I would say the majority of taxpayers fall, is what do I do now? The number of communications, the phone calls, the emails that are prompted every time there's a release of something from the communication from the IRS, or somebody attends an industry conference. ERC continues to be a topic and as a result of each of these prompts further discussion and in many cases it's very much warranted. We have the point where we have understood our clients or if you're the taxpayer, your situation, the basis of your claim and the associated documentation. When we get to the point where we understand the reasonableness of the claim, we end up with this known unknown. We look at what are the options to consider and, April, as you mentioned, there's some that we have been informed of a process like the withdrawal program that was recently announced by the IRS or what we expect to come forward as it relates to the voluntary settlement program. When the adviser or the taxpayer is evaluating what to do next, that is coming from the perspective of “we understand our basis for eligibility. We understand the documentation that exists or perhaps what documentation doesn't exist or where it may be lacking.” It's the next stage of evaluation. What do we do about this? When we're looking at, whether it's the withdrawal process or a settlement program as being considerations, that's heavily dependent obviously on whether or not they've received their ERC refunds. As we know the withdrawal process provides an opportunity to effectively reverse a claim. Withdrawal of the claim if it has not been refunded but to the extent that it [hasn’t] been refunded, that's expected to be addressed with the details of the settlement program. I think when we're looking at all of this and before making any decision, it's recognizing what's coming forward. As we see some of the communications from the IRS and we look at the moratorium announcement, it makes reference to more information that may be requested. It shifted the [IRS] processing from 90 days to 180 days, but further indicated that if additional information is necessary, that it could be much longer. Then in light of the suspected fraud, abuse, or improper claims that have been filed, the IRS may seek more information. That's what I'm referring to now as maybe the more proactive type of information document request, which is the information document requests that comes before the refunds have been disbursed. That's an important consideration as we think about the communications from the IRS where they noted that they believe that many of the applications that are currently filed are likely ineligible. And that it's at least anecdotally noted that they're seeing instances where 95% or more of the claims coming in recent months are ineligible. [They] are attributing that to promoters that continue to aggressively push people to apply regardless of the rules. That was the communication that came forward with the announcement of the moratorium. What that presents itself is needing to understand their position and the documentation so they can determine whether or not they have an improper claim. Does that suggest that they may pursue the withdrawal process or wait for the details of the settlement program? Perhaps, but the subjectivity of the program and a lack of the historical case law also presents this alternative which I think is where we're [seeing] a majority of taxpayers falling. Whether we care to admit it or not, there's undoubtedly taxpayers who may review their position, may review the reasonableness of their position and recognize that it is highly subjective, and choose not to pursue the withdrawal program, this settlement program, and take more of a wait-and-see approach. It's known that the IRS will only have the manpower and the capital to audit so many of the claims and with more than 3.6 million claims filed. There's a possibility that taxpayer claims never get a second look from the Internal Revenue Service. That's probably the last bucket and I think it's probably the largest bucket that falls, is whether or not to take any action. In all cases, first step before reversing a claim, before returning funds to the IRS is make sure that you understand your current situation or if you're the adviser, understand your client's current situation so that there's an opportunity to have the relevant information in front of you to make informed decisions on the next step. Walker: I think those are great considerations. Certainly, we're not advocating for playing the audit lottery. That is not what Justin nor I are saying. But it is a fact of the matter that there may not be a clear decision, there might not be a clear yes or no. Wait and see, may be the best approach at this moment. There's another group of businesses that I'd like to talk about for a minute that actually haven't filed their claim yet. For whatever reason — hadn't gotten around to it — whatever the reason is. How are you approaching those conversations with those businesses? Elanjian: Everything we just spoke about pertains to taxpayers who have already claimed the credit. To your point, April, there's still businesses who are evaluating whether or not they should submit a claim. It's important to note as we've heard misinformation, as it relates to the moratorium, to clarify that the moratorium [does] not limit the ability of a taxpayer to file an ERC claim. It's simply noted that the IRS will not process any claims filed on or after September 14th until at least 2024. That opportunity does still exist. Some in the market may suggest that this is more of a timing consideration for a taxpayer. Considering claiming the credit in light of the heightened scrutiny and the IRS perception that the vast majority of claims recently filed are improper. However, the guidance to taxpayers considering claiming the credit remains substantially the same as it was prior to the moratorium. With or without the assistance of an ERC adviser, it’s important that the taxpayer understands the rules of the program and how they may apply to the taxpayers’ facts and circumstances so that they can make informed decisions pertaining to their basis for eligibility and if one exist, submitting a claim for refund. That's easier said than done as the moratorium certainly created some hesitation for taxpayers considering claiming the credit. But it shouldn't deter a taxpayer who believes they are rightfully entitled to the credit from submitting a claim. Where this really comes down to of what's new as we think about the moratorium, or what’s an increased focus in determining whether or not to file, or perhaps when to file is recognizing that the opportunity to claim 2020 employee retention credits will expire due to the statute of limitations come April 15th of 2024. If you’re working with a business that is evaluating claiming the credit, is unsure whether or not to submit or when to submit, once there's an appropriate basis to claim the credit. And of course, all the corresponding documentation and the calculations have been performed, go ahead and file. We want to ensure that taxpayers don't lose out on the opportunity to submit a proper claim before the expiration of the statute of limitations coming forward in approximately six months. Walker: Very good. Shifting gears a little bit. Hand in hand with the claim for ERC is the businesses' requirement to amend the corresponding income tax returns for the claim. Let's acknowledge we're not going to debate the fact [and] we agree that the IRS guidance requires amending the 2020 or 2021, obviously, depending on the year of the claim. That is a fact. But given the moratorium, the fact that we know the IRS has a backlog of claims, let's talk about some of those issues around statute of limitations for those income tax returns. At this point, nothing has happened to change the statute of limitations. What recommendations could practitioners consider? Elanjian: Sure. It's a great question. April, I will acknowledge what the IRS guidelines require as it relates to when to amend an income tax return. There's clear guidance from the IRS, we continue to hear and see income tax preparers look to address the ERC claim perhaps in a year in which the refund was received. Again, that is contrary to the guidance produced by the IRS, which illustrates that the income tax returns should be amended for the year in which the credit is determined, which was either 2020 or 2021. Now, with that being said, going back into your question here about statute of limitations and what that would mean, it's something we continue to see surface more regularly as we're nearing the income tax return statute of limitations as it relates to 2020, which is coming due here in the next few months. Frankly, it's a dilemma for the tax practitioners that the IRS really hasn't provided a definitive solution for, at least not yet. On one hand, we have a backlog of several hundred thousand ERC claims. It's unclear when the IRS will process them as we consider the fact that taxpayers can still submit amended returns to claim the credit. That's only further exaggerated by the fact that as we're observing the IRS continuing to audit these claims, including those that were previously processed for which refunds have been disbursed. The outcome of these audits, inclusive of IRS decisions, those that may be appealed or brought forward in tax court will not be fully resolved until after the statute of limitations on the 2020 income tax return has lapsed. That's for some unknown amount of taxpayers. It's just really more of a timing thing. That's in turn lies the challenge where taxpayers who have previously amended their end of 2021, but really our timing sensitivity is around 2020, income tax returns to reduce their wage deduction as instructed by the IRS and may end up in a situation that after the statute of limitations expires, a credit that was claimed may be disallowed in whole or in part. We've talked a little bit about protective claims and what we're hearing about that and that's protective claims for refund. Where that seems to fit and maybe where it doesn't pertain to this question is when it comes to the ERC claim, there may be a consideration to file a protective claim against the refund, which can occur when there's a contingent event. We really [mean] in this case is the resolution of an eligibility position taken perhaps, we're observing to see what happens with supply chain as those are brought forward and litigated and what that might that mean. That can provide an opportunity for the taxpayer to subsequently perfect the claim after the statute of limitation lapses provided that the basis for the claim is not materially different. But that's for the claim for refund which is facilitated through most commonly the filing of a Form 941-X. That's different than the income tax return issue that we're facing where we're not afforded that same opportunity. When we're amending our income tax return, we're reducing the wage deduction. We're not claiming a refund through the filing of the income tax return. What's been made available to us and what's been communicated to us through [IRS] Notice 2021-49 as it clarified, the income tax return implications, is that an amended return should be filed or administrative adjustment request. The administrative adjustment request still would seem like the appropriate option if the taxpayer is a partnership, even as we go, perhaps beyond this 2020 income tax return statute of limitations. But it doesn't solve all other tax entity types. That's the gap that continues to exist and where we sit today, the only reasonable answer at this point is that the IRS has to come forward and issue some further clarification. I've no doubt that the IRS is well aware of the issue and we'd expect to see some further communication. I know that doesn't fully solve the question that's being asked within the market other than wait and see, but unfortunately, that really is our current reality. Walker: I guess, mainly, we're speaking here to tax practitioners, communicating that to your clients that this is a real possibility is important because what you don't want them to come back and say, hey, you never told me x, y, z. I feel like that's important. Like you said, we at the AICPA have made them aware that this is an issue. I'm sure they know it's an issue. Hopefully, there will be some extension of the statute. I'm not sure how that actually is affected. But anyhow, for now, that's where we are. Elanjian: April, I love the comment about the communications with clients. In this market, and I know we're talking here as the comment was made about this income tax return dilemma that we may be faced with and likely will be is the just the misinformation about the ERC. Communication with clients so that they understand that you're here or they understand that you have the advice or can recommend someone who does, is clearly important in our role as trusted advisers to our clients. Where we can see things go awry is when there is no communication and our clients go out and seek help from someone else, they may not have a preexisting relationship [with] and may or may not provide the right advice. That client communication element to speak to, April, is critical. Walker: We're going to continue to talk about amended tax returns, but we're going to talk about the OPR (Office of Professional Responsibility) guidance around professional responsibilities on claims. Definitely another conversation topic, question topic on this issue. What is your perspective on this guidance and how practitioners might navigate this? Elanjian: This is a matter we deal with regularly and that's from all sides. When it's the CPA, it may be the service provider or maybe an attorney. What's the burden? What's the responsibility rather is perhaps the better way to say it as relates to the tax preparer. We recognize that the issuance of the OPR guidance or the IRS warnings and communications may prompt or require for that matter the CPAs to provide certain level of diligence. Some CPAs feel that they've been tasked with effectively performing some function of the IRS. At least they're acting in that particular manner as the last line of defense, if you will. The unfortunate piece of this is that it's caused a significant strain in CPA and client relationships. As we're aware of numerous situations in which CPA may have refused to file an income tax return over an inability to agree on a position taken by their client pertaining to the employee retention credit and unfortunately sever certain relationships. That's certainly not the outcome any of us are looking for. As we look at the OPR guidance, we look at the standards for tax professionals, we look at Circular 230. What it's speaking to is the reasonableness of the position taken by a taxpayer, the responsibilities of the tax preparer as it pertains to diligence and disclosures and how any associated penalties perhaps may come into play. That's really when it gets into this element of an unreasonable position. There's this process that a tax preparer they go through to determine is the position reasonable. I think it's important to consider what we see in [Sec.] 6694, which notes that a tax preparer may rely on advice furnished by another adviser, another tax preparer, or another party, and that the tax preparer is not required to audit or examine or review the books and records, the business operations, the documents or other evidence to verify independently the information that was provided by the [3rd party]. That being said, the tax return preparer may not ignore the implications of the information on the income tax return, and they make reasonable inquiries if the information furnished appears to be incorrect or incomplete. We're left with the understanding whether it's known or there's reasonable belief that the position taken is unreasonable or inaccurate. We need to figure that out to determine how far we are inquiring or evaluating the reasonableness of a position. We're hearing some CPAs taking the position that if their client claimed the ERC, then April as you noted earlier, they should amend the income tax return. We know if it's claimed that there's an income tax implication, therefore, just do it. Amend the income tax return, no further questions asked. Now, the other side of the equation, we're seeing CPAs and some of them who have decided not to provide ERC services for one reason or another, now being faced with this consideration of being the ERC advisor, and assessing the taxpayer situation and effectively re-performing the eligibility analysis, which may very well lead to a different outcome for any number of reasons than what the taxpayer acted upon. The appropriate position is likely somewhere in between the middle of those two bookends, and we're looking to comply with Circular 230 and certain relevant sections of the Internal Revenue Code as well as the [Statements on] Standards for Providing Tax Services. This really involves making reasonable inquiries pertaining to the taxpayer's position. Unless the facts and circumstances suggest that the position is unreasonable or inaccurate, you may stop there. Given the subjectivity of the program, it's highly common for two different parties to evaluate the same taxpayer's position and reach two different conclusions. That might be informed by their approach, their knowledge of the program, perhaps their risk tolerance. But what it does not necessarily mean is that one position is reasonable and the other one is not. As we discussed earlier, there's this lack of case law and applicable legislative history to actually know what a partial suspension is and what is an unreasonable position short of the known fraud and abuse. Accordingly, making the appropriate level of inquiry to understand the taxpayer's position, assessing if it's reasonable, would seem to satisfy the compliance requirements without full re-performance of the analysis to formulate an independent conclusion that maybe predicated upon the documentation the taxpayer has pertaining to their position. For example, if you're speaking with one of your clients and asking about their eligibility position for having claim the credit and all they can tell you is supply chain disruption with no further information, that likely is going to warrant some additional inquiry and further probing. However, if taxpayers provide a narrative that articulates their position, its alignment with the program requirements, that would seem to achieve the level of due diligence that's required by the taxpayer as having a reasonable basis for the claim that's been filed. Walker: I think [there are] no easy answers here, but a great way to think about it. Let's shift. We've alluded to it a couple of different times throughout our conversation, but let's shift to as you're helping CPA firms, their clients and defense of actual examinations that are currently ongoing. [Justin, could you] share some of the themes you're seeing from those exams. Elanjian: Sure. We recognize that CPA firms and law firms and certain ERC providers may not have the skills, knowledge, experience, or even the bandwidth to provide representation in the wake of an ERC claim exam. That's been a great opportunity for us to collaborate with the trusted advisers to mutually serve their clients best interests and having the opportunity to do so as it pertains to the audits of these ERC claims has certainly provided some insights. Some of which from our perspective maybe a bit concerning, but nonetheless informative. As it relates to what can be expected and where to focus our efforts in working with clients and what types of documentation to really dive in deeper on. I think it's important to start the conversation with the notion that the IRS Notices themselves or the Internal Revenue Services’ interpretation of the statute are not necessarily binding in nature. What is binding in nature is the statute itself, and that presents a much more broad definition of an eligible employer particularly as it relates to a full or partial suspension. If we look at the Cares Act, it states that an eligible employer is any employer for which the operation of the trade or business is fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel or group meetings due to the coronavirus disease. Notably, there's no mention of a more than nominal portion or more than nominal effect among the various other limiting provisions that surface in the IRS notices and most notably IRS Notice [20]21-20. That notwithstanding, we're seeing some common themes or areas of focus from the IRS exam agents that provide even a more narrow or more limited view of an eligible employer than what may be present within IRS Notice 2021-20. Again, that's to inform advisers of how they may approach situations and engage in conversations with their clients to defend their position or be prepared for defense. In no particular order here, what we're seeing is significant emphasis on essential businesses, on government orders, the whole more than nominal concept and supporting documentation. Touch on each of these just briefly, just for some additional context. When it comes to essential businesses, the IRS is taking a narrow approach, and particularly as it relates to essential businesses that do not operate with a non-essential component. The exam agents are hyper-focused on the fact that essential businesses, by definition, were not required to shut down. Now, notably focused on the concept of shutdown, which is not the criteria in the statute, nor is it the criteria in the IRS guidance for being eligible. That has certainly presented some challenges for essential businesses whose trade or business operations may have been suspended by any number of factors, even though they were technically remained open for business. There's this extra level of diligence and communication that's seemingly necessary when dealing with claim exams. As expected, the government order aspect is relevant. The IRS is requesting copies of the government orders, actual copies of the orders that were determined to be a contributing factor or the causal factor to the suspension noted by the taxpayer. In some situations, the agents are specifically requesting that they be directed to the exact section within an order. Show me the terms, show me the article, show me the subsection within the order that's being cited. We've been pulled into situations after an IDR [information document request] and a disallowance occurred, where the basis of the disallowance was because the taxpayer had provided hyperlinks to URLs where the orders existed. The agent wanted the actual orders and therefore disallowed the claim because the orders themselves and the specific sections within were not cited. That's one part of this is the substantiation of the order. The other side of this is what is an order. We know that certain things like statements made at a press conference don't constitute an order. But what I'm talking about is the verbiage perhaps used within an order. The order uses words like recommends or encourages or something to that effect. The agent may not consider that to be a mandate, but rather a guideline. I can understand that in certain circumstances, but it certainly presents a challenge to get into that level of nuance and that level of detail for CPAs, ERC advisors, or the taxpayers themselves. But where this further extends into some challenges is, let's take a hospital for an example, or a long-term care facility whose financially reliant on their Medicaid contracts and therefore, in turn, compliance with CMS [Center for Medicare & Medicaid Services]. The IRS is not acknowledging that the CMS is, "guidelines" were not required to be followed. They don't rise to the level of a government order and a mandate. That in and of itself can present some challenges as taxpayers who are subject to following these guidelines could lose their whole Medicaid funding, which would cripple the business if they didn't comply. There's some debate here as to whether or not that should also be considered an order. I think the third item I mentioned was the more than nominal concept. This one is interesting for a number of reasons, despite the element of it not being present within the statute. The exam agents are very much looking for a calculation. Show me the numbers, show me the revenue, show me the employee hours. The approach is extremely formulaic. Not only that, but the application of some of the more than nominal criteria is being just simply misapplied. When we look at the more than nominal affect language in Q&A 18 out of [IRS] Notice 2021-20, it notes that Governmental order that results in a reduction in employer's ability to provide goods or services in the normal course of the employer's business operations of not less than 10% will be deemed to have more than a nominal effect. Unlike the more than nominal portion concept, this does not suggest it needs to be a factor of revenue or employee hours. Further, it does not state that it needs to be in relation to a comparable quarter in 2019. However, we're still seeing agents requesting a calculation for a reduction in revenue or reduction in employee hours of 10% to achieve the nominal effect criteria. That's just simply inaccurate. But nonetheless, it is something that we're continuing to see in the wake of IRS ERC claim exams. Walker: Great. That's helpful. Helpful to you as you're walking through the steps we've talked through earlier today. What is reasonable? What is not? At least considerations here's where the IRS is coming from and then you make your own professional judgment. Justin, thank you so much. This has been super helpful for me and hopefully for our listeners. Any final thoughts as we're wrapping up today? Elanjian: There's obviously a lot of unanswered questions and differences of opinion when it comes to the employee retention credit program and CPAs are receiving information that sends a sentiment that anyone who charges it continuous fee is bad or a substantial component of claims that have been filed that are improper. We go back to that comment made by the IRS that 95% or more of claims coming in recent months are ineligible. Probably somewhat of an overstatement. Obviously, 95% is clearly significant. Well, it's still probably not 95%, I think the intent of the message is probably not far off. It may not be that 95% or some significant percentage of claims are improper, but rather they don't contain the supporting documentation required, and in turn, therefore may be deemed as improper. It continues to drive home this element of documentation, I think biggest takeaway of all of this is the documentation, the preparation of such, whether it's to prepare an income tax return, preparing for a claim exam, determining the withdrawal program or whether or not to file a claim. Is there a position and can it be documented and what should not occur as businesses who are rightfully entitled to the credit, second-guessing their claims, or whether or not to even submit one for fear of penalties or interest or potential financial burden that they may face or their claims be subject to exam. At the end of the day, it's important we get back to the intent of the program, which was to provide funding to businesses who experienced challenges due to COVID and maintain their employees on payroll. We recognize that this adds more responsibilities to the CPAs as the trusted advisors to their clients, and that's where Stout is here to help and be a resource to you and providing guidance and advice to your clients to maintain the competence the clients have in you and manage your risk and their risk accordingly. Walker: Wonderful, thank you. We will, Justin, put your information on how to best contact you in our show notes if anyone is listening and thinks I need to talk to Justin a little bit further. In closing on these podcasts, I like to think about as Tax Section Odyssey we're taking a journey together toward a better profession. In doing so, I really like to get a glimpse of my guests, other journeys outside of when they're working on tax. Please share a page from your travel journal, Justin, either a bucket list trip or something you have on the horizon? Elanjian: Boy, that's a tough one. I don't know that I have one on the horizon as we've had the opportunity to do some travel recently. I'll speak to the recent travel instead of the upcoming. We had the opportunity to do a two-week safari in Africa. That was absolutely outstanding. If someone hasn't gone and it's not on your bucket list, you're making a mistake. Put it on a list. It is unbelievably worth it and an experience that you will never forget. Walker: Perfect. As we're accumulating these podcasts, I have added to my bucket list, and I think I'll have to add that as well. Thank you so much again, Justin 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 the 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 please 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 get access to any resources mentioned during the episode. Thank you 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.

October 16 is in the rearview mirror. Brandon Lagarde, CPA, JD, LLM, Partner — EisnerAmper, chats with April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, to review what went well during the extension tax season and what to look forward to in 2024. What you’ll learn in this episode 2023 tax extension season highlights (0:58) Challenges and concerns to think about for 2024 (3:05) What’s keeping Brandon up at night (7:30) Sneak peek of the National Tax & Sophisticated Tax Conference (10:13) Final thoughts (14:24) A page from Brandon’s travel journal (15:35) Related resources AICPA & CIMA National Tax & Sophisticated Tax Conference 2023 — This premier conference provides tax experts with the latest updates and information on new regulations. Your team will hear from IRS executives on current challenges and opportunities. Use promo code NTA150 at checkout to save $150 (exclusions apply). Annual Tax Compliance Kit — Engagement letters, organizers, checklists and practice guides help you manage your tax season workflow and excel as a tax and financial planning adviser. Tax Season resource library — With constant changes to the tax landscape, being prepared for tax season is critical for success. Set yourself up for a smoother filing season by tapping into the wealth of AICPA and Tax Section resources. Transcript April Walker: On today's podcast, listen to hear more about a practitioner's extension season and learn about what you will hear about at National Tax. Hello everyone, and welcome to the AICPA Tax Section Odyssey podcast, where we offer thought leadership on all things tax facing the profession. I'm April Walker, a Lead Manager with the Tax Section, and I'm here today with Brandon Lagarde. Brandon is a partner at EisnerAmper in Baton Rouge, Louisiana. Welcome Brandon. Brandon Lagarde: Thanks for having me. April Walker: We're recording this today on October the 20th and earlier this week, Monday, October 16th, was the deadline for what we think of as the end of extended tax season. Brandon I thought we could talk a little bit about some lessons learned. Let's first start with a good; I like to do that. What are some things that went well for you during this extension season? Brandon Lagarde: This is always our busiest time of year — the extended busy season — largely because it involves more of our larger individual clients and even some of our larger pass-through clients. September 15th is a pretty busy day for us. September 30th is also a pretty busy day with fiduciaries and states being done, and then October 15th, again, of course, being, which is October 16th this year is a huge day for us. When we try to plan out our year, we'd certainly look at August as getting ramped back up. If I had anything good to to say about this year it is that we recently went through merger within the last few months — merged May 21st with EisnerAmper — and with that, we were able to get additional resources help. One of the good things that happened during this extension season was, again, the ability to have more people help us get returns done and get the work out. That's probably the biggest positive we had. I wish we would've started sooner. Seems like June and July was slow for us, and we're waiting and anticipating for the wave to occur. We tried to ride the wave as best we could, but I would say that it was still a pretty stressful time even with the additional help we could get. April Walker: I feel like when I think back to my days in public accounting, it's always hard to ramp back up, but the sooner that you can ramp back up after taking a little bit of a breath, that makes for a better September — October. That’s great that you had some additional staffing. Maybe we'll move to the lessons learned. What are some things that didn't go as wel,l and some things you'll try as you look towards the 2024 tax season? What are some things that you're going to implement and work on? Brandon Lagarde: One thing that we did during our regular tax season (and it never translates for us to extension tax season), and that is really trying to set some expectations with clients on when we expect them to get us information. When we get work done internally during regular busy season, that March–April timeframe, we're much more deliberate on getting that work in the door, telling clients we need your information by this date to get the work done. We are much more deliberate on scheduling that work during busy season because we are more focused on it. Then summertime comes and I think everyone, including our clients just get lazy when it comes to their taxes and getting work done. What we didn't do so well, and we've thought about this internally, is on the backend with the second busy season coming up in August, we really need to do a better job of pushing clients to get information and pushing ourselves to continue to work on stuff during the summertime. Just seeing that this year specifically, I don't know if it's still coming out of the COVID-19 pandemic work issues or just coming out of first summer where people did a lot of travel. Again, there definitely was a lull that we should have prepared for a little better. Certainly one big lesson learned is we really need to keep our foot on the gas through the extended busy season and really get started earlier because as I mentioned, one of the good things that happened to us this year was we did have additional help to get work done. Without that help, we would have been extremely backed up and not sure we would've gotten the job done. So really pushing that deliberateness that we took during the busy season in March and April. Really pushing that to the summer and staying on top of clients, staying on top of our people and just saying, “hey, we need to make sure that we're not pushing this back further than we need to,” that's a huge lesson that we'll take from this tax season. One of the challenges we face with our September 15th deadlines is when you have flow-through entities and we're getting K-1s on September 9th, 10th and 11th, that puts a huge strain on getting work done on the 15th. We try [for] clients that have that multi-tier, we at least try to back that up and try to get those out before [because] we know they're going to impact other clients we're dealing with. But that's just a huge backlog that happens. Again, I don't know how you incentivize clients because sometimes it's not in their hands. April Walker: Absolutely. But I think you can make sure you're communicating and make sure [maybe] it's getting the best draft information you can get [entered in the system] so that you're really truly just waiting on a few pieces of information and really pushing [clients]. I'm not trying to tell you what to do Brandon, but just some ideas like thrown out there and just making sure that your clients don't put you into a box where you're having to scramble. Brandon Lagarde: That's one big lesson is never too much communication with a client, especially if you're trying to get information from the client or really trying to push the client to get you the information. To some degree, it takes some deliberateness on everyone's part to say, let's sit down first week of June and go over what financial information we need from the client, get with the client and help them to put it together and even set up meetings with the client to make sure that they understand that we're waiting on them for something. I find that happens quite often is communication just falls apart and the client doesn’t realize we’re waiting on something or the client doesn't really understand what we're waiting on, even though we tell them waiting on something, so it certainly involves overcommunicating is going to be a huge solution for anything. April Walker: I think that sounds good. Just a final question as we're thinking about looking forward, what's keeping you up at night as you're thinking about its the middle of October tax season. Unfortunately, we will be here again. What's keeping you up at night thinking about that? Brandon Lagarde: We already had a meeting this morning with our partner group [and] our local group, and really starting to talk about what we need to be focused on [at] year-end and starting the process early on this communication with the clients and starting the process early on determining which clients we are going to continue to work with and which clients we may need to part ways with and getting engagement letters out and organizers. These things need to occur now and not wait [until] January — Is just getting those things done, just getting a process down to do that, that's what we've just taken off right now. Because I think it's going to be pretty quiet legislatively in the near term, but hopefully there's no major tax things we have to deal with. Again, it's a normal year. April Walker: But it's always thinking forward, thinking about 2024 presidential election [and] also thinking about sun- setting of TCJA — that's not until the end of 2025. But still just planning ahead, and again, you're talking about communication with clients is always a good thing. Brandon Lagarde: Making sure we're getting in front of the clients and remind them that bonus depreciation continues to go down and things that are changing and whether there's a fix to the R&D or not and keeping people abreast of whether employee retention credit claim is currently pending because we have a lot of those that we get calls every day from clients asking, “where's our money?” We tell them that it is sitting in Washington DC — so call their congressmen. But, as always, fun to talk to clients about and end of the year is at time and its extent that we can again have a full conversation with them, not just year-end planning, but also getting ready for the 2024 tax season, and go back to lessons learned from this year, just trying to get information earlier from clients. If we can get in front of them towards the end of the year and even beginning of the next year and help them clean up their books or help them with organizing their stuff before it gets too late into the tax season, that's a win for everybody. Really, that's going to be our focus in the next two months is really just some of the administrative stuff done. Let's refocus our efforts on those clients that we need to be focused on and work towards making sure over communication is integral to the process. April Walker: Brandon is a wonderful volunteer for the AICPA. He is the current chair of the Tax Practice Management Committee. He's also a first-year co-chair of the National Tax Conference, so I'd like to talk a little bit about that's upcoming really soon in the next couple of weeks. I heard yesterday, there is an additional promo code which I'll share in the show notes. Brandon, tell us, why should you come to the National Tax Conference besides getting to hang out with you and I? Brandon Lagarde: That would be the first thing, you get to hang out with April and myself, which is always a fun time. You could visit the O museum. This will be my sixth year attending and first year as a co-chair and I've been on the planning committee for the last couple of years. And it's always just a great conference I go to. It's in DC, you're around the IRS officials, the IRS Commissioner comes in and talks and this year we have a new Commissioner. So we get to hear from the new Commissioner and his vision for the IRS and with the $80 billion that they have to spend, what's their priorities? We hear from other IRS officials to get an idea of what their priorities are to in the coming year. It's a great place, not only just to learn from other practitioners, but also to learn from the IRS and the government officials that are there and again, you're in DC. This is a great conference this year and we're hoping to have some good discussions and good content around AI and how it's impacting the tax practice. The committee has spent a lot of time working through that issue and just trying to provide some good information and some good commentary. I heard just this morning that we're going to have a staffer from the Senate to also be a part of the AI discussion because Congress eventually is going to get involved with putting guardrails on artificial intelligence. I know they have a committee that they're working on, talking about what should their role be. And again, what better place to learn about all that in DC. It's a great conference and I think this year is by the [National] zoo, so we get to go to the zoo as well and go see the pandas. April Walker: Absolutely, the pandas are leaving. That's one thing I'm doing. If you'd like to join me, give me a shout out, I'm definitely going to the zoo on Sunday. But thank you for sharing about the [conference]. That's exciting. I always love the sessions and it's one of my favorite. It's one of my favorite times. You've talked about some of the sessions, but do you have any other specific sessions that you're looking forward to attending yourself? Or again, I like to always provide that there are some concurrent sessions happening. If there's a couple of things you would like to see at the same time, you can go back and watch them later. That's a definite benefit. But what are you looking forward to you the most? Brandon Lagarde: With this conference being at the end of the year, certainly you get the IRS officials and you get to hobnob with them and you get to meet them and get to hear from them. But also you get some really good year-end things to think about. Well, we're always, as I was saying earlier, the things that keep us up at night is making sure that we're talking to clients about things they need to be doing at the end of the year for tax planning. This conference gives a lot of tips, a lot of things to think about to bring back. We try to make it very practical — practical sessions that could be applicable to everybody. In this past year, we now are integrating the sophisticated tax planning conference as well, so again, you add a little more estate planning concepts and ideas in addition to just the income tax. It's a really well-rounded tax focused, and again, given time a year is perfect. You go to a conference, you hear a bunch of things and then two weeks later you forget about what you learned. Here, you can take what you learned and go bring it out to your clients immediately. Again, it was a very successful tax season for us. All returns are filed that needed to be filed. Everything went as smooth as it possibly could go. Definitely can go smoother, and every year you just have to look and see what went well, what didn't go well. One closing comment on that, we started doing this years ago was having a debriefing session for [the] tax group and for every level. Staff, managers, senior managers, partners get together and just have a debrief on what went well, what didn't go well. [We] get our admin team together, talk to them about what went well, what didn't go well, because what went well, in my mind, may have gone terribly for somebody else, but we just didn't see it at the time because people are just busy. Really sitting down with the team and just going through and [talking about] what we do here that went well, what went wrong and how can we improve and how can we fix? Because I'll say everyone can improve on something even if it's small. That's the good thing to do for the firm and good thing to do for your practice. April Walker: Absolutely. Thank you again so much, Brandon, and I appreciate you very much. You've been on this podcast before, so you know what's coming, but on these podcasts, I like to think about us taking a journey together. Like a journey towards a better profession. In doing that, I like to get a glimpse of my guess’ other journeys outside of tax, so what is a trip you'd like to share about? Either a trip you have planned or a trip you have recently been on? Brandon Lagarde: Yeah. I knew this was coming and I didn't have a thought until you asked this question. My wife and I are celebrating our 20th anniversary this year. April Walker: Wow, congrats. Brandon Lagarde: Yes. We were going to do a little bit longer of a trip, but we shortened it. We're going to Las Vegas in a couple of weeks, and been debating on this whole sphere thing and should we go to the U2 concert in it or not, but so far I think we're, we're not. But unless somebody convinces me, otherwise, we're not. But I think I'm just going to stand out in front of the sphere and take pictures of certain things, like everyone does. April Walker: Yes. I was hoping you were going to go check it out so we could possibly, when we're together in June, next June, we could see if whether it's worth it or not, I don't know. Think about it again. Brandon Lagarde: Yeah, we're definitely going to go check it out as don't know if we're going to go to anything inside of it. We may just go walk around outside. But Las Vegas is the fun place and we're going to hopefully have some fun, even though I don't gamble. April Walker: Lots of good shopping and lots of good food. Brandon Lagarde: Lots of eating. April Walker: Yes. Happy Anniversary. Brandon Lagarde: Thank you. April Walker: 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 friends. You can also find our podcast at the AICPA-CIMA.com/tax and find our other episodes, as well as getting access to resources mentioned during the episode. Thanks everyone 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.

The tax profession offers a myriad of potential paths to a successful, satisfying and rewarding career. On this episode, listen in as Will Weatherford, CPA, Managing Director — Transaction Advisory Services, Forvis, and Teri Hanson, Managing Director — Alvarez & Marsal Tax, LLC, share their perspectives of what it’s like to be in the mergers and acquisitions (M&A) tax niche from both a federal and state perspective. What you’ll learn in this episode A day in the life of an M&A tax professional (0:58) Steps when starting an engagement (4:20) Red flags and lessons learned (9:24) Saving the day (12:02) Reflections — past and future (16:31) Career drivers (17:14) Pages from Will and Teri’s travel journals (21:18) AICPA resources Salt Roadmap and Resource Center — Browse the reference library for the latest guidance and tools to address your state and local tax needs. Navigate to the interactive U.S. map to reference taxes imposed, tax rates, due dates, tax forms and more. View the SALT resources index for additional resources by topic. 2022 State Tax Nexus Guide — Learn about state tax nexus including the many types of nexus (affiliate, economic, click-through, cookie, etc.), the physical presence standard and more. 2022 State Tax Nexus Checklist — Access a comprehensive checklist about state tax nexus considerations involving income, franchise, sales and use taxes. 6 reasons an S corporation wouldn’t need a PLR | Tax Section Odyssey — On this podcast episode, Tony Nitti, CPA, Partner — National Tax, EY discusses Rev. Proc. 2022-19, which provides procedures to allow S corporations and their shareholders to resolve frequently encountered issues without requesting a PLR. Wayfair Client Notification Letter — The U.S. Supreme Court ruling in South Dakota v. Wayfair, Inc. opens the door for possible economic nexus issues. Use this letter to initiate client planning. Transcript April Walker: On today's podcast, listen to hear more about a day in the life of M&A tax professionals. 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 today I'm excited to share our guests. They are Will Weatherford. He is a Managing Director of Transaction Advisory Services with FORVIS, and Teri Hansen, who's also a Managing Director with Alvarez & Marsal Tax. Just to kick us off, we hear so much about the CPA pipeline and how students and professionals entering the CPA profession don't see the excitement and don't see — all we do as tax professionals is just crank out tax returns. It might be fun to explore a day in your life, a day in the life of Will and Teri. They're going to tell us…Will, we'll start out with you. Tell us a little bit about your background, and your role, and M&A tax due diligence in general and then once you're done, Teri, go right ahead. Will Weatherford: Sure. Thanks, April. I'm a Managing Director with FORVIS as you said, and my job is really to lead our M&A tax engagements. I have a team that works for me, but I'm the one leading it — the one signing off at the end of the day. From an M&A tax perspective our work really breaks down into what I call the diligence, which I think we're probably start off talking about tax diligence in that, and then the structuring which I think will also get to. But from a tax due diligence perspective, that is really about when one company is buying another part of the process of acquiring…is doing diligence. It's really no different than for people who bought a house where you hire an inspector to come in and look around and see if there's any problems. It's really a similar concept and there'll be various service providers. I come in, the lawyers come in and do legal due diligence, and maybe other insurance advisor will come in and do an insurance diligence. We are brought in to really review the company's historical tax filings and the positions they have taken and really just understand what the company has done historically from a tax perspective and really to understand if there's any tax liabilities both from a federal-international perspective, which is what I focus on. We're really looking at the federal income taxes and to the extent that there's any cross-border activity, the foreign taxes, and we have local teams that do that…then, what Teri focuses on, and she'll get into is, the state and local tax perspective, any state taxes — both income and non-income. The goal is really to go in and get an understanding of the company's tax posture and again, really looking to understand if there's any historical liabilities that would be inherited by a buyer in connection with the acquisition. It's a bit of a fine line to walk because the goal is not to find 9,000 things the company did wrong. Nobody is going to be — given the nature of our tax system — no one's going to be 100% compliant all the time. Just like auditors when we operate with materiality threshold, but we really want to find those material tax exposures that would influence, or impact a person's decision-making, and then we want to understand them. We want to ring fence what that is, and then also part of it is working to see if there's ways that we can mitigate them either. There may be something that the selling company can do pre-closing to mitigate the issue or if it's something that our client has to deal with post-acquisition. That's what my role from a federal and international perspective. Teri, I'd love to hear about what you do from a state perspective. Hanson: We actually do pretty similar things, it's just a slightly different focus. As you mentioned, I focused on the state and local taxes, that's any state income tax, any non-income tax, that's sales and use, gross receipts, property tax, payroll tax, excise taxes, unclaimed property, though that really technically isn't a tax. We're also going in, we're looking at companies to make sure we understand their business and their profile, and then we're trying to help our clients make sure they're appropriately protected in the purchase agreement to the extent we do find those material issues. Walker: Great. Definitely, I think it's pretty obvious why due diligence is so important to a buyer. But maybe we'll start with Teri, maybe talk about the process, the steps you actually go through as you're starting an engagement, and how you actually make this happen. Hanson: Yeah. The first thing we really do, anytime we kick off a deal, we want to understand as much as we can about the target. Whether it's understanding what kind of structured it is, I'm sure we'll get into that. There's really different tax implications. If we're working with a C Corporation, or an S Corporation, or a partnership. We need to understand what the income tax profile looks like. From a state and local perspective it's very important to understand exactly what the company buys and sells. We tried to get all the information that we can to make sure we're advising our clients on the best way to approach something. Once that process gets kicked off, the next step is really a fact-gathering phase where we're requesting information to review. We're having conversations with the management team — whether it's the CEO or the CFO, the various tax advisers, and understanding exactly what they do, where we think they should be filing, and again, picking that apart to see where we might have some problems. Walker: I would imagine, especially in the state and local area. I'm sure we'll find lots of problems too, but I feel like I hear so much about trying to figure out where you have nexus and — just from a compliance standpoint — that I would feel like in a due diligence process…I'm sure that is a very challenging adventure in trying to figure out every client is compliant or not. Hanson: That is an understatement. Yeah. It's especially for some of these smaller companies with very small tax departments or maybe even non-existent tax departments. It's really challenging to understand every tax and every single state. Unfortunately, the rules are constantly changing, so we find the taxpayers just have a really difficult time keeping up. Walker: Now Will, what would you like to add to that from a process standpoint and how might it be the same or how might it be different? Weatherford: I will say that for us from a federal perspective, understanding the transaction structure is really critical, and there's quite a lot of misinformation out there. People think, oh, I'm purchasing assets, no tax liabilities come over. That's not true. We spend a lot of time explaining that concept of people, but from my perspective, again, understanding what type of legal entity are we buying? Are we buying a C corporation, or are we buying a S corporation? If you're buying a C corporation, I have to look at everything, right. All the tax liabilities will come over. S corporations are very interesting just only because S corporations don't really pay taxes other than in very specific circumstances. But to be in that position, you have to have a valid S selection, and those S selection rules are very arcane, hyper-technical, and we have to spend most of our time really diligently seeing the validity of that election and that involves some candid, very uncomfortable conversations because there's very specific rules around the types of shareholders and things like that. We have to get on the phone candidly and ask people, hey, what was your marital status? What's your residency status? If they have trusts, we have to ask to see this trust agreements, and a lot of times you read these trust agreements and just all the skeletons. You just follow the closet because you're reading all this stuff and people obviously get very sensitive about that. I can tell you, I've been called about every possible name you can think of. Most of it I can’t repeat on the air unless this is that kind of podcast, but I didn't think it was. Walker: No, not today unfortunately! Weatherford: People obviously get very sensitive about this, but that's what we have to do. You have to definitely need a thick skin to work in M&A because you will run into people who…and candidly you're going in, you're oftentimes dealing with a tax preparer, and you're reviewing their work and they obviously don't want to look bad in front of their client. But sometimes you just find problems and you find things they've done wrong and you have to have the very uncomfortable conversation because nobody wants to admit they were wrong, particularly if it becomes like an economic point in the deal. Walker: And, probably professionals that did things wrong, potentially. Weatherford: Oh yeah. It happens where there's someone who had a big miss or something and we have to raise it and there's implications for them on terms of them having to deal with that on the backend — from a diligence perspective, understanding the entity. It's a very similar process to what Teri outlined. There was a fact-finding phase, gathering the documents, reviewing the tax returns. We're not performing an audit. Not going in and ticking and tying every single number, but we certainly do look at the material things and we do have to rely quite a bit on what management is telling us. Obviously, if they're telling us something that's just doesn't reconcile with what we're seeing we need to investigate that. But we do try to make it a collaborative process. I always tell the management teams that were working with — that we understand they have day jobs. Our intent is not to create a second job for them, and we try to ask for documents and things that are off the shelf, things that can be readily provided. If something is not readily available, we have different ways of working with things. I always tell them I'm like, look guys, if you're working, I'm working. If you're dealing with this 11:00 o'clock at night and you got a question, just text me or whatever because our goal is not to. Walker: Make things harder. Yeah. Weatherford: Exactly. Walker: You brought it up. People loved to hear horror stories, protecting the innocent, of course. Tell us about a big miss you've seen as a business went through this process. Weatherford: I would say a lot of the big misses, again, there's always the quotidian stuff, I'll say that, which is just very everyday things, it’s not very material. I would say the big misses are really around prior acquisitions when a company previously went through a transaction and then was held and then our client is acquiring it. And, we generally have to go back and look at that prior acquisition and maybe they structured it to get a step up. Depending on how that waas structure if they did a 338(h)(10) election, that could potentially be invalid. I run into anti-turning more often than I would like. Especially if some of these very old founder companies that are, maybe they're finally exiting or they're exiting to a sponsor. I've definitely seen some issues where a company thought they've taken these large amortization deductions may go in and we say, hey, this was all subject to anti-churning. It can't amortize any of it. I've dealt with that. Walker: You are the enemy. Except you can also be the hero. It's not all about that. Weatherford: It's hard, right. Because with what we do, the best thing that we can tell our client is, hey, the company was doing everything it was supposed to, was complying with the law and paying its taxes. It's not often that we can come in and find…and be like, hey, look, sometimes we can find an opportunity where we can say, hey, look, the company is not taking advantage of this tax benefit. That does come up occasionally, but more often than not, we're just delivering either basically no news or delivering some bad news. Diligence is…it's a necessary process, but we'll get into the structuring aspect, but I think the structuring is more where we I think deliver the real value. Not that diligence isn't important process, but I think the real value to a lot of our clients is really around the structuring aspect of it. Walker: Perfect. Teri, I'II love if you have a horror story you'd like to share. Hanson: I find on the state and local tax side, sales tax is almost an issue on every single deal. And it's after the Supreme Court, Wayfair Supreme Court back in 2018, the sales tax rules just changed so drastically and it didn't change consistently, unfortunately. Every single state has got some different type of qualification as far as when you need to file. What you're selling is potentially taxable or not taxable. We just find that it's really difficult for taxpayers to stay on top of that with the inconsistencies. Once you start adding on pretty significant amounts of revenue that are going into these various states, the exposures add up very quickly. As Will said, my favorite deal is when we don't find anything at all. But unfortunately, it's just not the case; sales tax seems to bear it's ugly head more often than not. Walker: Circling back to you something you said, Will. Let's talk about when you can be the hero. Let's talk about when you can play a really important role as an adviser in M&A deals. Weatherford: I think part of our goal is one with the diligence like we've discussed. But and again, that's just if we find issues, we have to raise them. I think part of where we can add value is really, I think Teri said this earlier, is that helping our clients understand any exposures and how that can be mitigated. Sometimes the target can do something prior to the closing to clean up an issue and then that way it's just not dealt with. Otherwise, it's just about framing issues and ring-fencing them and then being able to appropriately addressthat in the agreement in terms of just contractual protections. That's, I think, one way that we can add value there to our clients is just really helping them understand these issues and just making sure that they're protected and that there's not any surprises later. Then I think the other part is the structuring element, which I've alluded to a few times. That's really all the work we do outside of diligence. Again, I think that's more we're advising on the transaction structure and telling our clients, hey, if you structure it this way, you can get a step-up in the transaction and that's a real cash tax benefit to a lot of our clients. Part of it is working with the attorneys to put together the transaction structure and the steps. Lot of times we're putting together PowerPoint decks and laying out each step and a lot of circles and triangles and squares and things like that, and arrows and things are moving around. I think to a lot of non-tax people, it doesn't make a lot of sense, but it definitely makes sense to tax people and the lawyers and whatnot. I think that's one area, and we can do that and it's really all the things around that. We'll review the purchase agreement, and provide comments on that. We work really closely with a lot of tax attorneys and very collaboratively with them in terms of helping them understand. Because they're very obviously…their main focus is getting the purchase agreement drafted correctly, but they need our input in terms of the issues that we're seeing and whatnot. We work very closely with the attorneys. A lot of times there's a lot of modeling involved. This job is very…you need to be pretty decent with Excel, we do a lot of modeling. A lot of our clients really liked the modeling and that's I think, a big value driver for them in terms of helping them to understand what the go-forward tax rate is or what's going to be their step-up or what taxes are they going to pay in the future. That's another area where we can add a lot of values to help our clients see the projections and what this is going to look like going forward. Then really just everything around that structuring is just the all encompassing everything other than diligence and we just get called upon to do. Really a lot of things end up in taxes’ wheelhouse, even though it may not necessarily be tax-related, as Teri said. There's some things that are like unclaimed property is not really a tax, but we just end up having to deal with it. There's a lot of things that we just tell pile onto our basket that we have to help address and tax for whatever reason — always just seems to go down to the wire on some of these deals. We're working right until the very end to try to get these deals closed. And, tax often becomes, once they got through some of the other business-level issues, people become very focused on the taxes. Walker: You always hear or I feel like I always hear, “Don't let the tail wag the dog.” But it seems [tax] definitely is a huge part. You all play a really important role. Weatherford: I think that's actually a really important point that you raise. It's just that I know I've been told throughout my career that don't change the business deal and our job is really to take the business deal and implement it. However, what's been agreed to as commercial matter and make the tax framework work within that. I think one of the worst things you can do as an M&A professional is to have to change the business deal because of something tax-related, unless that was contemplated beforehand. You just don't want to change that, but everyone just this is the business deal, this is what was agreed to and then people would react very negatively if a tax issue was changing the business deal in some way that affects one party or the other. I think the difference between a very successful M&A professional and one who's maybe not so successful as one who really understands that you need to implement the business deal and needed to implement what was agreed to commercially. That needs to wag the tax tail and not the tax tail wagging the business deal, dog analogy makes any sense whatsoever? Walker: I was struggling with it, too! Teri, do you have anything to add on that, or what role you can play helping businesses? Tei Hanson: One of the other areas that we really add a lot of value is when our clients are selling companies. We're going to try to help them get the absolute best deal price that they can. Whether that's identifying issues in advance and helping them clean that up before the company goes to market, or making sure that we fully appreciate the issues that we uncover and we can put a positive spin on that before potential buyers come in and ask for some pretty big concessions on the exit strategy. Walker: I feel like 2022 was like a boom of M&A activity, not sure where we are in 2023 and what you guys are thinking going forward. Hanson: For us, it seems like the markets, but a little bit softer in the first half of the year. Health care has been pretty consistent since COVID, which obviously makes a little bit of sense. But we're seeing a very big uptick in our bankruptcy work right now. That said, based on conversations we've been having with our clients and what we're seeing as far as new deals pop up, it seems like the back half of the year is probably going to be pretty busy compared to the prior years. Weatherford: I would say it's pretty consistent. 2023 has been a little choppy so far, but we're extremely busy right now, which is a high-class problem to have, obviously. Walker: It is. In closing, both of you, I'd love for you to share what keeps you energized and motivated to stay in this business. I'm sure you have some hectic times when deals are wrapping up. Share what you love about your job. Hopefully, you're having a good day and it’s good day to share that. Weatherford: For me, what keeps me coming back to M&A tax is just that you have to have a very broad knowledge and in working in M&A tax, you just gain a very broad knowledge of tech because you work on enough deals. You've seen everything after awhile and it's just amazing the most obscure topic can suddenly rise to the forefront and you're called upon to be the expert on it. That to me is always very interesting and I always tell people that M&A tax, we're the tip of the spear because we're the ones who get in first for a company and we have to go through everything, we see everything and then if that company becomes a compliance client of our firm, we're having to explain it all to the compliance team later on. We really are the first people to get in and see what's going on and particularly in deligence for me, I think it's very interesting to go in and just look at what different companies have been doing and the positions they'd been taking and you really get a sense for what's going on in the market in terms of the overall tax. Then, like I said from the structuring perspective, to me, I think someone I used to work with said that with structuring you're making history basically, and I like that because you really are getting in there and getting to put together a transaction structure and it's really interesting just going through and seeing all the moving pieces to that. The last piece I really like is we work with a lot of different attorneys. For me, I work with our state and local team at FORVIS. We work very closely with them. We need their input. For example, in structuring, we need the state and local input. I think it was Peter Riley, the guy who writes for Forbes, he said that a plan that doesn't include state and local tax isn't much of a plan and that really is true and frankly with the way the state taxes are going, it's important to get that kind of input. Hanson: From my perspective, I can honestly say that I'm never bored. I think you've alluded to this at the very beginning, but tax compliance as tax compliance, it can really only be so exciting. With M&A, I feel challenged every single day. Target companies that just completely run the gamut as far as industries and types of businesses and it's really impossible to know everything about every kind of tax. I feel that I'm constantly learning new things. I never know exactly what my day is going to entail and for me that keeps it very interesting. My first month doing M&A, I worked on a crime scene cleanup company and a roof manufacturer and a healthcare clinic and a restaurant tour. You just see so many different things and I really don't see many other areas in tax or accounting in general where you get that broad range. But I think the second thing, I think that really keeps me coming back every day, it's my team. M&A really provides an opportunity to work very closely with a large number of individuals. Like we side, we work very closely with our federal colleagues and with our financial colleagues and the team of people who are doing the M&A itself and it's very collaborative and it just it makes it fun. Weatherford: I think Teri makes a good point. The people that we work with, I've worked with some very highly intelligent, very smart people over the years. To me, I really like working for people who can teach me a lot and so that's the opportunity I get within tax. You work with other people from different law firms and things and a lot of very smart people there. It's a very small community. I always tell the people working for you, I'm like, doesn't pay to be (unkind) in M&A tax because it's just such a small field, you're going to run into people after awhile. You got to be nice to everybody. Walker: I say that, in general, I think the profession is small and I've told people through my whole career — people will circle back in a way that you cannot even imagine, so it does not pay to blow the doors off. Weatherford: I'll tell you, it's even smaller in M&A tax. You'd be surprised how often you run into the same people over and over again and some of them are really fun to work with and very smart and they have great perspective on things and some of them you just got to find a way to work with them. Walker: There you go. That is like life lessons. I have a fun question as we're wrapping up. The title of this podcast is Tax Section Odyssey, so I like to think of us as taking a journey toward a better profession. When doing so, I like to get a glimpse of my guest's other journeys outside tax. Sometimes those journeys probably add to my bucket list. Teri, share a page from your travel journal or bucket list place you would like to go? Hanson: That is a good question. I would really like to go back to South Africa. I was there a long time ago and I absolutely love it. Walker: Nice. What about you, Will? Weatherford: Well, people know me, I really like wine and I really enjoy going to the Willamette Valley right outside Portland in Oregon and they have some fantastic pinot noir there and try to get out there at least once a year or so and to me, it's just like Napa Valley, but 25 years ago. So it's not quite as touristy and commercial. Walker: I've never been to Oregon and it's been on the list for so many years anyway. I almost always add something to my list when I'm doing these podcasts. Thank you so much, Will and Teri. This has been fun. I hope everybody enjoyed listening. 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 our podcast at the aicpa-cima.com/tax, and check out all of our other Odyssey episodes and get access to the resources mentioned. 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.

On Sept. 14, 2023, in release IR-2023-169, the IRS suspended the processing of new ERC claims to combat the prevalent fraud occurring. These measures will help to protect small businesses and aim to stop fraud by promoters of ERC mills.  In this episode, Kris Esposito, Director — Tax Policy & Advocacy, AICPA & CIMA, joins April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, to discuss this important news development and break down the details of the announcement. What you’ll learn in this episode Highlights of the announcement (1:24) How to find if submitted claims have been processed (3:53) When will recently submitted claims be processed? (4:41) Number of claims currently in the audit process (5:45) Client talking points (6:22) Available resources (7:38) Kris’ final thoughts (9:07) AICPA resources ERC guidance and resources — The rules to be eligible to take this refundable payroll tax credit are complex. This AICPA resource library will help you understand both the retroactive 2020 credit and the 2021 credit. Employee Retention Credit (ERC): Fact or Fiction? — Use this guide to educate yourself and others on common misconceptions surrounding the ERC. Employee Retention Credit Decision Tree — Download the ERC decision tree to help you with various decision points when working with clients to protect yourself/your firm from significant risk. IRS resources IR-2023-169 — IRS news release on Sept. 14, 2023, ordering the immediate stop to new ERC claim processing. IRS ERC resource center — IRS hub for ERC information, including links to guidance, FAQs and the latest news. Employee Retention Credit Eligibility Checklist: Help understanding this complex credit — This IRS question-and-answer chart is used to help taxpayers figure out if they may be eligible for the credit. Use this chart if you are considering claiming the credit or have already submitted a claim to the IRS. Transcript April Walker: Hello everyone and welcome to this special edition collaboration between the JofA podcast and the AICPA's Tax Section Odyssey podcast. I'm April Walker, host of the Tax Section Odyssey podcast, where we offer thought leadership on all things tax facing profession. Today I'm here with Kris Esposito. She's a Director on the AICPA's Tax Policy & Advocacy team. And we're recording this on Thursday, September the 14th. You have likely seen some breaking news from the IRS about the employee retention credit. We wanted to hop on here and record, tell you the information we know, and let you know what our next steps are. We've been really closely monitoring this evolving issue of third-party ERC promoters over the past couple of years. We definitely been advocating to Treasury and the IRS. We've also been providing resources throughout the whole time of ERC since its inception with the CARES Act in March of 2020 to assist tax practitioners as well as taxpayers. Today, the IRS announced its latest initiative to support small businesses. Kris, I thought maybe you could walk us through the highlights of that announcement. Kris Esposito: Sure. I'm happy to. Well, due to the big surge of ERC claims and concerns from tax professionals, including the AICPA, and the aggressive marketing tactics by third parties, the IRS announced today a multi-pronged approach to taper this ERC fraud. They're immediately pausing the processing of additional claims. They said that will go at least through the end of the year. After September 14th, today, there will be no more processing of new claims. They will be further scrutinizing your ERC claims that they already have received and not processed yet. Then they're also going to offer taxpayers an opportunity to withdraw claims that have not been paid out and that the taxpayer feels they may have done erroneously. So they're offering that to taxpayers. There have been about 600,000 new claims that the IRS has received, and are awaiting processing. That 600,000, those folks, they're going to have the opportunity to withdraw their claims if they feel that they have put them in erroneously. But for those folks who have actually willfully filed fraudulent claims or if they conspired to file a fraudulent claim, withdrawing your claim is not going to exempt you from potential criminal investigation and prosecution. But the IRS has actually finalizing details on this withdrawal option. We don't have all the details yet, but there will be this option, it's just the IRS needs to finalize the fine print. Then they're also going to offer taxpayers a settlement process to come forward for claims that have already been processed, but may have been erroneous, but the taxpayer has received the funds. Again, IRS is working out some details and they're going to come out with that program soon as well. Walker: I think they said later in the fall, so we'll be monitoring that obviously. The opportunity to withdraw should come out soon, very soon. They will provide the details there. I will share that as well as the settlement process. You might have the question that I had when I saw this and was thinking about this — "Okay. I know I just helped my client file a claim for ERC. It's probably within that 600,000. How do I know if the claim has been processed or not?" Probably as they have been slowing down, they've been saying that for the last couple of months that they've been slowing down processes. But our best advice is if you're in that gray area where maybe it's been processed, maybe it hasn't, the best advice we have is to call the IRS and ask [them the status] as you're walking through it with your clients on what your next steps are. Alright Kris, what information did they provide about the timing? We’ve talked about how they're going to be slower, but what did they provided about when you can expect those claims to be processed, those 600,000? Esposito: They did say the 600,000 that were recently received, they're going to be reviewed more intensely. They're going to be put under the microscope. They [IRS] target 90 days [to process ] new claims. I know they don't hit that target all the time. But they're now targeting 180 days. Because they're thinking that [most of] the 600,000 don't qualify for the credit. They are really going to be looking at them, very closely and taking a longer time to do that. They may even ask taxpayers for more information so it's going to be a different ballgame now. Walker: But that's good from a communication standpoint to your clients, if they are a part of that group that has filed a claim. In this announcement, did the IRS say anything about how many claims are in the process of audit or anything around that topic? Esposito: Yeah, they have been auditing ERC and keep ramping up the audits of ERC because of the fraud. They did say they have thousands of claims in the audit process. They also have hundreds of criminal cases going on. They are definitely auditing the ERC and if a lot of these 600,000 are not withdrawn, a lot of them are going to go through audit as well. Walker: As our listeners are trying to absorb this notice and thinking about [it] with their clients, about this announcement, let's talk through a few good talking points for them. Esposito: You've wanted to throughout this process, have been in contact with your clients about the ERC. Whether it's because they qualified for the credit or they've been contacted by a third party provider, trying to influence them to apply for the credit. As you're hearing about this announcement, you want to remind your clients of your past discussions and assure them that you're available for them, you can assist them. Whether that assistance is with support during an audit of an already processed claim, or help with the decision to withdraw their claim or to participate in a settlement agreement once those details emerge. If they have claims that were filed erroneously, and if they filed an ERC claim that hasn't been paid out and they believe it's legitimate, you just want to let them know that, "Hey, you're processing times could be a lot slower and it may take even more time for them to get the money." Walker: Just definitely another good opportunity to remind them that you're here to help advise them every step of the way. You are here and available. Were there any other resources that the IRS provided along with this announcement? Esposito: Yeah. They sent out a decision tree, which gives businesses a very broad overview of when a business qualifies. Then they also have red flags associated with third party providers. If you want to go through this decision tree to figure out, "Do I really qualify or not?" —that's what that resource is there for. Walker: I just wanted to highlight, we've talked about these on some other episodes, and we talked about them on Town Hall. We've talked about our resources the AICPA have been putting together throughout these years of ERC. We've actually opened up…it's called employee retention credit fact or fiction, which is another good companion piece to the IRS [resource]. I don't know if they call it a decision tree, but it is like a decision tree, where it's walking through the checklist of how you qualify. But I think the [ERC] fact or fiction is another nice resource that you can help a client go, "Oh, wait a minute. This is what they told me about how I qualify and there's this resource that tells me that I need to think again." We will definitely put links to those resources in the show notes. We have other podcasts on this topic and we'll put those in there. Take a look if that's something you're trying to find more about. We wanted to have a quick episode today, but I'd love for you if you wanted to share anything that's on your mind, Kris, as we wrap up episode. Esposito: Well, for years the AICPA has been warning CPAs and taxpayers, as well as the IRS and Treasury of these dishonest [ERC] credit mills, attempting to take advantage of the ERC and businesses. Because we wanted to put a stop to this or put a pause on this. We appreciate that the IRS is sending this strong message with this announcement, to these unethical credit promoters. The announcement by the IRS today, it's made clear that meaningful relief is also going to be made available to small businesses that have been acting in good faith. I think those are important messages from the IRS. I think they did a good job with their latest announcements. Walker: Thank you so much, Kris, for popping on here with me to record for this breaking news episode. We appreciate your expertise. This is definitely not the last you will hear of us on this issue. As we know more, we will definitely share more. Thank you for listening. Again, this is April Walker from the AICPA Tax Section. This community is your go-to source for technical guidance and resources designed specially for CPA tax practitioners like you in mind. This is a podcast from AICPA & 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. You can also find us at the aicpa-cima.com/tax and check out our other Odyssey episodes and get access to all the resources mentioned, during this episode. Thank you 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.

In this episode, Rudy Rudolph, Executive AICPA Risk Advisor — AON, and April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, discuss how data breaches can cause acute and lasting issues to victims. Small businesses are often easy targets for cyber criminals because they typically have less security in place than larger companies. A customized cybersecurity insurance policy can help mitigate risks and provide coverage in an evolving market to protect your organization. What you’ll learn in this episode Questions companies need to ask about cyber security insurance (0:59) The most common types of cyber attacks (3:56) Usual misconceptions about cybersecurity (6:14) Types of costs that cyber insurance covers (8:37)  Items not generally covered by cybersecurity insurance (11:12) Insurance consequences of not following your own cybersecurity policies (13:27) Rudy’s final thoughts (15:35) A page from Rudy’s travel journal (17:23) AICPA resources Best practices for data security and cybersecurity incident mitigation — Learn about general, preventative and reactive data security tips to implement to keep data protected from identity theft. Cyber insurance solutions | AON — AON’s brokerage team understands the risks and how to arrange coverage in an evolving market. It’s not one-size-fits-all, so AON teams with you to create a custom cyber insurance policy fit for your organization.   Cybersecurity Lab — Building a nimble cybersecurity response plan | Tax Section Odyssey — In this podcast, Ashley Grover, Cybersecurity Threat Intelligence Analyst — Sylint, discusses how the cyber threat landscape continues to change rapidly. Keeping up with the latest cybersecurity trends is vital to not fall victim to attacks and data theft. Gramm-Leach-Bliley Act (GLBA) Written Information Security Plan Template — The GLBA Act requires financial institutions to have a written information security plan. Use this template to document your firm’s policies. Identity Theft Checklist | Tax Identity Theft Toolkit — Provide this checklist to clients to help them appropriately and efficiently address identity theft issues and access additional resources. Transcript April Walker: On today's podcast, listen to hear more about cybersecurity insurance for CPA firms. Hi everyone and welcome to the AICPA's Tax Section Odyssey podcast, where we offer thought leadership on all the things tax facing the profession. I am April Walker, a lead manager from the Tax Section and I'm here today with Rudy Rudolph. Rudy is an executive risk adviser with AON and his role is helping to educate CPA firms on insurance coverage available through AON's AICPA program. Since that's his role, that's what we're going to do today. Specifically, we're going to delve into cyber insurance. What you need to know if you or your firm don't have this type of coverage or if you have it and you really want to understand what kind of coverage you have or know what questions to ask to be able to get more information about that. Rudy, let's start off with a company or a CPA firm that doesn't have this type of insurance. What questions will they have to answer during the application process for cyber insurance? Rudy Rudolph: One of the things I've learned is one of the great parts of the cyber application process is as much as it's filling out an application, it's also almost like a little checklist of helping the firm think of things that they want to implement or should be implementing or even just to have in mind just in general with how they deal with their own internal networks and systems. That's a great thing to look at the cyber application as is. It's also a guide to help you consider what should be in place, almost like a little checklist. But a lot of the things that they can expect to be answering is mostly encryption and how things are protected within their network and system. I think most people sometimes tend to overthink the encryption word and think it’s some sort of involved process when really it's just, can someone off the street walking into your office and access information without providing any type of login credentials and password, especially with thumb drives and emails and even external hard drives. But having those protected with passwords and encryptions, and it's easy to do, that they can expect to see on a cyber application a lot of things making sure that there's backups done weekly or however many and then also if they're retaining any type of payment card information or PCI or personally identifiable information, or PII, as well as the types of transactions, estimate number of transactions in any given year are some of the big things to consider, have in mind, and that they'll see and/or be answering on those applications. April Walker: I like the way you say it's a checklist of things that you should already be thinking about. You have probably heard me talk on this podcast before and we'll probably talk about it again about security plans and what are the requirements are for CPA firms, and it would seem like that those would go hand in hand. There are requirements to have a written information security plan. Hopefully you know that, if you don't, that's a takeaway from listing today. But as you're going through that plan, I would think that would be important information you're going to have as you're going through that application. This is just more of a curiosity question, but I know that until you're hurt, you think it can't happen to you. But then what you do, it's a very traumatic event. Can you talk to us a little bit about what type of cyber attacks are the most common, specifically for CPA firms as that's our topic for today. Rudy Rudolph: Absolutely. Especially since the COVID pandemic, it seemed like computer or cyber criminals who had nothing better to do, but to sit around and think of different ways to get easy money or an access. The biggest thing since the pandemic that's been on the rise has been ransomware attacks, which are in part more broadly categorized and they fall under the malware umbrella, I guess if you would, for cyber attacks. Basically, just hacking into or getting into accounting firms, networks and data and basically holding that information ransom until they pay a specified amount. When I think a lot of accounting firms that are under the mindset that they're too small to be attacked or come under a cyber attack when really cybercriminals target smaller firms because they believe that they're under that mindset that [they] are too small to and maybe don't have the resources and the security measures in place to keep them out. It's actually reported that it's 30% of all cyber attacks are focused on attacking small businesses because of that lack of cybersecurity measures. Malware and more specifically ransomware have been the number one cyberattacks especially since the COVID pandemic. April Walker: I feel like I've heard some horror stories of those happening to firms and it always seems to happen March the 3rd or something like that, sometime that’s not very convenient for when they're very busy. It's definitely something to be concerned about. Let's talk about misconceptions. What do you hear that people do not have right about cybersecurity, either people who have coverage or people who don't think they need coverage? Rudy Rudolph: The two biggest things I always hear when talking to firms is either one, are not big enough, I'm just a smaller shop that wouldn't have to worry about this now and come after me. That's one of the biggest misconceptions and really they're probably one of the bigger targets, actually, because of the potential lower security measures they have in place. They have so much data and records or their clients that they're preparing tax returns for and someone could get that information and that's easy identity theft, right there. You can get X amount of people, however many clients you have, you can get all of their names, date of birth, social security numbers, addresses. Right then and there, that's a huge risk and misconception that some of the smallest firms have. The second is a lot of firms always come to me, we don't have anything, we don't house any data or have any storage software on-premises. Everything is done third-party by Cloud. They handle that, so I don't really need to worry about it, which is not the case. They may be hosting your information and everything, but if that company gets hacked, now what do you do? If you can't get into anything and they're down and running, what happens then? Even if you are having a third party post your information, you should always have some sort of business continuity and disaster recovery plan in place for that type of scenario. Keep coming back to COVID. No one saw that coming. Now, we have the hindsight of, if something like this were to happen, now what do we do? I think of it like that, having a plan in place if the unthinkable were to happen, what are you going to do? You can't just sit there like a sitting duck and wait for something. You should have or at least I think you would want to have some sort of plan in place for contingency. April Walker: Makes a lot of sense. To find out a little bit more about cyber insurance and how it works, I know there's no way to describe every policy. Every policy is different as you're working with a firm, but let's talk generally about what types of costs that cyber insurance does cover and then almost more importantly, I think for people to hear is what costs are not covered. Rudy Rudolph: The first and foremost, what the cyber policies and cyber insurance covers is identifying any potentially affected individuals that may be affected or impacted by the breach of your network or system, and also the notification to those affected and credit monitoring for them for the next year. Those are all required by every state. Each state has different regulations, but those are required by all states. If you don't have an insurance policy in place, you're going to have to pay those costs out-of-pocket regardless because it's a state mandate and requirement to provide for it in the event of a breach. I think that's the biggest thing that the policies cover for most firms. The second biggest is the forensic analysis and identifying that breach, how it occurred and identifying that and making sure that that doesn't happen again. It also provides coverage for data restoration, getting your network backup and running to the condition it was in prior to any type of breach or a hack. Then depending on the policy, you can opt in for this, sometimes it's generally in a policy right off the bat, but business income or business interruption, so loss of revenue. I think about 200-300 days on average to identify and contain a cyber breach. Hopefully, they don't get there, but in that time period without your network, you're not really able to operate as you normally would, as if you were able to access all those files, your internet, your emails, getting stuff out to clients and everything like that. That's costing you. The policies tend to cover the cost of that. I think most of them have some calculation to determine that number until you're back up and running. April Walker: Got you. Then can you think of anything that is specifically not covered that you can think of? Rudy Rudolph: The biggest thing that we've actually been dealing with for the past few years has been social engineering. More importantly, when someone, we always refer to them as bad actors, using email address that is made to look like either a bank or one of the accounting firms email, but it's really not. The easiest way to do this is sometimes they'll use an uppercase I to replace an L just as an example in an email address. Then if they're posing as a bank, they'll email the firm. If they're posing as the firm, they'll email client saying, “Hey, you didn't send this amount of money or payment for the services”, whatever it may be, and asks you to send payment to a specified account. A lot of the times these aren't covered by cyber policies unless you have the specific endorsement coverage that covers four types of social engineering, it not being a breach, there's no breach that took place and the bad actor was using a legitimate email address. Now, while it wasn't the firm's, it was still a legitimate email address because they changed a letter or something in there to look like the firm or the bank's email address. There was again, no breach, no wrongdoing, so some cyber policies may not be able to provide coverage in that type of scenario. One of the big things that has come out of this is specific endorsements to provide coverage for social engineering or having firms also consider looking into separate crime coverage policies to cover any of those gray areas where cyber policy may or may not provide coverage for. April Walker: What about this scenario? I'm a firm, I have a security policy, I mostly abide by it, but I don't follow it to the letter. Is that a scenario where you might have trouble having your insurance claim paid? Rudy Rudolph: It's definitely possible. I highly recommend when you're going through either the renewal process or if you're getting a policy, a quote for a policy for the first time, definitely talking with your agent, your underwriter carrier, whoever you're dealing with, and making sure that you understand the policy requirements in terms of what are some of the standard requirements that you require your insureds to have in place. Usually they have either guides or expected basic security measures that they can send over that they expect their firms they have in place and implement it to ensure that they can provide coverage. Sometimes if you don't meet or don't have any of those standards in place, they could potentially deny coverage saying, hey, we sent you these standards so that you needed to have in place to be insured by us, because of this, you don't have these in place. This claim can't be covered because there was a certain level of expectation where we insured you that you would have in place and by not abiding by that, you're essentially voiding the coverage. Again, it depends. Each coverage or each policy is different. I would definitely recommend talking that through with your agent, your carrier, your underwriter to make sure that you're one, aware of any type of certain standards that you're required to have in place or should have in place, and making sure that you're meeting those requirements on a regular basis and reviewing that with them to make sure you're in compliance. April Walker: Perfect. Rudy, can you think of anything we haven't covered that you would like to make sure our listeners are aware of as they are considering and evaluating cyber insurance? Rudy Rudolph: This day and age, again, I feel like I'm being a dead horse and they keep coming back to the post-COVID reference, but everything has gone remote. Everyone's being able to work remote now, businesses that we didn't think would be be able to operate remotely were forced to change the way the entire world views working and how we operate nowadays and everything to an extent is relying on computers technology, being able to access information through a computer. I think you'd be naive to, one, not consider having this coverage in places of business, and two, not going forward and having at least some cyber coverage in place. The amount of cyber attacks have gone up exponentially since the pandemic, because everything has been forced to move to some hybrid or a digital format. I think this is one of those policies that is almost standard requirement for businesses moving forward these days, and it's definitely one thing to keep in the back of your mind is everything is still continuing to transition more and more to the cyber world as we operate, communicate everything like that. I think it's naive to think that this coverage is unnecessary. April Walker: Those are great thoughts and great closing. But as we close on this podcasts, I like to think about us taking a journey together towards a better profession. As we're learning more, we can do better. But in doing that, I like to get a glimpse of my guest other journeys outside of the tax world. Really I'd love for you to share a page from your travel journal, maybe a bucket lists, trip, you have, what you got for me? Rudy Rudolph: I'm a big golf fan and every year with the Masters Tournament and the Open Championship, there's always a ticket lottery that you can enter to potentially get an opportunity to get tickets to one of them. They don't just sell them like a normal sporting event, they're so exclusive. Actually just got an email the other day that I won the ticket lotteries for the Open Championship in Scotland next July. April Walker: Wow, that's cool. Rudy Rudolph: Pretty excited, just to finalize the ticket purchase. So I'll be headed now to Scotland next year for the Open Championship, and it's to be about there. April Walker: I love it. The US Open has been here or near here, North Carolina. It's been in Pinehurst a couple of times and I was able to get tickets somehow, not through the lottery, but Scotland sounds like an amazing place to watch golf and just to visit. I'm looking forward to hearing more about that. Thank you so much Rudy for giving people some food for thought on this really important 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 this wherever you happen to 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 feel free to share with a like-minded friends. You can also find us at aicpa-cima.com/tax, and find our other episodes and also get access to the resources mentioned during the episode. Thank you so much for listening. This content is designed to provide institute of information, this respect to the subject matter covered and does not represent an official opinion or position of the AICPA, the Association or CIMA. It is provided with the understanding that they are not engaged in offering legal accounting or other professional services. If such advice or expert assistance is required, the services of a competent professional person should be sought. The AICPA, the Association and CIMA make no representations, warranties, or guarantees as to and assume no responsibility for the content or application of the material contained herein, and especially disclaim all liability for any damages arising out of the use of reference to or reliance on such material. 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.