Tax Section Odyssey

In this episode two members of the AICPA Virtual Currency and Digital Assets Tax Task Force (VCDATTF), Nik Fahrer, CPA, Senior Manager, National Tax Professional Standards Group — FORVIS, and Robert Tobey, CPA, Partner — REID CPAs, LLP, share their expertise with April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, on how to vet potential clients with digital asset activities, including questions to ask, as well as how to gain more expertise in this evolving field. What you’ll learn in this episode Expertise tax practitioners need to be proficient in the digital asset field (0:55) Best places and ways to gain digital asset tax expertise (3:00) Examples of processes and procedures to set in place before accepting a client with digital asset activities (5:59) Record keeping responsibilities (14:05) Red flags (15:04) Highlights from Rev. Rul. 2023-14 (16:41) Current projects of the VCDATTF (18:36) Final thoughts (20:48) Related resources Frequently asked questions on virtual currency transactions — IRS webpage explaining virtual currency questions and answers. AICPA resources Digital assets and virtual currency tax guidance and resources — Sharpen your tax knowledge on digital assets and understand the tax complexities and strategies involved with virtual currency and cryptocurrency. This hub is your go-to library for AICPA guidance and resources as well as current legislative and IRS initiatives and projects the VCDATTF is monitoring. Crypto Loss Tax Reporting: Fact or Fiction — With the prevalence of recent virtual currency exchange bankruptcies and digital asset volatility, taxpayers may have misconceptions on reporting tax losses. Rev. Rul. 2023-14 — The ruling provides that cash-method taxpayers who stake cryptocurrency native to a proof-of-stake blockchain and receive additional units of cryptocurrency when validation occurs (i.e., validation rewards) must include the fair market value (FMV) of proof-of-stake validation rewards in their gross income for the tax year in which they gain dominion and control over the validation rewards. AICPA Comments on the IRS Draft 2023 Forms 1040, 1065, 1120, and 1120-S Digital Asset Question — The AICPA submitted comments on the digital asset question that is first appearing on the draft 2023 Forms 1065, U.S. Return of Partnership Income (version dated June 23, 2023); 1120, U.S. Corporation Income Tax Return (version dated June 2, 2023); and 1120-S, U.S. Income Tax Return for an S Corporation (version dated June 22, 2023). The AICPA also commented on the draft 2023 Form 1040, U.S. Individual Income Tax Return (version dated June 22, 2023), digital asset question. AICPA Comments on Non-Fungible Tokens – Notice 2023-27 — The AICPA submitted comments on Notice 2023-27 on the treatment of certain non-fungible tokens (NFTs) as collectibles. The AICPA is requesting that Treasury and the IRS provide further guidance on the issues suggested in our comments. Transcript April Walker: Hello everyone and welcome to the AICPA's Tax Section Odyssey podcast, where we offer thought leadership on all things tax facing the profession. I'm April Walker, a Lead Manager from the Tax Section, and I'm here today with Robert Tobey and Nik Fahrer to delve into how to interact with clients and potential clients that may have digital asset activity. Nik and Robert are on the AICPA's Virtual Currency and Digital Assets Tax Taskforce so I thought they would be perfect to share some thoughts with us today. Digital assets, virtual currency, there's so many different terms of art here. Cryptocurrency. It is such a unique and fast-moving field. Kick us off with what kind of expertise is needed to be able to be proficient in this area. Proficient is maybe a hard word, but at least to be able to practice in this area. Robert Tobey: First of all, you have to have a general understanding of the different types of digital assets that are out there. Right now, in particular, practitioners are probably dealing mostly with cryptocurrency, miners, traders, stakers, and non-fungible tokens which indicate a specific ownership interest (it's like a derivative of some type of underlying asset). You need to have an understanding of what each type of these assets are. Since the tax code treats them as property from each one of these activities. If you are a miner, that's generally self-employment income. If you're an investor, that is just buying and selling, that's long or short-term capital gains. If it's NFTs, that's treated generally as a collectible and that's taxed at 28% if it has a gain. That is ordinary income also, but the timing of recognizing that is still up for debate. Really unless you have an understanding, my feeling is if a client comes to you or if you have these types of assets, you should seek out council, an accountant, a lawyer that understands these types of assets. If you're a practitioner and a client comes to you and you're unsure, you should seek out help from the digital asset task force where we can answer some of your questions. But this is one of those areas because the rules are so different and the different types of assets have different attributes to them. If you're unsure, don't practice in this area unless you really know what you're doing. Walker: We're going to talk a little bit more about some of those questions a little bit later, but I like to think about it. It's a whole new vocabulary. It's a whole new vocabulary for understanding — what even is staking? You have to understand that stuff so that's a great way to kick us off. Nik, as you're trying to think about learning this, where have you found to be the best place to gain expertise in this area? Nik Fahrer: First of all, thank you April for having me on here today. Walker: Yes. Thank you for joining me. Fahrer: The first piece of advice that I would recommend is just dabble in this on your own. Find some insignificant amount of money, and just go out there and play around with it. I think the best way that you can learn something and the mechanics of how these things actually work is to sign up for an account on a centralized exchange, just to name a few in the US would be Coinbase, Kraken or Gemini. Put an insignificant amount of money in there. Buy, sell, but then take it even further. Don't just buy and sell on a decentralized exchange, send it to a non-custodial wallet and connect it to a decentralized application, like a decentralized exchange and play around with it on there. Stake some of your crypto to see how that works and just generally figure out the mechanics. I think that's generally the best way to understand what some of these words mean. It really feels like there's a entirely new vocabulary when you get into the space. When a client comes to you and they're like, “Hey, I just staked some Ethereum and earned X amount of dollars through staking.” You're probably wondering what the heck is staking? Doing it on your own with an insignificant amount of money is a really easy way to learn how this stuff works. But taking it a step further, if you want to learn how these applications within this new technology actually apply within the Internal Revenue Code, the AICPA has a really good webpage. IRS has an FAQ webpage. They also have a web page dedicated specifically to digital assets where you can go out and see all of their guidance that they've previously issued, both binding and unbinding guidance that they've issued out there. That's a really good resource as well. I would start there with those two things and then just be a critical thinker. Try to understand as you're working with your clients in this space, where are the risks and then also, what's the cost versus benefit analysis? If a client comes to you and says, “Hey, I did all these hundreds of thousands of transactions in crypto,” and they tried to turn over an Excel document to you to go through and calculate all of their basis and proceeds. That's going to be a huge time suck. Is that really worth the cost versus what may actually be captured on the client's tax return could end up being an overall net $1,000 gain? Use some common sense as well and just try to understand what are the risks, but also what's the cost versus benefit analysis here? Walker: I like that and thank you for bringing up the AICPA's page. We'll put a link to that in our show notes and as well as the IRS page. Robert, you are a partner at Reed Accountants and Advisers. Talk to us a little bit about is there any specific processes or procedures in place that you guys have before you either accept a client that has digital asset activities or how you're dealing with a client that might start dabbling in it? Also while you're at it, just talk to us a about advice you might have for those with smaller practices. Tobey: It's interesting if someone comes to us and is just a trader. Like they have a Merrill Lynch account for cryptocurrency. There's not a lot of risk in that type of account and it's easier for us to accept and understand because they're trading — it's like they’re trading stock. If they hold it, they can be a trader in the securities which allows them to deduct their expenses differently then if they're an investor. If they are an investor, they may be holding it for long-term gains, [but the trader is] going to have short-term capital gains and losses. That's easier to understand. If somebody comes to me and says, I'm a miner, and I'm working with a client right now, that's a miner. I go fine. What do you mean by you are a miner? What do you do? Where do you do it? What currencies are you working with? Where is your mining rig located? Because that has some state income tax implications with respect to it. This guy lives in Connecticut and his mining rig is in a facility that hosts it in Texas. When you mine, it's like you're self-employed and you're earning income. What do you do with that income once you earn it? You recognize it as ordinary income, you deduct your Sec. 162 ordinary necessary business expenses against this. But now you have cryptocurrency, that once you hold it in your hands, it is an investing type of asset. What do you do with it once you have it? Are you staking with it? Are you trading it? Are you holding it for investment? Because of the complexities of the subject matter, I go through a lot of questions. I have a checklist of questions I go through to ask people who were more than merely investors (like they hold stocks) in cryptocurrency before we choose to accept them. You [have] to make sure that there's not any risk with respect to this. Are they doing things offshore? Are they doing them in a manner where there's some subterfuge about what they're owning because they want to potentially hide their assets offshore? There's also firm risk that we have to take into consideration. Then once I talk to them, I determined what a fee might be because this is generally complicated stuff [more than for a] regular tax return. Our firm is really trying to get away from just doing standalone 1040, so we're talking to a lot of businesses. I'm talking to a cryptocurrency venture fund to figure out what they're doing and how I might be able to help them. That brings another level of complexity. I lived in Charlottesville, Virginia for 25 years and there are a lot of small practitioners down there that serve the community. They're more likely to see someone who's a trader. They really need to go to either the AICPA website or the IRS's website and become familiar with the rules regarding cryptocurrency of recognizing gains and losses and what types of gains and losses are there. Also they need to understand the fact that sometimes regular security rules don't come into play here because investing in cryptocurrency is not subject to the wash sale [rules]. There are some unique aspects to it that they really need to understand. Again if I'll go back and say what I said before. If you're unsure of it, don't put your toe in the water. If you're going to work in this area, at least get up to your knee, so you understand what's going on and you have some technical background with respect to it. Walker: I think that's great advice. Also, it's more than just asking the very simple question that you have to ask to be able to check the box on the 1040. I like that. You need to think about and ask what those different levels of deeper engagement questions are. Nik, what about you? You're at FORVIS, so a bigger firm. [Do you have] additional steps, or additional recommendations you have about when you're dealing with clients with digital asset activities? Fahrer: Absolutely. I can speak to that. The best piece of advice that I would say is, let's start with the basics first. Let's not complicate things before we get too far down the road, but let's first ask those basic questions of, one, do you have the competency to serve this client, or does someone in your firm have the competency to serve this client? Two, what is the reputation of the client and is this a client that you want to be connected with and work with? Maybe one that is not so obvious is can they pay your bill? Robert alluded to this a little bit earlier, but these are complex issues. Maybe the fees are a little bit higher than normal. Is this something where you need to be concerned about the volatility in the market and the client may be underwater in their investments and not as liquid in their cash position. Let's ask those basic questions first and then we can start to move into the more digital asset specific questions that need to be asked in that client acceptance. This isn't fully inclusive, but some of those could be how clean are their records? That's probably the biggest one that you want to ask is where are you keeping track of all your records, especially if the client gets off of a centralized exchange. I alluded to this earlier whenever I was talking about how to get expertise, or some experience and doing it on your own. Don't just stick to a centralized exchange. Send your crypto to a non-custodial wallet, play around with on-chain transactions, because more than likely that's what your clients are going to be doing that need your help. Then now that you have this experience on your own, you can relate to them and know what to look for when they come to you, and know what to expect in the recordkeeping as well. [For] on-chain transactions, there's a record of all of them on the blockchain, but there's no standard 1099 reporting, at least as of yet. We're waiting for some more guidance from the IRS here, or Treasury, one of the two, to understand what the standardized reporting is going to look like in the future. Because of that, there are software companies out there and I'll just name a few that can help automate the on-chain transaction reporting. [For example] CoinTracker, or Ledgible, or Cryptio, or a Bitwave are several of them out there. That's not all inclusive. There is more than just those. But they can basically connect their software to the clients wallets and exchanges and it will automate a vast majority of the transactions, and a lot of them will even raise red flags if they are unable to match cost basis, based on all of the wallets and exchanges that they've connected into that software. That's another thing that helps you as a practitioner know, hey, the client hasn't given me all their information. They say they've connected to all of their wallets, they say they connected all of their exchanges, but we're missing information for a lot of the cost basis of these transactions. It's a tool that you can have in your tool belt that'll really help you take this to the next level. Walker: I'm glad you brought up recordkeeping. That was actually one of my questions, but that's great. Thank you for the recommendations. I'll ask Robert if he has any also, because I feel like this could become a fire drill situation. When you got somebody coming in and they have all these crypto transactions, and then you have to go back and try to figure it out. Hopefully this is a proactive conversation. What do you recommend to your clients to help with recordkeeping, Robert? Tobey: I'm not recordkeeping for [them]. Walker: Absolutely. Tobey: Here's the deal. This isn't looking at a [Form] 1099-B where the column 15 [has all the information]. Most of the people that I deal with that are investing in, or dealing with crypto, have thousands of transactions. Unless they use Coinbase or some other [tracking software]. Fahrer: [Some options are] Ledgible, CoinTracker, Cryptio, Bitwave. Those are all just a few, just to name some. Tobey: Unless they use those and they bring us the records and we can tie them out, or they have a spreadsheet that they've done themselves. Our firm will not do that. We're running out of people just to do regular work and to sit there and to try to keep track of somebody's 10,000 crypto transactions in any one year that are not large dollar amounts in and of themselves. We just can't do that. It's a client responsibility and they wouldn't want to pay me to do it frankly. Walker: Absolutely. That's a red flag if you've got somebody coming in and they are just like, I got crypto transactions and I haven't done [anything with] it. That's a red flag. What are some other red flags that should send a signal up that this is may be not the best client for you? Fahrer: One question that we generally like to ask is, how did you acquire your digital assets? If they don't have a good answer to that question, that's generally a red flag. Tobey: And where are you holding it? Are you holding it in the U.S., outside of the U.S.? I'm really interested in the risk I'm going to have with somebody that's dealing with exchanges that are not U.S. exchanges and they should be reporting it, but they shouldn't necessarily be transacting on the exchange. I agree that if they can explain where they got it, if they can explain ins and outs of the transactions and they tell me that they're doing stuff offshore. The offshore ones have stopped me dead in the water. Fahrer: I think one thing that you can do as a practitioner to protect yourself and your firm is to get some sort of representation from your client that says, hey, I've provided you with all of my wallets, exchanges and transactions, and that there are no other ones out there that I haven't already provided to you. That protects you that the client is saying that they've given you everything. Tobey: We have that in general in our engagement letters. That we've told you everything, we've provided you everything you needed to prepare our tax return. Now that you say that, I actually might put an extra sentence in there about cryptocurrencies. Walker: We're all learning. We're going switch gears just a little bit and I want to talk about guidance the IRS recently released. Revenue Ruling 2023-14, talking about cryptocurrency, staking, and rewards. Robert, you want to give us a very high-level overview of that. I know that it can get really complicated, really fast. Just tell us what we need to know about that guidance. Tobey: This is a timing is everything revenue ruling. It was issued while a couple named the Jarretts are in the Sixth Circuit Court of Appeals, having their case heard with respect to a refund and that the IRS gave them with respect to how they reported their staking activities. The long and the short of it is the Jarretts take the position that staking activity is nothing more than a baker putting ingredients together, baking a cake and doesn't recognize the income from baking the cake until he sells the cake. That's the simple discussion of it. The IRS says okay if you stake, once you earn the income or have dominion and control over the rewards from staking, you need to recognize it as income. It's a very big deal. The IRS came out with this to put the stake in the sand with their position regarding the Jarretts. You got to follow it because it's a revenue ruling. If people have a feeling that they want to take the position that the Jarretts do, you're going to have to file a disclosure form with the IRS stating that you've taken a position contrary to the law. You can do that, but it'll give you the free pass to the IRS audit auditors. Walker: Yes, it will, okay, that's great. We'll link that in there so you can read it, and learn more and make sure that you're following that guidance. I mentioned that both of you were on the Virtual Currency Digital Asset Task Force. I want to say thank you for that. Thank you for your volunteer service. Nik, could you give us a quick rundown on just a few of your top priorities for the group or that the group is working on? Fahrer: Yeah, absolutely. Maybe I'll touch on a few that we just completed too. We actually just released a resource that is basically questions to ask your clients if they invest in crypto. We also recently released an FAQ on taxpayers taking losses. Specifically, taxpayers that may have had crypto tied up in a centralized exchange like FTX. Can they capture those losses in 2022 tax year? If not, how did they capture those in the future? We also, recently sent a letter on the new virtual currency question that's being added to our 1120-S, 1120-C corp, and then also, 1065 partnership returns. It's very similar to the 1040 question. We sent a letter to the IRS about that. Also sent a recent letter to the IRS about Notice 2023-27, which is guidance on NFTs as collectibles. As you can tell, we've been really busy, this year sending a lot of letters and working a lot of resources for you all. Upcoming, we're looking at responding to the Senate Finance Committee letter, that asks basically nine or ten different questions of, how does the ambiguity in the tax law apply to digital assets? Senators Lummis and Gillibrand also recently proposed a bill in the Senate [Lummis-Gillibrand Responsible Financial Innovation Act to create a comprehensive regulatory framework for crypto assets], and we're going to respond to that as well. Then this [ruling], 2023-[14], which talks about the timing of when to pick up staking income in gross income. Walker: Perfect. Yes, as you said, you've been very busy, and I'm sure will continue to be as there's seems like to me, as we learn more about virtual currency and digital assets, there's more to learn, is the way I feel about it. Thanks for helping get that guidance out there. Robert, as we're wrapping up just any final thoughts you want to share on this topic, or with our listeners about digital assets? Tobey: The loss issue with respect to FTX and some of the other digital exchanges is really problematic. It's a timing issue. A lot of times losses can only be taken as miscellaneous itemized deductions which are no longer allowed after the Tax Cuts and Jobs Act. It could be interesting to see what the IRS comes out or whether they come out with guidance that will allow some of these losses. There's a vibrant market today in the bankruptcy claims from FTX. How were those treated for tax purposes? Are there two different property rights there? Is there a bankruptcy claim property and there's a claim, but the underlying cryptocurrency? Even though you sell your bankruptcy claim, do you still own the underlying right to the cryptocurrency? I don't know. Neither does the IRS. We've asked for guidance from the IRS on this. Can you take a bad debt deduction with respect to cryptocurrency and I don't believe that's allowed because bad debts are only allowed with respect to cash. That's another area that we need some guidance from. When it [comes] from bankrupt exchanges and other things, it's unclear of when you can and whether you can claim any loss at all. The IRS is going to have to deal with this because, I read that there was another exchange that was near bankruptcy this week. This isn't going away. I will tell any practitioner that's listening to this. If you have someone who comes to you and says, here's the facts and circumstances of my losses with things. You need to stop and really look at several things. What was the underlying investment? What was the underlying cryptocurrency? When did the event occur? Claiming it currently in 2022, I think in a lot of cases would be problematic. Walker: That's super helpful. Thanks for bringing that really important topic. What about you, Nik, what [are] some final thoughts you have as we're wrapping up. Fahrer: One thing that I'll say is that I think this technology is really polarizing. We seem to have people on both sides of the aisle. We have people that just really love this new technology. We have people that, just haven't really bought into it and they don't see the benefit to it. The question I would pose though is, given the IRS is issuing a lot of new guidance on this new technology, given that it is a hot topic in DC, why would they regulate it if it's something that's going to go away? My personal opinion is, they probably wouldn't. I think it's going to be here to stay. It's probably going to be around for awhile and to just completely brush it off and ignore it completely is maybe a mistake as this continues to grow in adoption. Tobey: I'll tell you that they'll be some upheaval in it this year. The recent administrative law judgement decision that cryptocurrency that was bought by individuals on an exchange, is not a security where crypto assets bought by institutional investors are securities. That it'll be interesting and that's going to go, if it was by administrative law judge, I can see that going to the regular court system now because, I don't see how you can say it's a security for one type of investor and not for another. There's another court case, that the Supreme Court is going to hear next term. Similarly, about rulemaking by the SEC in general, that will have an effect on this. Because one thing, when you're dealing with crypto and dealing with all these other assets — for the IRS, its property. For the SEC, it's a security. For the CFTC, it's a commodity and in some countries, it's a currency. We're dealing with US tax law. We know what property is, but you've got to take into consideration,what it is in other jurisdictions and what it is to other rule-making bodies within the United States. Walker: Thank you so much, Robert and Nik. This is definitely not be the last time we talk on this podcast about virtual currency. But I think this gave our listeners, a lot of good topics to dig into and think about as you're dealing with your clients. 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 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 podcast 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 other like-minded friends. You can also find this in aicpa-cima.com/tax to check out our other Odyssey episodes and also to get access to all the resources that were mentioned during this episode. Thank you so much for listening. Keep your finger on the pulse of the dynamic and evolving tax landscape with insights from tax thought leaders in the AICPA Tax Section. The Tax Section Odyssey podcast includes a digest of tax developments, trending issues and practice management tips that you need to be aware of to elevate your professional development and your firm practices. This resource is part of the robust tax resource library available from the AICPA Tax Section. The Tax Section is your go-to home base for staying up to date on the latest tax developments and providing the edge you need for upskilling your professional development. If you’re not already a member, consider joining this prestigious community of your tax peers. 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In this episode, Tim O'Neill, CPA, Senior Tax Manager — Wipfli LLP, joins April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, live from ENGAGE 2023 to discuss the current environment for recruitment and retention of employees in tax and how to build deeper connections with staff to help them feel more invested in their organizations. What you’ll learn in this episode Strategies for employee retention and engagement (1:01) Differences between a “manager” and a “leader” (2:48) What it means to prioritize outcomes vs. outputs (5:04) The notion of no more timesheets (7:20) Final thoughts (8:05) A page from Tim’s travel journal (9:31) Related resources Practice Management & Professional Standards — The AICPA Tax Section provides the guidance and tools you need to manage a successful tax practice and maintain the highest level of ethical standards in tax. 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: 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 Tim O'Neill. He is a Senior Tax Manager with Wipli in St. Louis. Welcome, Tim. Tim O’Neill: Thank you. Thank you for having me. Walker: Yeah. We're here together today recording at the ENGAGE conference. O’Neill: That's all right live in person. Walker: Yeah and yesterday I attended Tim's session which was titled, “Recruit, Retain, Repeat.” Welcome Tim. I thought we could share some of your insights with our listeners from your session. O’Neill: I'd love to. Walker: I don't think it is a new concept for people listening today that recruitment and retention are a huge problem in tax and accounting profession, that sort of thing. I thought maybe from your perspective, you could share a few strategies that you have found that worked for you for employee retention and engagement. O’Neill: Yeah, absolutely. Like you mentioned, this is the million or $2 million question. Walker: Yeah, for sure. O’Neill: What can we do as leaders to try and increase our retention increase overall employee experience? Really there's no right or wrong answers — it's all very individualized. But what I found through my experience with AICPA committees, my experience within Wipfli, prior firms or organizations that I've worked with is being an effective leader and authentic is the best way to build these deeper connections with staff and employees that really makes them feel invested in the overall organization. I'm trying to think of some of the more important things that we've done, but it's just so individualized. It's difficult to an extent, but if you can get across the idea that we don’t need to put together these formal programs to help retention. It really doesn't come down to that. It's just about being transparent, authentic and empathetic is a big one that we've seen. With sessions here there is a lot of talk about being an empathetic leader. We've had tons of sessions on ideas about what can we do internally and externally to help retain employees. Obviously outside of maybe the psychology of the retention, recruiting and rewarding employees, maybe look at some of the action items, some low-cost solutions, mid cost solutions, high cost solutions, I'm happy to talk more about any of those. Walker: You mentioned some of these characteristics, but one thing you talked about yesterday that really resonated with me was talking about differences between a manager and a leader. I think we can all agree that there is a difference. O’Neill: There is a huge difference. Walker: Maybe talk about some of those differences and for those people who see themselves as a leader — How do they figure out like where they land on that spectrum? O’Neill: Yeah, and it's funny, you said — “some individuals see themselves as a leader” — we like to call those the heroes of their own stories. Is that a great leadership quality? Probably not. They might think that they're fantastic leaders, but they're not necessarily connected on that personal level with a lot of their employees or direct reports. Honestly, to me, the difference between a manager and a leader, it's mainly…we think about a manager is very work centric. They're more about how and when are we going to get the work done? They're very much more process focused than people focused. A leader on the other hand, they're more what and why? What are we doing? What can we do? Why are we doing this? Being transparent and showing the thought process behind all of it, and being able to communicate that to the individuals within their organization. That is, by far the largest difference between the two. As we have been talking about pipeline challenges, the leaders within organizations — and this is not just specific to accounting, but really every industry. We've had to evolve over the last, let's say, three years with COVID and everything that was fallout from that. We've had to evolve and say we need to be much more hands-on and personalized with our approach. Walker: You mentioned this, but I really liked when you talking about prioritizing outcome versus output. As I work with firms and members trying to help them with some of these issues and we've worked with a lot of small firms. You're from a bigger firm, but you may have experience with or some ideas and thinking about how that can work like shifting with limited resources. How or what does it mean? What does it mean to be prioritized outcome versus output? O’Neill: Sure. Even Wipfli, we're a top 20 CPA firm, but we do a very good job of operating as a collaborative group of smaller firms. We're in quite a few markets. But we do a very good job of still having that small firm feeling. The firm that I was with previously, we merged in with Wipfli. We're about 100 person firm in St. Louis. I have a little bit of experience at a, we'll call it a smaller firm and culturally we aligned really well. Both firms are obviously based out of the Midwest and so on a cultural level, we had the same identity. Again, it gets into the hands-on personalized leadership approach, outcome versus output. Billable hours — that's the driving force in public accounting. Let's get our billable hours up because this is where we make our money. But is that really where we make all of our money? Or do we have value in some of these hours that individuals are working? We like to call them impact hours. Is there value in these hours that maybe we can't charge the client for it, but we're definitely [either the staff or the client even to an extent] getting value from it. Think of CPE, performance coaching, mentoring, client relations. Those are all impact hours. What we've tried to do in both of my previous firm and Wipfli is we don't want to emphasize the billable hour as long as we're getting the outcome that we need and we're getting the client is first and foremost, served. At what point are we punishing efficiency? There are a lot of individuals that can get done in 20 hours while somebody else can get done in 40 hours. At what point are we punishing their efficiency and it's defeating to those individuals. Walker: You talked about and it's so true. How they're punished as they get more work, like they can do 20 hours. Thank you so much. Sir may I have some more? O’Neill: There was one brave lady in the audience, but that's exactly what I asked. I said what happens when you're good at your job and it was silent and she said, you get more work. Walker: It's true. Something else you've made me think about, have you gone to any sessions that we've have talked about the no time sheets thing? O’Neill: That's the rumbling. I've got a couple of people ask me, “Have you heard this idea of no more time sheets?” I said I haven't heard this idea. Walker: Yeah, I've known some people that have been able to do it, but it's fascinating. O’Neill: It's funny. We all know people that have been in public accounting and they've left, and I've got close friends that have moved into a new career paths within the CPA realm, but new career paths. I said, What do you enjoy the most? No time sheets. I don't have to keep track of every six minutes of my day. Walker: True, you never know, we're always evolving. O’Neill: Yeah, that's right. Walker: As we're wrapping up, do you have any other thoughts on whether there's a magic bullet to solve this problem? You've actually already answered that question. There's not a magic bullet, but do you have some closing thoughts for us as we're thinking about this important topic about recruiting and retaining good employees. O’Neill: Yeah, there really is no magic bullet. One of the slides that I had in my presentation talked about the employee value proposition. As an organization, we have to be competitive in some of the basic stuff. So think benefits, compensation, some of the well-being programs that we offer and flexibility. But really what it comes down to is there's no one-size-fits-all. There is no silver bullet because everybody is their own individual person and what I feel to be the most effective is taking this idea of being a human-centered leader and having the employee experience driven by the associate themselves. I want them to come to me and tell me what they want do. I need to be, again, genuine and saying, I'm here to help you. I want to help you. We've heard the old saying, people don't quit jobs, they quit people. Now they're not staying for jobs. They're staying for people who have evolved into that human centered leader. That's where we're going to build the strongest relationships and where we are going to see higher retention. Walker: Awesome. Tim, thanks for joining me. In closing, I'd like to do a little fun thing where we're taking a journey together towards a better profession. I like to get a glimpse of my guests other travel journeys. Tell us about a bucket list travel location you have on the books or something fun to share. O’Neill: Bucket lists and travel. I tell you June has been the traveling month for me. I was in Nashville for the Craft Brewers Conference, I have a lot of craft brewery clients. Walker: We will have to talk about that later. O’Neill: Then Vegas and then I'm shipping off with my family here in about three days to go to Key Biscane for a week or so. Then I'm in Dallas for another conference and so all over. But bucket list — I'm a big rugby fan. I'll preference this with saying huge Ireland rugby fan. That's all in the last name O'Neill. Walker: Got it. O’Neill: Definitely make it out to the Six Nations tournament over in Ireland for one of the home matches. That's a bucket list trip for me for sure. Walker: Very good. I'm actually headed to London on Sunday. Fun stuff. No rugby or anything. O’Neill: No, that's okay. From the desert to the rain. Walker: There you go. Thank you again. So 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. 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 Tony Nitti, CPA, Partner — National Tax, EY, joins April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, live from ENGAGE 2023 to discuss S corporations and Rev. Rul. 2008-18, delving into S corporation reorganizations. What you’ll learn in this episode Overview and applicability (1:56) Hypothetical example (3:14) Review of Rev. Proc. 2022-19 and fixes to prevent invalid S elections (8:58) The extra step when an S Corp owns 100% of a QSub (15:33) Relevant articles from The Tax Adviser (24:40) A page from Tony’s travel journal (24:56) Related resources Rev. Rul. 2008-18 — Postulates two situations in which an S corporation becomes a qualified subchapter S subsidiary (QSub) of a newly formed corporation that will qualify as an F reorganization. The ruling also provides new guidance on the proper employer identification number (EIN) to be used by the entities in each situation. Private equity and F reorganizations involving S corporations — The Tax Adviser, Sept. 1, 2020 6 reasons an S corporation wouldn’t need a PLR | Tax Section Odyssey —  Rev. Proc. 2022-19 provides procedures to allow S corporations and their shareholders to resolve frequently encountered issues without requesting a PLR. April Walker: Listen today to learn more about S corps and Revenue Ruling 2008-18 F-Reorgs with Tony Nitti. Hi everyone and welcome to this collaboration between the JOA podcast, and the AICPA's Tax Section Odyssey podcast. I'm April Walker, a Lead Manager from the Tax Section. On the AICPA's Tax Section Odyssey podcast, we offer thought leadership on all things tax facing the profession. Today I'm here with Tony Nitti. Tony is a partner at EY National Tax. He is a frequent guest of the show. I'm even more excited to be recording this today because we are recording together in person at the ENGAGE conference. I asked Tony what he thought was important to talk about today. He brought up the topic that he is hearing a lot about, a lot of confusion about, a lot of misunderstandings about and that is an F reorg structure used in acquiring an S corporation in Revenue Ruling 2008-18. First of all, for those who might be listening, who went like me, help, I need an overview of what you're even, talking about Tony. Talk to us about how this might apply, when it might apply if you have clients who either might be the acquirer or the target. What are we talking about here? Tony Nitti: First things first, yes, it's good to be back together. It's become a bit of an annual tradition. Walker: It has. Nitti: Then, just before I came in here, I was surprised to learn that there's a trivia question where I was the first guest on an AICPA Town Hall. Is that right? I had no idea. Everything from 2020-2022 is a blur. What we're going to talk about today, when we call it either these F reorg or 2008-18 transactions, it is the most popular way in the current climate for someone to acquire an S corporation. We know that private equity is getting involved with acquiring everything and so oftentimes it is private equity that wants to acquire an S corporation. Obviously if they were to go out and acquire shares directly, the S election is going to terminate, and then you've got a C corp on your hands, there's whole bunch of other things going on. This has become the go-to transaction, and we'll talk through it step-by-step from both the buyer and seller perspective. But the reason I thought it was worth talking about today is just because something in the tax law has become very popular, does not mean that it's necessarily well understood. We've experienced that thing before, where the more you stop and actually think about this stuff, the more you go, why are we doing these steps that we're doing, or why is it a transaction that we use and sometimes we just follow what everyone else is doing and don't really think about what are we accomplishing, what are we not accomplishing and other things. I just thought it would be fun to come in, talk for about 30 minutes or maybe less about what this transaction does? What it does’'t do? When we want to consider it? When we do’'t then, that whole thing? Walker: Sounds great. Nitti: Let's start with the hypothetical. It’s going to be the best way to explain all this. Let’s keep it simple. We've got private equity, setup as a partnership, and they would like to acquire the business operated by a current S corp. Here at AICPA ENGAGE, anybody that's here on the tax side, they've got S corp clients. A lot of times we will be the ones representing the seller. It's important to understand what this transaction holds for the seller, but there's also going to be plenty of times where we represent a client that wants to buy an S corporation, so we got to think about those buyer considerations as well. Let's just say we've got this private equity partnership that wants to buy this S corporation, 99 times out of 100, and this is something I'll talk about tomorrow in my M&A class, a buyer is going to want to buy assets. They're going to want to buy assets because they're going to want to get a stepped up basis in those assets for depreciation and amortization purposes. But sometimes the buyer can't buy assets. Because maybe those assets are not transferable, maybe for a particular business reason they need to acquire the legal interests in an entity, so that the EIN stays alive. You know how M&A works — like something's going to force your hand. From a buyer's perspective here it's how can I accomplish both of these things? How can I acquire the legal interests in this S corp target, but yet get this stepped up basis and the underlying assets? For years, the way we tried to accomplish that is by having the buyer and the selling shareholders of S corporation jointly make an election under 338(h)(10) or more recently 336(e). That election was a magic bullet, but only for the buyer, and I'll explain that. Like for the buyer, you make that election and for legal purposes, you're treated as buying the stock because that's what you bought. But for tax purposes, this fiction is created where the target S corporation is deemed to have sold all of its assets to a newly formed corporation owned by the buyer, and that gives them the step-up in basis and assets that they want. It's win-win for the buyer. It's not win-win for the seller. The seller is giving something away because had they simply sold stock and not made a 338(h)(10) election, they get straight capital gains rates. But by making this election, they have to live with the deemed consequences of the S corp selling its assets, which means some of that gain may be converted to ordinary income if they have cash basis receivables or inventory or whatever it may be. This really is more of a fix from a buyer perspective than anything else. Now, there's something in it for the seller in the sense that the buyer is going to have to pay them for that incremental tax cost. But that's where we looked for a buyer to be able to get this best of both worlds — a step-up in basis, but keep the legal entity alive. It was always 338(h)(10), always 336(e). But there are limitations to those two types of transactions. For example, you have to acquire 80% of the stock of an S corp to make an 338(h)(10) or 336(e) and so if private equity only wants 50% of this business, that's off the table. Another thing is let's say you're not going to buy all of it, but you are going to buy more than 80%. It's not like the 10% interest that the shareholders of the target retain is going to be tax-free. The way a 338(h)(10) or 336(e) election works is if private equity comes in and buys 90%, the other 10% is still treated as if they sold their interests as well. They still have to deal with the consequences of the asset gains. You can't have any tax-free deferrals, there are limited types of entities that can be a purchaser in a 338(h)(10), and so private equity as a partnership cannot do it. It would have to set up a corporation. You get the idea. There's a bunch of potential limitations there. But the biggest limiting factor and really what's caused this change in this transaction type is the fact that there are a limited type of targets in a 338(h)(10). One is a subsidiary in a consolidated group. One is a subsidiary in an affiliated group that could file a consolidated but doesn't and the other is an S corporation. What you don't hear in those three types of eligible targets is a standalone C corporation. What that means is if someone is looking to buy, an S corporation and make a 338(h)(10) election or 336(e) election, they have to be sure that [the] S election is valid. Because if it's not valid, that's not an S corp you're buying, it's a C corp. If you buy the stock [of] a C corp, it's a standalone C Corp and the 338(h)(10)or 336(e)election isn't valid either. You just spent 30, 40, 50 million on something anticipating a step-up in basis in assets and if it turns out that S election was invalid and you just bought C corp stock, you don't have that step-up in basis. There's this disconnect I feel some times where 90% of the tax industry thinks that if somebody says [they’re] an S corp, they're an S corp but there's not going to be any problems there. Then the other 20% works enough in due diligence or it's just been around long enough to realize that there's some real truth to this saying that permeates what I do, chairing sub S for EY, and it said in jest, but like I said, there's some truth. You show me an S corp, I'll show you an invalid S corp. If you do enough due diligence, there's going to be things that arise that make you say, I don't think this is valid or I'm worried that it's not. The point is the second a buyer who's looking to spend significant cash on a business realizes that there could be a skeleton in the closet for that S election, you don't want to go forward with an (h)(10) or 336(e) because the risk is to you as the buyer. The risk is that you lose all of that step-up. Walker: Does that tie back to our previous time we were together and ways to cure an S election? Nitti: It does. You’re referencing Rev Proc 2022-19, which gives us an avenue in some respects to fix some of these problems that would cause an S election from being valid. But practically speaking, when the numbers are big enough and a buyer is looking to acquire company, the second they get an inkling that something is wrong with that S election, even if you tell them it can be cured, they say, I want to pivot to something else to make sure I get what I came after. What I came after is the step up. That's where this transaction came into vogue. Because how else if we're not going to do an (h)(10), if we're not going to do a 336(e), how else for example, can private equity go out and acquire some or all of the business of an S corp while one, keeping the legal entity alive and retaining the EIN. Two, getting a step-up in basis of the assets. Three, getting to continue to operate this business in flow through form. Because that wasn't available via an (h)(10) or something like that because, it would become a corporation because it'd be owned by another corporation. Four, being able to offer potential tax-free rollover to some of the sellers. Like where else can you get all those things and not having to acquire 80%? It really was a wasteland of options until this Rev Ruling 2008-18, came around and said, okay, there is a path forward here now to accomplish all of these things. Most importantly, is to still get our step-up as the buyer, even if this S election is invalid. It's not a complicated transaction at all. The reason I thought it was worth talking about today is that it's amazing- I've talked to some people who've done dozens of these but it's almost just because it's a formula they follow and they don't actually understand what each step does, or maybe more importantly doesn't accomplish. It would work like this. You would say to the seller, hey, we've got concerns about your S selection being valid, so I’m not buying your stock because I'm the one that gets stuck holding the bag if I just bought a C corporation and not an S corporation. I paid you for the step-up and I didn't get the step-up. I want you as the seller to undergo this pre-transaction restructuring. It's all on the seller side and it's not complicated at all. Step one, the sellers, and let's just say you and I are 50/50 shareholders at this S corp. I always like using you in my example. You and I are sellers of this S corporation. We form a brand new holding Corporation and we transfer our 50/50 interests in what I'll refer to now as the target S corporation into this new corporation. Then we immediately elect to treat that target as a qualified subchapter S subsidiary or a QSub. When an election is made to treat a subsidiary of an S corp as a QSub, it's treated as having liquidated into its parent S corporation, and it's just disregarded from any separate existence. Now, what you didn't hear there, which you may be curious about is, I said we formed a new corporation, transferred an S corp into it, made it QSub election for it. I didn't say that new corporation was formed as an S corporation. You can be like, how are you making a QSub election when the parent is not yet an S? But what this Rev Rule 2008-18 tells us, it builds off earlier principles from Rev Rule 64-250 and says that the combination of those steps, the formation of a new corporation, transfer of an S corp to that corporation, and then immediate QSub election for that former S corp, it all combines into what we call a tax-free reorganization under Sec. 368(a)(1)(f). What that means is it's a big fat tax zero. Nothing happens. Because nothing happened, that newco that we set up is just considered to be a continuation of the target. The reason we didn't have to make an S election for it is because the S election of the target carried over to this newco. If you are certain that the S election of the target is valid, and if you are, we're probably not doing this whole thing. But if you were certain, it's funny you'll find that there's no requirement to file a new S election for the parent. Instead, when you make the QSub election on the 8869, there's actually a box that was added that says this QSub election is being made in accordance with a Rev Ruling 2008-18 transaction, and that just notifies the IRS that the S election of this company now carries over to the new company. If we stop right there, like we haven't really accomplished anything. We’ve got a new company, a newco that's an S corp that owns a disregarded entity as a QSub. Now, if you're worried that the S election was bad and usually you are, you would probably make a protective new 2553 filing for the newco. But what this does, and I just want to point this out now, is eventually this newco S corp is going to be selling this business, selling this disregarded entity. What this doesn't do with this transaction and this is where a lot of confusion comes in, it doesn't do anything to cure the bad S election. If we think about it, if the company had been bad and sold its assets as a C Corp, there would have been corporate level tax. Going through these steps doesn't change that at all. Because if we form a new S and transfer the stock of what was a bad S to that new S and make it QSub election for it, effectively what we've just done is liquidate a C corp into an S. Without getting too into the weeds here, when you do that, the S corp just inherits what we call the built-in gains taint of that sub under Sec. 1374. When it turns around two or three days later, like it's going to in this transaction, sells those assets, 1374 is going to kick in anyway and make the seller pay corporate level tax. It's not doing anything to avoid a corporate level tax for these sellers and I think people should definitely understand that this doesn't fix a bad S election. You and I talked at great length about how you could fix a bad S election. This does not accomplish that. Because a bad S being contributed to a new S and made a QSub election for it simply means you liquidated a C into an S and you inherit all that built-in gains exposure. If we stop there for a moment, we're left with a structure where the S corp owns 100% of a QSub, which is a disregarded entity. But these transactions are almost always going to have an extra step. That extra step is you're then going to take that QSub and convert it under state law, typically, from a corporate entity to a single-member LLC. Once again, you're just going from disregarded entity to disregarded entity. It's meaningless. It doesn't cause any tax consequences at all. People have asked, why that? What's the point there? The point there is if you screwed up something in steps one and two, so that your QSub election is not respected, we have the same problem we would have had originally when the buyer comes in is you're going to see in the next step and purchases the interests in the disregarded entity. If we think we're buying the stock of a QSub and it's not really a QSub, we just bought the stock of a C corp again. The only way to really purge that corporate past is to do this extra step and after we've made the QSub election, convert that QSub under state law into a single member LLC. Because now, when those steps are all complete, we have an S corporation holdco owning a single member LLC. Just to keep things simple, if private equity wants to come in and buy 100% of that single member LLC, they get the best of both worlds. Because legally they're buying the entity, so the EIN stays alive. But from a tax perspective, when you buy the 100% interests of a single member LLC, you're treated as purchasing each underlying asset of that LLC. They're going to get that step-up in basis. By flipping it from a QSub to a single member LLC, all you're really accomplishing is fully guaranteeing that even if everything else goes to hell, the buyer is going to get their step-up, which is what they're paying me to do, if you represent the buyer. There's just been a lot of confusion about these steps and what they can accomplish and the order in which they have to be done. Order in this stuff matters. We have a letter ruling 200542013 that says, okay, if we contribute the stock of this S corp to the new S corp and then the next day convert it to an LLC, but then a month later, retroactively file the QSub election to be effective on the day of contribution, that QSub election is actually invalid because at the time you filed it, even though it was going to be effective earlier, at the time you filed it, it wasn't a corporate entity anymore. You'd already switched it over to an LLC. There's just these little nuances like that that are a pain in the butt. Then one of the things we at the AICPA asked the IRS to consider is maybe we don't need the intermediate step of making the QSub election. Like why can't we just contribute the S corp to the newco and then immediately convert that Sub into an LLC. The only reason right now we go through that intermediate step of making the QSub election is because that's what Rev Rule 2008-18 says will allow you to retain the EIN. There's enough there that worries us that we want to make sure we get the consequences the IRS says we get so we follow it to every step letter of the law. It just creates confusion. Sometimes it appears unnecessary. What will happen is the buyer will come in, and let's just say for starters, they buy 100% of a single member LLC interest. As we said, they'll get a step up. From the newco S corp perspective we set up, they're treated as selling each underlying asset of the single-member LLC. Just like with an 338(h)(10) they will be treated as if they sold the assets. There might be a mix of ordinary income, capital gain, and they should get compensated for that. As I mentioned to you before, if the S election truly were bad, then that corporate level tax may still be levied on the sale because you might have built-in gains issues. It's not really a magic potion for the seller, it's more for the buyer. Now the nice thing for the seller though, is let's say private equity only wants to buy 80%. If private equity buys 80% of the single member LLC interests, then we have a deemed partnership formation under [IRS Revenue Ruling] 99-5 where private equity is treated as buying 80% of the assets. They get their step-up, they're happy, and then private equity contributes their 80% up to a new partnership and the S corp contributes to the remaining 20% tax-free. There's an option here for seller to get tax-free rollover equity that doesn't exist in your typical 338(h)(10) or 336(e). There is something in it potentially for the seller. Particularly like I said, if you're going to retain some rollover equity, but the buyer still gets their step up and everybody's happy. There's still some unanswered questions. I think one of the most interesting unanswered questions is okay, wait a minute, you're telling me we're doing all this because we have concerns the target was a C corp for the last few years? We know we might pay C corp level tax on the sale of the assets if the IRS comes knocking and finds out the S election was invalid, but what about the three open years where it should have been a C and instead it was an S, who is on the hook for that? There's really no wonderful answer because remember, the buyer in this situation, private equity has acquired that legal entity. That legal entity changed from an S corp to a Q sub to a single member LLC, but all along, it kept its own EIN. If the tax liability for those previous open years attaches to that EIN, there's no guarantee the buyer is not potentially on the hook for that. That can make for some interesting negotiations, because if there's significant exposure for those open years, the buyer is going to want to build that into any type of agreement that they make in terms of an indemnity or hold back or something to make sure that they're not going to get called upon by the IRS to pay tax for the open years. But what makes the debate fascinating as we went through this F reorg and in an F reorg we said that this new holdco S corporation is truly treated as a continuation of the oldest corporation. From a practical perspective, if you're the IRS and you want to collect tax from prior open years, why would you necessarily go to the buyer when there's still this historical entity alive with its historical shareholders, and you can say — you're the ones who pocketed all the cash from those years so we're going to come looking for you? But that's something that I have that conversation maybe five times a week with people that are negotiating deals. Who's on the hook here for any corporate level taxes that weren't paid? No one's certain. I would plan as if the buyer is because you got the EIN, you've got the legal entity. That's it, that's all there really is to it. That's how it unfolds. But you can see why it's so advantageous because you can still get the step-up for the buyer even when the S selection is bad. Whereas if you try to do that being 338(h)(10) or 336(e), you're dead in the water and you just spent, who knows, it could be $200 or $300 million that you spent on a company and you paid for that step-up and then you don't get it. But there's confusion that sticks around with all of this. You can imagine the tax return filings get pretty confusing because with an S corp going through and F reorg — when I say an F reorg is treated as a tax nothing in the continuation, it truly is. Even though you might form your newco midway through the year, it's treated as stepping in the shoes of oldco, so you still file a full year return; one return, and that return is going to show the activity of the target for the beginning part of the year, and then it's going to have the activity for holdco for the last half of the year, which will include the sale of the target. Then if you're not selling 100% of the target, but only say 80%, then you're still going to get a K-1 from a new partnership now for the remaining 20%. People often get confused there as well, but it's just become an unbelievably powerful and popular method for selling an S corporation. For every one 338(h)(10) election, I see 49 of these. I'm just like why not talk about this? Walker: I'm glad you brought it up. Nitti: It's because like I said, if you dig deep enough, every S corp is going to cause you some concern. Everyone is going to make you go, hey, there's something here that makes me wonder if this is an S. It's usually not just one thing. You reference why can't we fix it with 2022-19? Sometimes you can fix one aspect — like the bad LLC operating agreement you and I talked about. But there could be other things out there. Half of my job April is explaining to people, I don't think this causes the S selection determinee, but I'm not the one spending $100 million to buy the company, you are, and so if you're worried about it, let's get out of this 338(h)(10) and let's pivot to this F reorg transaction that we just talked through. Walker: There's a couple of Tax Adviser articles that also go into some of this detail. If you maybe have to listen to this a couple of times to get some of the details. Nitti: I'm also going to be teaching that tomorrow. Walker: You can listen to the replay. We will wrap up. I like to take us on a journey together to the profession, but I'm going to ask you a very specific question. I want to hear about new adventures with your puppy, Ms. Maggie, and specifically whether she's going to New Jersey with you this summer. Nitti: Well, that's a big point of contention. Maggie, we adopted a new golden retriever pup about four or five weeks ago and my main responsibility is to remind her every morning and every night that she will never be what Macy was to me. That's my primary responsibilities. Tell her she'll never be the dog my previous dog was. But I'm kidding, she's growing on me quickly. The New Jersey thing, it's really tricky because traveling 30 hours with a pup and back is a lot. I'm also not going back to New Jersey for the whole summer because my son's playing travel baseball and basketball and so if I'm only going to be back there two, three weeks, do I want to spend six days in a car? I don't know, we're hoping she'd be small enough to fly, she's not small enough to fly. You can take her if you can come live in Aspen for the summer instead of the house. Walker: That sounds awesome. Thank you so much Tony. 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 & CIMA together as the Association of International Certified Professional Accountants. You can find us wherever you listen to your podcasts. 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 to check out our other Odyssey episodes, as well as get access to the 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.

Jason Staats, CPA, MBA, Firm Runner and Content Creator at Realize, discusses the impact of emerging technologies on the accounting profession, including AI and its role in changing the way things are done. Topics include getting started with cutting-edge technology, tips for practice management, incorporating AI like ChatGPT, memo and email enhancements, optimal time to upgrade technology, and the importance of investing in oneself to adapt to the tech landscape.

Accounting expert Donny Shimamoto discusses the future of accounting, including automation, cloud software, and cybersecurity. He highlights the importance of soft skills and leadership in the profession. The podcast also covers updates to the Safeguards Rule and offers information on learning and research opportunities for practitioners.

Starting Jan. 1, 2024, most companies created in or registered to do business in the U.S. will need to report information on their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) under the Corporate Transparency Act (CTA). In 2024, 32.6 million entities should submit their initial BOI reports with approximately 5 million initial BOI reports filed each year thereafter. The AICPA, as part of a coalition, calls attention to the new BOI reporting requirements to taxpayers and practitioners.  Listen in as Art Auerbach, CPA and Andy Mattson, CPA, Tax Partner — Moss Adams LLP, delve into the 5 Ws (who, what, where, when and why) of BOI reporting with April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA to help raise awareness that is critically needed. What you’ll learn in this episode Why is BOI important? (0:54) Who must file and who is exempt? (2:55) When must entities file? (8:01) What are the reporting obligations? (11:04) Where to file (what agency) and other concerns, including the potential for unauthorized practice of law? (15:00) Resources to help (21:59) Final thoughts (22:32) A page from Art and Andy’s travel journals (24:56) Related resources AICPA BOI reporting resources — Access resources (FAQs, summary of data fields, advocacy efforts, etc.) to learn about the BOI reporting requirement under FinCEN’s CTA. FinCEN BOI reporting resources — FinCEN resources on reporting requirements, fact sheets and FAQ. 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.

Artificial intelligence (AI) is the simulation of human intelligence by machines, and the applications for use are rapidly increasing each day. Chatbots such as ChatGPT and BingAI are at the forefront of this movement, but Ashley Francis, CPA, Owner — The Francis Group, PLLC, notes that more than 1,500 similar AI were released in the past week. Listen in as Ashley shares more insights with April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, including how AI is positioned to transform the future of tax compliance. What you’ll learn in this episode Why the time is ripe for AI and why it creates both excitement and anxiety (0:48) Other players on the scene besides ChatGPT (5:03) The more exciting implications of AI for tax practitioners (9:07) Is this just a fad? (13:52) Tips for getting started (16:29) How to create a helpful prompt (19:48) Data security concerns, legal and ethical concerns and tips for risk mitigation (26:18) A page from Ashley’s travel journal (30:05) Related resources The Francis Group, PLLC — At The Francis Group, Ashley offers expert technical services and personalized service to sophisticated taxpayers and family entities with high net worth. Ashley can also be found on Twitter. AICPA & CIMA ENGAGE 2023 — June 5–8, 2023 (live onsite at Aria Resort & Casino, Las Vegas, NV, or online), will help you evolve by turning the pace of change from a challenge to an opportunity. With nine tracks of expert content, you’ll gain exclusive insights, develop practical skills and walk away with tangible guidance to evolve at your own pace. Technology resource center — Technology is evolving at an unprecedented speed and affects each of us in almost all facets of life and business. This hub provides you with access to the latest technology information, tools and resources to best serve your clients or support the organization where you work. 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.

April 18 marks the close of tax season 2023. This is a time for many practitioners to reflect on the past few months and decide what went well and what could be improved for future tax seasons ahead. Nicole Davis, CPA, has one word to encapsulate this tax season. She also shares her wins and challenges along with solutions she implemented including the pizza tracker protocol and videos. What you’ll learn in this episode Tax season 2023 defined in one word (1.24) Changes/improvements that made a difference (2.35) Advantages of using a tax process explainer video (5.25) The pizza tracker tool (8.05) Tax practice management software Nicole uses (10.55) Challenges and lessons learned (12.09) Nicole’s take on IRS service level (16.21) Final thoughts (18.01) A page from Nicole’s travel journal (20.15) Related resources Tax season resources – 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. 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), established in 2020 by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, a refundable tax credit for businesses that paid employees while they were shut down due to the COVID-19 pandemic or had significant declines in gross receipts for the period between March 13, 2020, and Dec. 31, 2021, continues to be front and center on the minds of taxpayers and CPA practitioners. In response to requests from practitioners given the slew of ERC “mills,” the Office of Professional Responsibility (OPR) provided guidance on clients' claims for the ERC on returns prepared by others. The OPR said in a bulletin that practitioners want to be sure that "they are meeting their Circular 230 professional responsibilities and the standards required to prepare and sign original tax returns, amended returns, or claims for refund" related to the ERC. The OPR administers and enforces Treasury Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10). On this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, discusses the latest in the world of ERC with Chris Wittich, MBT, CPA, Partner — Boyum Barenscheer, and Dan Chodan, CPA, Partner — Trout CPA. What you’ll learn in this episode Where things can go wrong in considering ERC eligibility (1.45) Red flags to watch out for when considering third-party ERC providers (5.00) IRS audit procedures and examinations of the ERC, including real-time information document request (IDR) examples (7.33) The OPR bulletin, Circular 230 and Statements on Standards for Tax Services (SSTSs) (12.44) Level of “auditing” a tax practitioner needs to do to examine third-party ERC calculations (17.56) The importance of ERC documentation and how to put numbers behind examples to hit home with clients (23.07) Final thoughts (29.57) Related resources Employee retention credit guidance and resources — The rules to be eligible to take this refundable payroll tax credit are complex. This resource library will help you understand both the retroactive 2020 credit and the 2021 credit. Professional Responsibility and the Employee Retention Credit — Alert wherein ORP advised that to fulfill their professional obligations to clients and to tax administration, practitioners — attorneys, CPAs, and enrolled agents — must meet the applicable provisions of Circular 230. Statements on Standards for Tax Services (SSTSs) — Tax standards are the foundation for validating reputational integrity in the tax profession. These SSTSs are the enforceable tax practice standards for members of the AICPA. Treasury Department Circular No. 230 — Guidance, information, practice aids and other resources related to Circular 230, which govern a CPA’s practice before the IRS.  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

Natural disasters create a great deal of anxiety for all involved. Disaster tax relief in the form of tax return delays and casualty loss provisions are meant to ease some of that anxiety, but uncertainty surrounding some of the relief can cause confusion. On this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, goes behind the scenes with Jerry Schreiber, CPA, partner at Schreiber & Schreiber in Louisiana, dubbed the “Master of Disaster,” and Adam Silva, senior manager at Crowe LLP. What you’ll learn in this episode Distinction between a “qualified disaster loss” and a disaster loss (1:02) Refund claims when they occur during  a postponement of filing due dates (5:00) How to indicate to the IRS that a return is being filed under disaster relief (9:47) AICPA advocacy efforts related to disaster relief (13:41) Related resources Lookback period extended for refunds related to pandemic postponements, The Tax Adviser, March 1, 2023 Disaster tax relief guidance and resources — Provides resources and guidance regarding the disaster relief process as well as answers to frequently asked questions (FAQs) concerning disaster, casualty or theft losses and how these events may impact a client’s tax returns and business affairs. Automatic postponement date lookback period for allowing tax credits or refunds for all disasters — AICPA submitted comments to Treasury and IRS requesting that the IRS apply the relief given in Notice 2023-21 regarding the lookback period for allowing tax credits or refunds to all federally declared disasters. Road to recovery — Primer on disaster tax relief | Tax Section Odyssey — The “Master of Disaster,” Jerry Schreiber, CPA and Amy Miller, JD, CPA from the AICPA discuss tax-related disaster relief and resources to aid in recovery in this podcast episode. AICPA tax season 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. 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.