Tax Section Odyssey

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Digital asset playbook: Part 1 — Questions and misconceptions Feb 08, 2024

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Misconceptions about digital asset tax compliance are common. With business tax returns now requiring taxpayers to affirm their taxable digital asset transactions, it is even more important to ask the right questions. Educating yourself and your clients in this area is important to fulfill your due diligence requirements as a tax practitioner. AICPA resources Digital assets and virtual currency tax guidance and resources —This hub is your go-to library for AICPA guidance and resources as well as current legislation, IRS initiatives and tax advocacy projects. Questionnaire for Individual Clients — Before accepting clients that are engaged in digital asset activities, there are certain questions CPA practitioners should have answers to. Advocacy AICPA comments on the proposed Sec. 6045 regulations on gross proceeds and basis reporting by brokers, Nov. 8, 2023 AICPA comments in response to the July 11, 2023, Senate Finance Committee letter on taxation of digital assets, Sept. 8, 2023 AICPA comments on the IRS draft 2023 tax forms digital asset question, July 28, 2023 Other resources IRS Digital Assets — Resources and guidance available on the IRS.gov website Transcript On today's podcast, listen to hear more about how you need to carefully ask your clients about their digital asset activity. 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 Nik Fahrer. He's a senior manager at FORVIS in their National Tax Professional Standards Group. He's been with us before talking about this topic, and I'm delighted to have you back, Nik. Nik Fahrer: Thank you for having me back, April. I'm excited to be here. Walker: You are our digital asset expert on the podcast. No pressure. We're going to delve into some questions that [are centered around that] here we are in February and we're getting ready to start talking to our clients. We're going to talk a little bit about that. I feel like the more I learn about digital assets, they have different names- cryptocurrency, virtual assets, the more I need to learn. Hopefully today we're going to help you be able to have a conversation with your clients. Maybe your client is more knowledgeable than you are or you just need to get up to speed. That's our focus for today. I'd like to start with what are your most common misconceptions that you encounter about digital asset tax compliance when you're thinking about working with clients? Fahrer: Sure. I really like to break this down into four different categories. I think the first category is, do we have a taxable event? There's a big common misconception out there, especially with clients, that maybe there needs to be some education and educating our clients. That just because you invest in crypto and perform some trades, but haven't settled back to US dollars, doesn't necessarily mean that you don't have a taxable event. Let's take an example. Let's say I buy some Bitcoin and then I trade that Bitcoin directly for Etherium, then I trade that Etherium directly for Solana. There's multiple taxable events in there because the IRS treats cryptocurrency as property. Even though I haven't settled back to US dollars and cashed out, a lot of clients think, I haven't traded my crypto back into US dollars, so I don't have to report it on my tax return. That's actually false. Those trades in that example, from Bitcoin to Etherium, that's a taxable event, and then from Etherium to Solana, another taxable event. The second bucket, I would say here is completeness, so really making sure that we have all of our sources and transactions accounted for. What do I mean by that? Another example, if you have a client that comes to you and says, hey, I transacted in crypto in 2023 and I need help reporting that. Clearly identifying what were all of the exchanges that they used, what were all of the wallets that they used, and does that account for all of their transactions. Like we just mentioned in the previous bucket, do we have a taxable event? Almost every single transaction in the space is going to be a taxable event. We have to make sure that we can account for all of those and have the proper records. It can be difficult to track them all down because it's so easy to just open up a new wallet. Third bucket, I would say, is understanding the character of the gain or loss. I mentioned earlier the IRS says this is treated as property. That doesn't necessarily mean that all of the transactions are capital gain or loss, some of them could be ordinary. Some examples would be mining income, staking income, air drops, hard forks. All of these in the eyes of the IRS are likely considered ordinary income at the fair market value at the time of receipt. One question you want to make sure that you're asking your clients is, not only can you give me list of your transactions of trades, but you also want to make sure that you're getting a list of transactions for some of these ordinary income items, which may be listed separately. A lot of times our clients are using a software provider to generate a [Form] 8949. Well, those ordinary transactions aren't necessarily going to be captured on that [Form] 8949 because that [Form] 8949 is going to be your capital gain or loss. Second, within this third bucket of the character of the gain or loss of NFTs, the IRS has come out and said that, are likely treated as collectibles and those could be subject to a higher tax rate as well. We want to make sure that we are capturing those NFT's and marking the appropriate box and letter associated letter on the [Form] 8949. The fourth bucket, and I would say this one probably gets looked over the most, is are there any additional surtaxes associated with the client's activity? For example, net investment income tax. A lot of our clients are not CPAs, they're not accountants [and] are not aware of this may be additional tax that their capital gain or loss may be subject to. It's making sure that we're having these conversations with them so that they're aware that the max capital gain rate is 20%, but may be subject to this net investment income tax, which is an additional 3.8%. That's important when we're thinking through estimated tax payments, things like that. Of course, there's self-employment tax if you're in the trade or business of mining or staking, for example, and that could be up to 15.3%. Then the additional Medicare tax of an additional 0.9% on maybe the net self-employment earnings associated with mining or staking or some of these other activities. Just to recap, the four buckets that I would really say are, one, making sure that we identify all of the taxable events. Two, completeness. Making sure that we have all of our activity in some sort of Excel spreadsheet or [Form] 8949 that's generated from a software. Number 3, what's the character of the gain or loss? Doesn't necessarily mean it's always going to be capital. Could be ordinary. Then four, what additional taxes may be applicable as well? Net investment income tax, self-employment tax, additional Medicare tax, things like that. Walker: Thanks Nik. That's super helpful. Definitely things I've heard too and probably misconceptions that I have as I'm still learning and try to understand and wrap my head around these topics and how the IRS treat digital assets compliance. Another thing I wanted to bring up, and you've likely seen it, the IRS just did an announcement about it. We've talked for several years — I should have gone back and looked and seen how many years there has been a digital asset question on the 1040. But, in addition to that, they've tweaked the language throughout time. But in addition to the 1040, there's also now that same digital asset question about, did you receive sell, or exchange or otherwise dispose of a digital asset? Those are going to be on business returns and also trust returns for 2023. Just thinking about that, how are you thinking about getting that information from clients? Probably the same situation as you have been already for individuals. But any tips and tricks on navigating those questions that might be new for people? Fahrer: I think this is a very important topic because that question is subject to penalties of perjury. So we want to make sure that we're probably erring on the side of caution and making sure that we're capturing this information from our clients. One thing that we do is we add this question to our client questionnaires. Every single one of our clients fills out a questionnaire, and we word it almost verbatim to the question on the 1040, and now these other forms that you mentioned. Did you essentially transact in digital assets? I'm oversimplifying it, but that's basically what it's asking. Put that question on your client questionnaires and that's a really easy way to get that information from your clients. Maybe another suggestion is consider adding this as a question to your client acceptance process as well. When you're first going through the process of having conversations with clients or whatever that intake process looks for you and your firm, consider adding that as a question to your client acceptance process. Then I always recommend getting ahead of it as well. Get a good idea of the types of records that your clients can provide on the front end. This goes back to client acceptance as well. Good records go a long way whenever we're talking about reporting digital asset activity. If a client can't provide you with good records, or maybe for example, they provide you a spreadsheet with hundreds or thousands of transactions and you have to go in there and manually calculate cost, basis, and proceeds. It's very time intensive, very costly, and that's going to help you understand what to quote them on fees. It may also help you push them in direction of maybe trying to sign up for a software like a CoinTracker or Ledgible or Cryptio, or Koinly. There's several different softwares in the market where clients can go out there and connect their wallets, connect their exchanges and it will do a really good job of summarizing almost all of the activity on your behalf and generate [a Form] 8949, generate supporting schedules and things like that. Most of the time you're going to run into scenarios where there's software, it's an extra expense, but it's going to more than cover its cost to save you all the headache and time that you're going to have to calculate everything manually. Walker: Definitely, some unique challenges in tracking and reporting digital assets as opposed to if somebody is just holding securities or mutual funds in a brokerage account, that's pretty easy. There can be some complicated transactions in there, but it's not the same thing as digital assets. Then, like you said, there's so many different, usually if they're transacting, it's going to be a large number of transactions, that Excel spreadsheet could look like a nightmare, I would imagine. Any best practices or strategies or tips, and you mentioned some softwares and things, when do you see that a client has made the flip from I can just track this in an Excel spreadsheet to needing software? Fahrer: Yeah, that's a really good point. Maybe to add some context to why we even have these Excel spreadsheets. [Form] 1099 reporting is not currently required for crypto transactions. Typically clients get to 1099B at the end of the year for their stocks and securities. Those transactions are all summarized for us and it's super easy as a practitioner to then take that information and transfer it to the tax return. Whereas here there is no [Form] 1099. Maybe going back to the misconceptions that we talked about earlier, another misconception is that a receipt of a [Form] 1099 triggers the tax reporting requirement. Most of us know that's not true. It's not the receipt of the 1099 that triggers the reporting requirement, it's the taxable event itself, but our clients may not be aware of that. That's why it's even more prudent to ask these questions on the front end of, did you transact in digital assets, to get a better understanding of what all needs to go into the return? I also think that self custody is something that's unique to this industry, if you will. We have the concept of you control your own assets means that there may not be a third party intermediary. There may not be a broker to keep track of your cost basis, and then that burden falls on the taxpayer. If the taxpayer is unable to provide records or proof of cost basis, the IRS is going to assume it's zero, which is the worst case scenario. But to go back to your question April and really answer it more directly, I think if you have a client that has more than 20 transactions in a single year, it's probably worth it to work through one of those softwares that I mentioned before to get them to sign up for that, connect their wallets, their exchanges, and hopefully bring in everything in one central location and automate a lot of it. Then I think there's some good resources out there too on how to stay up to date and understand maybe some changes that are going on in the industry. We have an AICPA web page that's dedicated to this topic. It's a very good resource. There's also a questionnaire on that web page that you can download. It goes through and is basically built for practitioners to know what questions to ask. We don't know what we don't know if you're not in the space. This is a great questionnaire to go out there and just cherry pick what you think would be beneficial to ask your clients. This is a resource for you. The IRS also has a website that is specifically dedicated to digital assets. If you just google IRS digital assets, I'm almost fairly certain it's going to be one of the first ones that pops up. It has all of the guidance that they've ever issued in this one single web page. Then of course, there's several people that are very vocal on LinkedIn and Twitter [X] that you can follow and good resources there as well. Walker: Perfect. Thank you for highlighting those resources. The questionnaire is what spurred wanting to have this discussion. Nik actually did a few videos for us on the website related to that questionnaire, and we wanted to dig a little deeper. In the show notes I'll put a link to our digital asset page and that's going to have that questionnaire as well as like you said, other resources, it also links to the IRS. One thing I wanted to note is the IRS does do I think a good job of [what] you might just be struggling with, hey, that question [on the tax return] — How do I answer it? Is there a way for me to answer no? There probably is an answer. I think we discussed this, but I wanted to say you have to answer that question. If we didn't say that specifically [earlier], I wanted to say that you have to say yes or no. The IRS provides ways that you must check the box yes, if they did this- received digital assets for payment or digital assets for this or that. Then it also tells you a couple scenarios for no. Again, I'll put link to those resources in the show notes linked to the questionnaire. Which is great, especially if you have clients who are really in this space. I wanted to share that Nik is on a Digital Asset Tax Task Force with the AICPA. That is a mouthful that I had to say very…

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Worker classification 101 and the risks of misclassification Jan 26, 2024

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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 indi…

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Tax time toolkit – Navigating the start of filing season Jan 18, 2024

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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 l…

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Traversing the beneficial ownership information reporting requirements Dec 20, 2023

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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. Documenta…

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Finding harmony between soft and technical skills in a digital world Dec 14, 2023

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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 t…

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All eyes on Moore v. U.S. plus a history lesson on tax cases Nov 22, 2023

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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 abo…

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Sifting through ERC questions | Tax Section Odyssey Nov 09, 2023

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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…

Full show notes at the publisher

Looking back at 2023 and looking ahead to 2024 Oct 26, 2023

Show notes

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…

Full show notes at the publisher

Chronicles of an M&A tax professional Sep 20, 2023

Show notes

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…

Full show notes at the publisher

ERC suspended: What happens next Sep 15, 2023

Show notes

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.

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