Tax News & Views Beneficial Owner Backflow Roundup

August 16, 2023

Regs Extending Beneficial Ownership Reporting Deadline Coming - Andrew Velarde, Tax Notes ($):

Additional proposed regs on beneficial ownership information reporting pertaining to a deadline extension for newly created or registered companies are nearing release, but details are sparse.


Critics of the final rules, including business interest groups, have argued that small businesses are not prepared for them. At a July House subcommittee hearing, a representative of the National Federation of Independent Business insisted that many small businesses are not even aware of the reporting requirements. Representatives from the Financial Accountability and Corporate Transparency Coalition and the American Bankers Association have also asked for revisions to rules to ensure financial institution access.

The rules will require LLCs, corporations and other entities that are created by filing with states to report their beneficial owners to the Treasury. While there are broad exemptions, many small or dormant businesses will have to file these disclosures starting next year.

Tax Professionals Question Muscle Behind NY Bid to Unmask LLCs - Danielle Muoio Dunn, Bloomberg ($):

A bill awaiting Gov. Kathy Hochul’s signature would make New York the first state to create a public database of the owners behind limited liability companies.


If signed into law, New York’s LLC Transparency Act would require the businesses to disclose their beneficial owners and other identifying information like their business street address, which would be made available on a public database maintained by the state. Those with “significant privacy interests” could apply for a waiver to not appear in the state registry. Companies that failed to comply for more than two years would be shown as “delinquent” on state records and subject to a $250 penalty.


Rollback of Foreign Tax Credit Rules Helps Companies, For Now - Michael Rapoport, Bloomberg ($):

For the moment, the government’s big rollback of foreign tax credit rules is a clear win for multinational drug makers, manufacturers, and companies doing business in Brazil. What happens next isn’t so clear.


Many multinational companies in Brazil are also expected to benefit. The shift means most such companies should be able to take the foreign tax credit, including for 2023—something that the new rules had called into question, even after Brazil moved to change its tax system starting next year to help make its taxes eligible for the credit.

IRS Foreign Tax Credit Pause Is Welcome Course Correction - Lucas Giardelli, Juan Lopez Valek, and Michael Lebovitz, Law360 Tax Authority ($). "As reflected in the numerous comment letters submitted to U.S. Department of the Treasury and the IRS, taxpayers raised concerns that many foreign taxes that had been considered creditable would fail to satisfy the revised creditability requirements under the 2022 final regulations."



IRS Penalty Practice May Be Due for Reset - Kristen Parillo, Tax Notes ($):

The IRS needs to revamp its heavy-handed approach to penalty administration — and it should start by having Commissioner Daniel Werfel issue clear guidance to agency employees explaining the purpose of penalties, according to a tax attorney and former government official.

“This needs to come from the top,” said Caroline D. Ciraolo of Kostelanetz LLP. “After all these years, it’s time to have a reset on penalty administration.”


The IRS’s approach to international reporting penalties is especially harsh, Ciraolo said. Provisions in the Internal Revenue Manual explaining how IRS employees should apply them show that for “anyone who’s swimming in the international waters — if you have a foreign account, if you have a foreign entity, if you are engaged in foreign activities — you are presumed to know everything that you should know about this area,” she said. “And a lack of knowledge, even if it’s a negligent mistake or inadvertence, doesn’t matter.”

Shooting jaywalkers.

Related: Penalty Help


Inflation Reduction Act 1-year report card: IRS delivers dramatically improved 2023 filing season service, modernizes technology, pursues high-income individuals evading taxes - IRS. "As the IRS marks the anniversary of the Inflation Reduction Act, it is announcing two new milestones as part of its Paperless Processing Initiative: Scanning 225 times more forms than in 2022 and enabling taxpayers to reply to an additional 51 forms and letters online."

It's nice when you get to prepare your own report card.



I.R.S. Says Cash Influx Has Made Agency Bigger and More Digital - Alan Rappeport, New York Times

The nearly 90,000 full-time employees at the I.R.S. is a sharp increase from the 79,070 that were employed in 2022. The I.R.S. has not had more than 90,000 full-time employees on its payroll since 2012, according to the 2022 I.R.S. data book.

Most of the new hires have been in the wage and investment division, which is the customer service arm of the I.R.S. Mr. Werfel said that the agency had been actively hiring staff from accounting and law firms and was bringing in data scientists to use mathematical tools to identify taxpayers whose returns suggest they should face an audit.

IRS Touts Customer Service Progress as Validation of IRA Funding - Alexander Rifaat, Tax Notes ($). "Werfel argued that the developments show that the IRA funds made an “immediate and meaningful difference” toward modernizing the agency, and he said the agency’s improved performance should lay to rest Republican claims about possible negative consequences of the additional funding, including that 87,000 armed IRS agents would go after middle-income taxpayers."

A Year Into Biden’s Climate Agenda, the Price Tag Remains Mysterious - Leslie Kaufman, Bloomberg ($). "By April, to take one high-profile example, a team of researchers at the University of Pennsylvania’s Wharton School, working with Goldman Sachs, updated their own earlier estimate of $385 billion with a staggering new figure in excess of $1 trillion. The report’s authors cited “newer implementation” details and more optimistic assumptions about how much private capital will pour into the economy, particularly electric vehicles, in response to the promise of leveraging tax credits."


Big Changes to Electronic Filing Requirement in 2024 - Angie Ziegler and Jenny McGarry, Eide Bailly. ALERT "The new regulations notably reduce the threshold for the number of returns required to be electronically filed. Effective January 1, 2024 (for tax years ending on or after December 31, 2023), the threshold is reduced from 250 to 10 and requires filings to be aggregated. The previous requirement was 250 returns of any one type. This change may affect those who have historically paper filed a limited number of many different returns and forms." 


FinCEN, IRS-CI take steps to stem construction industry payroll tax fraud - Kay Bell, Don't Mess With taxes. "The notice also builds on FinCEN's ongoing efforts to combat the use of shell companies in illicit activity. FinCEN pointed to the final rule it issued last year establishing a beneficial ownership information reporting requirement, pursuant to the bipartisan Corporate Transparency Act."


Tax Court Case Shows What TikTok Isn’t Telling Taxpayers About Business Expenses - Kelly Phillips Erb, Forbes. "Tax tips on TikTok and other social media can be helpful. But when a tax strategy sounds too good to be true, it should give you pause even if—or perhaps especially if—a post, reel, or clip is circulated widely. Going viral doesn't mean it's any more valuable. In some instances, those numbers may be artificially bumped as they’re shared by tax professionals to point out the flaws—as happened recently on X, formerly known as Twitter, in a thread discussing the infamous Augusta Rule. This month, a ruling from the Tax Court clarified some specifics that TikTok left out."

It's this: 

Tax Court Greatly Reduces Rent Deduction for S Corporation Where Taxpayer Attempted to Take Advantage of the Masters Rule - Ed Zollars, Current Federal Tax Developments. "IRC §280A(g) includes what is commonly termed the “Master’s” rule, which permits a taxpayer to omit from their income any sums obtained from leasing their home, provided it’s rented for no more than 14 days annually. The moniker “Master’s” alludes to the frequent utilization of this unique provision by residents of Augusta, Georgia, during the annual Master’s Golf Tournament, but the provision is also used around other major sporting events such as the Super Bowl."


Trusts To Avoid California Tax Are Outlawed, Moving Away Still Works - Robert Wood, Forbes. "The idea is that the trust itself will be taxed—but since the trust isn’t in California, there’s no California tax."

IRS Provides Guidance on Requirements for Claiming Home Energy Audit Credit - Parker Tax Pro Library. "As amended by the IRA, Code Sec. 25C(a) allows a credit amount equal to 30 percent of the sum of the amounts that individual taxpayers pay or incur during a tax year for (1) qualified energy efficiency improvements installed during the year, (2) residential energy property expenditures, and (3) home energy audits."

IRS Issues Applicable Federal Rates (AFR) for September 2023 - Bailey Finney, Eide Bailly. "The Section 382 long-term tax-exempt rate used to compute the loss carryforward limits for corporation ownership changes during September 2023 is 3.17%"


A Canadian Tax That Americans Will Love to Hate - Robert Goulder, Tax Notes Opinions. "Canada is getting serious about a digital services tax."

Accounting for Amount B - Alex Parker, Things of Caesar. "One of the most important but least-discussed provisions in the Organization for Economic Cooperation and Development’s global tax project is Amount B, which seeks to aide tax administrations–especially the poorer, more resource-constrained ones–by coming up with formulaic determinations for certain functions like marketing and distribution."

Related: Eide Bailly International Business Services


Hunter Biden attorney withdraws from tax case citing potential role as witness - Rebecca Beitsch, The Hill. "Hunter Biden attorney Christopher Clark is withdrawing from representing the president’s son in a Delaware probe, pointing to a continuing legal battle over a plea agreement in the tax case that dissolved before it could be approved by a judge."


Ringleader sent to prison in nationwide fraud scheme targeting elderly victims - IRS (Defendant name omitted).

U.S. District Judge Kenneth Hoyt has now ordered Defendant to serve 188 months in federal prison. Defendant, a citizen of India, is expected to face removal proceedings following the prison term. At the hearing, the court heard additional evidence that described Defendant as the U.S.-based ringleader working with a call center in India. In handing down the sentence, the court noted the many letters and victim impact statements it had read showing the financial devastation to elderly and vulnerable victims throughout the United States because of this fraud scheme.


Part of the scheme involved fraudsters contacting victims by phone or via internet sites for computer technical support and directing victims to a particular phone number. Once victims contacted the fraudsters, they were told various stories such as they were communicating with an expert that needed remote access to their computer in order to provide technical support services. The fraudsters then gained access to victims' personal data and bank and credit card information.

Victims typically paid a fee to conspirators for the fake technical support but were later told they were due a refund. Through paying for "technical support" or through the "refund" process, the ring gained access to the victim's bank account(s) and credit cards and manipulated the accounts to make it appear the victim was paid too large a refund due to a typographical error. Victims were then instructed to reimburse the ring by various means.

Be careful out there. If someone says they need to access your computer, bank account number, or credit cards, they are waving a red flag.


Drinking safe water today? Then celebrate National Backflow Prevention Day! "The purpose of the holiday is to recognize and honor backflow preventers, the professionals who ensure our available water supply is free of toxins, waste, harmful chemicals, and other contaminants. The holiday also aims to spread awareness about the importance of backflow prevention and how the technology is used. The day was first observed on August 16, 2021, to commemorate the tragic backflow incident on the same day in 1933 at the Chicago World Fair."

Yes, that actually happened. Eww.

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