Tax News & Views Bakes Cookies and Corporate Transparency Roundup

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BOI reporting deadline extension proposed in House draft budget bill - Martha Waggoner, The Tax Adviser:

The Jan. 1, 2025, deadline for reporting companies to file beneficial ownership information (BOI) reports could be extended by one year, based on a draft continuing resolution proposed in the House of Representatives.

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The draft bill amends 31 U.S.C. Section 5336(b)(1)(B) "by striking 'before the effective date of the regulations prescribed under this subsection shall, in a timely manner, and not later than 2 years after the effective date of the regulations prescribed under this subsection,' and inserting 'before January 1, 2024, shall, not later than January 1, 2026.' "

Spending Bill Has Something For Everyone, Including An Extension For Beneficial Ownership Information Reports - Kelly Phillips Erb, Forbes ($):

As the clock continues to tick down, Congressional leaders have finally released the text of a proposed funding measure to keep the lights on...

Also tucked into the bill? Language that would delay the BOI reporting requirements under the Corporate Transparency Act (CTA). The CTA, intended to make it harder for bad actors to hide their identities and ill-gotten gains through shell companies or opaque corporate structures, pulls in companies and owners. The information that must be reported includes details about the owners, including the name, date of birth, address, and a scanned image of an identifying document like a driver's license or passport—from each so-called "beneficial owner." The same information, generally, has to be reported for a company applicant—typically the person who helped organize the company (most commonly, a corporate formation company or a lawyer).

Congress is Delaying Some BOI Reporting Requirements - Thomas Gorczynski, Tom Talks Taxes.

Key takeaways from this statutory change:

This extension allows the courts to work through any legal challenges to the Corporate Transparency Act.

This extension provides tax professionals an additional year to educate existing reporting companies about their potential obligation to file the BOI report (currently voluntary due to preliminary injunction).

Entities formed or registered on or after January 1, 2024, and before January 1, 2025, still have 90 days to file an initial report (currently voluntary due to preliminary injunction).

Entities formed or registered on or after January 1, 2025, still have 30 days to file an initial report (currently voluntary due to preliminary injunction).

Leaders in Congress reach deal to avert government shutdown - Jacob Bogage, Washington Post. "The measure includes $100 billion in disaster aid and $10 billion for farmers, but it will probably need bipartisan support to pass."

Congress races to vote on funding measure - Kadia Goba, Semafor. "The 1,547-page bill includes a one-year extension of federal farm programs, a commitment to fund Maryland’s Key Bridge rebuild, around $115 billion in disaster aid, health care provisions and restrictions on US investment in China — as well as the first congressional pay raise since 2009. The additions have upset some Republican members and will force GOP leaders to lean on Democratic votes to pass it."

What the deal means for the IRS

$20B in IRS Enforcement Funds Set to Remain Frozen Into March - Cady Stanton and Benjamin Valdez, Tax Notes ($):

The IRA enforcement money is paramount to the agency’s long-term audit goals for complex filers. An additional $20 billion cut would reduce the audit numbers for large corporations and high-income individuals by 8,000 across fiscal 2025-2029, according to Treasury Deputy Secretary Wally Adeyemo.

The frozen enforcement funds are likely to exacerbate the uncertainty that the last round of rescissions have created for the IRS.

Ronald Sanders, a former IRS chief human resources officer who spearheaded personnel reform efforts while the agency was implementing the IRS Restructuring and Reform Act of 1998, said he thinks the agency is “holding its breath” on hiring and other investments amid the freeze.

Funding pact cuts $20B from IRS enforcement - Kim Dixon, Bloomberg ($). "The cuts come out of the billions the IRS got in the Democrats’ tax-and-climate law known as the Inflation Reduction Act. That 2022 law originally gave the agency $80 billion to boost technology and customer service and ramp up enforcement on tax cheats."

CTA hold stays in place

Texas Judge Won't Pause Block Of Corp. Transparency Law - Kevin Pinner, Law360 Tax Authority. "A Texas federal judge on Tuesday denied the government's request to stay his nationwide block of a corporate transparency law while an appeal is pending, saying his view that Congress lacks the constitutional authority to enact the legislation is likely to prevail at the Fifth Circuit."

Tax administration, now and in the future

Child Identity Theft Is a Huge Problem. The Solutions Are Simple. - Shoshana Weissmann, The Dispatch:

Because more than half of all available Social Security numbers (SSNs) have already been assigned to people, a bad actor who makes up an SSN for fraudulent purposes has better than even odds that the number used already belongs to someone or is in line to be issued to a newborn or immigrant. And because the SSA does not check SSNs for histories of fraud before issuing them, the agency is regularly assigning babies numbers that have histories of fraud and crime, damaging their credit from infancy.

It’s not just the SSA. The Internal Revenue Service (IRS) is legally required to alert parents when their children’s identities are being used for tax fraud, but the agency constantly refuses—despite pressure from the Treasury inspector general for tax administration—because the minors don’t have active tax accounts. The IRS even stopped alerting heirs of deceased individuals whose identities were being used in a fraudulent manner because it upset the heirs. And for those who come to the IRS for help resolving identity theft? The National Taxpayer Advocate reports “unconscionable” delays.

Trump’s pick for IRS chief touted troubled tax credit to businesses - Brian Faler, Politico:

His intended nominee, former Rep. Billy Long (R-Mo.), has also stirred discomfort for another reason: Long has been deeply involved in touting a tax break that’s been plagued by fraud.

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“Virtually everyone qualifies,” Long, said on a podcast, bragging that he got some people more than $1 million from the Employee Retention Credit, and likening it to free money.

His pitch came the same month, September 2023, the IRS announced it was halting the processing of requests for the break, complaining it had been overwhelmed by potentially fraudulent or simply unqualified claims. So far, the credit has cost the government more than $230 billion.

Will Trump Put The IRS And Voluntary Tax Compliance At Risk? - Howard Gleckman, Tax Vox:

President-elect Donald Trump's personnel choices, public comments by him and his choices for key administration positions, and a second-term agenda laid out by conservative think tanks with deep ties to Trump all point to hard times for the IRS.

But the consequences may go beyond the agency itself. A bigger worry is that labeling the IRS as part of the “deep state” and limiting its ability to administer the revenue code by sharply curtailing its budget could threaten voluntary tax compliance.

Blogs and bits

Ways to spend your FSA money by year’s end - Kay Bell, Don't Mess With Taxes. "Stock up on everyday illness items. If you want to build your own first aid kit, most of the supplies — bandages and Band-Aids, antiseptics, antibiotic creams, and the like — are available from at your local grocery or pharmacy. A tax law change in 2011 to the Affordable Care Act (ACA), still known as Obamacare, made over-the-counter medications once again FSA eligible."

IRS Recovers $4.7 Billion for U.S. Taxpayers as Part of New Initiatives - Ronald Marini, The Tax Times. "The IRS Has Now Collected An Initial $292 Million From More Than 28,000 Non-Filers, An Increase of $120 Million Since September 2024."

Nominations Due for the 2024 Tax Offender of the Year - Russ Fox, Taxable Talk. "It’s nearly time for the award I annually give: The Tax Offender of the Year. To qualify, the winner has to do more than cheating on his or her taxes; he or she needed to really cheat or have committed a series of Bozo-like actions."

Even if you don't win, it's a dishonor just to be nominated.

Pardon Me III?

Tax Professors Urge President Biden To Commute 5-Year Prison Sentence Received By IRS Contractor Who Leaked President Trump's Tax Returns - Paul Caron, TaxProf Blog. The TaxProf quotes a letter from four tax professors:

We are tax law professors who are writing to urge you to commute the sentence of Mr. Charles Littlejohn, who is serving a five-year prison sentence for unauthorized disclosure of tax information, to the maximum sentence he was supposed to receive under the federal sentencing guidelines, namely ten months. Mr. Littlejohn worked at the IRS as a government contractor. Out of a sincere belief in the public`s right to know, Mr. Littlejohn in 2019 and 2020 leaked tax return information of President Trump and some of the wealthiest individual taxpayers in the US to the New York Times and to ProPublica, who published articles based on this information.

It's an awful idea, one that would excuse stealing and publicizing confidential tax information if you "mean well." But considering that President Biden has commuted the sentences of one of the most notorious promoters of high-end nonsense tax shelters, a judge who took bribes to send teenagers to a privately-run prison, and a municipal official who embezzled $53 million from her small Illinois hometown, I won't bet against it.

Dark Magic

Tax Preparer Known as ‘the Magician’ Bilked I.R.S. Out of $145 Million - Shayla Colon, New York Times:

As their tax liabilities vanished on paper, Mr. Alvarez’s company generated millions in profits. From 2016 to 2019 alone, ATAX took in at least $15 million in gross revenue, and Mr. Alvarez, as the sole owner, received a large portion of the net revenue, the indictment said.

Mr. Alvarez, and a gaggle of employees who understood what he was doing, forged everything from medical expenses to charitable contributions to rental income, residential energy credits and more, according to the indictment.

Dark magic. The Tax Court has ruled that preparer fraud keeps client tax returns open for examination forever, and the IRS believes them. The tax refunds generated by a "magician" tax preparer can come back and bite you years later.

What day is it?

It's Bake Cookies Day! And save some for me.

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Joe B. Kristan, CPA