Tax News & Views Entity Reporting Raspberries and Cream Roundup

BOI requirements roll along despite concerns about too little outreach - Martha Waggoner, The Tax Advisor:

The Financial Crimes Enforcement Network (FinCEN) has amped up its outreach efforts to update businesses on the requirements for beneficial ownership information (BOI), which requires reports from over 32 million businesses this year.

...

But is it enough? Several members of the House, both Democrat and Republican, expressed doubt during that committee hearing. Over halfway through 2024, just 2.7 million of the 32.6 million businesses estimated to be required to file BOI reports this year have done so, [Treasury Secretary] Yellen told the House committee.

These rules require businesses to disclose their ownership to a federal database, and to update the disclosures to reflect ownership changes. Failure to comply triggers a $500 per-day penalty up to $10,000. The reporting often applies to small or inactive corporations and LLCs. Many of them apparently have yet to get the memo.

An Update on BOI Reporting - Thomas Gorczynski, Tom Talks Taxes. "If a reporting company was formed during calendar year 2024, it only has 90 days to file its BOIR, while reporting companies formed in calendar year 2025 and later only have 30 days to file their BOIRs."

Data protection - not just a good idea, it's the law.

Multi-factor authentication: Key protection to tax professionals’ security arsenal now required - IRS:

All tax professionals are now required under the Federal Trade Commission’s safeguards rule to use multi-factor authentication, or MFA, to protect clients’ sensitive information. The June 2023 change mandates MFA to strengthen account security by requiring more than just a username and password to confirm an identity when accessing any system, application or device.

“Multi-factor authentication is now more than just a good idea for tax professionals; it’s a requirement,” said IRS Commissioner Danny Werfel. “This is an effective way to increase security and protect tax professionals and their clients from a data breach. Multi-factor authentication is a little like a deadbolt on a door; it’s additional security supplementing the doorknob lock. This is an important step to protect not just tax professionals and their firms, but also the sensitive taxpayer information from their clients.”

Clients can find it annoying when they have to go through extra steps to access tax information, like getting a log-in code via text. Having your identity stolen is a much bigger annoyance.

Nobody said it was easy. No one ever said it would be so hard.

Tax Complexity Now Costs the U.S. Economy Over $546 Billion Annually - Scott Hodge and Claire Rock, The Tax Foundation:

The federal tax code imposes many costs on the US economy. The most direct costs, of course, are the roughly $4.9 trillion in federal taxes that consume 17 percent of US gross domestic product (GDP). Our tax system is heavily reliant on individual and corporate income taxes, which economists at the Organisation for Economic Co-operation and Development (OECD) have determined are the most harmful for economic growth.

A less direct cost is the precious time taken out of our lives to comply with a Byzantine tax code that requires billions of hours completing mountains of IRS paperwork and tax returns. In 2023, Americans filed 271.5 million tax returns. Of these, nearly 71 percent, or 192.3 million, were individual and corporate income tax returns, while another 36.3 million were employment tax returns.

While the IRS gives you the paperwork, it's Congress that enacts the laws the IRS has to administer.

Over there

Businessman Found To Owe Over $2.9M In FBAR Fines - David van den Berg, Law360 Tax Authority. "A U.S. inventor and businessman who had been based in Hong Kong and started a company there must pay over $2.9 million in penalties for failing to report his overseas bank accounts for eight years, a Virginia federal judge ruled Tuesday."

US taxpayers who have interests in foreign financial accounts, whether directly or through entities they control, are required to file annual reports with the Treasury if the assets in the accounts exceed $10,000 at any time during the year. The penalties can reach 50% of the balance of the accounts.

Related: Offshore Voluntary Disclosure

Campaign Corner

VP Pick Tim Walz Enacted Progressive Tax Reforms in Minnesota - Michael Bologna, Bloomberg ($):

While more than two dozen governors slashed individual and corporate taxes during the post-Covid period, Walz enacted sweeping reforms that raised taxes on businesses and wealthy individuals to pay for an expanded state social safety net and a menu of tax benefits aimed at low-income taxpayers and working families.

Based on past performance—particularly under Walz’s “One Minnesota” biennial budget—the second-term Democrat is the most progressive governor Harris could have chosen as her running mate, said Jared Walczak, vice president of state projects at the right-leaning Tax Foundation.

Gov. Tim Walz Raised Taxes as Most Governors Cut Them - Jared Walczak, Tax Policy Blog. "Whereas other potential running mates charted moderate courses on state taxation, with Pennsylvania Gov. Josh Shapiro advocating for the acceleration of cuts to the Commonwealth’s high-rate corporate income tax and signing legislation improving its structure (specifically by better aligning treatment of net operating losses with national standards), and Kentucky Gov. Andy Beshear signed a bill authorizing an individual income tax rate cut (albeit after vetoing a larger prior-year package that set those rate cuts in motion), Walz has presided over several tax increases, focused on businesses and high earners."

Kamala Harris Favored Taxes To Raise Revenue and Change Policy - Howard Gleckman, TaxVox. "It is too soon to know the details of presumptive Democratic presidential nominee Kamala Harris’s 2024 tax agenda. But her record as a US senator and her short-lived 2020 presidential candidacy shows that she has strongly supported using the tax code to advance social and economic ends, such as ending child poverty and addressing global climate change."

VP Pick Walz Aligns With Harris on Tax Policy Objectives - Alexander Rifaat and Cady Stanton, Tax Notes ($). "One of Walz’s major accomplishments — establishing a state child tax credit worth up to $1,750 per qualifying child age 17 or younger — was inspired by the American Rescue Plan Act of 2021, which temporarily expanded the federal child subsidy."

Blogs and Bits

Hawai'i fire victims face Aug. 7 tax deadline; other disaster due dates later this year - Kay Bell, Don't Mess With Taxes. "Aug. 7 is Hawai'i fires tax deadline: Almost a year ago, historic wildfires devastated Maui and Hawai'i. Those islands, which jurisdictionally are counties in the Aloha State, were provided relief by FEMA and the Internal Revenue Service... Wednesday, Aug. 7, is the tax due date for taxpayers on those Hawaiian islands. This deadline was previously Feb. 15, 2024."

Coca-Cola Could Face $16 Billion IRS Bill After Its Tax Court Arguments Fall Flat - Kelly Phillips Erb, Forbes. "Last week, after a U.S. Tax Court judge ruled against it in a transfer pricing case, Coca-Cola said it would pay $6 billion in taxes and accrued interest—and appeal the decision. But the stakes for both the company and the Internal Revenue Service (IRS) are even higher."

Fourth Circuit Affirms Tax Court' s Disallowance of Conservation Easement Deduction - Parker Tax Pro Library. "The Fourth Circuit affirmed the Tax Court and held the IRS properly disallowed a deduction for a conservation easement contribution because (1) the taxpayers failed to produce a contemporaneous written acknowledgment that established the amount (if any) of consideration received for the donation of the easement, (2) their baseline report did not demonstrate the status of the property at the time of the contribution, and (3) they misrepresented their basis in the easement property on their tax return. The court also upheld the imposition of a 40 percent penalty for a gross valuation misstatement."

The IRS has Disallowed Your ERC, Now What? - Cody Edwards, Iowa Tax Cafe. "Whether or not the IRS’s letter informs you of it, you have the right to appeal the IRS’s determination."

No Tax On Tips? Be Careful What You Wish For - Peter Reilly, Forbes. "The idea that an income exclusion can end up hurting someone is counter-intuitive, but it is a real thing."

Tax Crime corner

Cruel and unusual? Tax Notes reports on an unusual sentencing problem in a tax fraud case. The judge says the crimes involved were serious:

This case involves a significant tax fraud, including a dozen counts of conviction and nearly $1 million dollars wrongfully diverted from federal taxing authorities. The defendant misappropriated sums withheld from his employees' paychecks that were intended for tax payments and intentionally failed to make employer matching contributions. Crimes against the public fisc — funds intended for the maintenance of Government programs to benefit the public good — are very serious. Yet this crime goes beyond a simple theft of tax monies. In this case, the defendant took money from the Government and his employees — people who generated income for him through their time and effort on behalf of his business — and who were left holding the idiomatic bag. They were subject to tax problems, faced IRS reviews and penalties, had Social Security issues and were denied refunds. When confronted, the defendant lied to them, falsely denied knowledge of his misdeeds and misdirected them to his accountant. Four of defendant's former employees appeared at the sentencing hearing to describe the impact defendant's machinations had upon them.

But there is a problem here:

At this moment, though, the Court is faced with a problem that lies outside the confines of this case. For several years, beginning with the COVID-19 pandemic, allegations have swirled around the conditions at the MDC, the only federal prison facility in this district and serving this region. And this problem affects most bail and sentencing determinations made by this Court.

"MDC" is the Metropolitan Detention Center in Brooklyn, a federal Bureau of Prisons facility. From the sentencing ruling:

Each of the five months preceding this opinion was marred by instances of catastrophic violence at MDC, including two apparent homicides, two gruesome stabbings and an assault so severe that it resulted in a fractured eye socket for the victim. One knife attack was captured on a surveillance video producing images that are horrifying beyond words.

The judge notes that the defendant is over 70 years old and has "significant health challenges."

Thus, the defendant is hereby sentenced to a term of imprisonment of nine months. The defendant will remain on bail and pre-trial supervision under the same terms and conditions that have governed his release to this point, until a facility is designated by the BOP for service of his sentence. Assuming that the BOP designates a facility other than the MDC, then matters will proceed accordingly. However, if the BOP opts to designate MDC as the relevant facility, then the imposed term of imprisonment will be vacated and, in its place, the defendant shall serve nine months of home incarceration with electronic monitoring, with the costs of such to be paid by the defendant.

So much for white-collar "country club" prisons. If you pay the tax fraud audit lottery and "win," the prize isn't great. Especially, apparently, in New York.

What day is it?

Why, it's National Raspberries and Cream Day! No calories there, right?

Tax News & Views Entity Reporting Raspberries and Cream Roundup

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Joe B. Kristan, CPA