Tax Section Odyssey

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.

Understanding Tariffs: Implications for Tax Practitioners 04/24/2025

Understanding Tariffs: Implications for Tax Practitioners On this episode, , a National Technical Leader of transfer pricing at Grant Thorton and , a Senior Manager on the AICPA’s Tax Policy & Advocacy team, discuss the intersection of tariffs and tax. The conversation covers the basics of tariffs, their implications for US-based businesses and how tariffs interact with transfer pricing and inventory valuation. The guests also share practical advice for mitigating costs associated with tariffs and discuss the importance of careful planning and strategic decision-making in the current landscape. What you’ll learn from this episode: Basics of tariffs, including how they apply and are collected The interaction between tariffs and transfer pricing The impact of tariffs on inventory valuation methods Practical advice for mitigating costs related to tariffs AICPA resources — Stay current on international taxation with the latest advocacy efforts, guidance and tools available in this AICPA & CIMA reference library. , AICPA & CIMA, April 11, 2025 , Journal of Accountancy podcast, March 11, 2025 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 includes a digest of tax developments, trending issues and practice management tips that you need to be aware of to elevate your professional development and your firm practices. This resource is part of the robust tax resource library available from the AICPA Tax Section. The for staying up to date on the latest tax developments and providing the edge you need for upskilling your professional development. If you’re not already a member, consider joining this prestigious community of your tax peers. You’ll get free CPE, access to rich technical content such as our Annual Tax Compliance Kit, a weekly member newsletter and a digital subscription to The Tax Adviser. /episode/index/show/taxodyssey/id/36296005

Mastering disaster tax relief 04/10/2025

Mastering disaster tax relief On this episode uncover the latest updates related to disaster tax relief with the “Master of Disaster” Jerry Schreiber, CPA, and Brandon Nishnick, Manager, Tax Practice & Ethics — AICPA & CIMA. Hear valuable insights and practical advice for tax practitioners who are dealing with disaster-related tax issues. What you’ll learn from this episode: • The latest legislation related to tax disaster relief • What’s considered a “qualified disaster” for tax purposes • Practical considerations around filing extensions for tax returns postponed due to disasters • State disaster tax relief resources available • How to obtain disaster relief when records are located in a disaster area AICPA resources — Preparing for disasters beforehand, deciphering tax relief opportunities and accessing resources during the recovery process help to protect personal and business assets. In the event of a disaster, AICPA & CIMA are here to help and provide resources to help you get on the road to personal and financial recovery. — There is inconsistency in the tax relief states offer following federally declared disasters. This resource serves as a guide to reduce confusion. IRS resources — IRS reminder: Disaster victims in twelve states have automatic extensions to file and pay their 2024 taxes. — This IRS publication explains the tax treatment of casualties, thefts and losses on deposits. Other resources — Bookmark the FEMA website for FEMA responses to all declared domestic disasters and emergencies, whether natural or man-made. Keep your finger on the pulse of the dynamic and evolving tax landscape with insights from tax thought leaders in the AICPA Tax Section. The Tax Section Odyssey podcast includes a digest of tax developments, trending issues and practice management tips that you need to be aware of to elevate your professional development and your firm practices. This resource is part of the robust tax resource library available from the AICPA Tax Section. The Tax Section is your go-to home base for staying up to date on the latest tax developments and providing the edge you need for upskilling your professional development. If you’re not already a member, consider joining this prestigious community of your tax peers. You’ll get free CPE, access to rich technical content such as our Annual Tax Compliance Kit, a weekly member newsletter and a digital subscription to The Tax Adviser. /episode/index/show/taxodyssey/id/36089920

ERC updates & deadlines – Revised to incorporate new IRS FAQs 03/24/2025

ERC updates & deadlines – Revised to incorporate new IRS FAQs On this episode (an updated version of the previous episode ) Chris Wittich, MBT, CPA, Partner — Boyum Barenscheer, discusses the latest updates on the employee retention credit (ERC) as the five-year anniversary of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, approaches. He emphasizes the upcoming deadline for submitting 2021 ERC claims by April 15, 2025. Also covered is the latest guidance from the IRS on how to handle income tax returns for ERC claims, the challenges faced by clients related to slow IRS ERC claim processing and tips for addressing claim denial letters. What you’ll learn from this episode: Reminder of the upcoming April 15 deadline to submit ERC claims What the updated IRS FAQs say about reflecting salary deductions for claims and denials What to tell your clients about processing times for current ERC claims Different types of IRS correspondence that are being received related to ERC claims AICPA resources — A library for comprehensive guidance, essential tools and the latest news on the ERC. — On March 20, the IRS provided updated FAQs on income tax and ERC. — Hosted by Chris Wittich, Traction with the Tiger is a podcast series for staying ahead in accounting, business and beyond. Chris covers hot topics, shares key business tips and welcomes engaging guests to provide expert insights, inspiration and actionable advice. 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 includes a digest of tax developments, trending issues and practice management tips that you need to be aware of to elevate your professional development and your firm practices. This resource is part of the robust tax resource library available from the AICPA Tax Section. The for staying up to date on the latest tax developments and providing the edge you need for upskilling your professional development. If you’re not already a member, consider joining this prestigious community of your tax peers. You’ll get free CPE, access to rich technical content such as our Annual Tax Compliance Kit, a weekly member newsletter and a digital subscription to The Tax Adviser. /episode/index/show/taxodyssey/id/35842660

ERC updates & deadlines 03/20/2025

ERC updates & deadlines On this episode Chris Wittich, MBT, CPA, Partner — Boyum Barenscheer, discusses the latest updates on the Employee Retention Credit (ERC) as the five-year anniversary of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, approaches. He emphasizes the upcoming deadline of submitting 2021 ERC claims by April 15, 2025 and addresses the complexities surrounding the statute of limitations for ERC claims and income tax returns. The episode also highlights the challenges faced by clients in managing tax liabilities, the slow IRS ERC claims processing and tips for addressing claim denial letters. What you’ll learn from this episode: Reminder of the upcoming April 15 deadline to submit ERC claims Complexities surrounding the statute of limitations for income tax returns where an ERC claim was filed What to tell your clients about the processing times for current ERC claims Different types of IRS correspondence that are being received related to ERC claims AICPA resources — A library for comprehensive guidance, essential tools and the latest news on the ERC. — Hosted by Chris Wittich, Traction with the Tiger is a podcast series for staying ahead in accounting, business and beyond. Chris covers hot topics, shares key business tips and welcomes engaging guests to provide expert insights, inspiration and actionable advice. 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 includes a digest of tax developments, trending issues and practice management tips that you need to be aware of to elevate your professional development and your firm practices. This resource is part of the robust tax resource library available from the AICPA Tax Section. The for staying up to date on the latest tax developments and providing the edge you need for upskilling your professional development. If you’re not already a member, consider joining this prestigious community of your tax peers. You’ll get free CPE, access to rich technical content such as our Annual Tax Compliance Kit, a weekly member newsletter and a digital subscription to The Tax Adviser. /episode/index/show/taxodyssey/id/35793270

Tax season survival guide 03/06/2025

Learning to listen differently to your clients and expand your advisory role 02/28/2025

Learning to listen differently to your clients and expand your advisory role In this episode, Jamie Lopiccolo, CPA, CGMA, Founder and Managing Member of and Will Hill, Owner of discuss marketing and pricing tax advisory services. They explore the importance of identifying client needs through effective listening and highlight the significance of understanding clients’ pain points and gaps to move beyond traditional tax. What you’ll learn from this episode: How to use effective listening techniques to identify client needs and help uncover pain points and gaps The importance of moving beyond traditional tax services to offer comprehensive advisory solutions. How to potentially classify tax advisory opportunities into different pricing buckets and the importance of adjusting pricing based on scope changes. The importance of involving team members in advisory services early on, even if they feel unprepared, as this helps them learn and grow in their roles. AICPA resources — Tax Section members can access sample resources from Broadridge Advisor which provides client education and communication tools on personal financial planning. — This digital, month-by-month planner is designed for Tax and PFP Section members and serves as a field guide to summarize key due dates, action items, client engagement ideas and financial planning tips. 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 includes a digest of tax developments, trending issues and practice management tips that you need to be aware of to elevate your professional development and your firm practices. This resource is part of the robust tax resource library available from the AICPA Tax Section. The for staying up to date on the latest tax developments and providing the edge you need for upskilling your professional development. If you’re not already a member, consider joining this prestigious community of your tax peers. You’ll get free CPE, access to rich technical content such as our Annual Tax Compliance Kit, a weekly member newsletter and a digital subscription to The Tax Adviser. /episode/index/show/taxodyssey/id/35485545

Navigating professional risk: Identifying conflicts of interest and high-risk clients 01/30/2025

Navigating professional risk: Identifying conflicts of interest and high-risk clients On this episode, Nicole Graham, Risk Consultant — Aon, and Stan Sterna, Vice President — Aon, the national administrator and broker for the AICPA Member Insurance Programs, discuss identifying high-risk clients and managing conflicts of interest. They share their experiences and insights on professional liability risks, client acceptance and continuance protocols and the importance of maintaining objectivity and ethical standards in the accounting profession. What you’ll learn from this episode: Why it’s critical to have and follow client acceptance and continuance protocols. How to properly manage a conflict-of-interest situation within a firm. Best practices on termination of client relationships. The importance of having an engagement letter in place particularly when dealing with high-risk clients. AICPA resources Terminate a client relationship by following these helpful practice management reminders and then formally communicate the termination to your client. This podcast centers around the importance of engagement letters for tax practitioners. Tool designed to help CPA firms determine whether or not they should continue working with a client or terminate the relationship. 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 for the Tax Section, and I'm here today with Nicole Graham and Stan Sterna. They are both with Aon, and I'm going to let them tell you a little bit about what they do. We're here together recording, which is always exciting to be able to do that in person at Digital CPA in Denver, and they are doing a session called identifying conflicts of interest and high-risk clients. I thought, that sounds really interesting and something our listeners might want to learn more about. Stan, we'll start with you. Tell us a little bit about your background and where you're coming at this session. Stan Sterna: Sure, thank you, April. I have a legal background. I started off practicing law, about 34 years ago, I'm dating myself. My entire career has been defending professional service firms and then an opportunity to take a position with Aon, who is the national administrator and broker for the AICPA Insurance Program, of which CNA is the underwriting partner, the carrier and had worked with Aon for a long time and they wanted me to come over and serve as a risk control consultant for not only the program but also for some of the larger firms as well. I came over about 2016 and I currently advise firms on professional liability risks, cyber risk. I'm also involved in doing presentations like I am here today at Digital CPA and other industry events, writing articles for the Journal of Accountancy, as well as other publications. I like to look at ourselves as risk advisors as not somebody that puts a stop sign up and says, don't do anything or don't do something. It's giving folks in the accounting profession the tools in order to manage the risk while providing services and expanding and growing their practice. April Walker: Nicole, what's your perspective on this topic today? Nicole Graham: Well, I am here to scare everyone just a little bit. April Walker: That's okay. Nicole Graham: But I'm Nicole Graham. I am like Stan, a recovering attorney. I was in litigation practice for almost 18 years. For the majority of that time, I represented professional service firms in professional liability litigation and also disciplinary actions. I did that for a long time and decided to take off the boxing gloves, stop fighting every day, and instead take all those lessons learned and now try to work with firms proactively to avoid some of those pitfalls. April Walker: Let's talk about identifying high risk. High risk could mean different things to different people. Stan Sterna: I think the first thing you need to do, April, is you have to have client acceptance and continuance protocols in place. That's vital to identifying, is this client a right fit? You have to have that process, but as part of that process, you have to identify initially what is the risk appetite of the firm. What is your ideal client? It could be by industry, it can be by size. It could be by geographical location. It could be by the amount of revenue they make if it's a company or income. Identifying what is your ideal client, I think, is the first step. Then you have to not only, and I think this is important, evaluate a client when they're coming through the door to see if it fits the risk appetite at a firm, but also you have to continually and regularly monitor the client and whether or not the client is still a member or still fits within your risk appetite. That's what we call client continuance. Sometimes client acceptance, everybody does client acceptance and might not be in one shape or the other, might not be the best client acceptance. April Walker: It's not formal maybe. Stan Sterna: Everybody's evaluating even folks that don't have written criteria or developed any concrete parameters. In some subconscious level, you're thinking, is this somebody that I want to work with or have as a client? But on the other hand, continuance seems to get short changed, especially in the tax area. One of the things that we've seen when we've dealt with a tax claim is situations where you have a client who maybe doesn't pay on time, or the client is constantly providing information at the last minute, and you're scrambling and you have to get extensions. But yet, when the client came in the door, it seemed like a perfect fit for the firm. You're not re evaluating the situation, whether it's the demeanor of the client, the way they cooperate or maybe just circumstances change with the client that at least should be the impetus for looking at the client and rethinking is this client a good fit for our particular firm? Unfortunately, we've seen a lot of claims in the past, both Nicole and I, where continuance was the issue and not monitoring, is this a potentially high risk client? I think, in the tax area, one of the biggest risk flags or red flags is not paying fees and/or not giving information on time. Unfortunately, when people don't pay fees and they're constantly either slow paying or they want to pay a fraction of it, if you pursue those fees, a lot of clients will turn around and point the finger at the accountant and say, well, there was something that you did that I didn't like, and that's the reason why I'm withholding fees. A lot of them it's a ruse to be frank with you, a client ruse in order to avoid either paying the fees or have some leverage in negotiating the fees. April Walker: Sure. Stan Sterna: Folks people are dedicated to the profession and I'm sure there's a lot of folks out there that absolutely love what they do and they love their clients, but for the most part, people aren't doing tax work for free. This is not a hobby. April Walker: This is not nonprofit. Stan Sterna: You should get paid. We've seen plenty of circumstances in the past where you know it's a problem client. Every time you say, well, I'm in the midst of preparing your returns for this year, I need to get paid from last year, and they'll put it off because they don't necessarily want to get in a situation where they're going back and forth with the client. Some folks will look back and go, well, the founder of our firm brought that client and it's a legacy client, and yeah, they don't pay, or yes, they're always questioning what I'm doing. They always want to, and these are other red flags, take shortcuts when preparing their taxes or giving you incomplete information. Then you continue to say, look the other way and muddle through it and file a return with the best information available. Keep your fingers crossed. April Walker: That's not a good risk plan. Stan Sterna: That's not a good risk risk plan. In that situation, you should really look at that individual. It could be a friend. It could be a legacy client and decide, do we really continue together on this path in a tax preparer client relationship? Is it in my best interest to do that? April Walker: These are good things. I'd like to pivot a little bit now and we'll talk about with Nicole, and certainly a high risk client could be, or another way of looking at it would be a conflict of interest. Talk to me Nicole a little bit about what kind of conflict of interests do you see that are problematic and how practitioners can recognize that, and also, take the next step as far as what do they do if they identify something as conflict of interest? Nicole Graham: A conflict of interest is really just being able to identify and manage situations where there are competing interests or relationships. CPAs are required to maintain and protect their objectivity when they're providing client services. That is paramount to their duties to their client under the code of conduct, and something that we have to protect. Nicole Graham: The way that the conflict of interest comes up is you have clients that could be adverse to one another. April Walker: A divorce situation? Nicole Graham: Correct. Or you have business partners who are going through a business dispute and you represent both of the business partners. We see that a lot. When you look at these relationships and competing interests, you have to ask yourself questions. Am I able to remain objective while providing service to both affected clients, you also need to make sure that you are not putting your personal interest before client interest because there are your own self-interest or the interest of interests that your firm has or that close family members or close friends have that could affect your objectivity in providing client services. This is something that you need to look at when you're evaluating a potential conflict. You should be asking yourself, who are the stakeholders, do I have any personal issues that I need to address or any personal interests? Yes, no. Does this affect a client? For example, do I already represent a competitor in that industry, and would providing strategic insights to these competitors be a conflict? Could it be to the detriment of my other client? These are things you need to look at. If you have a conflict, it doesn't necessarily mean you have to turn away the business, but it is something that you need to evaluate and you need to evaluate it from the beginning. If however, you identify the conflict, you can then proceed with a representation, but you have to meet a little test. If you look at Section, I think it's 10.29 of circular 230, it identifies the ways that you can manage the conflict and still represent the client. You have to have a reasonable belief that you can provide the affected clients with proper objectivity and diligence in the representation. You have to make sure that you're not violating any laws by representing them both and you have to have informed consent and waiver by the client and it must be in writing, and it must be done sooner rather than later. Don't wait till the end of the representation to address it. In identifying how you go about this, we usually refer to it as the ACE framework. Awareness, communication, and exit, awareness, identifying the conflict, and once you identify it through asking yourself these various questions, then you have to communicate the conflict to the client. When you do that, you have to be specific about the potential conflict. You want to make them aware of it, you want to make them aware of the potential implications. You want to tell them your idea for how you plan to manage what guardrails you're going to put in place during the provision of services to protect them. You want to get their consent. You want to get it in writing. You want to document it, and then you also need to keep that documentation. Then if you decide through your analysis though, that the conflict can't be properly managed, that despite all the guardrails you can put in place, you still feel that there is exposure to you or your firm in going forward with the representation, then you should consider not taking on that client or disengaging, you have to eliminate the conflict. April Walker: Very helpful, Nicole. In your ACE framework, E is for exit. We've got exit and terminating the relationship. Nicole Graham: It's really when you're evaluating how to put in different guardrails, for example, can you have separate engagement teams to help both clients who might have competing interests and form an ethical wall? Then you realize, actually, I don't have enough people with the requisite expertise to form two engagement teams. Well, then that means you cannot take on both representations, you're going to have to eliminate the conflict, so you'll have to figure out which of the clients to move forward with and which one to let go. That's one of the most basic ways I've seen firms have to exit from a situation where they didn't have the resources to put in the proper guardrails, like having separate engagement teams. April Walker: That makes sense. Stan, where do you see termination in this risk area, and how do you help your clients with that? Stan Sterna: It's an important part. Like I said, not every client is a good fit for a firm. There's going to be clients that you really shouldn't touch with a 10 foot pole. There is a method to terminating that if you do it effectively, can help mitigate your risk. This is in the context of not only conflicts of interest, but high-risk clients that you don't want to take on. Most claim scenarios involving client termination involve terminating in such a way that the client feels you left them in a lurch, and that there was some deadline that is going to be missed because you left him in a lurch and maybe you didn't tell him about that deadline. That is really, I think, the core focus of claim scenarios involving termination. How do you terminate? Is there a good or is there a bad way? I think there is a good way. Once you make the decision, we need to terminate this client. I'll say April, more and more firms, and I'm encouraged by this, are culling their clients. The way to do that is once you identify this as a client that maybe for whatever reason is one that the firm is no longer going to continue with, what you should do it should be in writing definitely. Claim scenarios involving accountants' liability situations are document intensive. This is not a car accident type of case where there are eyewitnesses, it is going to fall back on documentation. Documenting a letter by a traceable delivery method, whether it's certified, whether it's traceable electronic communication, registered mail, whatever, a traceable delivery system or delivery method that says we are terminating. The ABC CPA firm is terminating the engagement effective immediately returning all original documents to them and then saying in the letter, you have important deadline and it's coming up here. You have to file your returns by this date or you have to file an extension by the state. We'll gladly connect with your successor tax preparer when you identify them and provide them whatever information they need so that they can I'm not going to do any work. But if they need some documents that we have or just want to converse, we'll make ourselves available. Then one thing we always hear from clients is that they want to get into a tit-for-tat with the client. I want to put in the letter everything that I felt they did that made my life miserable. We always advise, don't do that. The termination letter is not an opportunity to go through a give and take, a back and forth with my client. It's not productive. You don't have to do that. You should have a termination clause and your engagement letter says, we can terminate at any time. If you want to put in there because the fees aren't being paid, I would say each side should be allowed to terminate. That's not the point to do it. Plus, when you start arguing facts, facts they're subjective. People have their own ideas and their own version. Another important thing is, I think you should always say there's unpaid fees and that you owe me the outstanding fees because I don't want to give the disgruntled client the opportunity to say, well, obviously you terminated because you did something wrong and you didn't ask for your fees. That's why you didn't really pursue your fees. Saying, hey, it's legitimate work we did. This is the work that's finished. You owe us X amount. I think further buttresses the strength of the termination letter. There is a mitigating way to mitigate risk. Nicole Graham: I just wanted to add a point on when you in your termination letter advised that there are outstanding fees, I would always characterize enclosing your final bill. You don't want a situation where they think paying the bill means that they get to stay on as a client or that they get to argue that. Definitely characterize it as the final bill for services and that making it clear that there will be no further services. April Walker: Thank you so much. Nicole and Stan. This has been a lot of good information for our listeners to think about. Nicole, is there anything else you would like to leave us with as we're thinking about conflict of interest? Nicole Graham: Sure. I think it's really important to have your conflict management practices and protocols in place. You want to make sure that you have your framework really built out and you want everyone in your firm to know what these practices and procedures are and explain to them why they're needed. These are not just for your intake people to go through because during the course of an engagement, these conflicts can change and if you have a conflict that changes, you need to address that with the client because you no longer have informed consent if they don't know that there was a change. That's good. That's why it's imperative that not just your intake people know, but the whole firm knows and understands why you do that. It's important to create a culture where people are aware of their ethical obligations, they feel comfortable raising these questions and concerns to the appropriate channels within the firm. You want to make sure that your tone of the top is really stressing your ethical responsibilities, that there are clear reporting channels for your people to address their concerns with. Really, as Stan said, documentation is so key in these engagements, you want to make sure that your conflict management process is properly documented. You want to have everything documented from when you identified the conflict to however it was managed and resolved, whether it was exiting the engagement with the client and having your disengagement letter or having your informed consent and putting your guardrails in place. That should all be properly documented. Consistency is key because if you have the practices and procedures in place, you need to follow them. Because if you have a deviation from your practices and procedures, that will be exploited by a plaintiff's attorney and you're going to have to answer that in a lawsuit. A good way to have consistency is training and education with your people. Make sure that they are aware you have continuous training and workshops to stress their ethical responsibilities in managing these conflicts. April Walker: I know that when I was in practice, we had a yearly review of the client list and we had to sign and say that there were no conflicts or if there were, we had to address them. I don't know if yearly was sufficient, but that was the message that I heard that it was important. Nicole Graham: I... /episode/index/show/taxodyssey/id/35081445

Leveraging technology for a better client experience 01/23/2025

Leveraging technology for a better client experience In this episode, Brian Davis, owner of , discusses how technology has transformed the way his CPA firm operates and interacts with clients. Brian highlights the importance of using technology to provide a top-notch, virtual client experience. He shares insights on tools that have enhanced client engagement and streamlined his firms’ operations. What you’ll learn from this episode: Examples of ways to use technology to enhance a client’s experience How remote work and serving clients virtually has worked for his firm The benefits of offering subscription model billing The importance of investing in client education as you introduce new tools and processes AICPA resources — With the amount of technology products out in the market, how do they perform in reality? Hear from Jason Staats on the latest products available for practice management and more on this archived Reimagining Your Tax Practice session. — Tax return compliance is continuing to become more of a commodity. Your clients see you as their trusted adviser and ask about a range of topics that affect their financial well-being. In this Reimagining Your Tax Practice archived session, learn more about practitioners who offer financial planning services and how that has impacted their practices. — The Private Companies Practice Section (PCPS) is developing tools around technology designed to help firms not only identify elements of their current business model that may be holding them back but also offering solutions to help them adapt in this changing environment. Transcript April Walker: 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, Lead Manager for the Tax section, and I'm today with Brian Davis. Brian is the CEO of One Stop CPA, which is a firm that focuses on tax, tax planning, and advisory. We're going to hear more about that. Brian, let's start off with telling me a little bit about your firm and how you got started and what you think, are your distinguishing characteristics. Brian Davis: Definitely. Well, excited to be here. Thanks for having me. Definitely, so my firm is One Stop CPA. It's a traditional small firm. We do compliance. I'm a CPA. We do tax compliance, tax planning, we do accounting services. It's a team of five, including myself, some onshore, some offshore. And the thing that I think distinguishes our product in our service that we deliver to our clients is how we deliver it. We use technology and pair it with insights. We pair it with traditional advisory things that we're giving the clients, and we try to give them that feel as if they're getting in person, top-notch experience because all of the clients that we work with are all virtual. So that gives us the ability to work with a remote team. It gives us the ability to deliver the clients nationwide. I think it's a little, I think it's definitely helped me grow business, get me a little bit more work-life balance, all the above. April Walker: All positive things. So for those who are listening, I mean, I think COVID taught us a lot of things - that we don't always have to be in person, although it's lovely to be in person. I love being next to people. But we don't have to be in person with our staff, with our clients. Maybe talk a little bit about that, how you still get that really great relationship with your clients and your staff, even being remote. Brian Davis: Sure, yeah. Definitely. COVID changed a lot within my firm. I went out on my own in 2017. This was pre-COVID. I went out for a lot of the reasons that are popular now, but back then it was not as popular as it's becoming. The commute to work, having to meet in person just to get a tax return signed, mailing off things. All these different things, I saw them as, these are not the values that customers appreciate. They're looking for me to help them do so many other things, save them, strategize on how to lower their tax bill, how to help them grow their business, how to go for an exit one day. I want to sell this, we can have that on a phone call. I could actually deliver even better results to you. I just started to think, before COVID, it was a little bit tougher to sell clients on this service. It was a lot of teaching. You have to tell your client, hey, well, you have to e-sign your returns, so go to your email. And it's like, I'm not used to this. This is not how we do things with our last accountant. After COVID, of course, that exploded. A lot of clients would reach out to us and say, yeah, if you could get this done for us remotely, that'd be great. So from there, I also switched over to the subscription model around March 2020. When we made that switch because it's hey, well, we want to serve you guys, and we want to give you all the things that you now need to do remotely. So technology is a big part of that. The way you educate your clients, the way they feel. Because you're losing a little bit of the touch when they're not in person. I can't offer you a drink when you come to the office, but there's even things now where you could send a client a gift card. Here's a five dollar Starbucks gift card, so we could out grab a coffee. There's all these cool little ways where you can just make that customer feel so good, even though we're doing it all the time. April Walker: We're going to talk a little bit about while we're here together, talk about technology. So maybe talk a little bit about where you see those biggest friction points with your clients and how you think technology or how you've explored technology helping some of those friction points. Brian Davis: Definitely. I made all the mistakes when I started my firm. I would do compliance-only work. I would do tax prep only, and I would have different segments of clients that I would deal with in different ways. Well, this person likes to sign in person. This person likes to drop off a package in the mail. When you look into this technology, when we look at things as a firm, it's always well, these clients wouldn't adopt it. These clients wouldn't like it. I wouldn't be able to attract these style of clients. But when you meet a client, and you say, hey, this is our portal. This is how we do business. Take a good look at it, give them a free trial, maybe if you're seriously considering them, and then try to do a test. Did you see this message that I just sent you there? Here's a template. Did you get it? Cool. So that's how we communicate. Believe it or not, nowadays, more and more people, no matter their level of skill and technology, if you could simplify it for them, they appreciate that. Whenever I'm looking at new technology, I'm looking for, I love the new features and how I could make all this money using it and save time. But it's also, will the client feel a disconnect or will they feel like I'm throwing them into the tech dark hole? You could lose a good client because they don't feel that personal touch. Even though we're investing in different technologies and moving to greater things that help us on the back end, we also want to at the same time, if not even more important, when you're making sales, when you're delivering, you want to make them feel comfortable with your tools. If your tool is so hard for them to navigate, it's going to create that for them. April Walker: That's right. What are some exciting things that you have implemented lately around technology? Brian Davis: Definitely. Well, I'll highlight two of my favorites. They know that they're my favorites. TaxDome is my client portal that I use. Before TaxDome, I was doing the spreadsheet and notepad method of workflow management, which is not the right way. April Walker: Maybe in Excel spreadsheets. Brian Davis: Excel spreadsheets. Before that and then implementing TaxDome, it helped me map out how I want to grow the team, how I see myself. Like, which task within this job that we're doing, do I want to, one day off load to somebody, so that I could free up more time for myself to do sales, do client services, help people do like advisory one on one because that's where the value is to the client. They don't care if you're in the back turning out bookkeeping and entering in numbers on your 10 key. They want to know the results, and it's the client experience. So TaxDome is great because when I started it, I was slow to implement. I would pick a few clients, test out on myself. I'm a client, too. I would test out my firm's tax return process and say, Hey, what went smoothly? What can we tweak and make better before we go live with this with everyone? But the feedback I would get from clients is this is so great. I love how easy that was. It's on the app. I can download an app. Everybody knows how to download an app. April Walker: Most everybody, yeah. Brian Davis: Most people. If you're going to work with us, you got to be able to e-sign your return. That's one of the things TaxDome makes. I was getting the feedback that clients really like the experience, and I like the back office side of it, which there are other options out there. I just know that doing TaxDome, clients loved it. Another one is spotlight reporting. A lot of clients are used to seeing their QuickBooks reports black and white, ledger. What's more fun than watching that with the client and just going through a list of fixed assets? Here's your security department. They don't want to see that. You got to make these numbers kind of come alive for the clients have a discussion. Spotlight Reporting connects directly to your QuickBooks file, your Zero files, and you can create your own advisory dashboards. A lot of clients I have will ask, well, how I'm I on pace compared to last year? I would say, well, let me run that report on QuickBooks. Let me do the prior year comparison. Now, I have a custom bar chart, and it shows month by month, how you're doing this year, how you're doing versus last year. Another one that I made was a EBITA monitor. It looks like an EKG machine. When I'm showing doctors, hey, this is your EBITA monitor, I say, this is like a heart rate monitor. When you're having these conversations, it's better to have a nice report that you can get them to collaborate with you because there's nothing more boring than reading a report and everybody's just staring at you, and that comes across. Spotlight's another one. When I show people the reports, it's like, this is great. It really answers my questions, and now we could move forward to the future planning conversation where I could make the big bucks with advisory. April Walker: Sure. I want to talk about advisory. Let's lean into advisory. Did you start doing advisory right away, or how did you implement that and what have you seen, the changes and maybe the client satisfaction? I don't want to lead the witness. Brian Davis: Like I said, I made all the mistakes when I started our firm. I was doing advisory, but I wasn't charging for it. I was doing tax compliance. I was charging by the form. This is your form. You need some bookkeeping write-up work. But clients would reach out. Hey, we have some questions surrounding the tax, not necessarily doing the tax return. We have some year-round support questions. We want to go buy a car. What's the best way to do it. I got to come up with a way where I could not just be quick with them in five seconds, get them off the phone. No, I want to actually help you walk through this process. Clients would rely on us for those things. It's not just for the compliance. That's part of why I branded my company one stop, because I want them to feel like it's not just that we're coming to do your tax return and bill you by the form. We're adding that other piece, the advisory, to take advantage of different things. That's under the umbrella of your subscription. Now taking on clients, that's part of the package. You have to sign up for some piece of the advisory and the taxes will come along with it, but you can't do this tax prep. The advisory journey, it's been a journey for me, for sure. It's still, always working on ways to make it better. But things like TaxDome puts them at ease with the compliance part. All your stuff's there. You get audited. You have your forms and your backup. We saved it in a portal. If you want to look at some reporting, we can, support an advisory conversation with these nice cool. People like pretty colors. It's the colors and the pictures. April Walker: Hundred percent that's what I like, too. On that, with this subscription advisory and learning how to charge for that, how has that evolved? Where are you now now with that? Because I feel like that a lot of firms that I talked to just cannot figure it out- cannot figure out value pricing, cannot get away from time and billing, you know, everyone has a different answer, and there's not one right thing. Brian Davis: I mean, the subscription model, of course, it has its little pieces where you, it has to make sense for what you're offering. Just because you subscribe doesn't mean I'm going to go back and do your five years of catch up filings and year to date books. There's also those one time services. Usually when we meet a new client, there's going to be some advisory diagnostic assessment fee. That's just we try to be as upfront about the pricing that we're going to charge them going forward, so we can see do even want to take this client on for this one time service. It's been a journey to get there. As you get more revenue, you can make these decisions. April Walker: A little more picky. Brian Davis: You could be a little bit more picky, but that's been the journey. The price I advertise and go for now is probably 10X what I was thinking in the beginning. Because I was going off of what I think the customers are ready to pay. But if I explain it to them, so you can't just go straight into the pricing conversation. I heard it from the conference before one of the speakers, it's malpractice to just price without a diagnosis. That's one of the medical rules, the medical oaths. We have to diagnose what you're looking for, to put you in the right package. But I do the three tiers of package thing, but the way I do it is I show the big package, the good one. First all the cool features. Sounds great, right? Well, these are the other options, but once I've showed you this one, you're sold. I showed you all the tech that comes with it, and now I start to piece away some of the reporting. Hey, you can't get those cool pretty colors, you want to have that. April Walker: You get the simple quickbooks report. Brian Davis: How can I give you support for those big questions? If you're going through, when I got my start, I got lucky. I got a couple of clients that were in the medical profession that were doing deals where they were getting ready to sell their practices. I got a first hand experience of what a private equity investor would come in and say, Here's our due diligence questions. I said, "Well, you know, half of these are financial statements." I could pull those out. But there's some other things they're asking you that the customer wasn't even tracking. It's these cool reports bring that alive. It shows them, okay? We can support you in more than just getting your taxes and having the financials for the bank and the IRS. We have it so that you can make better decisions and if you're going to add or remove shareholders, this supports that, as well. That's part of the part of the pricing well, as far as pricing, it's all based on what we're including so you got to have your packages premade and a lot goes into that. But one thing I would do is try to not my prices and packages have one name. The name explains what [it is]. Advanced, starter and small. And there's limited seats on small. We're probably already booked. That's how you propose it to the clients. So you are either going to get one of the two. I'm not going to give them all the options. I'm going to recommend one and if they decide they want the smaller one, well, hey, we'll take them on maybe, and you could grow into the big package. But a lot of times, what I'm seeing, is sometimes I meet with good clients and go through this process, the intake proposal, the discovery assessment, and they realize, no, you don't get this advanced. You're not going to get the results you're asking me for. April Walker: What they really need. Brian Davis: Because it's not a solution that everybody explains and a lot of times when I meet clients, they don't have this. All virtual - nobody's using the same tech stack as me. It's a little bit of training and education that you're doing. So what I do like about some of these software vendors now, they're working with us accountants to help us sell in. Here's how you can grow your advisory practice and just the idea of it. Well, being that we're talking to just smaller firms, smaller firm practitioners and owners, we undervalue how agile we are. We can implement something, and that could be the start of something great. It's just, you got to do it one software tool at a time, one employee at a time, one customer. April Walker: That brings up another thought I had is, is there a magic time to add a new software or do you not limit that? Brian Davis: I mean, you got to keep an open mind so you're definitely not going to you don't want to keep moving your clients from portal to portal software to software that's a big no no because then they'll look at you like, am I an on the job training client or you know what you're doing. You know, would you move me from this one to this one? Definitely demoing the like I said, if you're doing your own taxes, test your firm out. You could do your own and say, Hey, how do I feel as a customer, or pick a couple of friends or those friend clients and say, Hey, I'm going to send you down this pipeline. How did you feel about the experience? Then I mean, we're small firms. We can implement. Like that spotlight reporting is something I implemented. Immediately, I started to see that customers were reacting well to it, so I put it in my offer in a way. Hey, well, my new customers get this. My old customers, well, I'm trying to tell them hey, this is where we're going. Maybe we'll keep you for this year, but we'll have this conversation and revisit. Hopefully your business grows and you need this. You can't you're not a one even though I have the name one stop CPA, we're not one size fits all. That's the thing you have to educate. It's a lot of proposals and presentations. That's why I like to use YouTube and Loom. They help with I don't have to do a presentation to everyone and lose my voice. I could make a nice intro. Give you the presentation that applies to yours, what I'm trying to talk to you about. Then I jump in on the back end of I mean, big companies do it. April Walker: Absolutely. I'm sure we're going to talk about it a decent amount. We're just getting started at this conference today, but AI. What's your take on it? How are you using it? How has it made your life better or your firm's life better? Brian Davis: Oh, it's made my life better, everything. I mean, we learn how to do recipes on there, everything. You could almost use it for anything outside of that. April Walker: Absolutely. Brian Davis: But AI, I mean, it's great and you have to know it's just like another tool. You have to know how it applies to your firm and how you're using it. Of course, we have to be careful with security and making sure you're not uploading personal data. What I talked about in the session is think about who the customer is. If you're on a free version of ChatGPT, you're the customer. They're using your input to build the model. But if you pay for the workspace, the app it costs a little bit more money,... /episode/index/show/taxodyssey/id/34985185

Finding your passion for tax with Tony Nitti 12/19/2024

Finding your passion for tax with Tony Nitti "The tax industry is a gift for people who want to learn and grow and be challenged. There's never going to come a day where you close volume two of the code and say, 'I figured it all out, I know what it all means now.’” Tony Nitti, Partner — EY National Tax In this final episode of 2024, Tony Nitti shares his journey within the tax industry, emphasizing the importance of finding one’s passion, investing in oneself and overcoming personal challenges. Listen as Tony shares his personal experience and practical advice for career growth and fulfillment in the tax profession. What you’ll learn from this episode: · Finding Your Passion: The importance of identifying and nurturing your specific passion within the tax industry, whether it's the law itself, client relationships, or running a firm. · Invest in Yourself: The value of investing in your knowledge and skills by learning, writing, and teaching the tax law. · Overcome Challenges: Strategies for attracting and retaining talent in the tax industry by providing intellectual challenges and growth opportunities. · Try hard things: The benefits of overcoming fears of public speaking and using writing as a tool to communicate complex concepts and share your passion. Resources , The Tax Adviser, August 2011 Note: This was the article referenced in the podcast written by Tony. In August 2012, it was the winner of The Tax Adviser’s 2011 Best Article Award. Transcript April Walker: Hello everyone, and welcome to the Tax Section Odyssey podcast where we offer thought leadership on all things tax facing the profession. Today, I'm excited to be here with Tony Nitti. Tony is a partner at EY National Tax and he's a frequent guest on the show. We were just chatting about we think this is maybe the sixth time he's been with us. We appreciate you being with us. Our topic today is not a techie topic. It is a soft topic, but I think an important one. Tony, you did a session at National Tax which was just a couple of weeks ago, on finding your passion in tax and it incorporated some technical topics. But today, we're just going to lean right into the finding your passion. I think we, as listeners, we just want to hear your story, tell us more about how you started and got where you are today at National Tax at EY, which is pretty impressive, I must say. Tell us more, Tony. Tony Nitti: It's good to be here with you, April. I will also say I admire your bravery, because like you said, we just did this National Tax a couple weeks ago, or at least a shorter version of it you just went charging full speed ahead and said, let's do a podcast before we get our hands on those evaluations. We might just be doubling down on a disastrous decision. April Walker: Never know. Tony Nitti: Nobody wants to hear, but that's not the hope. Obviously, the hope is that something here will resonate with people who are listening who maybe are just struggling to find their center and find their passion within their careers. But if it's all right with you, I always want to address what I consider the elephant in the room of the conversation like this before we get started. When we talk about this passion for tax, when we did it at National Tax, when we're doing it today, we're talking about a specific type of passion for this industry. What I mean by that is this idea that people are lured to the tax industry as I certainly was by a desire to live in and learn the law. Because we take one look at that tax law and we realize that it's something that's not solvable, and we want to spend our careers being challenged and being forced to grow and learning that law and apply it to our clients. But that's not the only passion you can have in a tax industry. This passion for law, you probably need to learn the law regardless of your passion, but I've met many people in my career who have a very different passion than me. People whose passion is client relationships, building a relationship that lasts for decades, other people whose passion would be to run a firm someday because they want to prove that accounting can be done differently. Those are extremely valid passions and we don't mean to discount them, but we're focusing today on a passion for the law. Learning and applying the law, and we're doing it for two reasons, I think. Number 1, at the AICPA, we're keenly aware of the challenges we have attracting and retaining talent. And specific to retaining talent, we just see all these good people at all levels of experience, leave the industry and as they're on their way out the door, they say, You know what, I got into this industry because I wanted to work in the law. I wanted to solve complicated problems for sophisticated clients and be forced to think on my feet. Instead, for the first four years of my career, all I've done is prepare the same 30 tax returns every year. I haven't seen anything new in 18 months, I'm bored out of my mind, I'm going to go try something completely different. That should never happen. It should never happen in this industry because the tax industry, it is a gift for people who want to learn and grow and be challenged. I think we've all been around long enough to know that there's never going to come a day where you close volume two of the code and say, I figured it all out, I know what it all means now. That day is not coming and so we should never lose people because they're bored, because they're not being challenged. But we do, I assume for two reasons. One is the reason we want to tell ourselves when things aren't going well. It's not to say it's not appropriate sometimes. But this is the reason we want it to be and we want it to be because we're not getting a fair shake. We're getting a raw deal. We work for the wrong firm or the wrong people, and we're not getting the type of work that we enjoy. That may be possible. If you're in a situation like that, the beautiful thing about the industry today is there's more change available to you than ever before. We're not tied into geographic regions. There are purely remote firms. You can change your situation in a heartbeat. But there's also a second possibility. That's a possibility that people don't want to embrace as much. But there's a possibility that we're not in a terrible situation, we just haven't let it be known to the people we work for, the people we work with, what we're passionate about. We haven't shown what's meaningful to us and proven to people that this is the type of work that I want to do. That leads to the second reason we're focusing on this specific type of passion for the law. That reason, April is I'm not Tony Robbins, I'm not a paid motivational speaker. The only thing I have to offer your listeners is my experience, and my passion for this industry, there's no two ways about it is rooted in the law. I'm not someone who has a passion necessarily for forging client relationships that last 40 years. I'm not someone who ever thought I would run my own firm. My passion is constant intellectual stimulation, growth, learning that law. The only thing I have to offer people until I become a paid motivational speaker someday and go through the five step training program is my life experience, what I've learned in this career. That's why I just want to address that because I feel bad. I can't tell someone with other types of passions how to reconnect with their passion in tax, because I only know my experience at this point. But the hope would be that my experience can help some people because I am a good example of someone who got into this industry for a specific reason, like I said, this desire to learn and build expertise in the law. And then quickly went down the wrong path that so many of us do, and I arrived at a crossroads where I was ready to leave this industry four or five years in because I wasn't growing. I wasn't the person I wanted to be. I wasn't doing the type of work that lured me to this industry and I had to make a conscious decision at that point to say, if I'm going to stick it out in this industry, I am going to make what I'm passionate about the centerpiece of my career and hope that it pays off. That was, again, a proactive conscious decision, and it paid off in ways that I would have never seen coming because what I found is the more I showed people what I was passionate about, the more I made my passion the centerpiece of my career, the more the industry rewarded me with more of the type of work I was passionate about. We can talk about that process. But that decision being something that I decided to do proactively, I also ended up learning lessons later in my career that were taught to me that I didn't decide to do. That I learned the hard way, that had made all the difference as far as understanding, that in life, in our careers, it's probably best to leave no stone unturned. To try different things, to find out what you're capable of, what you might be passionate about, and just say yes to new opportunities. It's been a mix of making a proactive decision to invest in myself and we can talk about that. And then being taught through just the harsh reality of life that you're probably best served to say yes to as many opportunities as you can to just constantly move the goal posts on what you love and what you need out of your career to be happy. With that long rambling introduction.... April Walker: I think it's good. You don't have to convince me because I think some of the themes in your story will apply to a lot of people, even if, like you said, their passion is not necessarily your direction or whatever. Let's get into it. Tony Nitti: That would be the hope. Like I said, it's always uncomfortable because I only have my own experience to talk about, you end up talking about your own experience the whole time and you just sit there and go, why does anybody want to listen to my path? But listen, I didn't grow up dreaming of being a CPA, and I don't know that many people do. I didn't really have many dreams growing up as far as a career. The one thing I thought I would want to be was a writer. Because I love to read as a kid and I wanted to be a sports writer, but it's never something I took seriously. Because I decided at a very young age that I did not have anywhere near the talent necessary to be a writer, and so it's just something I never even pursued. But I went to college undecided as far as a major goes. The only reason I ended up an accounting major is because I told one of my college soccer teammates I was going to go to law school. And he said if you want to get into a good law school, be an accounting major. I'd never even considered accounting, and I don't even know if there's any truth to what he said. But I didn't want to go to law school because I wanted to be a lawyer. I wanted to go law school because I had no idea what I wanted to be. And I just thought I'd put off that decision as long as I could. I end up this accounting major by accident. But after I get through the cost accounting class and the microeconomics class and those types of things, I eventually land in my first tax class. I'm guessing that other people had a similar experience where I get introduced to the tax law and I say, now this might work for me. Because even though I didn't know specifically what I wanted my career to be, I knew that I wanted a career that provided an opportunity for constant challenge, constant growth. I wanted that feeling of going to bed every night a little bit smarter than when I woke up in the morning. To me, the idea of a death sentence was any career where after three months or three years or even 30 years, you've seen everything there is to see and you're just going through the motions. There's nothing wrong with a career like that, it just wasn't going to work for me. The first thing you see when you get introduced to the tax law, this stuff is hard. Hard is good, hard is what I want. We know that in common culture, the tax law is held up as this point of reference for something that's incomprehensible. Einstein once famously said that the hardest thing for him to figure out was the income tax. Sitting there as a 21-year-old kid, you're like, All right, if this was a challenge for Einstein, it's certainly going to kick my butt for the entirety of my career, and that's what I'm looking for. That's how I ended up choosing a career in tax and taking a job with Arthur Andersen. As I said before, this industry should certainly provide all the opportunities someone like me craves, that wants to grow and learn. You could even argue that if you are making your career in the tax industry, it's almost hard to not be passionate about your career if you're passionate about learning and growth. But that doesn't mean it's impossible. I am living proof of that April because pretty much as soon as I started my career, I fell into a very familiar trap. You take a guy who was lured to this industry by this desire to learn the law, and then you put him as a new hire at what was at that time, the largest firm in the world, Arthur Andersen. And pairing up with 25 other new hires. What happens. You get in that competitive environment and you say, forget that learning the law stuff. I have one singular focus and it is to move up the ranks as quickly as possible. To climb the ladder as fast as I can, because I will be damned if I am to let Sally make it to senior before me or Johnny make it to manager before me. That became the focus. That became the priority. How do I get promoted? That is largely based sometimes on just playing the game. Shaking hands with the right clients and being close with the right partners. And just making sure everyone knows what you want, when you want to get promoted, being the squeaky wheel. When you get promoted as senior, pushing your staff as hard as you can to meet deadlines. That's what I valued. That's what was important to me was moving up those ranks, and the thing is it worked. Now four and a half years into my career, I get promoted to manager at what is now PWC, not Arthur Andersen anymore because in the interim there, Andersen collapsed on itself like a dying star after the Enron scandal. Now I'm at PWC, and they promote me to tax manager, and it's supposed to be this cause for celebration. Because they say, you make manager in public accounting. It opens doors that aren't open at any previous level. You want to go make an extra 20, 30 grand and work at another accounting firm, you can do it. You want to go work in a tax department of private company and make some more money while working fewer hours, you can do that, too. Everybody's patting me on the back and they're telling me, this is an impactful day for you. It's a big day in your career. You can go anywhere and do anything now. The thing is, it wasn't just the biggest day to that point in my career. Looking back at it now a full 20 years later, the day I made manager at PWC was and is the single biggest day of my entire career. Now that I could leave you now on a cliffhanger like Dukes of Hazard. Remember, like, they would be launching off some jump, and they go to commercial and you don't know are they going to be okay? This was the biggest day in my career, April, and you probably wondering why? What was so big about? April Walker: Yeah, I'm wondering. Tony Nitti: I went home that night, and all, like, the pats on the back had ended. I'm sitting there, and it hit me like a brick wall. It was this realization that I was a fraud. I know that may sound harsh. I know there are people who are listening that may think you're just being unduly hard on yourself, but I also know there's people listening who are going to say, “I know exactly the feeling he's talking about.” What I mean when I say I was a fraud, April, is it dawned on me that I had just been promoted to tax manager at the second biggest tax firm in the world, and I didn't know a damn thing about the tax law. I didn't. April Walker: I'm sure you knew some stuff. Tony Nitti: Well, that's what everyone says, because they say, “How could you get promoted to manager if you didn't know.” I never have read a court case at that point in my life. I didn't know how the code was strung together. You know what I was good at? Do you know why I got promoted? Because I was good at following processes. April Walker: And competitive, a little bit competitive. Tony Nitti: But I could take the last year's work papers for the return I was doing and turn them into the current year's workpapers. I knew how to do that, but when I was doing that current year return. When I was adding back 50% of M&E, I wasn't doing it because 274(n) told me to. I was doing it because they did it last year. When I was asking the client, how much of your accrued liability was paid within eight and a half months? I had no idea it's because I was trying to apply the recurring item exception of 1.461-5. I was doing it because that's what they had done last year. April Walker: SALY, man. Tony Nitti: SALY. And I know people have shared this experience, but what hit me was that I had been so focused on those processes to get promoted that I had never actually bothered to learn much of anything about the law in which I lived every day. What was terrifying was the realization that I couldn't go anywhere and do anything. It was the exact opposite, April. I was a prisoner at PWC because they knew my limitations. They knew what I could do and couldn't do, and they were content to respond to my constant complaints about promotion by promoting me. But if I wanted to go somewhere else or think about what I had already learned four years into my career. I had learned the lesson that the largest firm in the world can disappear overnight. What if that happened again? And I had to go somewhere else. Could my resume get my foot in the door? Yeah, of course, I could. Would my undeniable charm possibly land me that job? I'd like to think it would, April, but then what after that? Because how long would it take my new employer to realize, Oh, we just hired a tax manager who can't think critically, can't research and solve problems in the code, can't provide planning advice for clients. You know what he can do? He can take last year's workpapers and turn them into this year's workpapers, and that's about the extent of it. I realized when I say I was a fraud, I realized that I had fallen into a trap of pushing so hard for promotion that I had gotten promoted to a level that I was not capable of delivering on. I hated that feeling. The reason it was the most important day of my entire career is because two things changed that day. Number 1, I said, no more am I going to measure my success in this industry by my pace of promotion or my pay rate. I'm done with that. Look what it's gotten me. I've gotten everything I've asked for and it's now made me miserable and terrified. From now on, I am going to reprioritize what attracted me to this industry, which was the law, the substance. I'm going to make that the centerpiece of my career. Whatever happens good or bad, I'm going to live with the results. But if I'm going to call myself a tax person, then I'm going to be the best version of a tax person that I can imagine being. To me that meant building technical expertise. The second thing that happened, and this is a part people aren't going to want to hear quite as much about. I realized that it was nobody's fault but my own. Of course, I wanted to blame PwC, but for what? They gave me everything I asked for. I showed them what I cared about. What I cared about was getting promoted. They promoted. It was not their job to feed me... /episode/index/show/taxodyssey/id/34532475

Tax talk 2025 — Policies, provisions and perspectives 12/13/2024

Tax talk 2025 — Policies, provisions and perspectives Note: This podcast episode was recorded Nov. 20, 2024, and since then, the U.S. House of Representatives races have been called, giving the Republicans 220 congressional members and the Democrats 215. This balance could change depending on potential special elections if some members of the House are appointed to positions within President-Elect Trump’s administration. In this episode of the AICPA's Tax Section Odyssey podcast, Kasey Pittman, CPA, MST, Director of Tax Policy — Baker Tilly US LLP, discusses potential upcoming tax legislation for 2025, focusing on the complexities and challenges of extending the Tax Cuts and Jobs Act (TCJA) and other tax provisions. What you’ll learn from this episode: The potential complexities and challenges of extending provisions of the TCJA and other tax legislation. The implications of a unified government and the reconciliation process for passing tax legislation. The financial constraints posed by the national debt and the importance of managing the deficit. The influence of individual policymakers and the importance of state and local tax (SALT) deductions. Potential revenue raisers like tariffs and ending the employee retention credit early, and their impact on the overall tax legislation. AICPA resources — CPAs need to not only brace for tax law changes such as the TCJA and expiring provisions but also be proactive in planning for them. — Advocacy is a core element of our purpose and value proposition. It is a strong mechanism for promoting trust and confidence in the CPA and CGMA credentials around the world. Transcript April Walker: Hello, everyone, and welcome back 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 Kasey Pittman. Kasey is the director of Tax Policy with Baker Tilly's National Tax Office. Welcome, Kasey. Kasey Pittman: Thank you for having me. April Walker: I thought we'd spend a few minutes today setting expectations for tax legislation for 2025. First, a little bit of a spoiler, tax legislation is likely, right, but what it will actually entail is probably a lot more complicated than just a straight status quo extension of TCJA. Kasey, let's set the stage a little bit and talk about what we know about the makeup of the government and what that will mean for upcoming legislation. Kasey Pittman: I think going into the election, the vast majority of people assumed we were going to wind up in some divided government. We knew it was very likely that Republicans would capture the Senate. The math there was not very good for Democrats, just in terms of how many seats were up, and one of the Democratic-turned-independent retiring senators from a deep red state was almost a certainty to flip. I think the general thinking was that either Democrats would capture the White House or the House, and neither of those things came to fruition. We are sitting here in the 2024 election was a Republican sweep. We've done a lot of worrying about things that we can let go of, and I think probably we'll touch on that a little bit later in the podcast. But the margins aren't very big. Trump captured the White House actually by a good margin in terms of both electoral votes and total votes in the country. It looks like Senate Republicans will have the majority with a 53-47 split between Republicans and Democrats. The house is currently unknown. We know that the House has captured 218, and that's what you need for the majority. There's 435 seats. 218 is literally a one seat majority. There are five races outstanding, and probably threeish, maybe four of those are likely to go Republican. We're just waiting on final vote counts. In the House, we're looking at a few vote margin, in the Senate, we're looking at a few vote margin, and that can make legislating really difficult. One of the themes we touch on here as we go through is reconciliation. When you have a unified government, and a unified government is one where one party has both chambers in Congress, and the White House, which is what we're going into in 2025, there's this process that you can use for certain types of legislation, fiscal legislation called reconciliation. What reconciliation does is it allows you to overcome the filibuster in the Senate. You actually only need a simple majority, like 51 votes in the Senate to pass a bill, but anybody can hold up a bill with a filibuster, and you need 60 votes to end debate and force the vote on the floor. But this type of legislation doesn't require that, so we can move forward with a simple majority. However, there are a lot of limitations to the reconciliation process. Everything in a reconciliation bill has to be financial. It needs to deal with spending or revenues and it can't be incidentally related to those. That has to be its primary purpose. Tax provisions are perfect for this. It cannot increase the deficit outside of the budget window. The budget window is typically 10 years. Then inside that budget window, you can only increase or decrease the deficit by the amount in the reconciliation instructions. Reconciliation instructions are set again, by a simple majority on a budget resolution in the House and in the Senate. That number can be hard to define. We also can't touch Social Security, by the way, which is why you never see Social Security in a reconciliation bill. However, that number is really difficult to come to an agreement on sometimes, and I predict that we're going to face some issues just in getting to that budget reconciliation number before we even start to put together the bill. April Walker: That's a great summary, and we used reconciliation before to actually pass TCJA and some other legislation in the past few years, but it's still not how I grew up learning how law was passed. It's a little bit interesting and that's a great summary. Kasey, I led with saying, we don't think it's going to be a straight extension of TCJA and some of the other proposals that have been thrown out throughout campaigns. Talk through a little bit about specific provisions, what they're scoring out at, why they may or may not be included in this legislation. Again, I don't think we have to say this. This is all just speculation on our part. We will have to see what we will see once it turns to 2025. Kasey Pittman: Some of it is really speculative. We're guessing, they are educated guesses based on history and based on what influential policymakers are telling us. For many months, Republicans have really optimistically been planning for reconciliation, hoping to capture both chambers, hoping that Trump would be in the White House. They've been planning. Honestly, there's been a ton of organization inside the House Ways and Means Committee around it. What I said just a minute ago was that I think we're going to have trouble getting to that number, and here's why. If we want a blanket 10-year extension of the Tax Cuts and Jobs Act, all these taxpayer-favorable provisions, they're mostly taxpayer-favorable and we'll get into that in a second too. It's going to cost $4.6 trillion. Just for benchmarking for everybody, our national debt, which is the sum accumulation of all the deficits we've ever run right now is $35 trillion. That's really impactful because each year, honestly, I believe since Clinton, we've run at a deficit and some of the Clinton years too. But each year, since I was in middle school, we've run at a deficit, which means we're spending more money than we're bringing in, and part of the reason we're spending more money than we're bringing in is because we have to pay interest on all this debt. It's really come to a head over the last couple of years for two reasons. One, our debt skyrocketed. Recently, TCJA added to it. COVID certainly didn't help it at all. Then additionally, because we've had such high inflation, the Fed has increased interest rates and that's the rate that we pay to service the debt. In FY 24, which ended at the end of September. This year, we paid over a trillion dollars just to service our debt, not paying down our debt, just paying the interest on our debt. That's more than we spent on defense spending for the entire year. It becomes a liability if our debt is too large. Particularly, we like to compare it to our GDP. This year we ran a $1.8 trillion deficit. Over a trillion of that we could say is attributable to interest costs. Anyway, here we are. We've got $4.6 trillion to extend the TCJA. Then we've got a whole host of other campaign proposals that Trump made on the trail. No SALT, and we'll get to SALT in a second. No SALT, no tax on tips, no tax on overtime, no tax on Social Security benefits. There's family caregivers credit for home caregivers. There's just a number of things, and some of them are hard to score because there's not a lot of details around the policy yet. They're more on the idea than the actual detailed policy phase at this point but those are a lot and estimates are 8-10 trillion with the Tax Cuts and Jobs Act plus all of the other campaign promises, and that is just wild as compared to our current national debt and the fiscal responsibility that I think a lot of policymakers and Americans really are focused on. Do I think that Senate Republicans and House Republicans are going to come together and say, let's write a $10 trillion bill that's not paid for at all, that increases the deficit? No, I don't. We still have deficit hawks in the Republican Party, we have people who are really concerned about it and for good reason. That's going to be a struggle. I want to say SALT is really important here. Republicans are fairly united in the general extension of Tax Cuts and Jobs Act. There's a lot of campaigning this cycle on it. It's been a priority where we're fairly unified. However, that's not where it ends. We're looking again at these small margins in the House and the small margins in the Senate. When we have that, we have individual policymakers who have a lot of influence. We saw that in 2021- 2022, when Democrats had a big bill and they said, Hey, this is our wish list, and Joe Manchin and Kristen Sinema, who are Democrats, turned independents in the Senate, said, Oh gosh, no, thank you, that's way too big. Here's what we can do. We'll do the Inflation Reduction Act, which was a fraction and a little bit of a different direction on some than the original Democratic priorities. That's what we passed, because again, these two policymakers were able to exert a ton of influence. Then we saw it in 2023, when I think it was a total of eight house members ousted their speaker, which was the historic moment for Republicans in the House, what we see is a lot of power when we have those small vote margins. In the House, there's a really strong caucus for repeal of the state and local income tax, a limitation of $10,000. It's bipartisan. But there are a number of Republicans on there, particularly from high tax states, from traditionally blue states, New York, California, Connecticut, New Jersey. There's dozens of them, really, and they've won re election to the House and they've campaigned on this, and this is going to be a priority for them. I think it's really impractical to think we're going to see a tax bill that doesn't have SALT attached to it because this is a pretty strong caucus. Again, the margins are small, and to fully repeal SALT for 10 years is another $1.2 trillion. Now I'm at $6 trillion April, and that's before the overtime and before the Social Security, which is already system in peril in terms of being able to fund it. It's not quite that simple, and we do have deficit hawks. When we saw Tax Cuts and Jobs Act originally come through in 2017, we used the reconciliation process, Republicans did, and then Democrats used it in 2022 to pass the Inflation Reduction Act. There were many Republicans who wanted much more than TCJA cost. TCJA eventually they came to an agreement, and they said, We can do $1.5 trillion. 1.5 trillion is what we can sign on for. We can get everybody on board for that. That's what the budget instruction said. You can write a bill that increases the deficit by 1.5 trillion dollar over 10 years and so they did that. But it's not quite that simple. People say, $1.5 trillion, it wasn't 1.5 trillion dollar in tax cuts. It was $5.5 trillion in tax cuts with four trillion dollar in revenue raisers, some of them were pretty simple. I replaced these itemized deductions with the standard deductions, they kinda offset, but there were some provisions in there that were just revenue raisers and one of them is 163(j), the business interest limitation. Then additionally, we couldn't see them all through the entire budget window and still hit that mark. When I originally described it literally in 2017, 2018, when I was talking about it, I would say. Hey, look, we've got all these dials, and at the top, we've got this big number, and this is what we've added up to. We want to turn this dial up, but that costs too much money, and that puts us over, so maybe we dial it down on the number of years or maybe we add this revenue raiser. We're trying to back into this $1.5 trillion number, and that's part of the reason we saw some of these changes that transitioned under TCJA. We're seeing right now the bonus depreciation number come down. We've seen a change in how we calculate ATI for that business interest limitation, and we've changed how we deduct research and experimental expenditures. Honestly, they just couldn't make it all the way through that budget window at that number. Just a quick note on those things that have already changed, we saw a bipartisan bill sail through the House, sail through 83% vote margin, 357-70, I want to say on January 31 this year, and it died in the Senate. Senate Finance Committee Leader Ranking member, Mike Crapo, said, No, thank you. [He was] really confident that he was going to have a majority in the Senate in 2025 and he does, and he now also is able to have a Republican House to work with. One of the questions I get a lot is, do I think that we're going to see that bill be taken up in the lame duck session? My answer is no, I do not. I don't see what the incentive is for Republicans to make the concessions in there with Democrats around the refundability of child tax credit because they've got different methodologies on that. I don't see an incentive for them when they know they're going to run the table next year. April Walker: One thing I know you and I have talked about before, there's in evaluating “pay fors” and revenue raisers, there's the ERC provisions that are in that legislation that you're talking about in the past. I guess that's still potentially on the table ending ERC in January, that's potentially out there. What about tariffs? Tariffs have been suggested as a revenue raiser. How does that work with reconciliation? Kasey Pittman: There are a couple of revenue raisers that have been widely talked about, and I think there's a lot of bipartisan agreement around ending the employee retention credit early, and that's scored, if they use it from the old bill, that's scored around $77 billion. But you have to think that's drop in the bucket when we're talking about $6 trillion, $8 trillion, $10 trillion dollars. But it helps - every bit helps, obviously right? And then there's another one that's clawing back a lot of the IRA provisions, some of those clean energy provisions and semi recently, I think last weekend, President Elect Trump said,"Hey, I'm going to take away this $7,500 EV credit. We're not doing that anymore once I'm president." That's one item, but there are a lot of energy provisions outside of just that. That's the one that I think most individuals know about, but there are a lot of energy provisions outside of that. How they dismantle that is going to be really interesting to me, because there are some proponents who just say kill it all. This is not where our priorities are. There are others and there was a letter, I want to say to Speaker Johnson in the summer, that came from a number of House Republicans, a dozen or so that said, Hey, these are really beneficial in my district. I really hope that we and the language we've heard a lot of here is take a scalpel and not a sledgehammer. That's the talking point, scalpel and not a sledgehammer, to clawing back some of these provisions. I do expect some exploration of clawing back those provisions, and then tariffs. President Trump has talked a lot about tariffs and we've heard a number of things between 10 and 20% across the board tariff rate for anything coming into the country, about 60% on China. I believe we've heard 100% on cars coming from Mexico. What we don't know is and I've gotten a ton of questions on this, honestly. What we don't know is how serious he is about those. Is it an idea? Is it something that he intends to use as a bargaining chip in trade negotiations? Is it something that's going to be applied potentially in a more specific niche, these particular areas? That's what we saw in his first presidency was that it was particular items coming in. We saw it on aluminum, we saw it on steel. Or is it going to really be, does he intend to do it across the board? The thing is that presidents do not have completely unfettered power here, but they have the ability to enact certain tariffs without the consent of Congress. That being said, unless they find a way to write that into the reconciliation bill, they can't use the money they believe they'll generate from the tariffs as an offset to try to get back into that number. Because again, TCJA, $5.5 trillion in cuts, $4 trillion in revenue, if we want to include that in revenue, it's going to have to be present in the bill in some fashion. What I have been reading and researching a little bit, does it have to be explicit or does it have prescriptive or does it have to authorize him to move in that area? I'm still doing a little research there. But anyway, it would have to be in the bill in order to be included in the revenue scoring. April Walker: Lots of items to think about as we're rapidly going towards the end of the year and our listeners are [a lot of] tax partitioners talking to clients. I think another top question I'm sure you've been getting is, what are we thinking about timing? When is this going to happen? When is legislation going to happen? Because we really think it's going to happen, they're not going to let TCJA expire at the end at 12/31/25. But what are we thinking? Kasey Pittman: Speaker Johnson has been very bullish on this and saying he would like a bill coming out of the house, not necessarily enacted, but out of the house in the first 100 days of Trump's presidency. Just if we're going from inauguration day of January 20th, that date would be April 30th. That is a really ambitious goal. There's a number, it's ambitious in ideal scenarios. There's a ton of other priorities as well, including government funding, which as of this moment, is not done, and we don't know if it'll be a continuing resolution or if they'll fund the government through the end of the year. But there are a lot of priorities for this Congress, and one of them is the confirmation of all of President Trump's picks for various administration positions, which is going to complicate this. Because right now, the House Republicans have the generally accepted number is 218 seats. There are five seats outstanding. They could wind up with a total of 223. That's probably more like 221, 222, maybe 220, but probably 221, 222 (See note above for the final results). There are... /episode/index/show/taxodyssey/id/34423730

2025 tax preview: Perspective from an AICPA tax policy advocate 11/26/2024

2025 tax preview: Perspective from an AICPA tax policy advocate In this joint episode with the JofA podcast, host Neil Amato discusses with Melanie Lauridsen, Vice President of Tax Policy & Advocacy for the AICPA, what tax practitioners can expect regarding tax legislation. The conversation covers key tax topics following the 2024 election, including the future of the Tax Cuts and Jobs Act (TCJA), beneficial ownership information (BOI) reporting, and disaster relief efforts. Melanie provides insights into the challenges and opportunities facing tax professionals in 2025, emphasizing the importance of staying informed. What you’ll learn from this episode: The latest updates on disaster relief for BOI reporting. Melanie’s insights about the potential future of the TCJA provisions. How IRS funding might be impacted by the new administration AICPA resources – CPAs need to not only brace for tax law changes such as the Tax Cuts and Jobs Act (TCJA) and expiring provisions but also be proactive in planning for them. – Advocacy is a core element of our purpose and value proposition. It is a strong mechanism for promoting trust and confidence in the CPA and CGMA credentials around the world. Transcript April Walker: Welcome back 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 today we have a joint episode with the JOA, providing information on several important tax topics, such as BOI, disaster relief, and also upcoming potential tax legislation. Let's hear more. Neil Amato: Welcome to the Journal of Accountancy podcast. This is Neil Amato with the JofA. This episode is a special collaboration between the JofA and the Tax Section Odyssey podcast. It's Nov. 19 as we're recording, two weeks since the 2024 election. With the election over, we have results. We also have questions about the future of several tax topics. Here to provide some analysis and clarity on those topics is Melanie Lauridsen, vice president–Tax Policy & Advocacy for the AICPA. Melanie, welcome back to the podcast. Melanie Lauridsen: Thank you for having me back, Neil. Amato: We talk pretty regularly, pretty much a quarterly basis. It's safe to say that even if we keep this discussion fairly narrow in scope, there is plenty to discuss, so we'll get right to it. I'm going to tease for the listeners that there will be discussion of the future of the Tax Cuts and Jobs Act. But first, I'd like to ask about BOI reporting, beneficial ownership information reporting, as that's been in the news lately as well. What's the latest from your lens, the advocacy lens, on the topic of FinCEN's disaster relief for BOI? Lauridsen: Good topic, Neil. Disaster relief is something, regardless of what it is, whether it's tax or BOI, it is critical that people are able to get it as quickly as possible in the largest scope possible. With BOI, we are grateful that FinCEN did offer disaster relief for victims of various hurricanes, most notably Hurricane Milton and Hurricane Helene, which created quite a bit of damage to the areas they hit. But, unfortunately, the scope of the relief, particularly for those victims of Hurricane Helene, is not as broad and as encompassing as we would have liked it to have been. They did offer a filing relief for those victims. However, they didn't extend it to entities that had been created prior to 2024 and therefore had a Jan. 1, 2025, deadline. We know that [for] some of the entities, it took everything away. It destroyed everything, and those entities have years to rebuild, and they really could use an extension. With that in mind, we are actually working with various state CPA societies, and we are also working with FinCEN in order to broaden the scope that was issued, in particular for victims of Hurricane Helene. Of course, we are working with people on the Hill because there are a lot of questions around the Corporate Transparency Act and BOI reporting to begin with, much more so also with disaster relief that they would like to see some expansion of the scope, too. Amato: Yeah, and on that topic of the reports that are in versus the reports that are expected, it's still a pretty small number. I know people like to do things at the last minute, but it's something like 6.5 million of 32 million, so still a long way to go. Lauridsen: There is an awareness issue there, and FinCEN is highly aware that there is an awareness issue because, like you said, 6.5 million filings of 32.6 [million], there's a little bit of a disconnect, especially when we're in November. So we're talking there's a month and a half to file to meet those other — what is it? — 20-plus million filings that we have to go in 1½ months? I don't think they're going to be able to meet those numbers, so, yes. But a couple of things to note about that 6.5 million. Of those 6.5 million, the majority of those filings are for entities that were created in 2024 and had that 90-day deadline, and also for the 30-day corrected and updates that are needed, and that's the 30-day deadline needed. A lot of the existing entities, those that were created prior to 2024, still need to file. Now, FinCEN realizes that their numbers are not where they want them to be, and they are now focusing on awareness and not so much on enforcement. But they are, like I said, making pushes for awareness, and they were even on our AICPA Town Hall, so you can look at the archive there because we did host for that. But also, the other day, I was watching national television, and I saw one of their commercials. I just about fell out of my seat. I didn't think the messaging was as clear as it could have been, but they are trying to make efforts there. Amato: Was this the coffee shop ad that you saw? Lauridsen: Yes, it is. Amato: We wrote about that earlier this year, that . But still, I guess, a ways to go on that topic. Let's look ahead to one item that was popular at the tax conference. It's popular in the news headlines, and I know it's something you're paying attention to: the Tax Cuts and Jobs Act. It's a very open-ended question, but I'll ask it anyway: What's the future of the Tax Cuts and Jobs Act? Lauridsen: Well, Neil, we would all love to know exactly what the future is. But, the Tax Cuts and Jobs Act, it's interesting because a lot of people said prior to the election, we always knew that tax was going to be on the agenda. People were saying that, it all depended on if it was Democrat or Republican that ended up taking the presidency. Ultimately, the same topics are at stake. TCJA was always something that was going to be debated and discussed, regardless of who ended up being in office and who will be in office. The difference is we definitely know that President-elect Trump would like to see TCJA provisions become permanent. Now, the reality is all those provisions cost money, and there are real dollars associated with it. Even though we are going to be seeing in 2025 the trifecta effect, where the Republicans have swept across the board, it doesn't mean that everybody is in line with the same provisions, and therefore it doesn't mean we know exactly what will be coming. A lot of what is to come becomes an argument of how much things cost and how much things don't cost and what can be included and what can be agreed on. The debate is still very much alive as to what will happen with TCJA. I think, this is my pure speculation, I think we're going to see a hybrid of all the things that are there and not necessarily everything becoming permanent. But who's to say? Things could absolutely change. Amato: Do you want to talk about any of the particulars within that, for example, the SALT cap, estate tax policies, the future of the corporate tax rate? Lauridsen: All of those pieces are very interesting. The SALT cap, let's start with that one. The SALT cap, we have heard that they would like to eliminate the SALT cap. On a personal level, sure. I would love to see that go away. I know quite a few people feel that way about it. But the reality is that it costs money. Right now, the SALT cap at the $10,000 cap is a revenue raiser, and it helps pay for other aspects of it. If they were to eliminate it, that will cost a lot more money than what is anticipated. If we were to see a change, again, this is pure speculation on my part, obviously, we have to wait and see how things play out and what indicators we see. Right now, we haven't seen any specific indicators, but I wouldn't be surprised if the SALT cap ends up being raised slightly, not completely eliminated because, again, it costs money to eliminate it. Amato: OK, state tax policies next. Lauridsen: You said estate? Amato: Estate. Sorry, estate, not state, as opposed to state and local tax. Now, estate tax. Lauridsen: With estate tax policy, there's definitely a desire and a will to see the cap also eliminated because with TCJA, after TCJA, it will cut in half of what we're seeing. Who knows what we'll see in that play. Again, it costs money to be able to have no limit for estate tax planning purposes. I do think like the SALT cap we're going to see something come out in the middle. Maybe it'll maintain, maybe it might increase, but completely unlimited — I don't see that happening, either. Amato: Then finally, the corporate tax rate as it relates to the TCJA. Lauridsen: The corporate tax rate, that is definitely something that has been discussed. We have heard during the campaigns from President-elect Trump that he would like to lower the corporate tax rates, but please keep in mind that the current corporate tax rates in TCJA, again, they cost money. What is paying for those corporate tax rates are those small business provisions that we would like to see come back. For example, Sec. 174, the R&E expenditures. We would like to see that 100% bonus depreciation. We would like to see that come back, but those are some of those provisions that pay for that lower corporate tax rate. Of course, there's the [Sec.] 163(j) interest expense deduction and Sec. 199A, the qualified business income. Again, all those pieces come into play into that corporate tax rate because, technically, those are the pay-fors for that corporate tax rate, so it's a handoff. Amato: Good description of the pay-for aspect of it. Anytime there's a change in administration, I guess the IRS funding topic comes up. The IRS has said many times that the funding it received under the Inflation Reduction Act was helping it provide better service. Now, I guess that funding is going to be up for debate. What do you see as the future there? Lauridsen: Well, that is definitely something. The funding for the IRS, specifically, the Inflation Reduction Act, the IRA as we call it, is something that we are definitely going to keeping an eye on because, if you take a look at the Inflation Reduction Act, the majority of the money, $80 billion — that was allocated towards enforcement. Now there was a piece that was allocated to IRS services, and it is that piece, that portion where we've seen the increased answering of the telephone, the hiring of people at the IRS to be able to provide services with that. Now, we know that that particular funding for IRS services from the Inflation Reduction Act is set to run out by 2026. If the money runs out, what do you think will happen? We'll see decreased IRS services. The way we're looking at it is we do know there is interest in clawing back the Inflation Reduction Act funding and, specifically, for the enforcement piece of it. Our position is, well, let's not take it away from the IRS. Let's rebalance it and shift it over to services. One thing to note, though, is enforcement is a critical function of the IRS. Not everything under enforcement is audits, liens, and levies — all these things that people don't want to see happening. There are pieces of enforcement like Chief Counsel's Office that is covered under enforcement, and Chief Counsel are the ones who provide the regulations and those guides, the guidelines to people in order to be compliant with their taxes. It is a critical function of the IRS. Now, do they need as much as they got? I would venture to say and would like to see some of that money going from enforcement to IRS services and not necessarily clawed back. Amato: That's great. Now, I said we're two weeks since the election. We're also about one week since the AICPA & CIMA National Tax Conference. I know you were there. I know you were busy yourself, but maybe, as you interact with members, as you interact with people in Washington, if you could then look ahead to 2025, what do you see as challenges that are tax-related and also opportunities for the new year? Lauridsen: Some of the challenges that our people have, and we've actually done some informal surveys, too, and the results are the same and we're seeing this trend. There's a lot of growing concern with new legislation coming and, in particular, retroactive legislation or midyear legislation, which makes it particularly hard for members to be able to keep up with it. Retroactivity doesn't help because then you have to amend returns if you already started down that process. Of course, with both last-minute legislation and retroactive legislation, you have to keep on top of the tax changes. Now, you should do that on every given year, but when they do it retroactively or midyear, it makes it particularly hard when you're in the middle of filing season. That is one of the biggest challenges that our members are concerned about. Also, with new legislation, that means we are waiting on guidance from the IRS. The IRS [process] can be very time-consuming in looking at the rules to able to provide guidance. Again, people just want to be compliant. People aren't trying to get out of it. They just want to be compliant, and they need some guidance. That's another concern that we see there. Of course, other challenges that we're seeing associated with Sec. 199A — we would love to see the extension of that to continue, but ideally, we would also like to see the expansion of Sec. 199A. Again, that costs money, and where is that money going to come by in order to be able to achieve something along those lines within it. But, there are opportunities, Neil. Some of those opportunities there's mobile workforce, opportunities there's an appetite for that hopefully that we can see move forward, and that would be something that would make a lot of people's lives a lot easier. That essentially is saying to put a safe harbor that if you work less than 30 days in a state, then you don't file at that state level. It would have to be over 30 days to be able to move forward with that. The expanded use of 529 accounts to be able to pay for studying to sit for the CPA Exam or to be able to get your financial planning certification associated with that. There are pieces of opportunities. Another piece of opportunity that we would like to see — maybe we'll see a change with the Form 1099-K, with the threshold. Remember that was at $600, and there's been a debate where it could be, so maybe we'll see an increase in that threshold filing. Of course, disaster relief. We would love to be able to see some of the bigger positions that we've had associated with disaster relief to make a real difference for victims of disasters. Amato: Good points all. Thank you very much, Melanie. I'll give you the opportunity to give a closing thought if you have one. Lauridsen: My closing thoughts are, I think 2025 is a huge tax year. I think we just need to buckle down and get ready for that roller coaster that's going to be coming, and it's always important to keep up to date and follow through, but in this year, changes are happening. They're happening quickly. I think podcasts like this, webcasts, things like the AICPA Town Hall, they become even more critical for people to keep up to date. Amato: Great. We will keep having you on. We'll see you again in 2025, and thank you for being on the show today. Lauridsen: Thank you, Neil. 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 includes a digest of tax developments, trending issues and practice management tips that you need to be aware of to elevate your professional development and your firm practices. This resource is part of the robust tax resource library available from the AICPA Tax Section. The for staying up to date on the latest tax developments and providing the edge you need for upskilling your professional development. If you’re not already a member, consider joining this prestigious community of your tax peers. You’ll get free CPE, access to rich technical content such as our Annual Tax Compliance Kit, a weekly member newsletter and a digital subscription to . /episode/index/show/taxodyssey/id/34165695

Say "I do" to engagement letters 11/15/2024

Say "I do" to engagement letters This podcast discussion with Michael Reese, Risk Control Consulting Director (Accountants) — CNA Insurance, centers around the importance of engagement letters for tax practitioners. Michael emphasizes the role engagement letters play in setting expectations, providing clarity and mitigating risks during engagements. He also reviews the necessity of having clear, documented agreements to minimize disputes and liability issues. What you’ll learn from this episode: The importance of engagement letters Common risks in tax engagements The role of client education and communication in managing risk How to handle quality control under deadline pressure AICPA resources — Engagement letters, organizers, checklists and practice guides help you manage your tax season workflow. — Uncover the importance of establishing parameters of client relations and detail the scope of services to be provided. Other resources — The Accountants Risk Control team at CNA, the endorsed underwriter of the AICPA Professional Liability Insurance Program, summarizes answers to frequently asked questions. Transcript April Walker: On today's podcast, listen to hear how you can manage your risk with engagement letters. 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 Michael Reese. Michael is a risk control director with CNA. Michael Reese: Good morning, April. April Walker: Thanks for joining me today. Here at the AICPA, we work really closely with Michael and his team on lots of things and lots of projects. But I'm especially grateful for the partnership that we have with his team for Tax engagement letter templates. Speaking of engagement letters, they are now currently available to Tax Section members. Of course, I will put a link in the show notes so that you're able to access those. April Walker: Today, we're going to talk about some common questions that we get, and I'm sure that you also get Michael on Tax Engagement Letters and just generally how to manage your risk as a tax practitioner. Welcome, Michael, and thank you for joining me. Michael Reese: Thank you. Hopefully, what I can provide will be of use to your listeners. These are questions we often get as well. I do want to confirm that, but it's a very important topic. Glad we're talking about it here today. April Walker: I'm positive that they will be helpful. Sometimes people get answers to questions that they don't really want to hear, but they're important for them to hear. Michael Reese: Exactly. April Walker: Just to start off, I'm wondering why you think it's crucial for tax practitioners to have an engagement letter in place not only for every engagement but before they actually start the work. Michael Reese: April, I think there's two primary answers to this question. First, setting expectations and then setting guardrails in case something goes wrong. From a practice standpoint, it's very important for both the practitioner and the client to know what's going to happen and what work is being done. Your engagement letter hopefully is going to clearly state, "This is what you've asked us to do. This is what we're doing. This is what we collectively need to do to get this completed. This is the info we need and when we need it," etc. If a practitioner doesn't have this, then they run the risk of a client coming back later and either adding services, sometimes without the added fee, or complaining that a service has not been performed. There needs to be that clarity upfront. For professional liability reasons, having that clarity helps limit your duty of care to the agreed-upon scope. This way, in the event of a dispute, the practitioner has a strong argument for avoiding liability related to items for which they had no responsibility. That leads me to the second answer involving guardrails. Ideally, the engagement letter is going to set out the agreed-upon rules if something goes wrong. Dispute resolution is not really something CPAs focus on until they are in the middle of one, but we routinely talk to tax practitioners who are in the middle of an engagement with a problem and they don't have the signed letter to fall back on. If that letter is in place before the work starts, you now have options if something goes wrong, whereas without the letter, you don't. Now, I'm not ignoring the fact that getting a signed letter back can be a challenge, especially for 1040 clients. But I know there are practitioners out there that have a strict process. No letter, no work. Remember, the onus is on the client because they do need your help. Otherwise, they aren't showing up to your office. If they want the service, then they need to work with you. April, I would say put it this way. When I go to get work done on my car, even for an oil change, they don't even take my keys until I've signed a piece of paper that says I agree to the service and the terms of service. If I ignore that paper, disappear for some period of time, and then come back like some tax clients, when I come back, my car is still how I left it unrepaired, and I can't now complain that I'm going to be late for work because my car isn't fixed. I can, but I don't know how far it's going to get me. I really would like to think that tax professionals should have no trouble with a similar approach. April Walker: That's a great analogy. That's where we'll talk about this. Mike, you and I have both been in practice before. And sometimes we struggle with the way we've always done things, in a certain way, but it might not be the way the rest of the world operates. If we're thinking about this in a way of managing your risk, this is definitely a best practice. Michael Reese: Yeah, I would agree. April Walker: Great. Let's talk about some common risks that tax practitioners face during engagement. You've got your engagement letter, for sure. Check one. We are in the engagement. How might having that engagement letter help mitigate some of the risks that can happen as things are going on? Michael Reese: I'll give you four. We can talk about these. But the first one and we did touch on it before in the prior question, there's risk when there's no alignment on what the client needs. The client may not understand truly what they need to comply. They just know they need to file a return. Once you have the discussion with your client and identify the extent of the need, that engagement letter is going to provide the clarity that we spoke of, so both you and the client understand - this is what we're doing. Two, once you know what you're doing, there's still a risk that the client doesn't know what's included. Let me give you an example. When I practiced, I had a 1040 business owner client that felt they were paying too much in estimated taxes using the 110% safe harbor method. We ended up doing actual method. They didn't realize that meant doing quarterly drafts for the business and then calculating actual tax in multiple draft 1040s to figure out how much they owed each quarter. Added a lot of time, added a lot of fees. The client thought it was, "Part of the return." But at the time, the engagement letter didn't really break down for the client what was part of the return and what was not. That subsequent argument about fees could all have been avoided. Three, there is a small risk someone may use the work for a purpose other than what was originally intended and we don't see this too often in tax. It's more of an attest item, but sometimes we do see it in tax. Just think of how often clients ask for comfort letters and you'll see where I'm going with this. Once you give them the deliverable, you do lose a bit of control as to what they might do with it. Your engagement letter can anticipate this risk by saying, "We're doing this X." Tax return, consulting project, whatever. "We're doing this X for this specific reason. If you use it for some other reason, that risk and or loss is on you." I helped you with your tax return so that you can file your taxes and not have the IRS sending you nosy letters. If you gave that return to someone else for some other reasons, you've been warned, that's between you and that other person. But if your engagement letter doesn't close that door, you could have an issue. Fourth, strangely enough, not every client realizes that if you don't file and pay your taxes on time, there's some downside associated with that. A lot of professional liability claims fall into the bucket of, "You didn't tell me," regardless of merit. At minimum, your engagement letter can put the client on notice. "Hey, if you don't do this or you don't take your responsibilities seriously, bad things can happen." April Walker: I think those are all great examples. I'm specifically thinking about and we may touch on it a little bit later talking about some of the planning that might be around some of the upcoming TCJA sunset items and work you're going to be doing around that. I like your example and that absolutely has happened to me before about the estimated tax payments. The client didn't really understand, "Hey, cash out is also the fees you pay to me." I think that's a interesting one. But you want to make sure that you're not leaving on the table the assumption that any planning and projection work that you might be doing related to these consulting projects or whatever around TCJA or whatever it might be is specifically either included in the engagement letter or you have a separate engagement letter that talks about that. Michael Reese: I think you used a very important term when you say assumption. I think a lot of times CPAs are very in tune with the work and what needs to be done and there's an assumption that the client has the same knowledge or the same background. I think you talk to a lot of clients and what the CPA believes to be true isn't always necessarily what the client believes to be true. That's why you'll hear me talk a lot about that alignment between client and CPA. Documenting that and getting that understanding and having it in the engagement letter is very helpful. April Walker: Like you said, in assurance engagements, you hear more about scope creep. But definitely, it happens in tax engagement too. It's important to think about. I know this doesn't happen with people who listen to this podcast and are AICPA and tax section members. I know this doesn't happen. But maybe you have friends who do not have an engagement letter for an engagement. What are some examples of situations? Not specific - we're not calling names and calling people out here, but where might there be significant issues for a tax practitioner if they don't have an engagement letter? Michael Reese: Sure, and you're right. I can't name names, but we've seen enough that I can give you some generic examples inspired by true events. Hopefully one listening doesn't say that's my situation, but that's not where this is intended to go. If you don't have an engagement letter, you may have an oral contract even if you don't realize it. I'm not sure most people are aware. Simple fact pattern. Client calls you for work, you discuss fees, client says, there's an argument, that's a contract. The problem is other than the fee and the return, what are the terms? What's the result if something weird happens and you want to fire the client? Or if the client never pays you for your time, or and I've seen this one before, the person goes MIA, you don't realize they were serious and they show up on the due date with a stack of papers and your fee demanding a tax return. Oral contracts are a gray area and frankly, one where I think practitioners should seek legal help if one exists because of the ambiguity around performance, remedy and termination. When I say performance, I mean doing the work. Remedy is what one party can look forward to if the other party violates the agreement and termination I hope is self explanatory. I'll put a plug in here for the engagement letters offered to AICPA members in the tax compliance kit. Those letters include a provision that states the agreement supersedes all previous oral agreements. That's there on purpose. You can hopefully avoid the issues related to possibly having entered into an oral agreement, when you've provided a written proposal, or if the engagement letter scope differs from prior understandings. And that happens frequently enough where you talk about the work and then you put it in the letter and maybe the client doesn't realize the scope has changed a little bit. Another situation. If you don't have an engagement letter and a good percentage of tax claims actually fall into this category, the disputes and ensuing lawsuits are more difficult to defend and more expensive to defend. You're now trying to piece together all of those conversations, all of those emails, dealing with all of the finger pointing and the convenient lapse of memories, just to figure out what was supposed to happen. Just put it in writing so it's clear upfront what the agreement is. I think an area I would be concerned with here is with SALT (state and local tax) compliance. Here it's more often that there's an engagement letter, but the letter is ambiguous or silent on key scope matters. It's not absence of an engagement letter as in your question, but functionally, it's the same principle because whether you have no letter or the letter is silent, in both cases, you don't have contemporaneous documentation. A lot of clients forego SALT compliance because to them, the cost outweighs the act. But when the state comes knocking, you're going to have to navigate that lack of documentation. I don't know if too many clients audited by the state who raise their hand and say, no, I told my CPA not to prepare that return. My last example is the long standing client with recurring compliance that all of a sudden has new facts. Sometimes the practitioner isn't even aware of the new information when it's in their possession. If the planned scope anticipates 20 hours of work with commensurate fee, and now all of a sudden you realize the scope needs 50 hours of work. With a commensurate fee, the lack of an engagement letter is going to be a real problem when you send that bill for 2.5 times the fee that the client expected. Fee disputes are common claim drivers. April Walker: Those are great examples and the SALT one particularly. You just need to make sure I think in the engagement letters that are part of our toolkit, it specifically says that you need to list out the state returns you're going to do, but there needs to be, like you said, some documentation about you may have a nexus and exposure in these particular states and somehow document what the client is telling you to do. Then just a quick note on sometimes people will talk about unilateral engagement letters. Hey, we've had this client forever, and we're doing the same thing for them. Do we really need to get an engagement letter every single year? What's your thought on that? Michael Reese: I would say yes. You do need to get an engagement letter every single year. I'd say that for a couple of reasons. If your practice is still the practice 10 years later after you gave that original engagement letter, I'd be hard pressed to think that most people's practices and practices internally have changed. I think the engagement letter is a reflection of how your practice evolves and your quality control and what you're doing for a client. Two, depending on what's in your engagement letter, you want the engagement to actually end so that you're not indefinitely keeping open potential statute of limitations or potential liability. I'll give you a high level example. If you have an engagement letter and you say, I'm not going to do an engagement letter, I'll do the evergreen letter where it just continues on indefinitely. There's a question that engagement is still there. It's just an ongoing one really long engagement. Whereas if you have the engagement letter, you clarify the scope every year. By clarifying the scope every year, you limit your duty of care for that year and then it ends. When you look at the statute of limitations for liability, you can say okay this letter is done with, this statute is done with, anything related to the work done there, that's passed. You can't come back and argue with me about it, but if you have just this amorphous, non defined or ill defined client situation, you interject a lot of ambiguity and that can become a problem for liability purposes. It's really just best to make everything clean, do one letter a year, make sure the clients understand that when that letter ends or when that work delivers, that one's done. I'm not tied to you indefinitely. I may be tied to indefinitely as the client, but I'm not tied to indefinitely visa V that engagement. Next year, when the work comes up, issue another letter. It also helps you understand what the client needs. Or if the client's needs they changed and it's evolved, the letter is going to reflect that every year as opposed to just having one letter, it's old you push out the same one. If their needs have changed, that letter really needs to reflect it. April Walker: Good thoughts. Michael, I'm thinking about client education. I feel client education and communication is a big part of underlying a lot of what we talked about today. But I'm assuming you think it's an important role that we play in client education. But how can practitioners work on educating their clients about the importance of these engagement letters? Michael Reese: I don't know if it's so much educating them about the importance of the letters. They need to understand the letter aspect of it as well, but it really is educating clients on their role in the process and reinforcing the fact that whatever the client brings to your door, it's ultimately the client's responsibility, not the CPA's responsibility. It's the client's tax return. It's the client's tax planning. As your service provider, I can provide you with suggestions, guidance, or advice, but really it's up to you to make the decision. The engagement letter should confirm that and lay out with some specificity what that decision is and what the client needs to do to support that decision. One problem I saw from my own practice was that most clients concerns, especially around the engagement letter, started and stopped with a fee and the deliverable. It was very transactional. If the practitioner can impress upon clients that you're not a vending machine. They can't just drop off paper and money and expect magic. And that you client have to put some effort into the process too. That right there really helps everyone involved. I'll continue to harp on it, but things go a lot smoother when both practitioner and the client are on the same page. Client education can be a big help here because practitioners shouldn't take for granted that even their longstanding clients fully understand what's going on or what the process requires. On your question of how. It's never a bad idea to be open and upfront about both the service and the engagement letter and answering any questions the client may have. Some firms take this approach as part of onboarding new clients. I know you and I talked a little bit about onboarding before we got underway, but practitioners should be forewarned. The risks of misunderstandings between practitioner and client are not limited to new clients. Practitioners need to be able to talk about what's in their letter. That may require them to sit down with an attorney that helped draft the letter so that they know what certain provisions mean and where it's okay to be flexible. I might also challenge practitioners to... /episode/index/show/taxodyssey/id/33947457

Analysis, clarity and a quiz: A preview of the National Tax Conference 10/17/2024

Analysis, clarity and a quiz: A preview of the National Tax Conference The AICPA & CIMA National Tax Conference will take place on November 11 and 12 in Washington, DC. Join Brandon Lagarde, Tax Partner at EisnerAmper, and April Walker, Lead Manager on AICPA & CIMA’s Tax Practice & Ethics team, to learn more about what to expect from the upcoming conference. Conference sessions will feature topics such as: The impact of election results on tax legislation: Investigate the potential legislative outlook based on the recent election results and how it might affect tax policies. Tax Cuts and Jobs Act (TCJA) expiring provisions: Provisions of the TCJA are scheduled to sunset at the end of 2025; learn more about how to prepare and explore planning opportunities. Practical tax strategies: Sessions at the conference will cover various tax tactics, including gifting and income tax planning strategies, for clients who are not currently subject to estate tax. Ethical dilemmas in tax practice: A session will discuss common ethical dilemmas faced by tax practitioners and provide insights on how to handle them. The future of tax practice: Investigate the importance of transforming tax practices with year-round advisory services and how to implement these changes in a tax firm. AICPA resources — For tax practitioners, there’s no better place to get immersed in current events than the AICPA & CIMA National Tax Conference; in-person and virtual options are available. — Join us for free upcoming live roundtable sessions to tackle today’s top practice management issues with insights and tips from pioneers in the tax community. — This detailed, downloadable resource offers an in-depth look at the expiring provisions under the TCJA and other recent legislation. It categorizes changes across individual tax, estate and gift tax and business tax provisions, organized by year of expiration. Transcript Neil Amato: Welcome back to the Journal of Accountancy podcast. This is Neil Amato with the JofA. I'm excited to be joined for today's episode by two top flight tax experts in this special collaboration episode with the Tax Section Odyssey podcast with our guests, we're discussing the AICPA & CIMA National Tax Conference which begins November 11th in Washington. Those guests, April Walker, lead manager with the tax practice and ethics team and host of the aforementioned Tax Section Odyssey. Also Brandon Lagarde, tax partner at EisnerAmper and Chair of the Tax Conference Planning Committee. We have a lot to get to. We're excited to have you on. First, a quick welcome, April and Brandon, thanks for being repeat guests on the JofA podcasts. April Walker: Thanks so much for having me Neil. I'm excited to be here. Brandon Lagarde: It's very exciting to be here Neil. Thank you for having me. Neil Amato: Yeah, we're glad to have you both on as I said, the Tax Conference is November 11th, less than a week after election day. Brandon for you first, tell me what you're looking forward to about this event which is at the Omni Shoreham Hotel in Washington? Brandon Lagarde: Yeah. I'm looking forward to just go into DC. It's going to be a week after the election, hoping that we know who the president will be and what the makeup of Congress will be at that time. Again, it's going to be a great atmosphere, a great opportunity to go to the nation's capital, to hear from some of the best tax minds out there. Neil Amato: April, I know you're a repeat attendee at that conference. You're also running sessions, recording podcasts, taking part in panels. What do you look forward to from the event? April Walker: It's always a busy conference for me and I love being in DC and it's very exciting for me to be there, like Brandon said right after the election. Speaking of that, really what I'm looking forward to most is hearing more about what the potential legislation outlook could look like based on those results, based on those election results. I think we'll hear more about we've talked a lot about the Tax Cuts and Jobs Act, the TCJA, that it potential expiration, what that means. We'll really be able to dig into that at the conference. I'm excited about that. Neil Amato: It's almost like we planned this. My next thing was going to be the TCJA. Some of the provisions of that Act, the Tax Cuts and Jobs Act, are scheduled to sunset at the end of 2025. Clearly, there is a lot of uncertainty about the provisions right now as we record and the first part of October. But I imagine that topic is going to be a popular one at the conference. Brandon, What do you think? Brandon Lagarde: Yes, absolutely and that's why, again, being there at the heart of it all after the election and getting to hear from presenters and speakers about just what the future holds for tax professionals, end of 2024 is going to be really important for us. 2025 is going to be incredibly important for tax practitioners to understand and remind ourselves of here are all these provisions that we've been dealing with for the last seven years that are going to expire. What's going to happen? Where are we going to be? A lot of planning opportunities, lot of reason to get in front of clients to learn about what we have in the horizon. Again, that's why this conference, particularly just the time of the year. It is in the election cycle, and heading into 2025, 2026. It's probably the most important conference that's ever taken place. This is just a really important time for us to get together and to really try to figure out what's going to happen. Of course, we're not going to know exactly at that time, but at least start to have a better understanding, a clear picture of what we can expect and what should we be talking to clients heading into 2025? What are some things that need to be doing? Because you can't just turn on the switch in November of 2025 and start to really think about this. Right now is really the time to get ahead of it and remind ourselves what provisions are expiring? What do we need to start thinking about planning opportunities to get ahead of it? That's what's at stake at this time. April Walker: I love Brandon that you're setting the bar really high. The most important conference of all time. Here we go. Neil Amato: Yeah, that's great and because it's the most important conference of all time, we will include a link to the conference registration page with the agenda information and all of that in the show notes for this episode. One of the items on that agenda is being led by Marty Finn. He's a previous guest on the podcast. He has a session on tax and financial planning. When estate taxes don't matter. Now not to steal Marty's thunder. But can you give me a little preview of the highlights of that session? Brandon Lagarde: Certainly. We will spend a lot of time at this conference again, learning about the estate tax world and the sunset provisions and trying to navigate that. But the reality is a lot of our clients are not subject to estate tax. A lot of our clients are not having to worry about the sun setting provisions. We thought it was important to have sessions that not just focused on the top 1% of our clients, but to the 99% or to the large majority of our client base. Things like gifting strategies, what we need to be talking to clients about, who aren't necessarily dealing with the estate tax. Income tax planning strategies around that. Really just as practitioners, what do we need to be talking to clients about? We're not super focused on just estate tax and the ultra wealthy or the wealthy. That's one thing that we really try to work hard as committee in this conference is to find sessions that have a very practical application. That we can take away tips and tricks and things to our client base and back to our hometown and not just focused on the very academic discussion that a lot of tax practitioners like to have. That they can relate to. Try to have sessions that are very practical in nature and the Marty session is definitely one of those. He's going to do a great job giving some really good tips and tricks to people to bring home. Neil Amato: I liked the practical part you mentioned, and that leads me into another session that I want to ask you about. This is one that April is taking part in with Dan Moore and Mark Gallegos.The title of the session is Tax Practice makeover, transforming with year-round advisory services. Tell me some more about that session. April Walker: Yeah. I'm really excited about that session. A lot of what I do here at the AICPA is try to help practitioners think about the future, the future of Tax Practice, the future of what a firm could look like. So we had this idea to do like a makeover of a practice. We're going to talk about some of the different aspects of a practice that you could make over- billing, client focus. One of those is about adding advisory services. We'll talk more about that. So come and join us and learn how you could do a makeover of your practice. Neil Amato: That's great. Now another session with an intriguing title, this is you, Brandon and you April, test your tax ethics IQ. Now one that sounds like one that people have to do some homework on or some pre-reading, maybe I don't know, but tell us about that session. What's a flavor of it that you can tell attendees about now? Brandon Lagarde: We're going to try have fun with this session. Play some games that have come up with like a quiz atmosphere. I think April going to try bring a buzzer for people to buzz in and answer our questions. But really focus on ethical dilemmas. We're faced with ethical dilemmas daily, with clients who are either trying to push the boundaries a little bit or just get into some situations where they find themselves in a bad place. We're constantly being asked to address the situation with our client base. Whether you need amended return for XYZ reason. Can you take on a client because of what's going on? Do you need a fire a client? Because they may be trying to push the envelope a little bit. Really, there's a lot of ethical dilemmas that we face as practitioners. This is really a time for us to again, have some fun with it. To the extent that ethics is fun. We're going to try to test the audience and see what they think. It's always amazing if you ask a room of people what they think about certain tax ethic issue or are really just a tax topic. In a room of 100 people, there are probably 100 different opinions on what should be done. I think it can be fun. We're going to try have fun with it. Again, I really trying to also provide some education so if you find yourself in these situations, here's some things to consider. But again, April and I, we hope to have fun with that. April Walker: Just come visit us. There is no pre-work. To answer your question, Neil, there is no pre-work to the session. We'll take a lighthearted take on a potentially tough, dry subject. Neil Amato: Great, and this quiz is not graded. You still get the CPE as long as you're showing up, right? April Walker: Absolutely. Neil Amato: Well, good. One of the themes that I'm hearing is providing advice on the topic of expanding services beyond just, "Hey, we're going to do taxes for someone." But if someone said to you, maybe after a session, "Hey, I really liked what you said there. But gosh, I'm a smaller firm," or "It's only me. I don't know where to start." What do you tell them? April Walker: What I would do, if they came up to me and I hope they do. You can come up to me at our booth. You can come up to Brandon and I if you see us. We will likely be posted up in the bar at the Omni. Come see us anytime. But what I would tell you, we talk to small firms all the time. One thing I recommend them is come to a session that I do that's on the computer. It's not live at the conference, but it's called Reimagining your tax practice. I'm really more about re-imagining and having makeovers and that sort of thing it seems like. But in those sessions we really talk about the nitty-gritty. Sometimes it's hard to think about this big process of going from X to Y. We like to talk in those sessions about practical ways. I like to focus on the practical. How to actually get where you're going, or how to change things in your practice or how to change how you're operating. That's probably what I would say if you came up to see me wherever you might find me. Neil Amato: This has been great. We've mentioned session by Marty Finn. We've mentioned some sessions you are taking part in. Of course, we've mentioned that key acronym these days, TCJA. Brandon, in closing. Anything you'd like to add as we wrap up this Tax Conference preview episode. Brandon Lagarde: Yeah. Certainly. A couple of other terms you'll hear out there. AI, which we have a session. Transforming your tax practice. One thing we like to emphasize about all of our conferences, but certainly this one is, there'll be lots of sessions with lots of smart people talk speaking at these sessions with great content. A lot of times your challenge is which sessions do I go to. Because it's such a great hour, hour-and-a-half of content. You'd have to choose. At the moment, you do have to pick a session. But you have access to recordings of all the sessions after. I often go back and watch sessions that I wasn't able to attend because of that great content. It's just a wealth of information. Again, you get a little parting gift when you leave. Not only do you meet up, making new friends, meet people at the conference, talk about challenges you're facing with your colleagues and also hear some of the best speakers in DC and have a great time there. But you also get to have access to all the recordings after and watch the sessions after that you missed, and that is invaluable to have access to that content. Neil Amato: April, how about you? Anything to add in closing? April Walker: I think one thing that's really important about this conference being in DC, and we haven't mentioned yet, is the ability to have IRS speakers that come and speak to us. We're going to have the taxpayer advocate, Erin Collins. We'll have other IRS speakers scattered throughout the conference.That's another opportunity to really hear where they are on certain things and be able to ask them questions. Neil Amato: Yeah. That's great. It's a good reminder that there is that access to IRS officials every year at this conference. Really thank both of you for your time. Again, look forward to the conference November 11th, Brandon, April. Thanks for being on the JofA podcast. 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 includes a digest of tax developments, trending issues and practice management tips that you need to be aware of to elevate your professional development and your firm practices. This resource is part of the robust tax resource library available from the AICPA Tax Section. The for staying up to date on the latest tax developments and providing the edge you need for upskilling your professional development. If you’re not already a member, consider joining this prestigious community of your tax peers. You’ll get free CPE, access to rich technical content such as our Annual Tax Compliance Kit, a weekly member newsletter and a digital subscription to The Tax Adviser. /episode/index/show/taxodyssey/id/33504522

Demystifying IRS guidance on digital assets 10/03/2024

Demystifying IRS guidance on digital assets This podcast conversation with digital asset specialist Kirk Phillips, CPA, CMA, CFE & CPB, Managing Director — Global Crypto Advisors, focuses on demystifying IRS Rev. Proc. 2024-28, which provides guidance on transitioning from universal basis tracking for holders of digital assets and a safe harbor deadline of Jan. 1, 2025, to determine how to allocate any unused basis in digital assets. Phillips shares recommendations for tax practitioners around communicating with clients and the need for careful planning and documentation to meet the safe harbor provisions. What you’ll learn from this episode: Understand more about Rev. Proc. 2024-28 and what it means for holders of digital assets. Hear about the safe harbor provisions provided in the revenue procedure. Learn the importance of the Jan. 1, 2025, deadline for making a reasonable allocation of unused basis. Find out about the challenges of documenting and reconciling cost basis related to digital assets. How to communicate and prepare individuals and businesses for the upcoming changes related to reporting of digital asset transactions. AICPA resources — Sharpen your tax knowledge on digital asset and understand the tax complexities and strategies involved with virtual currency and cryptocurrency. AICPA advocacy resources , March 7, 2024 Other resources — Guidance to allocate basis in digital assets to wallets or accounts as of January 1, 2025 — Gross proceeds and basis reporting by brokers and determination of amount realized and basis for digital asset transactions Transcript April Walker: Hello everyone, and welcome to the AICPA's Tax Section Odyssey podcast, where we offer thought leadership on all things tax facing the profession. I'm April Walker, a lead manager from the tax section, and I'm here today with Kirk Phillips. Kirk is a CPA and it has a lot of other designations behind his name. But he's also more importantly for today's discussion, a specialist in the world of digital assets and crypto. [He's] been in it for a long time. Our goal today, Kirk, is to demystify some of this latest guidance that we've gotten from the IRS. We're definitely not going to be able to demystify all of it in the time we're just going to spend today. But there are some important deadline related items, so we want to make sure we're covering those. Kirk is on the AICPA's Digital Asset Tax Task Force. And for the past few months, we've actually been meeting weekly, which is unusual for a task force. Because really we've been discussing one thing, Revenue Procedure 2024-28. What it actually said, what it meant. Just really delving into that, the details of all of that. That's going to be the topic of what we're going to talk about today. What that means for tax practitioners and holders of digital assets. Especially like I said, there are deadlines around this safe harbor. Kirk, to start off. Welcome. Let's talk about I mentioned the deadline and let's talk about the significance of that January 1, 2025 deadline for making that reasonable allocation of unused basis. That's what the Rev Proc says. Talk to us a little bit about what that means, what you're thinking about, what practitioners should be doing now to prepare for that date. Kirk Phillips: Sure. Thank you so much April for having me on the podcast. I love talking digital assets and crypto, whether it's tax-related or otherwise. I'm excited to help demystify this Rev Proc. One of the key things here is that and why this is so important is we both have a short timeline. Because we're already nearing the last quarter of the year 2024. It's also very challenging - it's a onetime exercise that we have to go through and on a short timeline. That's why this is critical and that's why we're here today to talk about that. One of the key things here is that prior to this Rev Proc that the taxpayers would do their accounting for the digital asset transactions, which would be their trading or their sales, and it could be other related transactions as well. But basically they would do all the accounting on a universal basis. The question is, what does universal basis mean? Universal basis means that whether you have one wallet or one exchange account or you've got 37 wallets and six exchange accounts or even something more crazy than that, you would for the most part, more than 99% of the time people would use specialized tax software because that's really the only way to get the job done. You would connect all those things and or import your transactions into the software and it would essentially co-mingle all those transactions. I like to say as if it was one wallet or as if it was a single exchange. But it's not simply for the tracking purposes, all the transactions are simply dumped together and you perform one set of accounting. That's what the universal [method] is. Now, you can no longer use universal. You have to do a wallet by wallet, account by account basis. Which means that if you, again using those same numbers I did in my example there. If you had 37 wallets, that means you essentially have to do 37 different sets of accounting for those. I think that without knowing even anything more about it, an accountant hearing that would say, "Wow," immediately that sounds like that could be challenging, that could be a lot more work, and so on. There could be issues around that. And all those things are true. Because of this short timeline between now and the end of 2024 and essentially we're talking here at the end of September, so we got one-quarter left to do this. The important thing here is if you have any channels to communicate with your clients, the first thing to do would be to communicate with them and let them know, "Hey, there's this Rev Proc 2024-28." Maybe, perhaps even provided a link if you want to, and or read that yourself in detail at least once. But there's a lot of other things that you can lean on in AICPA guidance, of course. But just to send that out, in other words, you don't have to know it in detail before communicating. You should start the process communicating right now to say, "Hey, there's a lot to unpack here. I'm just letting you know there's going to be more that's coming. Be on the lookout. We're going to do a series of blogs on this or whatever it is you do or a newsletter, segments, and things like that. I think that's probably the number one thing to start off with is start the communication now, because this is not a one-shot communication thing. This is a series of communications that you're going to need to do. Whether you're just providing value to non-clients or you're working with current clients, you're going to need them to be thinking in steps and increments along the way. April Walker: Yeah. That's a lot of what we've been talking about over the past couple of months. Who this actually applies to you and who needs to really take notice of this? I think that's a great suggestion. Our listeners might be thinking, "Hey, I didn't know that we are not allowed to use universal method of basis allocation anymore. Did that come from the revenue procedure or where did that come from?" Kirk Phillips: Well, that actually came from the digital asset broker regulations. But then what happened is in the process of those becoming final and the fact that universal [tracking] comes to an end. And we have to do the wallet by wallet approach. What arises from that is a onetime exercise of how do we get from one thing to the other thing? How do we get from point A to point B? April Walker: The Sec. 6045 regs, which are long and complicated. Again, like Kirk said, we'll continue to create resources around all of this information because it's a lot to unpack. In the revenue procedure, it talks about a safe harbor. As we're transitioning between universal and wallet by wallet, the procedure provides a safe harbor. Let's talk about what are the key criteria that qualify you for using that safe harbor and give some of the requirements for it and so talk a little bit about that. Kirk Phillips: Sure. That's one of the big things here is what are those key criteria for the safe harbor? Of course, another thing is we're wondering what is it actually a safe harbor from? There's going to be more to come on that. Because that's actually not super clear and usually that is when it comes to safe harbor. The critical things here are that you have two methods that you can follow in this universal transition process. From universal cost basis tracking. In that transition process you can use a specific units method or you can use a global allocation method. In either case, you need to do some work before the end of the year arrives at 12-31-24, or before January the 1st, whichever way you want to say that. Those two methods are two distinct ways of doing it. You might say that the global allocation method is more straightforward and less work or less complicated. But let's just unpack those briefly. There's more to dig into on these, but this is a brief touchpoint. Let's start with global allocation. Global allocation, I like to think of it as more like a recipe. There's more than one way to get the "cake baked". Because you've got your grandmother's recipe and you've got your own style and you've got things like that and things in the cookbook. So you can arrive at a different cake, but if you follow the recipe, you're going to get the same cake. Basically, another way I like to say it too, is if you come up with a global allocation, which is simply saying, "You know, what I want to do is I want to allocate my Ethereum, my ether. And I want to take some low-cost basis. Maybe you could say, "I want to use my oldest cost basis and I want to apply it to my oldest wallets." For Bitcoin, I had only two Bitcoin wallets and one of them, it's only collected Bitcoin, received Bitcoin, it hasn't sold any. Say, you want to allocate maybe what's already there. Whatever it is, you're really defining a process. You're not actually going through with the process, you're simply defining it. The key distinction about global allocation is, if you define the process and if you were to give it to, let's say another CPA, they will come up with the same answer. If you give it to CPA A, CPA B, or CPA C, they should all come up with the same answer. It's very systematic. That's the distinction there. Now with the specific units, it's simply user's choice. Like in baseball, it's a fielder's choice. It's user's choice. It's however you want to allocate it specifically. Again, you have to follow the date. You can't break the date in the basis or a specific lot based on the date that it was purchased. You can't break that up. At that level that's as granular as you can get. If there was a lot or a tranche of Bitcoin or whatever, AVAX, or just pick your favorite coin and that was purchased on a certain date. You can't break up the date because the date piece has to be maintained and be consistent. Anyway, that's really just a user's choice scenario. That's the difference because you can't give that method to three other CPAs and have them come with the same result because that's not what it is. It has nothing to do with following a process. It's simply just a user's choice. Now the key thing on the dates there is that the specific units method has to be conducted and finalize before the end of the year, before the last day of the year. With the global allocation method, you just need to come up with the formula for doing it by the end of the year. But you actually can apply the formula to get the allocation after that. That's a super important point right there. Under global allocation, you also have until either the original due date or even the extended due date of the tax return if you did not conduct a transaction. The key is not having any transactions. You've got to put a halt to your transactional activity until you apply the global allocation method. But it does buy you more time to do it. You just gotta be careful because that's how you could throw off the safe harbor. And ruin the safe harbor if you don't put a halt to the transactions before doing the allocation. April Walker: You mentioned in one of our discussions is about what is this a safe harbor from? Based on our best discussions and where we think we are now, what do you think about that? What is it a safe harbor? What is our alternative if we blow this safe harbor. Kirk Phillips: That's a great question. It looks like it would be a safe harbor prospectively from this day forward or the end of the year exercise that we're talking about forward. We're not sure about retroactively. It mentioned if you don't follow the safe harbor, you can incur penalties and interests. As I recall that's about as deep as it goes. You could draw an inference from that and say, if I don't follow the safe harbor, does that mean that all of my transactional activity, all my reporting for the prior years could be recast and recalculated under different cost basis method. And therefore end up with a different tax liability than you originally calculated. Those things can be worst-case scenario. We just don't really know. April Walker: Usually when you have a safe harbor, you have rules of what to do and how to document that you have met that safe harbor. Again, things we've struggled with. Seems like a simple question right? But I'm telling you a lot of smart people in the room, this is not a simple question. Kirk, as we know it now, what types of documentation do we think will be good enough to substantiate that we have met that safe harbor as of 1/1/25. Kirk Phillips: That's right. You could actually take an action. You could perform your allocation, and you could do this all before the end of the year. The question is, how do you prove that you've done it before the end of the year? People have talked about, well, you could have files saved that because you can look and see what a file date is, the modification date of a file. But then you could also later open up the file, not even change anything but potentially open a file, change the modification date. If that was something that is being looked at, then that could be an issue there. This is really where it comes into use in your CPA skills to figure out what's a good way to document. We're already good at that. Even in the world of not knowing, you can come up with "well I think I should do this" to document. One of the things is if there's a way to send an email to yourself. Time stamping on emails is one way to do things like that. Just in the larger world of documentation. Like I said, everybody is relegated to using specialized crypto tax software. You might as well say everybody uses crypto tax software. Then the question is, which one do you use? Because they're all different. They all have issues and so on. But hopefully regardless of the software, it would allow you to export an end of the year holdings report or an inventory report. That's essentially what it is because the data is in the software and if that's going to be one of the key things is, can I get that report? Let's just assume that you do. The first thing you do is to export that report. That's going to be the basis and the starting point for doing an allocation. Let's fast forward just a second. Let's say you go through the allocation however long that happens and let's say you're done. For example you could say, let me attach that file now. Again, figuring out how do you document. You could attach that file in an email or you're copying [yourself] with your client and maybe there's other members in the firm as well. Maybe there's a specifically designated digital asset person who want to get copied. But nonetheless, that would create an email timestamp on it and that document is attached to it. That's one way that you can actually document that these things were done ahead of time. I guess if we want to dive into documentation further again, I was talking about that inventory being a starting point. Regardless of whether you use this global allocation that we spoke about or specific units allocation. You would need to take the starting point of the ending balances or the inventory and then you need to take your wallets. Then you need to then allocate the basis that's in the wallet. Because remember it's on a universal basis. Now you're trying to allocate it on a wallet by wallet. You then need to go through it, but it's difficult to describe it without seeing a visual. But basically you would allocate all of the inventory that starting to all of the current wallets that you have. Again it depends on what method you're using. But at the end of the day, what you're trying to achieve is you want to get a proof. We all love proofs, and this is one way to do it. What's the proof? The proof is the check total. It could be a check total per asset, for example that you've allocated all the Bitcoin, you've allocated all the ether, you've allocated all the Solana, the AVAX, the whatever. You've allocated everything so that the check totals on the top match the check totals on the allocation. That's how you know that you've done it and it is complete and correct. Is by doing the methodology that is like that. Because if you don't do that then there's really no way to know that it's complete. You got to have checked totals and arrive at the same numbers and then that's how you do it. Again it can be challenging because it's depends on what's the quality of the data that you're starting with. One of the big challenges is I think all the software has different types of issues, limitations, certain features some have that others don't have and things like that. The first thought might be from the accountant mindset oh, if I split this inventory report out it's accurate. But the thing is, it's most likely not accurate. There's going to be issues with it. You're actually starting with something that's not solid in the first place, which creates a whole other set of challenges. But we can't dig too far into that one right now. April Walker: I was just went back into my way back machine and I was doing proofs and doing double underlines and I was getting really excited. I think that's a great point. If you are using software for yourself or for your clients, you need to, just like with everything we would say, you're not printing it out and then just putting it in a file or somewhere and never looking at it again. You got to make sure that it's not garbage in, garbage out situation. Again, lots of potential steps in this seemingly simple, allocate your basis comment. Another thing we've talked about is the role of brokers. Because eventually in the years to come, I'm sure you're aware, there's going to be in a form 1099-DA. And there's going to be reporting of digital assets and then hopefully there's going to be at some point, [cost] basis on those forms. Again, happy little world the basis is going to be equal to what you think it is and everybody's happy. I think we know that it's going to be much more difficult than it sounds, but let's stay simple for the moment. Let's talk about how that revenue procedure 2024-28 impacts how a broker might communicate with your clients regarding interactions with brokers and how this might be a help eventually. Kirk Phillips: That's all a great question and it's interesting how just the broker side of things, what were the centralized digital assets exchange. Because that's what we're talking about. It's just the two ways of saying it. But just to be clear what we're talking about because we have decentralized exchanges. Then the other side of that is the brokers and the centralized exchanges. And so that creates a whole another set of unique things and considerations with the brokers. And how they're going to report basis because they're the ones... /episode/index/show/taxodyssey/id/33318537

Harnessing Technology: The Future of Tax Advisory 09/19/2024

Harnessing Technology: The Future of Tax Advisory In this episode David Snider, Founder and CEO — Harness Wealth, discusses the transformative role of technology in tax practices, exploring how tools like practice management software can enhance client relationships and streamline operations. David shares insights on what he sees as three phases of technology adoption in the tax industry and offers practical advice for firms looking to advance their tech capabilities. Tune in to learn how embracing technology can lead to a more efficient, client-focused tax practice. What you’ll learn from this episode: What David thinks are the three phases of a firm’s technology journey. How leveraging technology can streamline tax practice management. How practice management software can enhance efficiency and client experience. Why regularly communicating with clients can strengthen relationships. The importance of allocating time and resources to implement new technologies. AICPA resources — Artificial intelligence (AI) is certainly a hot topic of late. Listen to hear Jason Staats and Ashley Francis talk about the latest information in this area and where you should move forward and where you should proceed cautiously in this Reimagining Your Tax Practice archived session. — Tax return compliance is continuing to become more of a commodity. Your clients see you as their trusted adviser and ask about a range of topics that affect their financial well-being. In this Reimagining Your Tax Practice archived session, learn more about practitioners who offer financial planning services and how that has impacted their practices. — The Private Companies Practice Section (PCPS) is developing tools around technology designed to help firms not only identify elements of their current business model that may be holding them back but also offering solutions to help them adapt in this changing environment. Upcoming event — With the amount of technology products out in the market, how do they perform in reality? Join our next tech stack wars challenge on Oct. 16, 2024, to hear about the latest in technology for tax practices. Other resources — Learn more about how Harness Wealth strives to provide the next generation of builders confidence in the path to their best financial future. Transcript April Walker: On today's podcast, listen to hear more about leaning into technology for your tax practice. Hi 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 from the Tax Section and I'm here today with a repeat guest. His name is David Snider. He's the Founder and CEO of Harness Tax. Welcome back, David. David Snider: It's a pleasure to be here. Thank you April. April Walker: David, I'd love for you to start. Tell us a little bit about yourself and tell us a little bit about Harness Tax and where you see yourself in this world of tax. David Snider: Thank you for having me. Yes, so Harness has a platform for routine tax advisors that are looking to make their relationship with their clients more seamless and insightful. What that really means is a practice management solution that's tied into a much broader set of offerings. That includes business development to help advisors with leads, a concierge team to help with support, as well as a broader network of resources to help guide advisors and give them the resources of bigger firms. April Walker: Wonderful. I feel since we talked in Spring of 2022, if it's possible, I feel like the importance of technology is even more important. Maybe that's just me being dramatic, but let's start off just by pretty broad question like, how do you see technology transforming the way tax advisors interact with their clients? David Snider: Absolutely. I think about it being in the second of three inevitable phases. I think the first was the first stage, which is very typical across industries. My background was spending, now 12 years, building tech enabled services, software solutions, first at Compass, a real estate advisory firm, and now at Harness. Before that in the middle, spent a lot of time at Bain Capital looking at different disruptive technologies. And so that first phase that we went through, very similar to a lot of industries, adoption of email, adoption of technologies that clients can actually submit core documents digitally and not just in paper. The ability with the early software to actually complete and file electronically. That really is table stakes. If you look at the data, it's 99% of advisors have an Efin, etc. The second phase that we're really still in the early to mid innings of is the software collaboration phase. What that looks like is work-flow automation, ways of interacting with clients to create leverage for advisors and scale. It's not just, hey, I typed an email, send it to one, or I create an engagement letter sent to one. It's using the efficiencies of technology that can, at the vanguard be AI, but really doesn't need to be. In the vast majority of cases, it's just having good practice management software to create efficiencies for the advisor that end up, ironically, even though you have to spend less time, creating a better client experience and one that's more customized to the individual. It gives them more visibility into what's going on, what's coming next. The third phase, which I think only a handful of firms are really investing in, fully tapping into, which is totally fine. I don't think the client expectation is there, is around customized insights. How do you not just deliver an efficient workflow? But how do you, at the outset of a tax season, demonstrate to your client that you already know some stuff about them from prior years, here's why we really need just to tweak that. Showing your work. Here is all the different analysis that we ran in the completion of your return or the discussions that we had and at the end of the process, Yes, here's a completed tax document or analysis that you requested, but also here's what it means. I think that ability to both give insights to people and leave clients like they actually understand tax, the tax process, the work that you did, is going to create massive benefits in terms of client's willingness to pay, their retention, their happiness, etc. Very few firms are at a Phase 3 in our opinion. You don't need to be concerned if you're not. Because there are a few, if any are. But certainly making sure that you've put in place or have the opportunities to go into next tax season and really nail Phase 2. I think will put advisors in a great place to really capture what is happening on the vanguard in Phase 3. April Walker: We definitely hear from people and when I'm out talking to firms, people who are definitely still in that Phase 1. Where they transferred to Cloud. That seemed like a huge deal and leaning into some technology, but maybe taking that next step into two, even is difficult. Do you have any advice or thoughts on that? Because everyone is so busy and it's hard to figure out, especially if you're really small, it's hard to figure out how to take that time and really invest in trying to get to that next step. Any ideas or suggestions there? David Snider: I think the good news is there are a lot of very good practice management software that did not exist or did not have the robustness that they do today, five years ago. One of the things to consider in evaluating the different choices is, ensuring that you price in the value of your time as a practice leader. In that there is a learning curve on anything, no matter how good the technology is. There are some that I think are much cheaper and may have the technologies you want to check the box on. But I think really understanding what is the on-boarding team look like? What does the client success infrastructure of that solution look like? Who's going to make it as easy as possible to set you and in many cases your team up to use it successfully? And to answer issues that will inevitably arise from any change. I think we have over-invested in those resources, because we know there's a lot of change and fully transitioning the way that you think about practice management, some of the potential third-party software you can plug in, etc. That's important. I think whatever approach that you take, whether it's working with Harness or a whole host of other solutions that are out there that are very good. I think just making sure that you understand, hey, what are the functionality each have, what's going to be accretive to the way that you want to work and your staff and perhaps your clients. But also what's the process going to be to fully utilize and take advantage of that. April Walker: Those are some good thoughts. Just maybe if we can talk about a few examples of ways that firms can use practice management tools to really help them. Because this is really what it's about. It's about not having to have an Excel spreadsheet of clients and that's all you have. I'm not saying that's what our firms have. I'm just saying, I was in practice for some time and I remember that. What are some ways you can use tools to really advance your practice? David Snider: I think there's both external components. How do you enhance the way that your clients perceive their process and there are internal things. How do you ensure that you don't miss a filing? The reason that advisors have Excel is just a mechanism to ensure that they do the work for their clients that the clients expect. I think on the external side, the more frequently you're interacting with clients around the tax process, generally the better, not in an annoying way, but I think tax is something clients generally don't want to think about, but definitely want to get right. It's no different than a patient coming in to a doctor if they have an issue, but don't really totally understand it. Having a solution that allows you to email me before the season starts, to preview of what's to come and the deadlines and things that are upcoming. What do you need from your clients? What is the engagement going to look like from a pricing standpoint? Being able to send out engagement letters that reflect that. So someone feels like they weren't surprised because they had exactly what's being done for them and the pricing terms, etc, outlined being laid out. Having the client questionnaire customized ideally to what the clients already told you in previous years. It feels intelligent, not like you're starting at Day 1 every year with the same advisor around your materials, etc. All that stuff is beneficial, being able to update them that "I've received everything I need" or expect to hear from me this time in March for business filing. Aspirationally, late March not April 14th, but whatever that may be for the draft filing, what their advisors recommended, etc. Or at extension deadlines, etc. That stuff all again can be done without moving your practice to Phase 2, but it's going to be dramatically more time consumptive. And it's stuff that you can't bill and price for in the way that you want. Because there are lots of other tax firms that have already made those investments and therefore they can do those things with very little time invested. Internal stuff is really around collaboration, tracking, knowing what clients have uploaded what? Who has been filed? Who's working on documents? Etc. Where are they in the process? Have they paid? The more visibility you have, the easier it is to spend each day, not driven by who is pinging you over and over in your inbox, but who actually needs something based upon external deadlines or prioritization or the revenue they're going to drive wherever that may be as you think about being the quarterback of your practice rather than playing defense. Just having the scrimmage run towards you over and over again during tax season and hoping you're still standing at the end of it. April Walker: Yes, I love a football analogy. I was just in Minnesota to watch my Tar Heels play. My first trip to Minnesota anyway, it was fun. David Snider: I went to the Super Bowl when The Patriots played there against The Eagles a number of years ago and it was bone chilling. April Walker: Yes, we're recording this in early September. It will come out in a couple of weeks and what we're really thinking about, and what I hope our practitioners are thinking about is year-end planning and there's a lot to talk about with impending legislation. There's Tax Cuts and Jobs Act sunsetting. There's a lot going on for you to be in front of your clients and proving your value. Talk a little bit about how technology might assist you with some of those conversations, or pulling data together to be able to help understand who you need to talk to you, and what about? David Snider: Number 1, I would say, and this is anecdotal, I don't have the data to prove it. The majority of advisors do not proactively email their clients in Q4. Unless they need to collect certain things to do a quarterly estimate, etc. That is a huge missed opportunity. Even if you adopt, no technology, take an hour jot down some thoughts, a few bullets on what could be at stake in the election or the expiration of the Trump tax cuts or of the estate tax exemption, whatever it is, send something that seems thoughtful, and obviously it's going to be thoughtful from any practitioner who cares about what they're doing. If you do that, you may think, I actually have the time to have something more customized. A, you can use software at least have to be addressed to the person, even if it's a mass email versus just a generic one, but then you could potentially also group your clients and say, hey, I've got 15 law firm partners, and I've got 42 small businesses, and I've got a cohort of people with multi-state issues, etc. I'm going to create three different end of year planning emails. I'm going to categorize my clients and be able to send out something that's not individual, but that makes you feel like, wow, April is really ahead of the curve in terms of giving the insights that I wouldn't have expected. Although it obviously can be automated, but it takes the adviser having the initiative to create that content and think about what's going to be most useful for. When you do that, feel free to promote the scope of what you can offer. Tax advisors or not, the world's sales-iest profession. In many respects that can be a good thing, but it also does you a disservice where your clients don't know what type of things might be beneficial. For that end of the year planning to small business owners be like, hey, you're thinking about possibly selling or transferring a chunk of the business to a child or an employee or selling outright, etc. There are a whole bunch of things that you should be thinking about now, potentially some things that may involve tax decisions this year versus next year, etc. I can be helpful with that. I think highlighting the opportunities around that and giving people the ability to opt in for more complex planning is going to be really accretive. But yes, whether it's Harness practice management solution or others, there are definitely ways to customize the messaging, the cohorts, some of that stuff, but it really starts with the advisers sitting down and saying what is potentially meaningful on the horizon for my clients. And how much time energy do I want to take to customize that? And maybe it's hey, it's one generic one, and there are 10 clients that really move the needle. These are my 10K plus clients, whatever the threshold may be. I actually want to spend some time and really make them feel that I'm paying attention to their holistic needs and how I can be strategic to them. April Walker: A lot of times we hear people say, I don't want to bother my clients, but I feel like on the other side, they really want to hear from you when you have something to say that's really important and crucial to them. I think it's important. That's a great point you made about reaching out in some way fourth quarter of 2024, because like we said, there's a lot of different things that you could bring up that are specific to their situation. David Snider: Honestly, my view and it's just a personal view having now been in and around this industry for several years is book-ended communications is extraordinarily rare and extraordinarily valuable. What I mean by that is communication before the season starts, the more customized, the better, but at least something. The same thing at the end, that even after the client has signed a return, you've completed some analysis that post-season follow up. If it's just previewing when they think about bringing for the next year or some of those planning opportunities goes a really long way, I think in demonstrating value. I'm seeing advisers do the presentation of insights through loom videos and other things that I think is also an element of that. Which is do more than deliver the bare minimum of the compliance requirements, and you will stand out and generate a tremendous amount of goodwill from your clients in whatever form it takes. A Loom video, something semi-customized, something even generic will be helpful to a lot of the people that you work with. April Walker: Just thinking about some clients you may have worked with with Harness Tax, do you have any success stories that come to mind where technology really improved someone's practice? David Snider: Yeah. I think we have two different types of advisors that we principally help. The one is a practice with 1-25 employees under 10 million of revenue, that's really making an investment. [They say] we've got a good business. We're going to do just fine regardless, but we also recognize to make it A, sustainable, B, to enable growth, We've got to be more efficient and we want to not just be good enough that clients don't leave, we want to be better. For a number of those practices, I think the combination of a workflow, practice management technology that can save a couple hours per client with some of these automations of the client engagement letter or the intelligent client questionnaire, the status updates, also supplemented by our client's success team that can help field those level 1 questions that may come into the advisor. They're not necessarily required to answer. They don't require tax expertise, etc. All that stuff gets unburdened. Those firms have then been able to take advantage of new referrals that they generate and a whole bunch of Harness generated clients. One of the earliest practices that came on to the platform has grown, I think 80, 90% across two seasons because the practice leader is getting a lot more leverage in the amount of time that she spends with each client. She's gotten more resources to talk about in the conversation. The clients, they don't use the network of tax attorneys that we have or some of the other software and database that they have access through our platform. The other group are people that have been at top 50 firms and for a variety of reasons feel like now is the time to be more entrepreneurial to create their own practice. There's tremendous demand for people that have specialization, nimbleness, a willingness to create a great experience. And one that joined that had been at a top 50 firm to create his own practice and his first year was able to generate over a quarter million dollars of revenue. That really came from Day 1, adoption of Harness' technology, a few other components to that workflow and the ability to really highlight some areas of specialization and to take a lot of clients that came through our consumer-facing side that brings in clients and distributes those to the right advisors to serve them. It's really a powerful combination that no... /episode/index/show/taxodyssey/id/33123107

Global Tax Trends: What CPAs Need to Know Now 09/05/2024

Global Tax Trends: What CPAs Need to Know Now This Tax Section Odyssey podcast episode takes a deeper dive into the Organisation for Economic Co-operation and Development’s (OECD) initiative on Base Erosion Profit Sharing (BEPS) 2.0 which sets to reform the internation tax system with Pillar 1 and 2 tax regimes. In addition to the complexity of such international regulations, the political landscape for U.S. implementation is uncertain, and potential action is needed from Congress. Cory Perry, Principal, National Tax — Grant Thorton Advisors, and Vice Chair of the AICPA’s International Technical Resource Panel (TRP), highlights that while many U.S. companies may not face larger tax bills if these regimes are adopted in the U.S., the administrative and compliance challenges are significant. The AICPA has submitted comment letters to the OECD, Treasury, and the IRS, focusing on simplification and clarification of rules. AICPA resources — The OECD BEPS 2.0 sets out to provide a tax reform framework allowing for more transparency in the global tax environment. Advocacy , Feb. 14, 2024 , Dec. 12, 2023 Other resources Transcript April Walker: Hello everyone and welcome to the AICPA's Tax Section Odyssey podcast, where we offer thought leadership on all things tax facing the profession. I'm April Walker, a lead manager from the tax section and I'm here today with my colleagues Reema Patel and Lauren Pfingstag. They are colleagues here with me at the AICPA. They are international experts and legislative experts. We'll get into more of that as we're discussing. I'm also delighted to have with me Cory Perry. Cory is a principal with Grant Thornton Advisors and their national tax office. He's also, and more importantly for our discussion today but probably not more importantly for his day-to-day, the Vice Chair of the AICPA's International Tax Resource panel and Chair of the OECD taskforce. That's what we're going to be talking about today. If you are a follower and listener of this podcast, you might recall a few episodes ago we did a higher-level background on OECD's tax regimes — Pillar 1 and Pillar 2 — just laying the groundwork. Today we're going to talk more about why we think you need to be familiar with these concepts. Even though for today they may not be relevant for any of your current clients. We're also going to delve into the political landscape and where we are today and what that could mean for the US tax system related to international tax legislation. Reema, I'm going to let you take it away for the next little bit. Reema Patel: Thanks, April, Cory, welcome. I know a lot of us have been hearing about the OECD Pillar 1 and Pillar 2 for awhile now. Many countries have also implemented it this year and some are implementing it next year. I guess the most basic question we can start with is, who should care and pay attention to this? Cory Perry: Absolutely. It's a wide impact in tax, but it only impacts the largest of the large companies. I would say it has a high threshold, 750 million of consolidated revenue and two of the four preceding years and you have to be taxed, want more than one jurisdiction. We are talking about very large companies but these days, even middle market companies are easily starting to bump up against that threshold. We're not just talking about the Fortune 100. We're talking about middle market and above companies that should care and think about these rules. Obviously accountants that serve those types of companies, those larger companies. I think many of those companies themselves not even be fully aware that they're subject to these rules or may not have fully thought through how they're going to comply. The other thing I would add, there is a bit of a misconception out there that this is a corporate multinational problem. Although that is primarily where it is, it also impacts pass-throughs, partnerships and S corps that are parents within these groups can be equally subject to these rules. Rules don't always necessarily apply at that level, but they are applied to the group as a whole. I know there's a number of practitioners out there that have clients that have grown over time and might have reached this level. It's by no means going to be the majority, certainly going to be a large minority, but I suspect many will have clients out there that might be impacted or if you're in-house at your company might be impacted. Reema Patel: Like you said, it is for large corporations currently with consolidated revenues at 750 million euros and more. What are you seeing with the clients right now? Any challenges that they're being faced by technology? Gathering data points? I know you have to comply with many foreign jurisdictions as well as the US. Can you speak a little bit to the challenges that you're seeing just as a practitioner as well as from a client perspective as well for them. Cory Perry: Absolutely. Companies are really still trying to get their hands around this as are practitioners. Even the rules aren't fully baked. The OECD is still releasing new guidance every couple of months on quite a frequent cadence. So the rules continue to evolve and how companies are approaching it continue to evolve as well. As far as challenges, interestingly enough, from what we're seeing, many companies are not actually seeing larger tax bills. You'd think tax legislation, tax change like this is going to hit the bottom line and there are certainly companies out there with lower/no taxed pockets of income or that are in low-tax jurisdictions. But what I've found is the vast majority, particularly of middle market companies, are generally not in many of these low-tax jurisdictions, if at all. They are in higher tax jurisdictions, think of the US's top five trading partners- for example, Canada, Mexico, China, and Japan and the UK all have rates above or even some cases well above 15%. The idea is to reach a minimum level of 15% and once you're above that, there may not be additional top-up tax to be paid. It may not be necessarily for all taxpayers an item that's going to really be a cash tax impact. But where we're really seeing the challenge is more on the administrative and compliance side to this. It is a very significant undertaking to comply with these rules. It's just a massive effort that's required in order to get your hands around what needs to be done, get your systems updated so that you can comply and collect the information or the data at the right level, clean the data, so on and so forth. There was a lot of complex calculations that need to be done. In some cases there may be even third or four sets of books that need to be kept that you may not have been keeping our tracking in the past. The rule started out with a simple premise. It was going to be a book tax based on books. That sounds simple. But it quickly evolved into a very complex tax regimes that sits on top of all the other global tax regimes that are already in place. If it wasn't complicated enough before, now we have another layer over the top making it quite complex. That's certainly been the biggest challenge is how do you deal with all of this change and international tax complexity when you're operating across borders. Reema Patel: Definitely, I guess it just keeps piling all the time. Three sets of books, four sets of books. We don't even have CAMTI [rules] out yet. Speaking of which currently, it looks like, as we mentioned it's for large corporations, but what do smaller firms and CPAs in the industry need to know? I'm sure they're not getting into the nitty-gritty details of how to calculate pillar two taxes and all the top up taxes on different regimes. But we don't know if the threshold does get lowered, more companies will get pulled in, possibly. What should they know? How can they keep up with and at least be aware that it's out there? Cory Perry: I think at this point I would say it's more of a client service point. It's being aware of the potential risks in an area where your client might be subject to these rules. I don't expect many firms will have many clients that are going to be impacted. In fact, many firms might not have any clients that are impacted. But it's making that identification and helping those clients understand whether they are impacted. It is getting a lot of press and it's in the Wall Street Journal, it's on NPR in the morning, it's certainly in the mainstream news. Clients are interested in asking questions about it. It's understanding that it's out there, what it is and who it applies to. I think that's the most important part, I don't expect most smaller firms will scale up or hire experts in this area necessarily. But I think helping those clients with the identification - that's going to be greatly appreciated. You're highlighting a risk area for them that they might not have previously considered. Then helping them find a resource that can assist with this somewhat unique area of tax. Whether that'd be another CPA firm in the US or more commonly, sometimes these are non-US firms because right now, as we'll talk about later, the US is not implemented these rules that could certainly assist. Again, flagging these as issues, being aware of those thresholds and who it might apply to is probably the area I would focus right now and making sure that your base has been reviewed. And they understand whether they're going to be in or out these rules. Reema Patel: Definitely. I guess just building on what you said. It's been in the news everywhere. We've also heard in the news — What's the U.S going to do? The US hasn't implemented or enacted any part of pillar two regime yet. Until they do or they don't, the U.S. multinationals are going to have to comply with this. They have to comply in the foreign jurisdictions. They have to comply in the U.S. as well. But there has been limited guidance issued. [There was] a notice earlier in the year, and then the recent proposed regs on dual consolidated losses. But none of them really went into detail. It was just like scratching the surface. There's a lot of guidance that the U.S. taxpayers need. I know the AICPA's submitted a few comment letters to the OECD, to Treasury and the IRS, and you've been heavily involved in some of them. Do you want to just speak to a little bit on what we highlighted in the comment letters, some of the recommendations and concerns we raised in hoping for some future guidance. Cory Perry: Sure. You made a good point there with scratching the surface. I think there's a lot of ground yet to be covered by the IRS. As I said earlier, this is a complex system that lays on top of a complex system. The US [tax] system is undoubtedly the most complex tax system out there. There are a number of different interesting and intricate ways in which these two systems interact. The IRS is working diligently, but I think [they are] only beginning to understand where some of these issues and gaps might be in regulation. They're trying to hit the bigger ones first which they've done with then notice package and the regulations. The notice addressed primarily, but not exclusively, foreign tax credit issues and how the US is going to view these new taxes, really novel taxes that have been created under this Pillar 2 system. And how that's going to interact with the US foreign tax credit system. Then just a week and a half or two weeks ago, they also released proposed regulations dealing with a number of dual consolidated loss issues. One of the major issues they addressed was the Pillar 2 area. The dual controlidated loss rules, those very complex rules, but suffice it to say they are rules that are intended to address double-dipping of losses between two systems. Really, now that we have this overlay, we have this third system that you have to contend with where losses can be used in the U.S. and in that third system and that makes that already challenging system quite complex. I would say a detailed discussion of our comment letters is probably a little bit weedy for this discussion but I'll give some themes and some areas that we focused on in those comment letters. The first I would say is a call for simplification. That was really our focus with most of our efforts in this space. We asked for exceptions and safe harbors from application of some of these very onerous rules. We focused on areas where there wasn't much opportunity for abuse but there was a lot of opportunity to save taxpayer's and CPAs time and effort to have to do some of these calculations that might be, in some cases unnecessary. Or you could make various safe harbor type assumptions. We focus on simplification. Clarification was another area where we focused on. There's a lot of gray out there and there will continue to be. But we focused on a few areas of gray within these rules that we had identified that we thought the IRS could add clarity. Beyond those, we also provided some comments, or we're working on some comments, not just to the IRS, but also to the OECD. There we were focusing on, again, clarification and simplification but with U.S. and multinational corporations in mind. Really the focus is on some of the safe harbors that are out there. There's transitional safe harbors that allow for shortcuts, if you will, that make the work much simpler. But many of those are temporary and they're set to expire in a couple of years and we're making some comments around those. One of them being a request that those be made permanent for taxpayers in an effort to simplify this very complex system. April Walker: Thanks so much Cory. You did a wonderful job for me. Definitely not an international tax expert by any stretch of the imagination and it was made it easy to understand where we are. I'd like to pivot a little bit now and have Lauren take us away. I don't know if anybody knows but there's an election coming up in a couple of months and so I thought it would be interesting if we would talk about what does our political landscape mean for what the U.S. is going to do around this? Lauren, tell us what you know all around this area. Lauren Pfingstag: Thanks for inviting me to join the podcast, April. Cory, I think a lot of professional congressional watchers would say in this space that there's going to eventually need to be some action taken by Congress to move Pillar 2 forward. What would that look like right now? Cory Perry: It's certainly a challenge, I would say in our current environment to move Pillar 2 legislation forward. To give a little bit of background on where it's been. Historically from a political sense, the Pillar 2 rules have been a core aspect of Biden's tax platform. He attempted to move them through the Build Back Better bill a few years ago, that ultimately failed in the Senate. But they remain, and they were in his most recent greenbook, a core part of his plan. I believe they will continue to be a part of the Harris tax platform. I have no reason to believe that will change as well as the Democratic agenda going forward. It has broad support on the Democratic side. The Republicans side historically had support there but more recently they've been openly critical, I'll say of Pillar 2. They've noted their concerns in public forums and expressed frustrations with the negotiation process. There are certainly some challenges there. It's not impossible that we could see some legislation move forward in the short-term particularly if we had, for example, a Democratic controlled government. If we had a Republican controlled government, I think the chances go down. With that said, there are some other factors on the horizon that could influence this from a political perspective. The Tax Cuts and Jobs Act, tax cuts for individuals expire in the end of 2025, beginning of 2026. Many of the favorable business provisions like the GILTI rate, the BEAT rate, the foreign derived intangible rate, and a variety of others. Those are just the international ones, but those are set to expire the end of 2025 for tax years beginning in 2026. That sets up an interesting opportunity where perhaps we could see some compromise, maybe a budget reconciliation bill where it's not along party lines, depending on which way the government swings. Obviously, we might need some collaboration there. If we don't have a democratic government, we might see something later in 2026 in terms of legislation. There is a path forward although it does look like a challenging one. Lauren Pfingstag: Is it true that implementing part of Pillar 2 legislatively would potentially raise revenue over a 10-year budget window? Meaning, if Congress were to move forward with a piece of legislation that put Pillar 2 into play, that they would raise a certain amount of money that could be used to pay for other provisions and a larger let's call it end of year 2025 tax bill? Cory Perry: Absolutely yes. It would be a revenue raiser. Right now, if it's not imposed, other countries might be taxing the United States under the way these systems operate. Subsidiaries, for example, could be taxed in the U.S. if it's in an effective rate less than 15%. There's certainly revenue on the table and free revenue. If you think about it, you could tax in the U.S. or you could tax it in the foreign country. If we tax in the U.S. first, they're not going to tax in the foreign country. It is a revenue raiser. I think it was scored that way in the Build Back Better bill. It would certainly be a pay-for those types of extensions of those expiring tax cuts that I mentioned. That's why I think it could be a lever that could be pulled in those negotiations to help further the Pillar 2 legislation in US in exchange perhaps for some of those other items. Lauren Pfingstag: Particularly if the Democrats, as you said, did win control of the White House, the House and the Senate this November. I think this is more of a note rather than a question, but I think West Virginia Senator Joe Manchin, who was one of the most, if not the most moderate Democrats in the Senate, was instrumental in pulling Joe Biden's vision for Pillar 2 out of the Build Back Better bill. When you look ahead into 2025 and you think through the different Senate races, Senator Joe Manchin is retiring, you no longer have Senator Sinema from Arizona who is retiring. It's hard to pick out who in the Democratic caucus in the Senate, at least in 2025, could play, or would want to play the role of a Joe Manchin and maybe stripping that out of a democratic tax reconciliation bill if we get to that Democratic trifecta of power. I'll be keeping my eye on that for sure. Cory Perry: I wholeheartedly agree. Keeping their caucus together was a challenge last time and it seems like it could potentially be easier at least. Lauren Pfingstag: This is obviously just holistically like a weedy, thorny topic. In my conversations across D.C., I have only met a few people, and I don't count myself among them — who really understand this. It's incredibly complicated and if you were in a room with the tax aides who staff members on the House Ways and Means Committee and the U.S. Senate Finance Committee and you could deliver one or two key messages to them about this, what would you want to tell them and have them relay to their bosses? Cory Perry: I think there's a couple of key messages and themes here. One, I would say the world is moving forward with or without us in terms of pillar 2. At some point, I think there was thought and perhaps that thought might still exist in some, but I think there was a thought that this wouldn't move forward without the US and some of the larger economies like China and India signing on. But that's shown not to be the case. It's been enacted and legislated in the E.U.. All the E.U. member states have adopted it. There's dozens of countries across the world at this point... /episode/index/show/taxodyssey/id/32910112

Chevron doctrine overturned: Implications for tax professionals 08/22/2024

PTET refund roadmap — Expert insights with Dave Kirk 08/01/2024

PTET refund roadmap — Expert insights with Dave Kirk On this episode of the Tax Section Odyssey podcast episode, Dave Kirk, National Tax Partner — EY, and Chair of the AICPA’s Pass-through Entity Tax Task Force, discusses the complexities surrounding state tax refunds related to the pass-through entity tax (PTET) and delves into the challenges posed by the lack of IRS guidance, the application of the tax benefit rule and varying state regulations. Dave emphasizes the importance of consistency in handling these refunds and advises practitioners to involve taxpayers in decision-making due to the inherent uncertainties and risks. AICPA resources — FAQ guidance on the federal taxation of state income tax refunds for PTET payments. — Various issues should be considered when deciding whether a taxpayer can, and should, elect into a state PTE tax. — A state-by-state PTE matrix tracking and linking to legislative updates, guidance, as well as other relevant information. — Browse the reference library for the latest guidance and tools to address your state and local tax needs including tax rates, due dates, nexus, PTE tax and more. Transcript April Walker: On today's podcast, listen to learn more about how to handle refunds related to the pass-through entity tax. 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 a repeat guest, Dave Kirk. Dave's with National Tax at EY. He is the knower of a lot of things, but specifically today we're going to talk about PTET. Dave, let's start off with, I think when we chatted before, we talked about pass-through entity tax fun with that, we're delving into a very specific issue related to it. Let's first talk about the challenges. There are so many challenges around this, the lack of guidance around PTET, but today we're going to talk about refunds and there isn't guidance really. How has that impacted our practitioners? Dave Kirk: First of all, thanks for having me again. Being the leader of the PTET Task Force for the AICPA and having to deal with this for E&Y nationally, I've probably spent 500 hours of my life on this that I'm not getting back. It's just that each state is different. You could probably group states together. It usually requires a case-by-case analysis on how the deduction was taken, when the deduction was taken, and how much money the taxpayer is getting back. The [IRS] Notice 2020-75 only talked about taking the deduction. There was not one word in that notice talking about refunds. You're right, April, there is no formal guidance from the IRS on PTET refunds. But this is also not the first time in US history where a state government has given money back to a taxpayer. Our federal tax system, as we currently know, it has only been around for 110 years or so. We do have guidance scattered throughout that last century of payments of taxes, deductions for taxes and recoveries. You might call it the common law of refunds that we would use in the absence of anything specific coming out of the government on how to deal with this. Walker: Tax benefit rule, right? It's been around for a little bit. Kirk: Yeah. There's two aspects of the tax benefit rule. There's the exclusionary aspect of it, and that's been codified about 40 years ago into Sec. 111 of the code. Then there's also the inclusionary aspect which kind of says, hey, you got a benefit for a payment back in a prior year and you have got that payment returned. That should be something, that should be Sec. 61, gross income. But where the complexity arises is, first of all, you can tell whether something is taxable or not taxable based on whether you got a benefit for it in a prior year. Okay, great. That's relatively straightforward, and I say relative with some emphasis there. But then you'd go down a very slippery slope really quick once you do determine that a PTET refund is taxable, because then you have to ask yourself, what characteristics does that taxable refund have? That is a morass that I don't think that the government ever really envisioned. I'm not envisioning any sort of guidance coming out of the government within the next 12 months on this. Walker: The last count, we have 50 states. Like you said, you can group them maybe, but each state was allowed with the IRS notice to develop their own regime which causes all kinds of fun. Which again, we won't get into specifically today. But like you said, it seems like we could the tax benefit rule and thoughts around that, or how we are going to try to provide some assistance to you with a resource that's been developed. You mentioned that you are the Chair of the AICPA Task Force for PTET. We thank you so much for all the things you do for the AICPA. In doing that, you guys have developed some really helpful FAQs around different nuances, some examples or some summary activities that can happen. Let's provide our listeners with some of the key takeaways from those FAQs. Kirk: First, states matter, and who's getting the refund matters. If you're an S corp and let's just keep this simple that you have at dentist that owns an S corp. That S corp makes $1 million and it owes PTET at the S corp level of say, $80,000. What you do assuming cash basis and assuming you pay the exact amount of PTET on December 31st, that you can deduct it. Your K-1 line 1 should be $920,000. You are going to get a credit on your local state return of $80,000. In a vacuum, you should not have a state liability equal to or greater than or less than the $80,000. In a perfect world, that's how the system works, and that's probably about as complicated as the system was ever supposed to be in the eyes of the IRS. But you know that no one ever hits their tax liability at 100 percent. You might hit by 99, 98% or 101 or 102%, but you're never exactly on the dollar. First is the S-corp. If you thought that you owed $80,000 and you made that payment in December of 2023. Cash basis taxpayer, you reduced your K1 income by the $80,000. But when you get around to filing your return and you only owe $79,000, when the S-corp files the PTET return, the S-corp is overpaid $1,000. That should be income back to the S-corp because in 2023 they deducted 80,000. They only should have deducted 79k and so they get it back. In a vacuum, next year, I'm going to have $1,000 of income on my K1 that I wouldn't have otherwise had if I wasn't in this PTE regime. Simple. Now if I deducted it on the front page of the return because I'm just offsetting my dental practice income or whatever it is, that PTET payment is no different than rents or salaries or insurance or whatever it is. Ok fine. So when I pick it up, that $1,000 refund in the next year, that should also be similar to my dental practice income, it's simply reversing a deduction. If that amount is, if I say for example, reduced passive income, maybe I'm a part owner of a dental practice that I don't practice anymore and I'm passive. Then that should come through as passive income to me because last year the deduction was probably a passive deduction. Or if I was in a business that generates QBI, qualified business income, under 199A and I deducted PTET against it last year. If it reverses, then it feels like the right answer should be it's 199A income, good QBI when I pick up my refund. But that is where the inclusionary aspect of the common law tax benefit rule would come into play. You think about it in the same way of self-employment income. Is if a partnership that you were in your subject to self-employment income on the Line 1 and your PTET deduction reduced Line 1, and that amount is refunded to the partnership, or some portion of that was refunded back to the partnership in year 2, that should probably be self-employment income. Just because the deduction reduces self-employment, you'd think that the income should increase self-employment. That's at the entity level. But then you have to think, going back to my original example, my dental practice made a million dollars and paid $80,000 of PTET. I turn around and I file my personal return and because of credits or dependent exemptions or whatever it is, I owe only $76,000 on my 1040, on state version of my 1040. I'm going to get $4,000 back from the state. Then the question is, what is that? I first start with the concept of I have $4,000 and so Section 61 says that's income, I'll live with that. Then I go to Sec. 111 and said, do I have a benefit from a prior year or do I not? If I don't have a benefit in a prior year, then this income shouldn't be income so it would probably be excluded by [Sec.] 111. But because they took the $4,000 of a deduction on the front page of the 1120-S, it reduced my K1 number. I did get a benefit even if I had an NOL that I could use and I didn't pay any tax on a prior year. It just means I used less NOL. Or that if it was passive income and I had passive losses that would be able to offset, but it would still be income to me.I still got a benefit even though I had other personal attributes that minimized that income, it would still be income. It's much harder though, to think about, look, I am getting this refund and should a state refund be QBI? Because it came from the state, it didn't come from the entity like in the first part of our discussion, should it be self-employment income? That's never been the case before that a state tax refund is self-employment income. That's just weird because itemized deductions for state taxes were never self-employment because you'd never got to deduct them from self-employment. You have all of these character questions. But that is simple when you're looking at the individual and the entity in a vacuum, and that's where we started that I'm a dentist, I own 100 percent of an S-corp and that's all I have. But as soon as I start injecting other things such as a spouse with W2 withholding or estimated payments that are made at my 1040 level or composite returns that I'm filing in other states and getting out-of-state tax credits on my local return. That gives rise to the question of if I get money back from the state, is it really the PTE credit that I am getting back or am I getting back my estimated payments? Or am I getting back my W-2 withholding or my spouse's W-2 withholding? That part, what is it, is a question that we've never really had to wrestle with in the last 100 years because taxes were always deductible in prior years, prior to TCJA. Yes, we had the AMT system and everyone knew how to do that calculation of how much of the taxes puts you in an AMT and did you even get a benefit at all? But the composite taxes, the withholding taxes, estimated payments, they were all treated the same. But now you have this special class of tax credit, deemed tax payment, whatever you want to call it, that, is almost like a hydra with multiple heads of, what is it? In the FAQs, basically say, "Look, we think that absent any guidance specifying that certain items come first, that you pick a method and you stick with it year over year." A duty of consistency. If you want to take the position that every dollar of refund first comes from estimates and withholdings. Basically your Schedule A, taxes that are capped at 10K. Then chances are those coming back to you will not be taxable because you capped out at the 10K and you never got a benefit under the tax benefit rule. Another alternative is to say that the PTE credit comes back first, but that would almost certainly be taxable if it was deducted on Schedule E or are embedded in Line 1 of a K-1. That's probably not very common for people to take that position. But the other one would be, look, if you have $80,000 of PTET credit and you have 20,000 of withholding than $0.80 of every dollar coming back could be taxable and 20% would be associated with the withholdings or whatnot. Maybe that would not be taxable. That would be like a pro rata method. But absent guidance, it's Choose Your Own Adventure. Just don't get eaten by the dragon at the end. But that's what we're instructing our folks inside of E&Y is to just be consistent and let the taxpayer in on the discussion. Don't make unilateral decisions on their behalf. And let them know that there is uncertainty, there is risk, and that the IRS may disagree on taking estimates first and whatnot. That they should to the extent that they are running into this problem. That if I know that my PTET is being overpaid at my partnership or S corporation level, then I should take corrective measure at my personal level either, by reducing estimates or trying to ratchet down withholding of my spouse on her W2 or his W2 to try to make sure that you're not overpaying too much because you're still giving interest-free loans to your state and local governments and that still doesn't make any sense. Walker: That's a great summary of what's included and the different situations that we go through [in the FAQs]. But consistency, I think, is a good rule. Also, if we note the fact that the IRS hasn't and likely will not put out any guidance on this. I think it's really interesting that here we are in the middle of 2024 and TCJA is scheduled to sunset at the end of 2025 and we're dealing with this. It may become a moot point, but it's still very important that people are just really wrestling with this very complex issue and without guidance, it's hard to make a plan. Kirk: I think the IRS is keeping their fingers crossed, that the SALT cap expires and the TCJA and PTE regimes will just expire and everyone will go back to itemized deductions. I'm not sure that's in the cards, because even if the SALT cap goes away and that itemized deductions are fully allowed for taxes, just like was in pre-TCJA land. The PTET regime is still beneficial from an AMT perspective. I wouldn't be the least bit surprised that you're going to have maybe state societies and taxpayers and the likes start lobbying their state governments in the next year to extend the PTE regime past 2025, make it permanent. Because of the AMT benefit, regardless of what happens in Congress on the cap. Whether cap goes away, cap goes up, cap stays where it is, whatever. Because the people on the coasts, the high-net-worth individuals on the coast and in the highest tax states, California, Oregon, New York, New Jersey, Connecticut, Massachusetts. You all know where you are, Illinois, whatever, that taxes and 2% miscellaneous were the ones that put you in AMT to start with. The fact that you could get their local governments to go along with this, I don't think that this topic is going away for taxpayers or the IRS. I think that both sides, both taxpayers and the IRS need to I would say wake up to this. This is something that's in my mind here to stay for the long term. Walker: I don't know if that's good news or bad news. I'm not sure how I feel about that. It is news. That's what we're here, is to let people know. Here's something you need to not bury your head in the sand about. Any other final thoughts as we're wrapping up? Dave, any advice? Kirk: Advice is that it is a lot more complicated than people appreciate. That I know I've heard certain preparers, usually it's smaller firms, really small. Just say that this stuff it's not taxable if the state doesn't give you a 1099-G. The 1099-G has nothing to do with whether something is taxable or not. The taxability of something landing in a checking account, direct deposit, or via check. The default position is it's taxable unless you can tell me why it's not. That's always been the case in the code. I think that's the way people need to approach it. Start with taxable and let's figure out a way for it not to be. Walker: Great. That's good final advice for everyone. Dave, in closing on these podcasts you've been with me before, but I like to think about us taking a journey. We're the Tax Section Odyssey, we're taking a journey toward a better profession. But I also like to hear about my guest other journeys outside of the world of tax. I do have some insider information — I know you were just on a trip, do you want to share something about that. How did that go? Kirk: We just got back a couple of days back from 16 days in Alaska. We flew into Fairbanks, took the train down to Denali and then carried on down to Anchorage, and then got on a ship and made it all the way down to Vancouver. Walker: Nice. Kirk: I expected a lot of strange things to happen, maybe be chased by a moose or something like that. But what I didn't anticipate is when I took the train from Fairbanks down to Denali, that a spark shot off the train and started a forest fire at the entrance of Denali. Within two hours of us getting to the entrance to the park, the forest fire had spread to such a point where it burned all the power lines and the park had been is now I think just opening up after being closed for about two weeks. Ironically, I've been to the entrance point of Denali twice in my life and I've never actually been able to make it into the park. That gives me a reason for a third time to return to the interior of Alaska. Walker: Yes. I like your positivity there, rather than taking it as maybe you don't need to go back to Alaska. I don't know. I hope you were able to experience some of the loveliness of Alaska even though you weren't able to get into Denali. Kirk: Oh, it's beautiful. For those that like the outdoors. It truly is a magical place. Walker: Wonderful. Thank you again so much, Dave. I hope this was helpful and good information for our listeners. It certainly was for me. Kirk: Thank you for having me again, do it anytime. Walker: Thanks. Again, this is April Walker from the AICPA Tax Section. This community is your go-to source for technical guidance and resources designed especially for CPA tax practitioners like you in mind. This is a podcast from AICPA and CIMA together as the Association of International Certified Professional Accountants. You can find us and listen wherever you find your podcasts and please follow us so you don't miss an episode. If you already follow us, thank you so much and please feel free to share with a like-minded friend. You can also find us at aicpa-cima.com/tax, and find our other Odyssey episodes, as well as getting access to the resources mentioned during this episode, specifically the FAQs that were the focus of our conversation today. 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 includes a digest of tax developments, trending issues and practice management tips that you need to be aware of to elevate your professional development and your firm practices. This resource is part of the robust tax resource library available from the AICPA Tax Section. The for staying up to date on the latest tax developments and providing the edge you need for upskilling your professional development. If you’re not already a member, consider joining this prestigious community of your tax peers. You’ll get free CPE, access to rich technical content such as our Annual Tax Compliance Kit, a weekly member newsletter and a digital subscription to The Tax Adviser. /episode/index/show/taxodyssey/id/32385027

Unraveling the IRS's ERC processing path 07/19/2024

Unraveling the IRS's ERC processing path If you're advising businesses on their pending ERC claims, this is a must-listen for practical guidance on navigating the process and setting the right expectations. Tune in to hear Chris Wittich and Dan Chodan, two experts immersed in Employee Retention Credit (ERC) matters for four years, discuss the IRS's upcoming actions for sorting and processing pending ERC claims by risk level. High-risk claims are likely to be denied, medium-risk claims require more detailed review, and low-risk claims will be processed starting soon. The IRS moratorium on processing claims filed after September 14, 2023, is still in place. Businesses with pending ERC claims are facing critical choices about amending income tax returns due to statute limitations. The speakers advise open communication with clients about the limited options available and the importance of understanding the ethical responsibilities as tax preparers. Based on the current backlog at the IRS for ERC claims, it is important to manage client’s expectations around the processing time as the impact of potential changes in legislation. Related resources Previous Tax Section Odyssey episodes discussing the Employee Retention Credit (ERC): · · · — 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. — Use this guide to educate yourself and others on common misconceptions surrounding the ERC. — 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 · — IRS news release on June 20, 2024, discussing the next stage of ERC work · — IRS news release on Sept. 14, 2023, ordering the immediate stop to new ERC claim processing. · — IRS hub for ERC information, including links to guidance, FAQs and the latest news. Transcript April Walker: On today's podcast, we're going to talk about the IRS's next steps for ERC and what that means for you. 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 two repeat guests. I'm happy to have with me, Chris Wittich. He is also known as @ravenoustiger. He is a partner at Boyum Barenscheer in Minnesota. I'm also delighted to have Dan Chodan. Dan is a tax partner at Trout CPA in Pennsylvania. Welcome to the both of you. Dan Chodan: Thanks for having us. April Walker: Chris, let's set the stage for what we know now. We're recording on July 2. [Let’s talk about] what we recently heard from the IRS late last week and what we know now about the IRS processing of claims or what they're telling us. Chris Wittich: On June 20th, IRS had a press release, and there was a lot of good information in there, the first time in quite awhile. I think we've gotten some insight as to what they're doing with these ERC claims. Right off the bat, they differentiate, and they say they're putting claims in three different buckets, and it certainly falls in the red, yellow and green. In my mind, the red category, the IRS is saying between 10-20% of the claims fall into what they describe as the highest risk group. They've said that a lot of these are going to be just straight-up denied in the coming weeks, so that red they're just seeing these claims. They're looking at them. They're saying these are not good claims at all. I would suspect those are like the employees don't exist, the businesses don't exist. They're claiming more in credits than they paid in wages, stuff like that. The IRS is saying 10-20% of all the claims they have, I would expect to get adjusted or denied entirely, and they're going to start working on that soon. The next category is the biggest category, and that's the yellow, as I would describe it. So they're saying between 60 and 70% of claims show an unacceptable level of risk. That's their term, not mine. That's two-thirds of the claims. They think the risk is so high that it's unacceptable and we're not exactly sure what factors they're using to determine that, but in their own words, they're going to be doing more thorough reviews, compliance reviews of those claims. Which again, that's the vast majority of the claims. The third category is a green zone. They're saying between 10 and 20% of the claims show a low-risk, and they don't say how they determined it, but you can reasonably assume that the claims are well within the payroll metrics. They might be particularly at-risk industries. A restaurant is likely to be a lower risk claim than a law firm. Based on industry or the size of the claim, or the number of quarters, they're saying, well, 10-20% of these look like they're going to be good claims, and so they intend to start processing them. It remains to be seen how quickly they really process the claims, but at least they're acknowledging that a portion of these are good claims and we're going to start getting them out. For those three buckets, the other caveat here is those are the claims filed prior to the moratorium. They haven't looked at the claims filed after the moratorium. So, those three buckets, those are just the claims they had prior to September 2023. April Walker: It's important to note, because we get this question quite a bit, the moratorium means they are not processing those claims. It does not mean that they're not accepting them. If you feel you have a good claim. We're going to get more into the statute discussion a little bit later. [I’m really not talking specifially] about statute on income tax return, but there's also a statute issue with the ERC claim itself. Again, we'll talk about how you're talking to your client about the [statutes], but the moratorium does not mean you cannot file, it just means they are not processing. Chris Wittich: The moratorium. I always explain it to clients, like you can send in your claim. The IRS will take your claim and put it on a shelf, and they promise that someday in the future they will start looking at the stuff on the shelf, and they haven't done that yet. If you have a good claim submit it, it goes on the shelf, the IRS will get to it down the road. April Walker: That's what the IRS told us, which is important to set the stage. Chris, based on this information from the IRS, what advice are you giving to businesses who are waiting? I guess there are the buckets – from what the IRS said. There's also buckets of where people are in this claim process. Walk us through a little bit about how you're sharing with your clients about expectations, I think is an important word. Chris Wittich: So for the people who filed prior to the moratorium, and we have lots of people we helped in the summer of 2023, very few, if any, of them have seen actual checks or credits getting processed. I think now what we can tell people is the IRS is going to start processing those. If you filed in the summer of 2023 and you're a low-risk claim, I would expect or hope to get processing in the next six months. For those people, I am saying, hey, it's been slow. It's been maybe 12 months and you haven't seen anything, but we're very hopeful that you will get processed before the end of the year. For the people who filed during the moratorium, and certainly we've had a bunch of those. Originally we didn't know how long the moratorium would last. Maybe it was only going to be a couple of months. My advice to them now is that I fully expect the moratorium to last until April of 2025. I think if you read in-between the lines of what the IRS is saying, this moratorium is going nowhere anytime soon. If you filed in October 2023, just after the moratorium, I'm telling them, hey, that claim is likely to sit on the shelf at the IRS until April 2025, then they're going to process them in the order they were received. Late 2025 or sometime in 2026 is my realistic expectation for when those claims will get processed. For the people who are questioning their claims, I would remind them that the withdrawal process is still available, it's still open. You can also just file a regular amended payroll tax return to undo or modify or payback your portion of a claim, if you think it is no longer a claim you want to make. Then for people who have potentially made bad claims, I would say the IRS has hinted at a second voluntary disclosure program (VDP). It's not out yet. When it comes out, the terms won't be as generous as the first time around, but there's a decent chance that a second voluntary disclosure is coming down the road so that's how I look at it. You got the good claims from before the moratorium, the good claims during the moratorium and then you've got withdrawal, regular amendment and voluntary disclosure as the options to deal with bad claims. Dan Chodan: If I can jump in there about the VDP. I think the comment has been that they were going to make that decision pretty soon. I think this month so that we should hear something on that. Anybody that might be thinking about doing it, I'd say at least hold off through the summer before making those decisions because it sounds very likely that they're going to come at least come out with something or say that they're not. One way or another, I think the IRS already hinted at that, but you bring up a really good point there Chris, and the IRS said it in this release. They are really concerned about lifting the moratorium and what that would do for the next wave of promoters, pushing for another gold rush, I think is the term that's used there. That's really the big push of the moratorium itself. To shock the system of the outfits that were doing heavy promotion. I think it's been largely successful. You got to give the IRS credit. They can't necessarily deal with a significant volume that was out there. It went from 50-60,000 claims a week. You're recently looking like closer to 12k a week that they are receiving. And that's because of this moratorium and then because you can't file 2020 claims anymore. Because after the bill with the January 31st cutoff potentially was out there, that really caused a push, for a lot of reasons, but the moratorium being the primary one. And just to reiterate what you said with that in mind, the IRS saying they want to responsibly lift the moratorium, and that absolutely means it's not going to be before there'll be any chance that funds would go out and be used for further promotion. They've said that explicitly in this. Those hoping that it would have been through the end of '23, what the first timeline could have been and it'd be lifted soon. It's certainly dragged on of course, till now and I expect that it's going to at least double in time here through next year, if not more. While they try to get Congress to act, they want Congress to pass that ERC provision that was in that bill, that didn't make it to law yet. But they want that passed in standalone or tucked into something else. That's what IRS is lobbying for. It's certainly interesting, but I am maybe a little more pessimistic on the timeline. Six months, I'd love to see something happening. But I've been telling people we're in uncharted waters and we have seen some processing. It's been a trickle during the moratorium of the pre moratorium claims getting paid. I think there's a lot in this release, but that's basically going to continue. What we've seen is the same as what it's going to be going forward. It's going to be a very slow rate and it's a very small amount. But we are saying that most all of these claims have a very high risk of being improper and the low-risk claisorryms are so small. How do you know which bucket they've put you into? You just can't expect anything. What I'm telling clients is do what the IRS is telling you to do here. You've got to wait and don't expect anything, don't spend this money in advance. If you do have a hardship case, it's been over a year. Those are the taxpayer advocate cases that can be filed and there's been success there. We've seen that for those funds that have sat around for a long time, but if it's a true hardship case that can be made, still don't consider that a guarantee, but at least you can make those cases through taxpayer advocate. That's an action that can be taken, but for those that can't make the hardship cases, it's a sit around, waiting game for very large claims that are solid. Refund litigation is part of the conversation too through the court proceedings there, but not something that the average taxpayer would be considering. Just due to the costs and the timeline and there is scrutiny to that. It isn't going to be all claims, it's just going to be the best ones and the biggest ones and those willing to fight that process. No guarantee that it will mean it's a faster process than if you had left yourself from the traditional route. Those are just the conversations around what are we doing at this point. Just to add some more color to that plan. April Walker: That's great. Dan, Thanks. I was just thinking as you were talking. Again, we do not know anything about whether this is true or not, but truly, if they push the moratorium until next spring of 2025, maybe I just had a light bulb moment, That will be the end of when 2021 claims can be filed. But I guess even more important, if there is a legitimate claim, back to our original point, can still be filed. They're put on that proverbial shelf that Chris is talking about, but it sounds and they certainly alluded to that opening up the moratorium seems like an opportunity. Dan Chodan: We should mention April [15 deadline] there. I always have to layer that with a lot of caution at this stage because that January 31st date could stick at some point. While I would say you can file them today, there's no guarantee. If the messaging continues the way that it's going, it could be another date. It could be any date. It could stick with January 31st. All these claims on the moratorium, have been sitting on the shelf. It could go all the way back to the beginning of the moratorium. that's more revenue for them in Congress to go spend somewhere else. It's not to say that you don't file if you have a legitimate claim, but you just have to be aware that there's absolutely a risk at play that this could be changed and could be changed retroactively to make sure we highlight that. April Walker: Great point and things you need to be talking about with your clients as you're thinking about it as a business yourself filing this claim. I want to talk about any experiences you've had, just in general, with not necessarily the processes and the claims, but thinking about have you had a lot of [IRS] examination communication. What's your experience been with your current claims that you have in the hopper? Chris Wittich: I've seen just a wide variety, I would say, of issues or notices related to these. Certainly, had a couple of audits, but still that's a small number. We have other issues where four of the quarters got processed, but not the other two. You call the IRS, try figure out what happened, and you get the runaround, you just can't get a straight answer. We've had notices where the IRS denies the claim because they say you didn't pay any wages, only to discover that, yes, of course, they paid wages, but the IRS lost all the payroll tax documentation; they don't have the W-2s, a lot of little one-off issues, I would say that are all over the place and it has to do with these things. A lot of these things were filed on paper, the records aren't necessarily that great. I'm sure that I have clients in what they think is the highest risk category, and they're there because they lost the W-2s, and so they think a client made a claim of $100,000, but don't have a single person on payroll. But yes, they do have people on payroll, we have all the payroll tax reports, we have all the proofs that W-2s were issued. IRS just isn't matching that up, necessarily. Just lots of issues, but they're all over the place. I haven't seen anything, at least recently that's been very systemic or consistent. My advice is always trying to confirm that the IRS has your claims. Certainly, certified mail was a good way to do that, but some clients didn't do that, so you can call the IRS and at least confirm that they received it and then deal with those one-off issues as they come. April Walker: Are you doing that on the PPS line? Chris Wittich: Yeah. We've used the PPS line for the most part, you certainly need a power of attorney to do that. Some clients just call themselves and they're calling the regular IRS line, that's so hit or miss, as to what kind of service you're going to get, but it's available just to call and confirm that they have it. April Walker: We do get that question a decent amount. Dan, do you have any thoughts to share? Dan Chodan: Sure. Yeah, I'd add to that. Once you have that power of attorney, you can get the 941 transcripts. It's going to give you the same information as a phone call, they'll tell you the date received, and once it's paid, otherwise, no updates in the process, which is just mind-boggling, of course, when he tried to explain that to a taxpayer that wow, how do I not know the status? Unfortunately, everybody's in the same boat, all we can do is prove receipt and then show when the payments are made, and those transcripts are great. As far as what I've been seeing, I've seen it all across the board just as Chris has mentioned here, there's inconsistency as I talk to other professionals, the enforcement of this is all over the map, some have moved very quickly, some really drag on, some agents are very well-versed in the process, some are missing things that are needing to be explained the rules, may be and helped through the process is a wide breath in that and what's going on, but it doesn't seem to be in a large volume. There's a team that's doing these in examinations and the processing is at a trickle, it's not a large group, and neither of those areas. Something's going to have to change going forward while the IRS puts more resources behind enforcement. Will there be a larger enforcement window authorized by Congress that's being asked for in these bills? Now at some point, the rate of processing has to pick up or it's just going to take years and years for the backlog to be cleared on all these things. There's more to come on what's going to happen, but again, is it to expect some seismic the change in the next six months or even to a year, it's probably not it, but there'll be some change on that front. There has to be given the IRS rhetoric around enforcement and then also just there will be more of a ground swell eventually that we have to do something with all these claims sitting on a shelf. April Walker: I'd like to pivot a little bit to another big question we get all the time, and this is the segment I'd like to call There are no good answers to these questions". I want to talk about them [though] and let's walk through where you guys stand with them. So statute of limitations and income tax returns. Lots of concerns here, especially as we talked about with all the delays. With delays of running out of statute for these income tax returns where either amended returns have already happened or need to happen. Let's break it down a little bit. There are businesses who haven't received their refunds, their claim has... /episode/index/show/taxodyssey/id/32216292

Tax policy deep dive — ERC, BOI and IRS performance 07/12/2024

Tax policy deep dive — ERC, BOI and IRS performance In this joint episode, Neil Amato, host of the JOA podcast and Melanie Lauridsen, VP of Tax Policy and Advocacy for the AICPA discuss recent updates on three key tax topics: the Employee Retention Credit (ERC), Beneficial Ownership Information (BOI) reporting, and a member survey about IRS performance during tax season. Melanie highlights the IRS’s recent actions and proposed regulations regarding ERC, the implications of BOI reporting requirements, and the mixed feedback from AICPA members on IRS service improvements. AICPA resources — Access resources providing the latest updates on the employee retention credit (ERC). — Access resources to learn about the beneficial ownership information reporting requirement under FinCEN’s Corporate Transparency Act (CTA). Transcript Neil Amato: Welcome back to the Journal of Accountancy podcast. This is Neil Amato with the JofA. I'm joined again by Melanie Lauridsen, Vice President–Tax Policy & Advocacy for the AICPA. This is a special collaboration episode between the JofA podcast and the Tax Section Odyssey podcast. Again, welcome back. Melanie Lauridsen is our guest. She is a repeat guest. Melanie, today, as we record, it's early July, and we're going to focus in particular on three topics: The employee retention credit or ERC, beneficial ownership information reporting or BOI reporting, and then a member survey about IRS performance in tax season. It sounds like there have been more than a few updates recently on those topics. Let's dive in. ERC first: What's the latest from the IRS and what does that mean for our members? Melanie Lauridsen: Neil, thanks for having me back and yeah, there definitely have been some updates. As you know, the IRS did make an announcement around ERC and there are a couple of main points that they wanted to bring out. The first one is that the IRS made a call to action for Congress specifically asking to retroactively stop processing ERC claims. Also, the second piece of it is for Congress to extend the statute of limitations, but very narrowly defined, and it really is only for IRS assessments. In other words, if a taxpayer wants to make an amendment on their own free will, the statute of limitations will not be extended to that. But if the IRS notices something, says something, or is talking with you, and they recognize there needs to be an adjustment, then you can move forward and make that amendment. This has some implications, obviously, for our members, specifically the retroactive aspect of it. Now, they worded it differently because there's the Wyden-Smith bill, which we've talked about where that is retroactively stopping making valid ERC claims. In this case, it is that the IRS has no longer to process claims. It still has that same effect with members and does bring a little bit of nervousness to people. What that really means is that our members really need to have conversations with their clients if they have a valid ERC claim that hasn't been filed. [In] those conversations, people need to make it clear to the client that, yes, we can do the work, but there could be either the retroactively where the IRS stops processing claims, or there could be a bill that says that no longer, since a certain date, they don't have to accept claims. There's a little bit of risk associated with that. I think in the last time we spoke, we spoke about how there's an unknown around that date and therefore there's uncertainty around it, and clients need to be aware of the risks associated with that. The other important aspect of this announcement is where the IRS indicated that they have bucketed all these claims into three groups. There's the low-risk, medium-risk, and high-risk. The high-risk is where there are clear signs of error within the claim. Now, couple of things I need to make sure people understand. We don't know the criteria that the IRS is using to categorize people. They are not making that public. The other thing, too, is you cannot call the IRS and ask what bucket you're in. You just won't know. They can't help you on that front. What that means is if you're low-risk, the IRS is trying to process that claim as quickly as they can so that people can get the refunds back. If you're a high risk, they're trying to process that claim also as fast as they can to be able to deny those claims. Now, if you're medium-risk, that's the bucket where you're stuck and it will be a while before they actually look at those claims. Amato: That medium-risk bucket, do you recall: What's the approximate percentage that maybe that has? Lauridsen: I know that the IRS in their announcement gave a broader range of it, but in a conversation with IRS executives, I was told 57%. Amato: Good to know. Lauridsen: That's a big number. Amato: It is a big number. A lot of people still in limbo. And maybe lost in the shuffle: Can claims still be submitted during this period? Lauridsen: I get that question quite a bit, and there's a little bit of confusion around it. Some people think that claims, you can't file them. If you have a legitimate claim, you can still file it. The problem is centered around is the IRS going to process it or will it not be considered a valid claim? It goes back to those conversations that our members need to have with clients because we really just don't know what will happen with the claims. Amato: Does it surprise you the number that were labeled high-risk? Lauridsen: Not based on feedback that we've seen from our members and other external stakeholders. We do know that there were ERC mills out there promoting the claims and they would tell people "you absolutely qualify," when they absolutely didn't. We also know of some of our members where they flat out told the client "you don't qualify," but the ERC mills were telling them, "you do." Then they went off to the side to go get that claim because it was a lot of money for some of these people, and money was talking. Amato: Now, I guess also related to the ERC, on July 1 the IRS published some proposed regulations, so it's hot off the presses for us. What can you tell me about these proposed regs.? Lauridsen: The IRS did drop proposed regulations. These proposed regulations, they provide that the IRS will assess an underpayment of tax on any overpayment interest paid to the taxpayer on an erroneous ERC fund. In other words, not only would you need to pay back the overpayment of the interest portion that you received of a claim, but you would then also have interest penalties on top of it. One thing to note with the proposed regs. is it recognizes that the current regulations don't address the recapture of interest paid. They also note that the proposed regulations are to apply only to interest paid after the issuance of the proposed regulations, so not before. It's still very unclear as to the payments – what about the payments are already went out with or without the interest, and whether the IRS will attempt to recapture that interest? There's just still a lot of confusion around it. As we get more clarity, we will also provide that to our members. Amato: We will post some pertinent resources and also recent JofA coverage of this news and other news we mentioned. Melanie, I mentioned JofA resources, are there other resources that you'd like to recommend that maybe I'm not aware of? Lauridsen: Absolutely, Neil. The Tax Section Odyssey podcast will be doing a deeper dive around the questions that our members and their clients may have, and that should be posted around the same time as this podcast. (Editor's note: The episode Lauridsen mentioned is scheduled to publish the third week in July). Amato: Excellent. Now let's talk a little bit about BOI, beneficial ownership information, that reporting requirement. What's new on the BOI front? Lauridsen: There's quite a few different little updates here. But most recently [the] Maryland attorney general did actually provide and release an opinion on whether assistance by a CPA, with the beneficial ownership information reporting requirement of the Corporate Transparency Act, would constitute the unauthorized practice of law [UPL]. The Maryland attorney general made it very clear that the determination of UPL is fact-specific and that the opinion is only a guideline because, again, they have to take a look at each and every single case. Making clients aware of the BOI reporting requirements, guiding them through FinCEN's FAQs, through the compliance guide, helping [the client fill out] the BOI reporting form, guiding them through questions and answering questions for them — all of that is not considered unauthorized practice of law, according to the Maryland attorney general. If you were to fill out the report on behalf of a client without connecting with the client, there might be some issues there. Also, if there's just a lot of uncertainty and you know that legal knowledge is needed, a legal analysis to determine who a beneficial owner is, then you really should be turning to a lawyer to help you answer those questions. What I'm telling people is what we've been telling members all along, that a CPA will need to use their professional judgment when they engage or work with a client, and they'll have to determine where that line gets drawn as to whether or not a lawyer is needed. If it's a very complex business arrangement, most likely, you will want to include a lawyer. Again, this is all very in line with what we've been telling members, and it's also similar to what other states have said. But no other state has actually put it into writing, and there have been no other opinions. So far, Maryland is the first. Amato: Thanks for that update. Now, I understand also that I guess you're working with congressional staffers on a bill being drafted on BOI. What is that bill designed to do? Lauridsen: Actually, we are working with Congressman [William] Timmons' office and that bill actually works well with the Maryland opinion. The hope is that the bill would be able to avoid having to go to all the many multiple jurisdictions and the bill would be able to take care of all this all in one fell swoop. Specifically, the bill offers two aspects of relief which are a big concern to our members. Number one: The bill would offer a safe harbor for CPAs who do their due diligence when filing the BOI report on behalf of a client. In other words, if you get information, you have a conversation with the client, you do that due diligence, and yet the client gives you some fraudulent or false information, that you would not be held liable for that. The second piece that the bill does: The bill flat out states that services under the Corporate Transparency Act are not considered unauthorized practice of law. That really does go a long way in helping with the various states because when the federal [government] gives that nod, an indication, a lot of the states would most likely fall in line with that. Also, I do want to connect on the other types of work we're doing, not only with Congress. We have worked with a lot of external stakeholders and external coalition members because this concern is not a specific AICPA issue. This is a broader issue for all small business entities. Those two points that I brought up from the bill, those take care of the biggest pain points. But the third pain point really is the 30-day period to update the BOI report for an error or a beneficial owner's updated information. We're working with FinCEN on this since FinCEN actually has authority to make this change. Collectively, we are working with [Capitol] Hill, we are working with external stakeholders, and also FinCEN, and we've actually pulled everybody together to start having conversations so that there is awareness of what our pain points are, and what exactly we can do to be able to resolve a lot of these issues. FinCEN does have concerns, and they've made it very clear that this year they're focusing on awareness and not enforcement. Part of the reason is, so far, keep in mind we're seven months into the year, FinCEN has only received just over 2 million BOI reports. Remember, they're asking for 32.6 million, so awareness is definitely something of a concern for them. Stay tuned, there will be more to come. Amato: Thank you for that. You mentioned Congressman Timmons, that's, I guess, Rep. William Timmons from South Carolina, is that correct? Lauridsen: Correct. Amato: Great. Yes, we're talking about all these updates and potential changes and things that people want to do but currently the BOI reporting requirement, it remains the same for most small businesses, right? Lauridsen: It does and that's what makes it very scary. A lot of people have heard about the court cases where they said the Corporate Transparency Act was unconstitutional. But again, that only applied to a small sliver of the population of the members of [the National Small Business Association]. So, it's very confusing. The rules themselves are confusing. But unfortunately, everything remains the same, and people, unless you're one of those 23 exceptions, you still need to file. Amato: Moving on to IRS survey results. It's not an IRS survey, but it's a survey about the IRS. In our , we discussed how the IRS perceived how the filing season went. The IRS released some data showing that they answered [88]% of calls that came to the IRS. The AICPA conducts an annual member survey immediately after the filing season to see about IRS service. What does the feedback say, and is it in alignment with what the IRS said? Lauridsen: Oh, Neil. No, it's not in alignment with what the IRS said. This year, overall, the IRS did better than last year, which was also an improvement from [the] prior year. But even so, the bottom line is we are not at pre-pandemic levels. The IRS really has a long way to go for us to get to the service that we deserve. For example, the PPS line did show improvement from our members' perspective, but approximately 56% of our members were able to get through to the IRS on a consistent basis, while 29[%] of our members had hit-or-miss calls, and 15% of our members couldn't get through at all. The wait times, again, keep in mind the IRS is saying it's about three-minute wait time, those did improve. This year, only 28% of our respondents had to wait an hour or more, compared to 63% just two years ago. Yes, that's an improvement, but 28% of our members having to wait over an hour? That's a little bit painful there. The biggest pain point is the quality of service our members are getting. Is the IRS able to answer your question, or do you need to be transferred? At which all of us know that if you get transferred, you pretty much get transferred multiple times, and, of course, there's no guarantee of a resolution. Sadly, we found that only 37% of our members were able to get consistent support from the IRS, meaning a resolution, while 37% rarely or never were able to get a resolution. Amato: Among our members who are tax practitioners, are they satisfied with the service the IRS provided during filing season? Lauridsen: Neil, surprisingly, our members are feeling more optimistic about how the IRS is doing, and they've improved for the last two years with the IRS. It has definitely helped that the IRS is answering the calls. However, to your point, almost half of our membership does not think the IRS is on the right path. I should also let you know, too, that when we get these survey results, we actually communicate this directly with the IRS and we let them know. Our work is cut out for us as to what we need to be able to continue moving forward with IRS services, and we've definitely portrayed that to the IRS. Amato: Speaking of moving forward, for the 2025 filing season, what would you say are the top concerns facing AICPA members? Lauridsen: Given that it's an election year, no shocker that the number one concern for our members, and number one concern comes in about 29%, is the impact of legislative changes. What I was surprised to see was that the lack of guidance actually came in only at 17%. But I actually expect that to go up considerably once we start to see those legislative tax packages becoming law and we are going to need guidance from the IRS and Treasury. Number two on the list, coming in at about 27%, also no surprise, is the continued delay, which includes the written correspondence and processing of information with the IRS. I should also note that we did have an option on this survey for people to click "other" and fill in the response, and that came in about 5%. Overwhelmingly, everybody was talking [about] the delay of the brokerage statements and delayed K-1s, which create workload compression areas. That is definitely something that we've been monitoring and we're starting to work again, and we've been keeping an eye on it for a few years. Neil, all this is really to say that we have identified some issues. There's a lot of work that needs to be improved upon with the IRS, and we're moving forward with it. Amato: K-1 in particular, that was a term I hadn't even thought about or heard in a while, so I guess it's still out there, along with others. Melanie, we appreciate this update as we close out our July recording. Again, we're recording early July. This is due to publish in mid-July. What would you like to leave listeners with as a closing thought? Lauridsen: I think our members should be aware that we are monitoring, we definitely love hearing from them, we take it to heart, and we definitely push for their needs to be able to find resolutions. Sometimes the work is very slow. But we do start to see results and we do start to see the needle moving. Hopefully soon, we'll have some resolution with ERC and some answers and guidance, and we'll start seeing resolutions for BOI, too. Amato: That's great. Melanie, thank you very much. Lauridsen: Thank you, Neil. 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 includes a digest of tax developments, trending issues and practice management tips that you need to be aware of to elevate your professional development and your firm practices. This resource is part of the robust tax resource library available from the AICPA Tax Section. The for staying up to date on the latest tax developments and providing the edge you need for upskilling your professional development. If you’re not already a member, consider joining this prestigious community of your tax peers. You’ll get free CPE, access to rich technical content such as our Annual Tax Compliance Kit, a weekly member newsletter and a digital subscription to The Tax Adviser. /episode/index/show/taxodyssey/id/32118397

Unpacking Supreme Court decision — Moore v. U.S. with Tony Nitti 06/27/2024

Unpacking Supreme Court decision — Moore v. U.S. with Tony Nitti In this episode of the Tax Section Odyssey podcast, the focus is on the landmark Supreme Court case, Moore v. United States, which examined the constitutionality of the mandatory repatriation tax under Sec. 965 of the Tax Cuts and Jobs Act (TCJA). The Court upheld the tax with a 7–2 majority. The case opens up further discussion on the taxation of unrealized gains and the constitutionality of a wealth tax. Tony Nitti highlights the significance of the Supreme Court’s decisions on taxation and encourages a thorough reading of the opinions for their educational value. Also, revisit previous episode from Nov. 22, 2023 — . Transcript April Walker: Hello everyone and welcome to the Tax Section Odyssey podcast, where we offer thought leadership on all things tax facing the profession and today we have a really quick turnaround podcast that I'm excited about with Tony Nitti, he is a partner at EY National Tax, he is a frequent guest on the show and we recorded late last fall on this topic, the Moore vs. the United States and the podcast was published on November 22nd. Dare I say riveting podcast or at least it was riveting to me. Hopefully, you listened to it. I will put a link to it on the facts and arguments in the Moore case being heard by the Supreme Court. There was a history lesson, several references to Hamilton, my favorite musical and just an all around fun time. Here we are Tony, the court took their sweet time I feel like but they dropped the decision last Thursday and here we are first thing Monday morning to record. We are here for the people, so welcome, Tony. Tony Nitti: Thanks for having me April. Good to be back with you. I'm excited for two reasons. One, you and I and Damian Martin that is also at EY, we did talk about the Moore case back in, I guess it was late November. I know it was right before the oral arguments in our podcasts. Then Damien and I had done a presentation on it at national tax and so I'm excited to come back just to talk about Moore in general. But I'm also excited because I did get a little jealous when I saw you did a separate podcast with Damien last week and I knew that I had to do something to knock him off the top line of the list of AICPA podcasts. Damien, as soon as this publishes you are relegated to number two. All is right with the world now April. April Walker: I'm happy to be part of the competition between two greats such as yourselves. The prior podcast did an amazing job, in my opinion, going through all the details but for those who might not want to take a deep dive, that one probably runs 45, 50 minutes, something like that. For those who don't want to go back and listen, I don't know why you wouldn't but if you don't, Tony, I'd love for you to give us a quick background to set the stage for us on the Moore case. Tony Nitti: I'll do it as quick as possible and I don't want to bury the lead. Let's talk about the ruling before we even get into the facts but Supreme Court did rule by a 7:2 majority in favor of the government. Effectively saying that section 965 of the code that was added as part of the Tax Cuts and Jobs Act, what we call the mandatory repatriation tax, that it is in fact constitutional and yes, this was a victory for the government. But let's backup now, let's go through the facts and then talk about why was everybody hanging on that the Supreme Court's decision here, why was this such a eagerly anticipated opinion in the tax community? The facts in Moore, very basic. We've got a retired couple up in the state of Washington and in 2006 they invested some money in an Indian corporation. They took back more than 10% of the stock, the corporation was owned more than 50% by US shareholders, thereby making it a controlled foreign corporation or CFC. Then from 2006 all the way to the end of 2017, the CFC made money but it never actually repatriated any amounts back to the Moores in the form of a dividend. Under the laws in place at that time, the Moores had no income to recognize at the individual level because they hadn't received any dividends from their CFC. Now we know that since 1962, part F has imposed a deemed dividend on shareholders of a CFC when that CFC is earning certain types of passive income but that's not what we're talking about here. The corporation CFC in India, it was earning regular operating income, so there was nothing to attribute back to the Moores in the form of a deemed dividend, until December 22nd, 2017 because that's when Congress passed the Tax Cuts and Jobs Act. As part of that Republican tax bill. One of the things we did was shift from what we call a worldwide system of international taxation to a territorial system of international taxation. With that shift, what was going to happen and what did happen is that income held in a CFC post-2017, when it was repatriated to the US in the form of a dividend would not be subject to tax at the individual level. But you can't just flip a switch and make that move April because if that income has been stashed in a CFC prior to 2017 and has never been subject to US tax. If you suddenly opened the flood gates and allow what was rumored to be anywhere from 1.5 to $2 trillion that had been stashed in CFCs, never subject to US tax. If you allow that to come back post-2017, tax-free, that's a windfall. That money would have never been subject to US taxation. To prevent that windfall, Congress enacted Section 965, this mandatory repatriation tax and what it did is it said, look certain shareholders of a CFC as of December 22nd, 2017, you have to pretend that you received a dividend equal to your pro rata share of the CFCs income from whatever came later 1986 or when you acquired the stock all the way through to the end of 2017. Tony Nitti: By picking up this deemed pretend dividend and paying tax on it, now we can pave the way for this switch to a territorial regime where in the future that same money can actually be repatriated back to the US and not have to be subject to US tax. Tony Nitti: The Moores dutiful taxpayers that they were, paid the 965 tax, I believe it was $14,729 and then they got around to thinking, what did I just pay tax on? I never received anything. I put money into a CFC and I sat on my hands and I enjoyed the fact that the company was doing well but I never took a penny out. Tony Nitti: Why on earth am I cutting a check to the Internal Revenue Service? They sued in district court and the district court dismissed in favor of the government. They appealed up to the Ninth Circuit, the Ninth Circuit did the same and then over the summer last year, the Supreme Court decides that they will listen to this case and it certainly surprised a lot of people. Tony Nitti: Why would the nation's highest court agree to hear an argument over $14,000 in tax? But the root of it was the fact that they were arguing, the Moores were that Section 965 was unconstitutional and that's a big deal. When you're saying something's unconstitutional and that goes beyond just your run-of-the-mill argument, you tend to see in Tax Court. Tony Nitti: The reason they were saying it was unconstitutional, it was something that was certainly going to pique the interest of the Supreme Court and certainly in this day and age. What they said was, look. Tony Nitti: The 16th Amendment to the Constitution grants Congress the power to lay and collect taxes on income from whatever source derived without having to apportion that tax among the states based on population. When the 16th Amendment says it can tax income by definition in the 16th Amendment has to be realized. There has to be what we call this realization requirement and we'll examine that further. Just for our purposes right now, it just means that I need to have something in my hands that makes me richer from an economic sense that I can do what I will with. Now we know that tax law has expanded upon the concept of realization where you can have concepts of constructive realization, but we'll get into all that. The idea is something had to happen to lead me richer in an economic sense. They said, here in 965, I'm being taxed on amounts that clearly I never received. There has been no realization. If there's been no realization than whatever the taxing me on cannot be income. The only thing they could be taxing me on, is my ownership of stock and a CFC as of a specific date and time, December 22nd, 2017. That type of tax, a tax on ownership of property, is a direct tax under the meaning of Article 1, Section 9 Clause 4 of the constitution, what we call the direct tax clause, and is required by that clause to be apportioned among the states based on population. Since 965, last time I checked it was directly assessed and not apportioned among the states based on population. The tax violated the Constitution. A really fascinating argument, April, because what it looked like it was doing was setting us up for a showdown for the ages because in their written briefs, the taxpayers, more or less said to the Supreme Court. We need you to rule once and for all that, yes the 16th Amendment contains a requirement that income be realized before it can be taxed as income. You can only imagine, and this is what we discussed in our first podcast at National Tax, what the implications of that type of ruling would be if the Supreme Court last Thursday had handed down a ruling that said income has to be realized. It's not just 965 that would face expulsion from the code. How does partnership roll? How to S corporations? How do they survive if there's now this constitutional realization requirement? When you think about pass-through taxation, we know that the owners are taxed on their share of the pass-through entities income, whether they get a penny or not in the form of distributions. If you've suddenly got this realization requirement, how do you make peace with Subchapter K and S? Or what about Subpart F that we just talked about? That since 1962 has allowed Congress to say to shareholders that have a CFC, we know you didn't get anything out of the CFC, but the CFC is earning passive income, and to prevent abuses, we're going to pretend that you got your share of that passive income and subjected to tax. How can Subpart F continue to exist if there's this new constitutional realization requirement as established by the Supreme Court? The reason we got together in November and had a whole session devoted to it at National Tax was because smart people like former House Speaker Paul Ryan, were saying, look, a victory for the taxpayers in Moore could invalidate up to a third of the current tax law. That's a big deal. Then for the government's part, they appear to be saying to the Supreme Court, it's time for you to rule the opposite, that there is no realization requirement inherent in the 16th Amendment. Imagine what those consequences would be. If we're saying income does not have to be realized. It's not just about preserving Subpart F and Subchapter K and S. It's about the future of tax law. If income doesn't have to be realized, then Congress, if it needs to, could attempt to tax taxpayers unrealized appreciation in their assets and less anybody think that's far-fetched. Remember that, a couple of weeks after we got together in November, April, Senator Ron widened formally released his proposal for what he calls the billionaires tax, which is a minimum tax that would reach, in part, certain individuals unrealized appreciation in their assets. It's a very real proposal that's floating out there right now. If the Supreme Court last Thursday would have come down and said, there is no realization requirement. Congress can tax whatever it wants, then it would obviously leave the door open for something like that tax on unrealized appreciation or maybe, and I think this is a slightly different argument that we can get into, or maybe even a wealth tax, which obviously Elizabeth Warren and other candidates in the 2022 election from the Democratic side were proponents of we. In November me, you and Damien, just like every major newspaper, just like every morning talk show we're discussing Moore because of the implications. We thought we were headed for a landmark decision, an absolute showdown with the Supreme Court, backs to the wall had to say once and for all, is there a realization requirement in the 16th Amendment? April Walker: Very nice. I think that sets us up for that you told us what the decision was, the court came down in favor of the government 7-2. Let's talk now about what that really meant. How did the showdown, how did it come out and what did we learn from this and what significance does it hold for our taxpayers now? Tony Nitti: When you ask how do the showdown come out? It didn't. That's disappointing to many. It's anticlimactic too many, but it also shouldn't be a surprise. Now how can I sit here and say, it shouldn't be a surprise when Damien, myself, you, we devoted a couple of hours between podcasts and sessions back in November to saying this realization requirement is going to get settled here. What changed that ultimately, the court was able to decide without even addressing the realization requirements and why would I say that shouldn't be a surprise. We had unfortunate timing with our sessions back in November, April because first week of December is when the oral arguments were held in Moore. It became very clear in the oral arguments that both sides, taxpayers and the government, had perhaps become aware of the gravity of what they had asked the Supreme Court to rule on because they both took steps to give the court an avenue to a more narrow, less impactful ruling, so that the taxpayers, the Moore's, they came in and said, we're reading the same articles everyone else is that we could try to throw out one-third of the code here. You don't have to do that Supreme Court in order to rule in our favor because what we're going to do here, in these oral arguments is we're going to concede for you that these other provisions that people are looking towards, they're constitutional for their own reasons. Partnerships work because partnerships have always been treated as being a mere aggregate of its partners, like they don't have a separate tax existence. That is why income of a partnership can be taxed at the partner level, whether or not it's been distributed. S corporations, every shareholder who's around at the time the S election is made, has to affirmatively consent to that election. You know what you're getting into. What you're getting into is being taxed on income that perhaps you haven't realized yet, but as long as you sign up for it, then you're stuck with it. They say that's what makes S corporations different. The fact that you have to consent to it. Then Subpart F, this was a little bit of a reach I think, but they said look, Subpart F is designed to attack specific abuses where people are putting passive income in a CFC when they could just as easily hold it in their individual capacity. We think that one is okay as well. I think that last piece in particular hurt the taxpayers a bit because if you read Justice Barrett and Alito's concurring and judgment opinion, they're not quite so sure it appears to me that Subpart F would even be necessarily constitutional and we can get into why that would be in just a few moments. They were trying to make it easier in the Supreme Court saying you don't have to worry about throwing out this other stuff but, Sec. 965, it's a different animal. It's not a partnership, it's not an S-Corp, It's not Subpart F. It is a situation where reinvested money and a CFC got nothing in return for 12 years, and now you're taxing me on income that I've never received, that's got to go. That's unconstitutional. The government, they came in and they said, hey, Supreme Court, guess what? You can rule in our favor without even addressing this realization requirement because if you look hard enough, you'll realize here that income has clearly absolutely been realized. It's just that it was realized at the corporate level, at the CFC level. If we look back at the judicial precedent of this very core, we can see in the mid-20s to the late 30s, a series of cases that allow Congress to attribute the income that's been realized by an entity, specifically when that entity is taxed as a pass-through for US tax purposes. That's a partnership, that's an S-Corp. In a lot of settings, it's also a CFC, but Congress can attribute the income earned by a pass through to its owners even if it has not been distributed. So they said, Supreme Court, we're giving you an out here. You can rule in our favor without even talking about realization. Instead, just focus on attribution. Acknowledge that the income has been realized at the CFC level, and there's nothing preventing Congress from saying, we're going to attribute that income at the CFC level to its shareholders, including the Moore's and make them pay tax on it even though it is yet to be distributed. Tony Nitti: After the oral arguments, I think most people who were watching closely saw the writing on the wall. Because the Supreme Court is in the habit of issuing the most narrow opinion that they can in order to rule on a specific set of facts. With the government giving the Supreme Court a pretty clear avenue to a more narrow ruling that didn't have to address the realization requirement, I think a lot of people anticipated that we were going to get a decision that was largely based on attribution rather than realization. That's what ultimately came down last Thursday and that's why I say it feels anticlimactic to some because we only had to get into to the second footnote in the entire case where the majority opinion drafted by Justice Kavanaugh said, we're not here today to talk about what would happen if Congress were to try to tax unrealized appreciation or even wealth. Then, even in the body of the opinion, Kavanaugh comes out at some point and says, the Moore's wanted us to say there's a realization requirement. The government wanted us to say that there is not, we don't need to address that today in order to opine on this set of facts. Tony Nitti: That realization debate has just been deferred because instead, what they did is the majority kept it very simple. Just like the government proposed to them, they looked at cases stretching from 1925 there were four of them from 25 to the late 30s and they're slightly different facts in each case. But by and large, you had these four cases that showed that Congress has flexibility when you have an entity taxed as a pass through and you have flexibility if you're Congress to have either taxing at the entity level or taxing at the owner level. Now, the court did put some guardrails around that flexibility. Kavanaugh talked about the fact that, this concept of attributions should generally be limited to, as I mentioned before, entities that are taxes pass-through for US tax purposes, which would be your partnerships, your S corps, things like grantor trust and then CFCs. But then also Justice Kavanaugh was saying that we're not saying that they can tax the same income at both levels under the same character but yes, you can have income at a corporate level, dividend and shareholder level, but they were putting some guardrails around it. Generally speaking, they kept it very simple and the majority did two things. One, as I said, they looked at that judicial precedent that says, we've got a history here of being able to tax, for example, on Heiner v. Mellon, partners on income that even under state law, they were not permitted to receive in the form of distribution. Then we have the Bruce Baker case where Congress was able to tax partnership income at the entity level because it was effectively acting as if it were a corporation. They looked at these four... /episode/index/show/taxodyssey/id/31917652

ENGAGE download – Wins and takeaways 06/19/2024

ENGAGE download – Wins and takeaways Get a snapshot of the AICPA & CIMA ENGAGE 24 conference held in June at Las Vegas. Conference attendees share their experiences at this premier accounting event along with the knowledge that they gained from various sessions. Highlights include discussions on professional growth, finding balance, mental wellness and the importance of networking. 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. Today's episode is a little different as it contains snippets and recordings from several participants at the AICPA and SEMA Engage conference, which was held last week in Las Vegas. I have actually been to this conference as a staff member of the association every year. I believe this is the eighth. 2020 was virtual, of course, but I've been every year and somehow it just always gets a little bit better and better to me. But rather than hear me drone on and on about how great it is, please listen to those who attended. I have with me Ashley [Francis]. Ashley was in person with me. We're recording this on Tuesday, June 11th. We were together last week at the Engage Conference in lovely, hot -- very hot - Las Vegas last week. Ashley, I'd love to hear your overall impression. How was your week at the conference? Ashley Francis: So, my overall, overall, is that I am so exhausted, but it is that good exhaustion. Like you go and you do something, and you do the things that you want to do and you have such a wonderful time. That you're tired, but it was a good experience. Walker: Wonderful, yes. Were you there all four days? Francis: Oh, I was there longer because I did one of the pre sessions. Walker: Look at you. Francis: I did the PFS live pre session, sat for my PFS certificate, and passed the test. Walker: Congratulations! Francis: Thank you! Walker: [Go] you with your new credential. Francis: I know, it's very exciting, Walker: Yeah, I think one more day might be do me in. Francis: I agree, one more day, Walker: It's wonderful… Francis: [Five]days was enough, yeah. Walker: Yeah, it's just a lot. I'm wondering in all of the sessions that you went to, if you had one particular takeaway or one session that really meant something to you. I guess meant something to you professionally or personally. That [included something] you are trying to implement into your life. Francis: Absolutely. And this is a challenging question because there were three sessions that stood out to me, that I could go back and listen to again and again, but the one that impacted me the most, I would have to say, is Andrea Miller's session on balance and mental wellness. Because I think a lot of times, especially for me, everything is just go, do the next thing, do the next thing. Without stopping to think, wait... is this next thing the thing I actually want to be doing? And so even though it was a big room, it was full of folks, her session did such a great job, having folks walk through that experience themselves in a very individual way. When I left that session, I was like, holy cow, what am I going to do with my life now? So, it was really big. I ordered [about] 30 books from the library because of it. Walker: Nice, that's always a good session that creates more work for you to do after the fact. I didn't see that session. I have a long list of sessions that I want to go back to and watch for the first time or watch again. I'm sure you know she used to be staff here at the AICPA and I loved working with her. Francis: She's great. Her career turn has been exciting to watch also. Can I give a shout out to the other two sessions that I would love? Twyla and Barbara Richardson, their session on “making wow client engagements” that was really good. And then Keila and Carrie talked about bringing in non-accountants to help support and sustain and build our firms. That one was brilliant as well because it hit on so many different, important things that we need to think about. Walker: Neither of those which I attended. again, there's so much going on, all the time, which is, not necessarily a negative of engage, but it's just. It's almost like you have FOMO. It's oh, I can't do all this stuff. Yeah. all thank you so much, Ashley, for hopping on and recording with me today. I hope to see you at, if not before, at next year's Engage Francis: You definitely will. Walker: Welcome, Brandon. I have with me Brandon Lagarde, who is a wonderful volunteer with me. [He]does a lot of different things, and he was with me at Engage last week. We had a lot of fun, but Brandon, I'd love to hear about your experience overall at the conference last week. Lagarde: Yes, absolutely. Thanks for having me. Last week was the Engage Conference, and I believe this is the 8th Engage, is that correct? Walker: yeah, that seems right. Lagarde: 8th Conference? It's been many of them, and I think I've been to every one of them, and every time I go, I'm just amazed at the scope of what is provided. It just seems every year it gets bigger and bigger. The speakers are incredible. the exhibitors are getting, better and better, and even, just so much out there. The people that are going. It’s a great experience overall. One thing we hear [a lot] about the accounting population and aging population. I was shocked to see the amount of young people at the conference and excited about accounting and excited about the practice. Also really getting to meet a lot of other people who are trying to do the same thing we're doing. Just this practicing and learning from each other and it was a great experience. Walker: Yeah, it was. It was a lot of energy and a lot of enthusiasm. And sometimes it doesn't come from the older generation. It comes from the younger generation. But I like to be a hanger on [of the younger generation]. Brandon, are there any connections you made from a networking perspective during the week that you would like to share with us? Lagarde: As I mentioned, this is my eighth Engage conference. And this is I believe the second annual AICPA Foundation Golf Tournament that was held Sunday morning before the conference kicked off. This year I looked at my schedule and I'm attempting to play golf, trying to get better and improve. And I've been told that the only way to improve is to play a lot. So, I thought, let me sign up for this tournament. So I actually played in the golf tournament, Sunday morning. Fantastic tournament- I highly recommend it to anyone who's going out there. And got to meet some really great people. You get put with three other people to play with. Didn't know these people before and played a round of golf. Had some good shots, had some bad shots, enough good shots to go back out there. We did not win the tournament, unfortunately, but we made some good friends and I continued to network with those individuals and keep in touch with them throughout the conference and ran into them multiple times. I ran into him at the Old Red event, which was an event that was sponsored by AICPA, on Tuesday night at the conference. This was another great time just to network and to listen to the band. Although, it was a little hard to network there because it was a bit loud. I tried to talk to Damian Martin a couple times, and I think we were screaming at each other at one point just because of the volume of the music. But it was a great place to just meet people. At the exhibit hall, I'm always amazed at the [number] of vendors that are there that are sure They're there to support the AICPA and their product. But it's just amazing the technology that's out there and the things that are happening. Getting to meet some of the people there and getting to make connections with some of the platforms out there and learning more about people. A lot of generative AI conversations, a lot of generative AI companies - some better than others- but, just a lot of opportunity out there to meet people. And that’s the benefit of going to something like this and going to a conference like this. It's not just tax people. It's not just audit people. It's people from all different areas of the CPA practice. At the end of the day, all we're trying to do is help our clients and help our practices improve and getting to see what's out there and getting to meet people who are dealing with the same experiences we're dealing with is you can't put a price tag on that. Walker: Yeah, I agree. Brandon, thanks for joining me for a quick little snippet of your week. It’s one of my favorite weeks of the year. I look forward to Engage 2025. What shenanigans will we get up to? Time will tell. Lagarde: We've already started, we've already started [ENGAGE 2025] to do list. Walker: Yes, we have. Things we didn't get to that we want to accomplish. Most of them are very responsible types of to dos. Lagarde: Absolutely, I already have it in my calendar next year too. I'm already down to go. Walker: Wonderful. Lagarde: [Looking] forward to it. Walker: Thanks for joining me, Brandon. Lagarde: Thank you. Walker: Welcome, Mark. Mark Gallegos was at the ENGAGE conference. We're recording this on a Tuesday, June 11th. Mark, tell me, I know it was not your first time, you've been to ENGAGE several times, but, what specifically, was a highlight for you about last week's ENGAGE conference? Gallegos: Yeah, I think from the ENGAGE conference, it's the human aspect to me. Meeting people, interacting with people, and really getting to listen and learn from others. The way I look at it is, you get to learn from experts in the field in areas that you think you know a little bit about, and you learn that you have a lot of learning and growth to go forward with. Learning on the latest trends in the profession, strategies, and regulatory updates from a tax perspective. And then, learning from these experts and staying relevant in the current tax landscape and the changing tax landscape. But also learning from others in other areas, whether it's accounting and financial planning and estate trust and areas that maybe I don't do enough work in. But it enhanced my growth opportunity while there. At the same time, you just become a more well-rounded person by being inundated with that for a week. Walker: Yeah, I know that's one thing that is possibly a negative for people about ENGAGE. It is so big and there are so many different topics. But to me, that is a positive, because you're not just meeting tax people. You're meeting people from all across the industry. I completely agree with you that the human aspect of conferences is something I'm really excited was able to survive the pandemic and come out strong on the other side. Gallegos: That's right. And I think networking within the conference, whether you're in the classes, between sessions or early in the morning or Walker: Or late at night, let's just say. Gallegos: Whatever your flavor is, or maybe all the above, I think that is a great opportunity because you're meeting people from various sectors within the profession. These valuable connections last beyond the conference. You can even be meeting potential clients, people you could work with or vice versa. And more importantly, thought leaders- people that have great ways of collaborating with others and learning how you can help them, or they can help you. I think that's a huge takeaway for me. Walker: I think so too. Thank you for sharing your insights. Hopefully, we give people who were not there a little bit of FOMO. And it will happen again next, next June. Thanks again, Mark. Gallegos: You're welcome. Walker: I have with me now Dan Moore, who was also out at ENGAGE with me last week. Dan, what's your overall impressions and thoughts about the Engage conference last week? Moore: Hey, April. Thanks for having me on today. I don't know why the feeling seemed to be different this year. I don't know if it was just the great keynote that we had kick off the conference Monday morning- Eric Weinmayer, who really spoke to me and spoke to a lot of people. But I just felt like there was a massive amount of energy. At this year's Engage, several of the speakers were just so excited to be there to get up and speak and talk to participants after their sessions. They were excited to meet up with their colleagues and go out to dinner. there just seemed to be so much. Excitement within the room. The energy was great. And I am still a week later I'm just still really excited about how the event went. Walker: Yeah, I had the same feeling I was trying to describe to my team members who unfortunately were not able to be out there with me and I said - it's just a vibe. That’s what the kids say. It just a vibe. It is hard to explain, but it’s just a good word for the energy and excitement. Moore: Our speakers were excited to be there, and that was great to see. Some were speaking on new material, some had revised and revamped some older material. [They were] just so excited to present. Everyone really kept my attention, as much as we were getting tired near the end of the week and day four. They were still keeping my attention and the energy just was everything. Walker: That's great. We know you did a lot of things during the week, but was there anything that you didn't have time to do? It's hard to make time for everything, but was there anything specific that you have on your to do list, for next year's Engage? Moore: Several things stick out in my mind. I've already started my to do list for next year's Engage of the things I want to remember to do. Some of them are directly content related. But others are the other activities that are available to you during Engage. First, it's getting up at 6am and participating in either yoga or the run. I know a group of people get together, they do a walk/run, they go out on the strip, and I didn't take advantage of that this year. So that is definitely on my to do list for next year. But also I felt like I didn't go into the conference as prepared as I wanted to really go out and explore the exhibit hall, as well as explore the solution sessions that were available with many of our vendors. We are kicking off a project within my office to reevaluate our tech stack, and I really wish I would have taken the time to. start the conversations internally within my firm so that I could go out and seek out the vendors that are on the short list of solutions that we are looking at implementing in our firm. Because what a great opportunity to meet the frontline of those technology solutions. That was the big thing that I really walked away thinking, next year, I want to take the opportunity to meet people. There's a number of solution sessions, I want to say there was probably at least 4 or 5 running every morning, also solution sessions during lunch, where you could go out and hear specific presentations from various vendors and I missed out on that opportunity. But you know what? I'm not going to beat myself up about that. That's next year. but I think it takes a lot of planning. To come to the conference, you get the exhibit hall list ahead of time. So, you can go ahead and take a look and see what vendors are going to be in the exhibit hall and start thinking about those vendors that you want to visit. You can make the list up ahead of time to seek them out and not only get to meet them, but see, hey, are they offering some sort of special pricing for attendees? And, hey, you can also fill up your swag bag. Go home with free stuff. Walker: That's right. I know that they were doing demos of certain things, and that would be cool to do. But like you said, you have to go into the conference planning exactly what you're going to do almost every minute, which is hard to do. It's hard for somebody like me to do, because I'm more of a wing-it kind of person. But if you plan, you can really take the full opportunities for what's available there. Moore: The other thing too, if you're talking to a vendor and one of their the vendor's customers, come up, you can start the conversation with another firm owner. They're like, oh, I'm using this solution. Later on, you can meet up with them, and you can say, hey, now that we're alone, can I ask you some questions, how did you implement this into your firm? What works? What doesn't work? What are some best practices you would suggest if you're thinking of implementing a new solution? And so that's also a great help. If you know a firm that said, hey, this is a great solution, but if I had to do it again, what would it be? I would have approached it this way. That connection really is invaluable. Walker: Alright, thanks so much for sharing, Dan and we look forward to hearing more. Dan is the chair of the Tax Strategies conference, he will definitely be there next year, no question. Truly, in a couple of months, we start planning for next year's conference. Looking forward to doing that. Looking forward to seeing all the new and exciting stuff we can incorporate for the 2025 conference. Moore: Thank you, April. Walker: Yep. Thanks so much. Walker: I have with me Kelly Rohrs. Kelly, it was your first time at Engage, so I would love for you to share kind of your initial impressions and also what was your favorite part about being at the Engage conference. Rohrs: Hi, April. Thanks for having me on today. The first time at Engage, first time in Vegas. I couldn't believe how big it was. There were over 4, 500 people were there. Massive. I ran into so many people, so many familiar faces. It was really just such a wonderful event. Walker: Yeah, one of my favorite things about, that just because it's such a big conference, you do run into people that you've probably only known necessarily through social media or things, so like putting a face to a name is really just the coolest thing. Rohrs: Absolutely. Totally agree. Walker: All right, any other kind of takeaways or thoughts you have about the Engage conference? Will you come back? Rohrs: I think that people think that conferences like these are for large firms, especially put on by the AICPA. People don't think that this would be beneficial for the small firm owner, but I think that is an absolute misconception. I think a lot of the classes were geared towards the small professional, the smaller firm, how to advance your firm, what sort of services. That you should provide or develop to keep up with the times and, besides the continuing education portion of it, the networking piece and meeting the vendors that were there was phenomenal. to have the two huge Showrooms filled with the best vendors in the country who are willing to, a lot of them are giving demos, handing out free demos, free months of subscriptions. That is really the power of an event like this. To take away all of these new software or to hear what other people are doing in the hiring space. It’s priceless. It's worth every penny. Walker: Yeah, it is, it's hard to describe, but it is like two giant rooms of vendors. And then also the vendors do, we call them solution sessions or education labs. And so even more you're able to get like a deeper dive into their services and things, which I think is, like you said, it’s cool and it's not something you can get just anywhere. Rohrs: Yeah. It's so much better than being behind the screen. You're in person. You're watching these people who are super passionate about what they're doing. You're building true relationships. And I don't think I met anybody I didn't like. Walker: Oh, that's always a positive. It was delightful. It was our... /episode/index/show/taxodyssey/id/31807832

What you need to know about BEPS 2.0: Pillar One and Pillar Two 05/24/2024

What you need to know about BEPS 2.0: Pillar One and Pillar Two The OECD BEPS 2.0 project consists of two pillars. Pillar One applies to the biggest and most profitable multinational enterprises and reallocates part of their profit and taxing rights to the countries where they sell their products and services. Pillar Two introduces a global minimum corporate tax of 15% to prevent tax avoidance and base erosion. The U.S. has not yet adopted the OECD project into its tax system, but it will still impact U.S. multinational businesses that operate abroad. Practitioners need to know about the OECD project because it is a major change in the international tax system that will affect many multinational enterprises and their tax compliance. AICPA resources — The OECD BEPS 2.0 sets out to provide a tax reform framework allowing for more transparency in the global tax environment. Advocacy , Feb. 14, 2024 , Dec. 12, 2023 Other resources Transcript April Walker: Hello, everyone, and welcome to the AICPA's Tax Section Odyssey podcast, where we offer thought leadership on all things tax facing the profession. I'm April Walker, a Lead Manager from the Tax Section, and I'm here today with my friend and colleague, Henry Grzes. He's a colleague here with me on the AICPA's Tax Practice & Ethics team. Welcome back, Henry. Henry Grzes: Thanks April. Happy to be back. Walker: Wonderful. The aim and goal of this podcast is definitely not to teach you everything you ever wanted to know about OECD and Pillar One and Pillar Two because we certainly couldn't do that on this podcast. But, we would like to talk about why you need to care, why you do need to know high level what this framework is about, and I'm going to try to listen also because I know when I start hearing this, I definitely tend to turn off my listening ears. Everyone turn on your listening ears, as they say in preschool, and let's get going. First, I've been saying and I've said it a couple of times, and I know that we as accountants love acronyms, OECD. Who is this, and what are their goals? Grzes: We're going to start basic, as you said. OECD stands for the Organization for Economic Co-operation and Development. Now from their website, they describe themselves as an international organization that works to build better policies which result in better lives. Their goal is to shape policies that foster prosperity, equality, opportunity, and well-being for us all. Together with governments and policymakers and citizens, they work on establishing evidence-based international standards and finding solutions to a range of social, economic, and environmental challenges. These include economic performance, creating jobs to foster strong education, and fighting international tax evasion and international standard setting. The goal of the OECD project we're talking about today is to reform the international tax system and provide a more transparent environment for tax. The official title of the project is referred to as the OECD BEPS 2.0, Pillar One and Pillar Two. By the way, BEPS stands for Base Erosion and Profit Shifting. Walker: Thanks, Henry. I think we can all agree that transparent tax environment sounds like a good goal, but when I start hearing about pillars, I think about building buildings, but that's not what this is about at all. So tell me more about Pillar One and Pillar Two. Grzes: Each pillar addresses a different gap in the existing rules that allow multinational enterprises, also referred to as MNEs, to avoid paying taxes. First, Pillar One applies to the biggest and most profitable MNEs and reallocates part of their profit and taxing rights to the countries where they sell their products and provide their services. In effect, where their consumers are. It deals with transfer pricing issues and the allocation of profits and adopts new nexus and profit allocation rules with the objective of assigning a greater share of taxing rights over global business income to market countries. Without these rules, these companies can earn significant profits in a market without paying much tax there. It is a plan to reallocate some taxing rights to countries based on where their customers are located. Pillar One originally targeted large, profitable digital companies, but now applies to most large profitable multinationals. The G20 OECD project on addressing the taxation of digital economy began in 2019, building on the final reports issued in 2015 in the earlier projects on BEPS. Pillar Two was released in December 2021, and when adopted, would apply to a much larger group of MNEs with global annual revenue of 750 million EUR. These companies would be subject to a global minimum corporate tax. With these new rules, companies organizing their affairs in a way that their profits, in a given jurisdiction, whether that jurisdiction is deemed to be a low tax one or otherwise, are subject to an effective tax rate lower than the minimum rate. If that is the case, those profits would be still taxed at the minimum rate of 15%. Walker: In April-language, Pillar One is talking about transfer pricing, which transfer pricing obviously has been an issue for the whole time I've been doing tax, which is a long time, and then Pillar Two is a minimum tax, and it's a high level, 750 million EUR. Where does this regime stand in the United States? Grzes: Currently, there are no enacted laws that incorporate Pillar Two into the U.S. taxing system. There has been proposed legislation, but the implemented laws abroad will still affect U.S. multinational businesses. U.S. adoption of these pillars would require Congress's approval. While countries are already adopting Pillar Two without a U.S. agreement, Pillar One would likely require U.S. approval to go forward since a large fraction of the income affected is from U.S. multinationals. The deadline for the agreement on Pillar One was extended for a year through 2024. Canada was considering a digital service tax, also known as a DST, and delayed adoption while Pillar One was under consideration, but it is now continuing with a retroactive DST. According to the Congressional Research Service, which is a nonpartisan shared staff to congressional committees and members of Congress, if Pillar One is adopted, there will likely be a revenue loss to the U.S. due to the reallocation of taxing rights, and increased tax on U.S. firms, and an associated increase claim of foreign tax credits. If Pillar One is not adopted, DSTs that have been adopted over the past few years in other countries would likely remain in effect and proliferate in other jurisdictions. There is no current proposed regulation in the U.S. that incorporates Pillar Two into the U..S taxing system, as I mentioned earlier. The IRS issued a notice released in December of 2023 which barely scratches the surface on the relation of Pillar Two with foreign tax credit and dual consolidated losses. But Pillar Two has not yet been enacted in the U.S. Despite the lack of adoption in the U.S. at this point, the laws impact MNEs because they do business abroad, but there is still much needed guidance in the U.S. on these taxes. Walker: Quick summary, no U.S. taxes have been implemented by this minimum tax so far for Pillar Two, but still, we'll talk about this in a few minutes, still we can't ignore this and we'll talk about why. A question came up for me, again, I'm no international tax expert by any means, but I hear minimum tax and I think how does this relate, if at all, to the corporate alternative minimum tax, CAMT, I think it's also called, affectionately, imposed by the Inflation Reduction Act a few years ago. Are they connected or like each other in any way, and also how about the GILTI regime that was added as part of TCJA? I know that's also an international tax provision. Grzes: The two taxes CAMT and Pillar 2 are completely unrelated. Inflation Reduction Act imposed a Corporate Alternative Minimum Tax, as you mentioned, CAMT is the acronym equal to the excess of 15% of a corporation's adjusted financial statement income. Keeping with the theme of acronyms, that would be AFSI over its corporate alternative minimum tax, foreign tax credit. AFSI is the net income or loss set forth on an applicable financial statement with certain adjustments. This tax is effective as of December 31, 2022. Pillar 2, however, is a 15% effective tax rate and CAMT is a 15% tax based on AFSI, which is effectively booked income. In regards to GILTI as part of the Tax Cuts and Jobs Act, the U.S. adopted various changes to its international tax rules, including this new tax, which we refer to as GILTI, which stands for Global Intangible Low Tax Income. These rules apply to the revenue of non U.S. companies that U.S. corporations and other citizens control. These entities are referred to as controlled foreign corporations or CFCs. GILTI is a CFC blended tax regime under Pillar 2, but it's important to note the taxing of GILTI is much different than Pillar 2, even though Pillar 2, as it was being developed, used GILTI as its basis. GILTI is based on a blended tax regime versus Pillar 2, which is based on a country-by-country one. Walker: That's helpful to help me understand. Definitely still no expert on this, but I certainly want people to understand why they need to know to be able to talk intelligently about these different regimes and taxes. Tell me, give me a case for why I need to know more and care about these developments? Grzes: Well, that's a great question, and as we all know, the world is becoming a smaller place by the day. Although these rules primarily impact large corporations, the accounting profession has a role because many practitioners will need to understand these rules and stay abreast of the changes which are happening quickly so they can guide their clients through the complexities of compliance. Walker: Got it. Definitely more to come on this issue. Let's talk through the challenges that we'll face in the businesses that we serve and represent in working through these new regimes. Grzes: As you indicated, there are many challenges and those include understanding the rules and the compliance associated with that. That's a big one. Increased reporting and tracking requirements, including increased documentation burdens and reporting. There's also the cost of implementation, administrative burden of complying with Pillar 2 will significantly increase compliance costs. Also understanding the transfer pricing rules, especially when it comes to Pillar 1. We think all practitioners anticipate some form of tax law changes in conjunction with the numerous provisions of the Tax Cuts and Jobs Act scheduled to expire at the end of 2025. And it is possible that these OECD rules may be addressed as part of this anticipated legislation. Walker: Perfect. We're definitely continuing to do more work in this area with resources and we're definitely following all the potential legislation that's coming up or that we expect will come up either towards the end of this year, end of 2024 or certainly towards the end of 2025. There's so many provisions that are expiring, so we will continue to follow this. Henry, I like to have a little fun with my guests. In closing, I like to think about is taking a journey together. Today on our journey, we're taking an international journey, but it doesn't have to be -towards a better profession. In doing so, I love to hear about your bucket list items or a trip you have planned. You are a well-traveled individual, I know, because you are a friend of mine, but I'd love for you to share something that you're excited about. Grzes: My wife and I will be spending a week or so the summer in the Azores, which are the islands off of Portugal, as well as within Portugal on the continent itself. Very much looking forward, we've never been, we know people who have visited those places and they loved it. We're very much looking forward to visiting the country and experiencing the culture and everything that it has to offer. Walker: Very nice. You speak Portuguese? Grzes: I do not, but I will find a way between now and then to expose myself to the language. So that I can at least… Walker: At least ask for a drink. Grzes: Ask for a drink and identify where the bathroom is. Walker: Very good. Those are the important things. Thank you again so much Henry, for sitting down with me and talking about this very complex topic. Again, we really just wanted to give you a nice highlight of what you need to know and that there's more to come from us on this topic. Again, this is April Walker from the AICPA Tax Section. This community is your go-to source for technical guidance and resources. Designed especially for CPA tax practitioners like you in mind. This is a podcast from AICPA and 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. If you already follow us, thank you so much and please feel free to share with a like-minded friend. You can also find us at the aicpa.com/tax to our other episodes, as well as get access to the resources mentioned during the episode. Thank you so much for listening. Keep your finger on the pulse of the dynamic and evolving tax landscape with insights from tax thought leaders in the AICPA Tax Section. The includes a digest of tax developments, trending issues and practice management tips that you need to be aware of to elevate your professional development and your firm practices. This resource is part of the robust tax resource library available from the AICPA Tax Section. The for staying up to date on the latest tax developments and providing the edge you need for upskilling your professional development. If you’re not already a member, consider joining this prestigious community of your tax peers. You’ll get free CPE, access to rich technical content such as our Annual Tax Compliance Kit, a weekly member newsletter and a digital subscription to The Tax Adviser. /episode/index/show/taxodyssey/id/31452277

Post-April 15: Top-of-mind tax advocacy topics, including the ERC 05/09/2024

Post-April 15: Top-of-mind tax advocacy topics, including the ERC Melanie Lauridsen, AICPA & CIMA VP of Tax Policy & Advocacy, provides an update on IRS service improvements and the impact of the Inflation Reduction Act funding. She also discusses other key tax advocacy tax initiatives that are top of mind right now. AICPA resources — Access resources to learn the latest on the employee retention credit (ERC). — Access resources to learn about the beneficial ownership information reporting requirement under FinCEN’s Corporate Transparency Act (CTA). Transcript Neil Amato: Welcome back to the Journal of Accountancy podcast. This is Neil Amato with the JofA. I'm joined again by Melanie Lauridsen, vice president–Tax Policy & Advocacy for the AICPA. This is a special collaboration episode between the JofA podcast and the Tax Section Odyssey podcast. Melanie and I are going to talk about some tax topics that are top of mind for practitioners. This is the third such update in calendar year 2024. First, Melanie, welcome back to the podcast. We're recording in late April. In the tax community – I’m more the general consumer, not a practitioner – but I'm wondering, is there a sigh of relief maybe for the tax community? Or maybe a setting of those out-of-office emails and packing of bags for vacation when busy season ends? Melanie Lauridsen: Neil, absolutely. There definitely is. I think of filing season like running a marathon in a two-hour timeframe. It's very intense, and at times you just don't know if you're going to make it. It feels very exhausting. But you do, and it's hard to keep up that pace. So, a quick shout-out to everyone and congratulations to those that did just wrap up another filing season. They've definitely earned that break and that vacation time. Amato: Again, we're recording late April, April 26 to be specific. This episode will air in early May. Correct me if I'm wrong on this, but it feels like this year is the first sort of normal March and April for tax season that we've had since 2019. Is that accurate? Lauridsen: Neil, last year was also a relatively smooth filing season. We did have uncertainty about how things were going to go. However, the IRS did receive the Inflation Reduction Act funding, which allowed last year to show improvements to their services. This is actually the second filing season in which the IRS has had access to that IRA funding. According to the IRS stats, they had a really strong filing season. Now, I also believe this is in part because the IRS had a smooth runway for this filing season. There really weren't new laws, and, of course, the government shutdown did not occur, which forced the IRS to shut down. Collectively, like I said, it's a smooth filing season for the IRS to be able to show more improvements. Now, most notably, according to the IRS, they've reached an 88% level of service, which is an increase from 84% level of service at the same time last year. They also answered over a million more calls this year with shorter wait times. That's all really good. However, I do need to caution that the IRS's numbers are a snapshot of a moment in time. That 88% level of service on their phone lines really captures a limited number of phone lines that they have and only a subset of the callers of those limited number of phone lines. For example, last year they had that 84% level of service that I mentioned. When looked at the entire year and looking at all the calls the IRS received, they really only answered about 34% of all the calls. I also have to plug in that each year, we also deploy our own survey immediately after filing season, and we reach out to our members and ask them how they felt finally season went. Those responses oftentimes align more so with that 34%, and they also align with Erin Collins’ report to Congress on how the IRS did overall. Hopefully, for the next podcast, we can go over the results that we get from our members. Amato: That's great, and it definitely does show that while there has been a smooth runway, it doesn't necessarily mean everything's going smoothly. It's certainly not all calm as it relates to issues affecting taxpayers, tax practitioners. What are some of those topics that are still popping up, that are top of mind for practitioners as we head into May and beyond? Lauridsen: I do have to say BOI is a hot topic, beneficial ownership information. However, during the filing season, it got put on the back burner. But now that filing season is over, I've had a flood of people reaching out on the issue and really asking about the impacts regarding the court case with the National Small Business Association and what that really means. Also, unfortunately, we're starting to enter the natural disaster season as we head particularly into the October filing season, so people start to ask questions about that. Actually just this past week, we endorsed a bipartisan legislation to provide additional tax relief to victims of natural disasters. Specifically, what we're supporting is when the IRS extends a filing deadline due to a disaster declaration, it would allow the taxpayers to claim and recover refunds not only within those three years but also that extended period of the disaster-related extension. Again, very helpful for victims of relief. Changing topics again, another area that we're also working on, it has to do with digital assets. The IRS is beginning to ramp up more and more with that, and we're trying to find clarity around that tax framework for digital assets. Amato: Yes. In the Journal of Accountancy, we recently wrote about the posting of the Form 1099-DA. Is that the draft, or the final form? Lauridsen: Neil, you're right. It is the draft form, and they did release it. The intention is to show the report of the information of the sale or disposition of digital assets. That's going to be kicking off Jan. 1 of 2025, so that is coming soon. Amato: Thank you for that. Tell me your reaction or response to this IRS news. Commissioner Danny Werfel said recently that the IRS still receives 20,000 employee retention credit claims a week. That's even though the processing of those claims has been halted since September. Seems like a lot. Lauridsen: It is. Well, Commissioner Werfel actually told the Senate Finance Committee on April 16 that the tax bill passed by the House in January would actually help the IRS combat ERC fraud claims. That's where they're asking for ERC claims to be retroactively stopped. From his perspective, he said that eligible claims, they do exist, but they're very hard to find and it's finding a needle in a haystack. He's not very happy with that aspect. If you see the statistics of their moratorium, the withdrawal program, and the voluntary disclosure program, there's real money at stake here. We've been told that it's costing the government something about $3 billion per week to maintain the ERC claims open. Now, all of this is to say that I personally wouldn't be surprised if that provision in that House bill to stop ERC claims retroactively, if it were to get stripped out from that bill, and it were to become a stand-alone bill that gets passed. There's just a lot of support for this provision, especially with that amount of money associated with it. Amato: I heard that was spoken about in the most recent AICPA Town Hall, April 25. That $3 billion number definitely stands out. Clearly, a lot still to be wrapped up as it relates to ERC claims. You mentioned that tax bill; that was going to be my next question. What's the update on that? I guess it's now in a committee in Congress, and for clarity, which committee exactly is it that has the bill, and where does it stand? Lauridsen: It's with the Senate right now. The House passed the bill, and it went to the Senate. The last I heard was that the Senate wanted to do their own markup. But ultimately, if you look at what's happening in the world around us, there are a lot of things going on that the Hill has to focus on, and it takes precedence over this bill. It was also my understanding that this bill, as it stands, was barely on life support. Which it's not to say that it can't be revived in other iterations or eventually it could get passed, but as it stands right now, the likelihood of that bill pushing through is not very high. Amato: If it doesn't go through, what happens? How does it restart if there's a new tax bill? Lauridsen: On something like that, it really comes down to what I mentioned with the ERC provision. That has a lot of support, and people can then strip certain pieces out of the bill and either pass them as standalone bills, which is probably what would happen with the ERC bill, but you can also introduce it with other packages, different pieces of it. So like I said, it could be different iterations, different portions of it. It doesn't mean it's completely dead, particularly with the ERC piece. Amato: If it's a 600-page bill, but not all of it's going to pass, then maybe the 60 most important pages here and the 30 most important pages there could be repackaged into a new bill? Lauridsen: Yes. Something like that. Yes. Amato: I realized those are just my estimates and oversimplification, but helps me understand. I hope it helps the listeners understand. You've mentioned disaster legislation, obviously, the news topics we've been following, ERC, digital assets, BOI, beneficial ownership information. But elsewhere from an advocacy standpoint, what are some of the top AICPA priorities for the second half of this year? Lauridsen: Well, Neil, as you're aware, it is an election year, so we're absolutely going to be seeing tax reform coming up. We already know we have TCJA provisions that will begin to sunset. We have also heard of an IRS tax administration procedural package, which is going to have, we've heard things like potentially the Safe Harbor Act, some disaster relief provisions, or things along those lines with the IRS. Then, of course, there just is the 2025 tax reform package we'll see from the elections. Taxes are the way we generate income and money for our country, so we are bound to see a lot of potential tax changes coming up in this next year, and so we have to gear up and prepare for that. Amato: Melanie, thank you for this rundown. Anything you'd like to add in closing? Lauridsen: Just to pay attention. Changes are coming, and we're here to help. We're trying to continue to help them, supporting the profession but also taxpayers in finding fairness and equity in the tax laws. /episode/index/show/taxodyssey/id/31221727

From filing cabinets to cloud — Records management in the digital age 05/02/2024

From filing cabinets to cloud — Records management in the digital age Mark Gallegos, CPA, MST, Partner — Porte Brown LLC, discusses the importance of having processes around retaining documents for accounting firms as well as advising clients on what information is important for them to maintain. It is imperative to manage files in an efficient manner, and, often, there are different considerations for physical storage versus digital storage. AICPA resources — Having a written document retention policy for your firm is a must-do along with advising clients on taxpayer record retention. — Formalize your tax firm’s policies about retaining documents related to firm operations and client records. — Explore tools to manage a more efficient tax practice, enhance your operations, add value to your service offerings and reinforce client relationships. 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 with Mark Gallegos from Porte Brown in Chicago. He is a second-time guest, but welcome back, Mark. Mark Gallegos: Thanks for having me, April. Walker: Today's topic is about document retention, and this came to my mind for two reasons. One, on a practical level, we at the AICPA just updated some resources around this, some FAQs, as well as a document template, which of course I will share in the show notes. But second, on a more personal level, recently my family has been cleaning out my in-law’s house and it was pretty clear that their document retention policy was to retain all documents. Either they didn't have one or that was their policy to retain everything. That was fun. But I thought this doesn't seem like a super sexy topic, but it's an important topic. Mark, I thought maybe let's talk about the importance of a firm having a document retention policy. Maybe talk about some risks associated with not having one or maybe you have one to check the box, but you're not following it. What are your thoughts on that? Gallegos: I know with clients I always run into either they save everything forever and then they have no idea what they've actually saved in all the boxes. Then there's ones that don't save anything. Document retention policy is so important. It's critical, especially to a CPA firm, but even beyond that to individuals, to businesses. Because you're dealing with sensitive and regulated information, and when you're looking at that, there's different areas you need to break it down to. Many industries we work in, including the accounting profession, you're highly regulated and you need to keep documents and you need to have a defined policy that helps define what are the legal obligations for keeping these. You don't want to be fined. You want to make sure you are the trusted adviser that can provide the information, but also you don't want to be the one that's keeping things for 20 or 30 years, that is just keeping up space. It makes you efficient as an organization because you're basically organizing your documents. You can easily access them, and you can pull them when you need to. It's a good way of keeping security on those documents. Because at the end of the day, you want to be able to secure them. Obviously, you can secure them in paper form, we can secure them in digital form, and we'll talk about all that. But I think there's different ways, because it is sensitive information, to make sure that you're also doing that. I think one of the most important things is from my perspective, from an accounting firm perspective, is client trust. They trust us with their information. They trust us with their documents and so we want to make sure that we maintain a systematic approach to handling their information in a sensitive way. We have that responsibility, and our reputation is on the line to make sure that we're holding up to that. But beyond that, there's a lot of risks that can go involved in this. You're talking about sometimes just legal risks and regulatory risks, like we mentioned. If you don't have a policy, you might retain the documents [for] too long or too short, or maybe you don't have a policy, so you destroy them after a year when really you should have kept them for a period of time that was in fact what you should have kept them for. Also, now, someone needs them, and you don't have them. Operationally, it's good to have it because without a retention policy, these documents can accumulate [and that] can lead to your whole organization being disorganized. Then when you need to find something, you can't find it. That I find is a very common occurrence out there. On top of that, security. Walker: Lots of reasons to have one. This never happened to me when I was in practice, but I don't know if it has happened to you, or you've heard about it anecdotally. Again, hope it never happens to you, but if in a lawsuit, your records are subpoenaed and you have a document retention policy and you're following it, then maybe if you are asked to produce documents and they're outside of your document retention policy. You're not required to provide them. But if you do have them, then you have to provide them and maybe provide even more. I think that's like a firm liability risk, also, like so many risks around this. I don't know if you have any thoughts on that piece. Gallegos: That alone is why you need the policy. I have not run into that. I've had other colleagues and other firms run into this policy problem, where they've been subpoenaed to provide, we'll call it tax documents, tax work papers and they don't have them. The first thing that people asked for when they start getting more into a litigation situation is providing your retention policy and they realized they don't have one then. Now, whether they've kept them and destroyed them in the proper amount of time, now their reputation, potentially, they could be on the hook for other fines and penalties. It's just unnecessary legal action that they get drawn into, when at the end of the day, if they actually had a policy, they can say, we kept it for, we'll say seven years and then we destroyed them. Here's the record of us destroying them and you can provide all that information. It helps the entire situation, which I think is very important. Walker: I think so. We've talked about the importance of having a policy. What about the guidelines? Are there very firm and fast guidelines on how long you keep certain documents? Gallegos: One of the things, for us, tax returns — you want to keep indefinitely. I tell my clients that all the time, but there are workpapers and bank statements and payroll documents. Typically, seven years is the policy. But you want to make sure that you are adhering to what are the rules. And for whether it's a permanent document or whether it's just a work paper. [Determine] what kind of document it is and make sure your policy identifies what your policy is to keep them and then how are you taking steps to make sure that you're following that. When you're looking at different guidelines. Obviously, the legal requirements are based on what kind of document. Is it a federal tax law mandate? Is it something that is more HIPAA, health care type stuff? Is it SEC regulations and finance? Is it legal? Then you want to establish those categories to identify those different types of documents so that you can put them into different buckets. I think that's very important in this process. Walker: I mentioned that we have a template for it. It's again, just those general guidelines that you can use for your firm and share with your clients. But as Mark said, we want to make sure that you understand that there could be different reasons — Government grants or something like that or different state requirements related to keeping certain types of documents. You need to be able to think through that and understand it. [Let’s talk about] document retention in general, in this digital age. I feel like there's still paper. We talk about offices being paperless. My house is certainly not paperless. I wish it was, but I just remember, I started practicing in the mid '90s, which makes me feel like an ancient crone at this moment. But anyway, it was like file cabinets. I can still close my eyes and think about going into the file room, pulling out drawers and things. These were the files that need to be destroyed and we moved files around. I don't know, it’s just bananas to think about. But [hopefully] your policy is not that the cabinets are full, and we need to go through them. How do you think about digital storage and what are your thoughts about managing that? Digital storage seems like you have an unlimited amount. Again, you go back to, it feels like, oh, I don't need to care about this. But you really do for the reasons we mentioned earlier. What do you think about digital storage, Mark? Gallegos: I'm with you. I started in the '90s, I think '97, and I remember filing cabinets full of paper and everything was paper. Now we as a firm, we're very paperless. But you still see paper and I still go places where I see nothing but paper. I think it's just all over the board, but there is definitely a shift from the physical to the digital document storage. It's altered the landscape out there. We're seeing more and more of that because everything's pretty much digital. But that's good and bad. You've got to look at it as scalability and space availability. In the past, if I had lots of documents, I had rows and rows of file cabinets or rooms just filled with it and then off-site storage. They were paying an enormous amount of money to keep that paper. Then now with digital, it's all in the Cloud, we'll say, or in some sort of format. However, without a policy, you can store so much stuff digitally and you don't know how to get to it. Searchability and being able to access what you saved because I could save one thousand documents in the cloud. But if I have no way of really knowing how I documented it, how do I search for it? How do I find that stuff once it's there? I think that's a big thing. Also with digital storage, it's out of sight, out of mind in some respects. At least with physical, I can start digging through and have people go through these drawers and see what you can find on this. But sometimes when it's out of sight, out of mind, it just keeps building. If I have a firm of tens of people, thousands of people and now everybody's storing and we don't have a policy, we don't have any method. Boy, that's going to be a messy digital storage facility for us. I think the most important thing in this is data breach, security risks. What happens if I have the greatest storage system, but I haven't protected it from outside security measures? That can be a big problem. Walker: That's probably a different podcast topic, but every time I have a chance to talk about it, I remind our practitioners that they need a written information security plan. It's required — one reason to have it, but it's also, you just have to have it because of all this data…that you hear about these breaches all the time and it's really scary. You talked about digital files — they're just everywhere. They could be [hard to find] if you don't have a really good system. Do you have any tools or software or things that you use to help with this, with retention in your firm? Gallegos: Yes. We have a number of things within the cloud, but we predominately use our CCH products and the document products there. We have a very sophisticated way of how we save things and how they get archived, and we have people who manage that. There's an elaborate system of how data flows and gets stored and when it gets destroyed at the same time. We're very lucky to have the resources to be able to have a great system. But also, there are other ways out there. There's so many, whether it's accounting platforms, even Microsoft’s SharePoint, Google Workspaces. There's a lot of software out there that can provide different tools. I think it's finding the right tool that works for your organization. What documents am I managing? Is it industry-specific? What are the integration capabilities of my system with this? Then I think [about] stuff we do and I think other people do too, is just regular training and updates. How do you maximize the effectiveness of these tools? Because just like anything, you'd go out and put on your phone the greatest app in the world but if you don't actually know how to use it, it's really not going to provide you any value. Walker: Useless. I've done the same thing trying to keep up with my to-do list and things. There's some great stuff out there, but then it's all human-dependent at a certain level. The robots haven't taken over the world yet anyway. We touched on this, but I think it's important to touch on it again, and that is recommendations to clients about their records. I feel like that was a common question that I got and I'm sure it is for you too, Mark. How long should I keep my tax return? Like you said, indefinitely for the tax returns, but that doesn't mean every piece of paper associated with that tax return. How do you help your clients think about the importance of maintaining those records without going overboard and going into a hoarding situation, and then also the digital? Something sticking in my mind is that you as a firm are not your client's document retention [policy]. They should keep copies of their tax return. At a certain point, you're going to get rid of them and they can't ask you, do you have my 2000 tax return or whatever the year is? No, I don't have that, even if you've been a client for that long. How do you help that? We've talked about security, so you need to preach that to your clients too, of course. But what are your thoughts on that, Mark? Gallegos: This is a question I get quite a bit, guiding our clients on document retention. It's more of a balancing act sometimes, ensuring compliance, but also helping them. A lot of them are hoarders, whether they want to be or not with that information. I'll have clients to call up, for example, and say, I've gone through my basement, and I have 30 years of boxes of tax documents. So you have to specify what kind of tax documents. Is it the actual tax returns or is it maybe all the work papers? W-2s, 1099s, etc. I think that's where the template that the AICPA has is great for giving some guidance on what you should do. But I always tell my clients, look, tax returns, keep them indefinitely for yourself. Whether you want to know or not, it's just good to have in case you ever have to pull it out. But basic document storage of your records that support the tax returns, the seven years, or whatever makes sense for your situation is what you should keep. But I agree, we keep our records for ourselves, it's not because we're keeping them for the client. I think that is where, again, circling back to the whole idea of having a policy is important. From a legal standpoint, assessing business needs, making sure that document management system is efficient. How are we handling it, whether it's paper or digital? Who's managing that? We have some key champions or practice leaders that are involved in that. What are the risks? What are the costs involved in making sure our system is up to date? But also, just constantly promoting how do we keep it clean? How do we keep it moving forward? By having that, when clients ask you for their own, whether it's their business or individual, you can give them the same insights and then help them determine what policy they should have. Even if you're not a client, you just sit at home, and you've got all kinds of records. Say, I’ve got phone records going back 10 years, should you have that or not? Maybe you should create your own home policy, those things. Walker: Good advice. Mark, as we're wrapping up, [do you have] final thoughts [to share] on this topic as you're thinking about document retention. Gallegos: I think it can be a generic topic where people go, whatever. But I think it's more important. Where I see this [being critical] is [due to] all the legal things that come out. Unfortunately, there's a lot of lawsuits that fly in a given year, whether someone is involved or not involved or it's indirect. But needless to say, the one thing that will always come out of it is provide documentation or memos. If you were supposed to have that and you destroyed it or if you have a policy that says you should have kept it — If you should've destroyed it and now you still have it, you still got to produce it. It's all these things that come along that are very important. But also the security risks, the challenges that are involved in that, and sometimes just the cost that's involved. There's a lot involved there that you’ve got to really make sure of in the regulatory and compliance area. I think so, staying compliant, enhancing your efficiency, helps minimize your risk and at the end of the day, from an accounting standpoint, it builds our trust. Our clients know, hey, you're the trusted advisor. You got our information and you're doing everything you can to make sure that is taken very seriously. Walker: That's great. Just had another thought as you were talking, and that we didn't specifically talk about is emails and maybe other methods of communication with your clients, text messages. Again, I feel like that's a whole another podcast topic. Why are you texting with your clients? But anyway, at least there are ways to do document retention on emails. But I feel like that's where I've heard things can really go awry with liability situations, so make sure you're thinking about your emails and your email correspondence and any other correspondence with your clients when you're thinking about document retention. You're a second-time guest on here so you know this question is coming, but I like to think about us taking a journey together towards a better profession and I love to hear about your other journeys outside of tax. What have you got on the horizon? We're at least having a pause in tax season, hopefully, you have something fun planned. Gallegos: Obviously, busy season and tax season coming to a close is always not only a relief but it's like a celebration in your soul. For me, it's taking a step back to enjoy family and friends, to just thank everyone more intentionally that you maybe didn't get a chance to. But also, I think for me, it's all the soccer games to go to, it's all the school events, it's all the vacations that are coming up. In the summer, we're going to take my family to the Outer Banks. We go every year. It is one of the most, for me, the relaxing week of my life because I just unplug and I literally get to enjoy beach sun and just relaxation. It's the one time a year more than any time that I really recharge. Not that I need a lot of recharging, but it does help. Walker: Everyone needs recharging in some way. You have a graduating senior just like I do, where I'm sure there's stuff going on around that as there is at my house too. Gallegos: Absolutely. Walker: Thank you so much, Mark. I appreciate your time today and hopefully, we have provided some great information for our listeners. Again, this is April Walker from the AICPA Tax Section. This community is your go-to source for technical guidance and resources designed especially for CPA tax practitioners like you in mind. This is a podcast from AICPA and CIMA together as the Association of International Certified Professional Accountants. You can find us and listen to us wherever you find your podcast and we encourage you to follow us so you don't miss an episode. If you already follow us, thank you so much and please... /episode/index/show/taxodyssey/id/31094168

A radical approach to client relationship building 04/18/2024

Deadline Dilemmas: Navigating Tax Extensions and Risks 04/04/2024

Deadline Dilemmas: Navigating Tax Extensions and Risks the new Director of the AICPA & CIMA’s Tax Practice & Ethics team joins the podcast to discuss the importance of clear communication with clients, especially during the tax filing season. Liz emphasizes the need for valid contracts and signed engagement letters before filing extensions. Common risks and pitfalls associated with not having them in place include improperly filed extensions, missed deadlines, fee disputes and potential loss of revenue. Sharing her passion for safeguarding the profession and futureproofing it for upcoming generations, she is focused on initiatives to recruit, retain and support young practitioners. AICPA resources — Understand the importance of establishing parameters of client relationships and detail the scope of services to be provided. — Do you have clients who are hesitant about filing an extension to file their tax return? Communicate the who, what, when and how to ease their minds. — Engagement letters, organizers, checklists and practice guides help you manage your tax season workflow — Access the AICPA’s central hub for guidance, tools and developments throughout the tax filing season. Transcript April Walker: On today's podcast, listen for some important reminders for the upcoming April 15th deadline. 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'm April Walker, Lead Manager from the tax section, and I'm here today with Liz Young. She is my new boss and the new director of tax practice and ethics team here at the AICPA. Welcome, Liz. Liz Young: Thanks, April. It's great to be here with everyone. Walker: Here we are. We're actually recording this on April 1st, but it will post later in the week, and April 15th is coming up very quickly. I'm sure our members have everything handled and in order and ready to go. But in case you don't, I thought we could talk through some deadline oriented questions that we get a lot and get your thoughts on them, Liz, especially considering your most recent position which was in KPMG and risk management. To start off, let's talk about filing extensions. Because in the next week or so, you're either filing extensions or you're wrapping up returns. I thought that'll be a good starting place. I'm thinking about two different scenarios. First, your clients that you've had forever. You're sure they're going to sign the engagement letter, but they haven't signed it yet. You've been in contact with them for this and that reason, but the return's not going to be completed before the deadline. It may be that their tax returns is always on extension. What are the risks and pitfalls in this situation with filing an extension without having that signed engagement letter? Young: Thanks, April. It's great to be here today and it's wonderful to have the opportunity to talk about this topic with you. It's certainly a topic that is very important to me. First off, I would like to say I'm extremely happy to be back on board with the AICPA and the tax practice and ethics group. I used to be in the policy and advocacy group at the AICPA for four years. It's really great to see another side of things here as well. But previously, as you mentioned, I was in KPMG and their risk management group, and I got to see a number of issues that practitioners face, specifically in this area. Our group at the firm always took a pretty strict approach here when looking at both professional standards and applying risk policies to these types of scenarios. I'll address a few things that I think are important to consider specifically. For example, there are both reputational and professional risks that come into play here and that can arise with regard to performing work when the taxpayer is not actually a client or is no longer a client because the terms of the contract are no longer valid. Really the fact of the matter is if there is not a valid contract in place, then there's not a valid client relationship, and you should not be filing an extension on behalf of the taxpayer. There are certain nuances that can arise, but really, we recommend taking a strict approach in this type of situation. Further, take into consideration that contracts typically last for a set period of time. For example, a standard term can be 15 months. That's typical of what we would see at KPMG and would have in place at the firm. If returns or extensions are filed without proper contracts in place or when there are lapses in contract terms, because you go over that 15 month period, then a number of things can happen. For instance, an extension may be improperly filed because the extension is not reviewed by the taxpayer before the filings occur. Deadlines might be missed if the wrong extension is filed. For example, what if there was a structural change that occurred and the firm who prepared the extension was not aware of the structural change? The wrong extension might have been filed for the wrong entity. Perhaps if you're looking at an extension for a state return the wrong state was included, you might not be aware of this. There can also be issues such as fee disputes that can arise subsequently when the client comes back and will not pay because there was not an agreed upon fee structure in advance for the work. Ultimately, there may be time lost that needs to be written off by the team, and ERPS (enterprise resource planning system – a billing system) might need to be adjusted downwards when the expected fees cannot be collected. Really, these are just a few examples of pitfalls that can occur and traps for the unwary in this area. Walker: As you were talking, I was just thinking that never happens – that our client doesn't tell us stuff that happens during the year, like a structural change. But really it doesn't [always] happen, [and this could be the result]. I know our listeners are probably a wide range of firms. We've acknowledged that KPMG is certainly one of the top four firms. People who are listening are not necessarily in that situation. In thinking about that, yes, I appreciate you bringing up the risks, but then looking at it from the other side, what about that long-term client? That they expect you to file an extension. You don't file an extension. What are the risks there? Young: Sure. Yeah, we definitely see that a lot in small to mid-size types clients or firms sizes. There are definitely risks to consider here as well with all types of firms sizes when an extension is not filed. First of all, I would say business risks impact everyone in this type of situation. You mentioned the client relationship can be hurt long term. If the taxpayer believes they are your client, has an expectation that an automatic filing may occur on their behalf, say, due to history, but then ultimately it does not, you could lose out on long-term work. This directly impacts fees and revenues to the firm if there is this damaged or lost relationship. There are other things to consider as well. Another element that's very important to consider is that if a filing is missed, then the client, no matter how large or small, will also face penalties imposed by the IRS potentially from missing the filing deadlines. You could have failure to file penalties, failure to pay penalties. This may be a surprise to the client. If they didn't know they missed a deadline because they were expecting you to file. That's a main point of consideration as well. There's also statute of limitation concerns to be aware of. The statute of limitation typically starts to run three years after the return is filed. If you have an extension that's properly granted until October 15th, then three years would run from then if the return is filed on October 15. But if the extension has never filed, then the extension of limitation would begin to run three years after the tax return initial due date. The client may believe that their statute of limitation is different. That's something to be aware of as well because that's definitely a cause for concern. I think the bottom line is that it's very important to be proactive with your clients, no matter how big or small with regard to communication about these potential risks that can develop and the importance of entering into a valid contract because of that. Walker: That's what we were talking about when this came up. Just [having] better communication - I think will be a theme of this podcast today. Just making sure you're communicating exactly what your expectations are, and if your expectation is, "Hey, we're not going to file an extension until you sign this engagement letter." Even if we've done not a stitch of work for you that we're just not going to do it. I’m thinking about another kind of set of circumstances and that would be clients, you really just haven't heard from at all. You're aren't 100% sure they are are going to be a client. You addressed some of these in earlier conversations, but I feel there's two steps. I've got a client list and I haven't heard from them and you're really busy. What are the risks or pitfalls in this particular situation about filing an extension? Again, when you haven't heard from them. And then recommendations that you might have [considering the] limited amount of time [remaining]. What would you recommend in this case? Young: Thank you, April. I think as we have been emphasizing so far - communication is really key. The firm needs to be clear with the taxpayer that if the they are going to continue to be a client and the firm is going to continue to do work for them, then both parties need to have a contract in place by "x" date or the firm is not going to be able to do the work. This communication really needs to start as early as possible and well in advance of the due date for any tax filings, so we're not down to the very last-minute. That really goes into planning for this in advance of the due date for filings that are going to incur, because it's critical and it should really be part of the annual planning process. If the firm doesn't hear from the taxpayer after continued outreach, the best practice here is to not do the work and assume that the client relationship is no longer in place. Again, a pretty strict viewpoint should be taken related to this, but communications should be undertaken continuously to try and be as clear and concise as possible to try to resolve any ambiguities with regard to if there is in fact a client relationship in place or not. One thing that can be considered is upfront is to enter into multi-year engagement contracts, so that any work would be covered for a longer period of time without a risk of lapse to the engagement occurring. When you get up to that deadline that's coming up in a couple of days, you'll know that you're already covered because you have a multiyear contract in place. If you tend to have a client that tends to be on the quieter side, you can negotiate more upfront originally to try to get a longer contract term in place that would offer better coverage. Or if the client doesn't want to sign or they are lingering because there's terms in place that they don't like, you can allow for time upfront to go back and forth with them. If there's legal counsel available at all to work on contract term modifications that are acceptable to all parties, that'll help prevent scenarios from arising where you aren't sure if a taxpayer will still be your client or not for the upcoming compliance season. Walker: Those are good thoughts. Again, some of this might not be realistic as we're talking about really short-term, but again, hopefully something will stick in your mind and maybe it's- we'll do better next year. I'm also thinking about quality control and accuracy during this crunch time. I remember when I was in practice and I was working a lot, and my brain at certain point just started getting really fuzzy. [What] advice, support, encouragement for practitioners [would you like to share for] this next week or so. Young: Sure. I think because of the short turnaround, the time-frames that happen at the end, is why it's even more of the utmost important to just be cognizant of this type of risk during filing season. My advice again would be to make sure that you're taking time to properly address the situation at hand. There are, of course, inherent pressure related to trying to rush through and finish before 4/15 or whatever the deadline is that you're looking at. But it's always a best practice to take a step back to make sure that you have the proper engagement letter in place that clearly covers the term of the work before the work is commenced because as you mentioned, mistakes can easily be made, especially during this time of year. I know here at the AICPA, we actually have specific resources that can assist in this area. For example, I believe we have a number of best practices for engagement letters, tax return extensions, access to numerous engagement letter templates. I don't know if maybe you can comment more on those for our audience as well in terms of tools that they can leverage to help during this situation? Walker: Absolutely, and I'll put some links to those in the show notes. Also, when thinking about this upcoming deadline, I feel like extensions [are a good idea], even if your client is expecting for you to finish your return. It may be in your best interest to file an extension and just wrap the report in the next couple of weeks. We hear a lot of times that clients are not understanding of what an extension means for them, so that we do have some resources around that, which I'll put in the show notes about dispelling myths and that sort of thing. We'll definitely put those in there. Then my next thing I'm thinking about is as far as deadline-oriented questions, the seemingly constant requests for tax return updates that are happening right now. People probably were on spring break either last week or this week, but then they start thinking about, Oh my gosh, my tax return is due. Just want some thoughts again for our listeners thinking about all those contacts. Young: Absolutely great questions and points of interests for consideration. But what I would say is absolutely leverage the team that you have in place, use your administrative staff to help with communications to your client, to put together filing deadlines, schedules to help set clear expectations while in advance, set deadlines for your clients and stick to them and have your clients stick to them as well. [Make sure] you're holding them accountable if you aren't receiving the documentation that you need from your client to move forward successfully or answers to questions that you're putting out for them and try to set clear boundaries and expectations so that they're aware that there's a risk to the work being completed timely and accurately. They need to be able to meet obligations on their end in order for you to meet obligations on yours. Make sure you have a good staff in place as well to help with workflow and updates coming through and that their workloads are managed and planned out as much as you can as possible. I know, of course, easier said than done but building in any extra time for these updates that may occur can be extremely helpful, especially as you close in on that deadline. Walker: Already knew this, but I'm really glad we're all on the same page with this. I've been preaching this for some time and I'll continue to shout it from the rooftops. Let's pivot a little bit and Liz, I'd love to hear from you. [You are] a couple of weeks into this new role and [we know] how important it is supporting our members and our tax practitioners. Do you have anything special passion projects that are on your agenda or what you're thinking about as you're transitioning? Young: Oh, yes, there are so many interesting things here that we get to work at the AICPA. That's actually one of the things I loved when I was here for four years previously too, every day is dynamic, every day is challenging when you get to work with such great people and our members are so wonderful and we have such a great impact. But I think in particular I have always had a great interest in working on how to safeguard our profession and future proof it for generations to come, which I know is a big initiative here. I believe the AICPA has an opportunity to make a material impact on the profession for the future, starting with our young accounting folks and encouraging them to seek careers on this wonderful field. I know I've had a wonderful career myself and as we face an ever-changing and dynamic landscape, I hope to directly be involved with efforts to recruit, retain, and support our young practitioners coming in. I think it's really important to showcase our great field and to address the accounting shortage head-on to really help young people realize how great a need there is for skill sets in this area and that there can be vast opportunity for success long term. I know myself, I've definitely been a tax nerd my whole life and I love taxes specifically, of course, shouldn't everyone? No. But I would say I try to be a fun tax nerd. I love to help others see potential as well and all the opportunity available to them. Probably one of the most important initiatives I'm looking forward to working on directly here. Walker: We're always excited to do that and same, I love talking about, how many different things you can do, different roles you can play as being a tax practitioner and being just a CPA in general. There's so many different things you can do and trying to encourage our younger generation. I have a getting-ready-to-go-to-college child myself, who is not very interested in accounting, but I still try to offer it up as, hey, it's a cool career. So we'll see if that sticks one day. Liz, it’s so fun to be with you here today. In closing on these podcasts, I like to think about us all taking a journey together towards a better profession. The Tax Section Odyssey -we're journeying together. I like to get a glimpse of my guest other journeys outside of tax. Liz, tell me something from your travel bucket list or a recent trip you've been on, or something that you enjoy doing. Young: I would say my family are avid Disney fans. We have a membership to the Disney vacation club and we get to spend a lot of our time or a lot of our free time down there. I have a four-year-old and a two-year-old and they're just really great ages where they love it. We spend a lot of time in Florida looking for Mickey Mouse and I have a vast ear collection- Minnie Mouse ear collection- that I love to sport while I'm down there. I love to travel in general, I've lived in France twice and love to get back as much as possible. Yes, there's always somewhere new to see, I would say my bucket list is ever-growing. Walker: Disney is definitely fun. It's the happiest place on earth, and that is mostly always the case. Young: That is true, mostly always. Walker: Alright. Thank you again so much, Liz. This is April Walker from the AICPA Tax Section. This community is your go-to source for technical guidance and resources designed especially for CPA tax practitioners like you in mind. This is a podcast from AICPA and 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. If you already follow us, thank you so much and please feel free to share with a like-minded friend. You can also find us at aicpa-cima.com/tax and find our other episodes, as well as getting access to all the resources we mentioned during this episode. I wish everyone a happy almost April 15th and... /episode/index/show/taxodyssey/id/30682798

Digital asset playbook: Part 3 — Reporting requirements 03/21/2024

Clearing up BOI confusion and other tax advocacy updates 03/14/2024

What's under the hood — Superseded returns 03/07/2024

What's under the hood — Superseded returns Superseded returns — essentially a replacement for an originally filed tax return — can be a useful tool, especially as it relates to partnership returns which operate in the centralized partnership audit regime (CPAR). Learn more about when these “do-over returns” should be considered and what implications they may have for statutes of limitations. AICPA resources , July 1, 2021, The Tax Adviser — Gain answers to frequently asked questions about the centralized partnership audit regime under the Bipartisan Budget Act of 2015 (BBA). Other resources — Information from the IRS on filing a superseded return electronically Transcript April Walker: Hello everyone and welcome to the AICPA's Tax Section, Odyssey podcast, where we offer thought leadership on all things tax facing the profession. I'm April Walker, a lead manager from the tax section, and I'm here today with Colin Walsh. Colin is a partner and firm leader at Baker Tilly in tax advocacy and controversy services. Colin, today we're going to talk about a topic that is very timely as we're recording here on March the 4th and March 15th is coming up very, very soon. We wanted to get this in prior to March 15th, so thank you, Colin, for agreeing to be with us today and let's just get started and talk about what is a superseded return. It might be a new term for some of you listening, but hopefully it won't be by the end of our conversation today and [let’s] just talk a little about basics and how it differs from an amended return. Colin Walsh: Sure, thanks for having me, April. Superseded returns are incredibly important this time of year. A superseded return, by definition, constitutes a timely filed original, keyword, original tax return. You essentially are replacing the originally filed tax return with a second originally filed a tax return and as an originally filed a tax return, the superseded return carries certain rights and privileges that an amended income tax return does not carry. Walker: Perfect. Let's talk about some of those. What are some of those characteristics of the superseded return and how do I actually do a superseded return? Walsh: Historically, when we think about superseded tax returns, some of the more important items that taxpayers look at are things like statutory or regulatory elections that are required to be on an originally filed tax return. Certain types of elections cannot be on amended income tax returns. For purpose of making an election, it's important that those elections be on a timely return and the superseded return allows you to do that. Likewise, we've seen a lot of clients that as some of us in practice may see those harsh penalties for late foreign information filings like 5471s and 5472s. Once again, because a superseded tax return constitutes an originally filed tax return, you can file a superseded income tax return, attach a foreign information reporting, and be absolved of those harsh penalties. More recently, in the partnership context, we've seen some new life, if you will, that's been breathed into the superseded tax return, and this really deals with the centralized partnership audit regime or the BBA for Bipartisan Budget Act. It's critical in terms of how partnership tax returns need to be amended under CPAR BBA, that we preserve the ability for our clients to file superseded tax returns instead of having to file administrative adjustment requests under CPAR. Walker: We were talking a little bit before we started this conversation about sort of a policy that you guys have around partnership returns and I'm sure some of our listeners, you're familiar with BBA and AARs, but it's still a new concept. We're still learning about the complexities around that so talk a little bit about how you've decided to do superseded returns for your partnerships. Walsh: Baker Tilly has developed a firm policy that without written consent to the contrary from our partnership clients that all of our Forms 1065 must be extended even if the clients are going to timely file their Forms 1065 prior to March 15th and we do that strictly for purposes of preserving the ability to file a superseded return. Really the policy at issue there, I think, is two-fold. First and foremost, the BBA CPAR rules are esoteric and evolving, and so just the administrative costs and the time that it makes to file an AAR under CPAR as opposed to, for lack of better term, amending the old-fashioned way via a superseded return, the superseded return is going to take a lot less time. I know this isn't a BBA call, but the second reason is that under the centralized partnership audit regime, to the extent that a partnership files an administrative adjustment request, the partners in that partnership no longer receive amended Schedules K-1, so the partners can never go back and file amended reviewed year tax returns. Instead, partners in CPAR partnerships have to account for any adjustments that are made to a Form 1065 in what we call the adjustment year, meaning the year in which the administrative adjustment requests [are] filed. By way of example, if we were filing an administrative adjustment request on a 2023 Form 1065 today, the partners would account for those changes on their 2024 income tax returns, they don't get to go back and file amended 2023 tax returns anymore, so that comes with a host of logistical problems that are unique to CPAR. It's because of those considerations and many others, our clients are essentially mandated to extend to preserve the right to supersede. Walker: Got it. Are there any other circumstances you can think of for other types of returns that it might make sense to file a superseded return — and just as a second part to that question, I know for partnerships we’ve talked about why it makes sense to do that, but any other types of returns and situations where it might be in the client's best interests, also in your best interests, in having to deal with all the complexity. Walsh: Any situation where you're filing an income tax return, whether that be at 1065, an 1120-S, an 1120, or even a 1040 to the extent that income tax return has statutory or regulatory elections on it, many of those statutory or regulatory elections cannot be on amended income tax returns. They need to be on timely filed original tax returns. One that we saw a lot that came up last filing season was clients who are Qualified Opportunity Funds (QOFs). The way that you elect to be a Qualified Opportunity Fund is on a timely filed original tax return. To the extent that a client's income tax return missed that election, had they superseded and discovered it over the summer months, that client would have preserved the right to make the Qualified Opportunity Fund election and avoided a very costly and time-consuming private letter ruling with the Office of Chief Counsel. Walker: That's what your clients are looking to you for, is that advice and help. You're making taxes not be such a horrible experience, or that sort of thing. I was thinking again, here we are in early March, there's discussion of this pending legislation that has passed the House and is in the Senate. Not sure where that's going to go. Lot of angst. I've been hearing about the retroactivity of it. Again, we're not sure where that's going to go, but to me, that was another reason I started really thinking about and talking about this topic and want to make sure, what are your thoughts about that? Walsh: As it relates to potential tax legislation, like yourself, I have gotten out of the game over the last five years of predicting what Congress will do, but I would say that our clients should not be afraid to extend and just wait to file. I think a lot of us have this temptation or clients want to get their tax returns filed as soon as possible and certainly, I understand the need to get some closure on the 2023 tax filing season and be over and done with. Filing a superseded return can be helpful, but it does cost time and money and filing superseded returns, while in a legal sense are protected and honored by the IRS and no one doubts them. They can create some confusion at the service centers. To the extent you are filing an income tax return that you felt could be changed via retroactive legislation that's going to come in the next few months here, I would be inclined to wait first, then supersede, then amend, but waiting is probably the most prudent thing right now in terms of time and professional fees and sending two originally filed income tax returns to the service center. There's the law of it and again, superseded returns are acknowledged by taxpayers and the courts and the government, but as we know, filing two tax returns with the IRS can present its own problems administratively. Walker: For sure. I've been with the AICPA for eight years and I felt like in that time, I've been part of that discussion of extension is not a bad thing. Sometimes it's hard to help both parties. Sometimes CPA tax practitioners want to get it done and just be done with it instead of extending the workload. Sometimes it feels like the client doesn't understand an extension so that's part of your obligation is to explain to them and help them understand that it does not extend the time to pay the tax, but you can help them with that. There's a lot rolled up in that for sure, but I completely agree with you. It doesn't make sense to hurry, in my opinion, hurry up and file at this point. Walsh: You used a key phrase there, which is, I want to be done with it. I think that's what the client actually wants and I think what we're saying is that hurrying to file an income tax return today that could be subject to legislative change, you aren't done with it. Actually, now you have to go back and amend it or supersede it, which brings its own problems so there's the aspect of checking a box today and feeling like we've done all that we can but in the large scheme of things, rushing to file just for sake of checking that box could create issues you're dealing with well into 2025 and after. Walker: You mentioned this a little bit, but filing a second return might cause confusion with the IRS, even though they're absolutely allowed to do it. I was thinking about and I was reading, I think, the Taxpayer Advocate had a blog about this, about some of the confusion and about statute of limitations and how that actually works with superseded returns, because I think that might be a confusing issue. Walsh: Two questions baked into there. In terms of the IRS processing superseded tax returns, and then we'll talk about the statute of limitations. But on the processing side, the IRS is so understandably sensitive to things like identity theft right now, and to the extent that there are two income tax returns with the same EIN filed in relatively close proximity to one another. We've seen superseded returns set off the alarm bells at the IRS in terms of identity theft. Understandably, and we're always able to work through those things but once an income tax return is with the identity theft unit at the IRS, it's going to take quite a bit of time to process that. The other issue that we've seen with a superseded partnership return was that we did receive some matching notices because the IRS's system was essentially — they had processed both K-1s. The IRS was saying, “Hey, you didn't pick up this Schedule K-1 and we were saying, “We did pick it up. Tt was superseded and replaced with another one.” In both instances, we were able to work through those things with the IRS, but of course, it takes a little bit of time and effort. Superseded returns are a do over, if you will, and it's helpful in that respect, but you can run into some administrative hiccups where I wouldn't rely upon it if you don't have to. In terms of the statutes of limitations, there is some conflicting advice, some chief counsel advice out there in terms of what effect a superseded tax return has on the IRS's assessment statute under Section 6501 and the taxpayers refund claim statute under Section 6511. There were some chief counsel advice that I think caught the practitioner community a little bit off guard that said— the taxpayers refund claim statute and the IRS's assessment statue followed the originally filed tax return, not the superseded tax return. Of course, chief counsel advice is not the law, it's not binding on taxpayers, it's the IRS's interpretation of the law, but it seems like there's at a minimum — there's some gray here or some confusion about whether or not when you file a superseded tax return that actually extends refund claim statute. Say you file a superseded 2023 tax return this fall, I would not assume that you have until the fall of 2027, the superseded tax return date, to claim a refund. I would conservatively assume that the government is going to take the position that it was the originally filed return that starts to running of the statute. Walker: That's good to think about and know. Sometimes things might come up and it might really matter. But like you said, it's some conflicting advice and it's good to think about these things. Do you have any examples we've talked a little bit about all of these things, but where filing a superseded returns significantly impacted the taxpayer situation? Walsh: The centralized partnership audit regime, so going back to CPAR. Under the centralized partnership audit regime, to the extent that — let's try not to get too technical here — but that we're filing an administrative adjustment request and it's called a negative adjustment, a taxpayer favorable adjustment. We want to file an administrative adjustment request to claim a credit to reduce income, to increase expenses, something that goes in the taxpayer's favor. Under CPAR, those items are reported in the adjustment year, but CPAR creates in the adjustment year non-refundable credits that do not carry forward. We call this the CPAR doomsday scenario. We've had clients that were on extension and we're able to file a superseded Forms 1065 and instead of filing an AAR under CPAR, they received second K-1s and were able to claim the benefit of the second K-1 when they timely filed their partner level income tax return prior to October 15th. Without the superseded return, best case, they wouldn't get the benefit of that until they filed their 2024 return next year and enter the worst case scenario under this CPAR doomsday scenario, the benefit of the AAR could go away. Walker: That's a big deal. Definitely, again, as I came into this, I knew that it was about AAR, but I didn't know how much. Definitely a Part 2 I feel is coming where we delve into all the things about AAR and the things people need to know because I'm still learning about it for sure. Walsh: Well, if everyone follows our advice and they extend their 2023 returns, we could do that podcast after 9/15 because they could supersede up until then. If they're like most CPAs and tax attorneys, they want to know what they need to know today and that is you need to extend even if you're going to timely file. Walker: Absolutely. Colin, this has been great and super informative. Do you have any final thoughts as we're thinking about superseded returns — the March 15th date coming up? Walsh: Yeah. I think we've gone a long way as a professional community and dispelling the notion that filing an extension triggers IRS inquiry or your audit rate goes up or the IRS doesn't like extensions. That's simply not true and I think we should continue to dispel that notion. Let's squash that one right away. Some of the examples that we've come up with here may seem esoteric and rarely applicable, and that's true. I think maybe nine times out of 10, you could accomplish the same things in an amended return that you could accomplish in a superseded return. But for that 1 out of 10, where it really matters, where you need a regulatory or a statutory election or you've got the CPAR mess, it can be very helpful. I encourage everyone to extend. It is rare in tax that we get a chance for a redo and you will get a chance for a redo. That's my message heading into next week here. Walker: Wonderful. That's great advice. Colin, you're a first-time guest. Welcome. We're so delighted to have you. On these podcasts, I like to think about us taking a journey. It's the Tax Section Odyssey we're taking a journey together towards a better profession. And in doing so, I'd like to get a glimpse of my guests other journeys outside of tax. I don't know if you like to travel or you have any trips planned or anything like that or a bucket list trip. What's on your mind on that today? Walsh: I have three children under the age of six, so there will not be a lot of international travel on my horizon here. This summer, I live in beautiful Madison, Wisconsin, and my family's actually doing some construction in our home and we're going to spend a month traveling around Wisconsin. We're going to start in Door County, Wisconsin, which is one of our favorite places. We're going to head over to Lake Superior and spend a week up there and then end in Northern Minnesota. I'm going to be taking three children under the age of six on the road. Say prayers for me, but we're excited to do it in a few short months here. Walker: For sure. It's a part of the country that I haven't been to very much. I'm a UNC Tar Heel and we're playing Minnesota this fall and I'm like, we need to go up there because I've never been to [that area]. Walsh: We call it the upper Midwest. It's quite beautiful. A lot of lakes and mountains and it's great. Definitely get out to Minnesota and check it out. I encourage you. Walker: Thank you again so much, Colin. Again, this is April Walker from the AICPA tax section. This community is your go-to source for technical guidance and resources designed especially for CPA tax practitioners like you in mind. This is a podcast from AICPA and CIMA together as the Association of International Certified Professional Accountants. You can find us wherever you listen to your podcast and please feel free to follow us so you don't miss an episode. If you already follow us, thank you so much and please feel free to share with a like-minded friend. You can also find us at and check out our other Odyssey episodes, as well as get access to resources mentioned during the episode. /episode/index/show/taxodyssey/id/30277153

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