Taxpayer Was Willful in Failure to File FBARs When He Ignored Red Flags (US v. David Vettel, Apr. 11, 2024. US District Court for the District of Columbia, No. 4:21-CV-03099)
By: David Vettel opened a Swiss bank account and, from 2006 to 2011, failed to file FBARs to report the account. CPA Terri Phelps prepared Mr. Vettel’s federal income tax returns for tax years 2006, 2007, 2008, 2009, 2010, and 2011. Mr. Vettel did not provide CPA Phelps with information about his Swiss bank account. CPA Sent Organizer and Engagement Letter: CPA Phelps sent Mr. Vettel an “organizer” each year that contained a series of questions to which Mr. Vettel was supposed to respond in order to aid CPA Phelps’s preparation. The organizer included a question about whether Mr. Vettel had …
Cannabis Tax Legislation Went Up in Smoke, but the DEA Decides It’s High Time for a New Leaf on Pot Policy
The DEA has begun the process to reclassify marijuana from a Schedule I drug (like heroin and LSD) to a Schedule III drug (like ketamine and anabolic steroids.) The proposal does not legalize recreational marijuana use, but it recognizes cannabis as a less dangerous drug and acknowledges its medical uses. The move represents the DEA’s biggest policy shift in decades, and it’s likely to have far-reaching business and tax implications. What are the tax and accounting implications of marijuana rescheduling? Under Section 280E of the Internal Revenue Code, businesses involved in “trafficking” Schedule I and II substances may not claim …
Energy Credit Legislation Is Proving More Expensive Than Planned
The centerpiece of the Inflation Reduction Act of 2022 (IRA22) was a myriad of new and expanded energy credits intended to address climate change. Using the Congressional Budget Office’s February 2024 report, the Committee for a Responsible Federal Budget estimates that the ten‐year cost of the Inflation Reduction Act of 2022 credits will increase by 170% from $271 billion to $736 billion between 2022 and 2031. The increased costs will contribute to the pressure to repeal or reduce energy credits if the November election results in changes to the control of the House, Senate, and/or the White House. STAY TUNED Stay updated with …
EITC Improper Payments Increased Almost 50% from 2020 to 2023
The GAO estimates that 34% of Earned Income Tax Credit payments issued in FY 2023 were improper at a cost to the government of $21.9 billion. The Treasury Inspector General for Tax Administration (TIGTA) estimated an error rate of 24% for FY 2020.TIGTA reported that refundable credit improper payments are not primarily the result of internal control weaknesses that the IRS can address. Eligibility rules for ETTC are “often complex because they address complicated family relationships and residency arrangements to determine eligibility.”Carefully completing the Form 8867 to demonstrate preparer due diligence (while bothersome) serves to protect us and the client …
Sam Bankman-Fried Sentenced to 25 Years
Sam Bankman-Fried, the former wunderkind of the cryptocurrency world, was sentenced to 25 years in prison on Thursday, March 28th, 2024, for his role in defrauding FTX customers of $8 billion. He was facing a maximum sentence of 110 years, and prosecutors were hoping for 40-50 years. For a deep-dive into the background of the Sam Bankman-Fried fraud case from an accounting point of view, see Jeff Sailor, CPA’s on-demand video course, Focus on Fraud: FTX! What Happened? (1 CPE Credit, Accounting) In a statement from the Department of Justice, U.S. Attorney General Merrick Garland said: “There are serious consequences for …
The 90-Day Clock is Ticking for Beneficial Ownership Reporting
An Alabama Federal District Court found the Corporate Transparency Act and its Beneficial Ownership Interest (BOI) reporting to be unconstitutional (National Small Business United et al v. Yellen et al). The Justice Department on behalf of Treasury filed a Notice of Appeal on March 11, 2024. What happens now? While the litigation is ongoing, FinCEN will continue to implement the Corporate Transparency Act as required by Congress, while complying with the court’s order. Other than the particular individuals and entities subject to the court’s injunction, reporting companies are still required to file beneficial ownership reports as provided in FinCEN’s regulations. …
Bipartisan “Stop Subsidizing Giant Mergers Act” Takes Aim at Tax-Free Reorganizations
Few proposals have been made to change tax-free reorganizations in the past century, but today, a Democrat and a Republican have combined forces to attempt exactly that. This morning (3/21), Sen. Sheldon Whitehouse (D., R.I) and Sen. J.D. Vance (R., OH) introduced new legislation aimed at transforming the tax implications of big mergers by revising the corporate tax code. The Stop Subsidizing Giant Mergers Act is described in a statement from the senators as “ending a wasteful subsidy for mergers where combined average annual revenues exceed $500 million.”The bipartisan bill sets its sights on companies’ ability to complete tax-free mergers. …
New IRS Memo Answers Questions Related to Form 8300 and Cannabis
Once a business receives cash exceeding $10,000 (in either a transaction or related transactions), a Form 8300 must be filed. Cannabis businesses are cash intensive businesses and therefore are subject to the reporting requirement.A March 1, 2024 Chief Council Memorandum 202409016 addresses a series of questions related to the filing of Form 8300 that have arisen in examinations of cannabis businesses. The memorandum provides guidance on many of these issues in a 16 question-and-answer format. Additional guidance on questions related to cash couriers/armored cars who transport cash between growers/manufacturers and dispensaries/sellers is in process.Example from Q and A #2. What …
President Biden Proposes 2025 Budget
President Biden has proposed a 2025 budget, and it’s a pie-in-the-sky plan that has no chance of getting through Congress. It is instead a political statement of what might be, not what will be. So, why read about the proposals? Because some well-read client will ask about a provision that particularly irritates them. (Think real estate investor and the Section 1031 proposed limit.)The proposed budget includes tax increases of $5.1 trillion over the next ten years, and it assumes that the Tax Cut and Jobs Act will not be extended past 2025.Here are a few items from President Biden’s proposed budget.The …
Student Loan Discharge for Small Loans Has Started
The Department of Education has announced that it will automatically discharge $1.2 billion in loans for nearly 153,000 borrowers who are eligible for the shortened time to forgiveness benefit under the Saving on a Valuable Education (SAVE) Plan. For a borrower to be eligible for this forgiveness, they must be enrolled in the SAVE Plan, have been making at least 10 years of payments, and have originally taken out $12,000 or less for college. For every $1,000 borrowed above $12,000, a borrower can receive forgiveness after an additional year of payments. All borrowers on SAVE receive forgiveness after 20 years …
California Corner: Calling the Practitioner Hotline
By: The FTB continues to request (actually beg) practitioners to utilize the self-service options available on its website using “MyFTB Account.” Accessing information on the website frees up hotline agents to handle cases that cannot be resolved without live contact.Tax Practitioner Hotline(916) 845-7057Tax practitioner hotline implements virtual hold technology. As a result of practitioner feedback, the Tax Practitioner Hotline successfully implemented Virtual Hold technology. Virtual Hold allows callers to save their place in the phone queue and receive a call back instead of waiting on hold for a potentially extended period of time.In March 2023 alone, over 24,000 tax practitioners utilized …
Federal District Court Rules that the Corporate Transparency Act is Unconstitutional (National Small Business United et al v. Yellen et al)
An Alabama Federal District Court has found the Corporate Transparency Act and its Beneficial Ownership Interest (BOI) reporting to be unconstitutional. Judge Liles C. Burke concluded that “The Corporate Transparency Act is unconstitutional because it cannot be justified as an exercise of Congress’ enumerated powers.”What now? This will be a wait-and-see situation as the government appeals the decision and FinCEN decides how to address the decision. But what do we tell our clients?There will be no hurry in filing BOI reports for existing entities, as the reports are not due to FinCEN until Dec. 31, 2024. Wait for a FinCEN …
Capitol Hill Connection: House-Approved Tax Bill Stalls in Senate
While Tracy Chapman’s “Fast Car” may have found its way back to the top of the charts after 30 years, and rightfully so, there is zero related prophecy to the movement of that House-approved tax bill you love to hate or its need for a quickly moving legislative vehicle. “Maybe we can make a deal,” Chapman sings, “maybe together we can get somewhere.” Although it seems Congress is working to do just that with the largely bipartisan, bicameral tax deal that cleared the House on January 31, for now, the bill remains stalled in the Senate.Although I told you earlier …
California Corner: San Diego County Storm Relief Postpones Filing Deadlines to June 17, 2024
By: Federal Notice: IR-2024-51, February 27, 2024 IRS notice IR-2024-51 postpones tax year 2023 tax filing and tax payment obligations for residents and businesses of San Diego County as “federally declared disaster areas” due to severe storms and flooding that began on Jan. 21, 2024. California conforms to the June 17 filing and payment date.Other Counties Coming? The same relief will be available to any other California localities added later to the disaster area. The current list of eligible localities is always available on the disaster relief page on IRS.gov. Although not yet designated, watch for Southern California Counties to be …
Why Trusts Can Be Residents of More Than One State
By: California has 39 million people, according to the census. (I suspect at least 10 million of those folks are employed by the Franchise Tax Board.) The United States has 335 million people. Doing the math, there is a likelihood that if you have an irrevocable trust on the west coast, someone out there is going to ruin your tax professional’s day. so let me get this straight.you can have a trust established in hawaii, holding hawaii real estate and the sole beneficiary is a resident of hawaii, but because the sole fiduciary is a california resident, the whole trust is …
Capitol Hill Connection: Werfel Grilled in House Hot Seat
By: Happy Friday, tax pros. In case you thought you couldn’t possibly start your weekend without a Capitol Hill tax update from your friend in D.C. (you did not), I’ve got you covered.Indeed, things got a little heated yesterday in 1100 Longworth as IRS Commissioner Danny Werfel got a good grillin’ from lawmakers while in the proverbial hot seat during a House Ways and Means Committee hearing. But because I haven’t yet figured out how to communicate by way of smoke signals, despite my brief phase with pyromania, all you get is this eTax Alert. 2024 Tax Filing Season The …
IRS Revises Form 1099-K FAQs
The IRS has revised its frequently asked questions (FAQs) for Form 1099-K, Payment Card and Third Party Network Transactions. The FAQ Fact Sheet, FS-2024-03, released this month provides substantial updates to nearly 50 questions. The IRS announced last November in Notice 2023-74 that it would again delay the new $600 Form 1099-K reporting threshold for third party settlement organizations for calendar year 2023. Following tax community concerns and industry feedback, the IRS is treating 2023 as an additional transition year, which applies to taxes filed this year. Thus, reporting is not required unless the taxpayer receives over $20,000 and has more than …
CALIFORNIA CORNER: FTB Catching Up on Delayed 2022 Business Returns
The California Franchise Tax Board (FTB) has fallen significantly behind in processing business income tax returns for 2022. As of January 29, 2024, the FTB website was showing a processing time of 8 months for all business returns. FTB System Delays As a result of necessary system programming changes to accommodate the winter storm disaster extensions, FTB reports experiencing system delays outside its normal operational time frames. The reprogramming was needed to ensure that interest was correctly calculated on payments due and refunds because of the delayed due dates. As of February 1, 2024, FTB announced it expects to be …
Capitol Hill Connection: House-Approved Tax Bill Awaits Senate Action
I know what you’re thinking: if only the Senate would get moving on that House-approved tax bill, the tax world might not be such a bad place after all. Or maybe you’ve already lost all hope, which is probably best, because while the measure might have legs, they ain’t movin’. At least, not yet, anyway. March, Probably In case you missed it, last week the House cleared the bipartisan Tax Relief for American Families and Workers Act of 2024 (HR 7024) by an impressive 357-to-70 vote on January 31. The tax bill, spearheaded by Senate Finance Chair Ron Wyden, D-Ore., …
ERC Voluntary Disclosure Deadline Approaching
By: I hate to drop this on you just as tax season is starting, but…IRS squeezed in another deadline for tax pros – March 22, 2024. Applications to participate in the new Employee Retention Credit Voluntary Disclosure Program (ERC-VDP) must be filed by 11:59 pm on March 22, 2024. ERC-VDP The ERC-VDP will allow certain businesses to pay back ERC money that they were not entitled to claim. Tax pros will need to know whether their client is eligible to participate, wants to participate, and can meet the deadline to be considered. Then we tax pros will need to present advice …