Tax Section Odyssey (AICPA & CIMA)

Marna Ricker, Global Vice Chair, Tax — EY, has held various leadership roles including most recently the EY Americas Vice Chair – Tax. She engages and inspires her team to provide unique client experiences and create digitally enabled services.

On this podcast episode, Marna shares her insights on how to blend and balance soft skills with technical skills — touching on how to develop each set and how emerging technologies influence future accounting professionals.

What you’ll learn in this episode

• How the tax industry has evolved over the years and advice Marna would give to her younger self (1:15)
• Key skills leaders are looking for in employees today (4:15)
• Can soft skills be learned? (6:18)
• Balancing technical changes while also developing leadership skills (8:23)
• How artificial intelligence (AI) is set to influence tax professionals’ skills (10:52)
• Final thoughts (16:00)
• A page from Marna’s travel journal (17:15)

AICPA resources

• Reimagining your tax practice — Tackle today’s top practice management issues with insights and tips from pioneers in the tax community. The Reimagining Your Tax Practice webcast series will tackle these issues and more in a Q&A roundtable series with tax pioneers from the profession.

Transcript

April Walker: On today's podcast, listen to hear the importance of balancing soft and technical skills in a digital first world. 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 Marna Ricker, she's EY’s Global Vice Chair of Tax. Marna, I just listened to a podcast you did with Tax Notes where you really delved into some heavy-hitting international tax topics. But thankfully, today, our discussion is going to be a little bit softer.

We're recording on a Friday so we're a little more relaxed. Your technical skills are definitely honed. Spent 28 years at EY and I think as I was doing some digging into your background, I think we're just about the same age or we’ve been in the career the same time. I was just at a conference earlier this week and telling my story about starting off in Big Four. Except it was Big Six at that time.

Welcome and I'd love to hear your thoughts on how the tax industry has evolved over this time in your career and what you would tell that fresh-face, eager tax staff that you were, if you could give her advice knowing what you know now.

Marna Ricker: First of all, thank you for having me and I agree it is a great Friday and we're in the holiday season, so it's really nice to be with you.

Yes, 28 years of doing this and obviously similar tenure to you. It’s changed a lot and so let's just get into that.

I really on this precipice of a once in a generation, maybe once in a century change. We're rewriting old tax codes and we're moving from a bricks-and-mortar world to a digital world and a multi-jurisdiction landscape and so we have government scrabbling with a poly-crisis stemming from COVID, a war climate crisis and many disasters.

We have rising inflation, although maybe that's coming into control. I'll leave that to the economists. We have the geopolitical conflicts and all of that obviously is created really significant global economic impact. When you see that the administration's evaluating the role of tax plays in supporting fair and equitable recovery of economies and all while incentivizing green behaviors and decarbonization.

Walker: That's a lot, right?

Ricker: It's a lot. Exactly.

Whenever you see that tax at the heart of that new global tax regulations such as BEPS. Finally, in all of that, a little bit more cloud and platforms and adoption of new technologies such as generative AI and you see the transformation of businesses around that.

Tax and finance functions really end up at the heart of driving that. So, careers in tax are changing things. That's what technology and automation and no job looks and feels the same. That was the context of all of that.

To answer your exact question, is that tax policy ultimately what I wish I knew was tax policy ultimately plays a big role in driving the outcomes for governments.

What do they want to see? What is its place in economic, fiscal, and monetary policy? It's really a force for good. It plays a significant role in important invaluable role in the whole ecosystem. It's one that I love. It's one that I'm very proud of and really helping our teams, helping my younger self find a place inside our tagline at EY is, building a better working world.

Finding that purpose is really fun and that's what I wish I knew when I was in my early twenties and bright eyed about going into tax.

Walker: I feel exactly the same way. I really was never that involved in politics or really cared about legislation, honestly, until I came to the AICPA about eight years ago and I really was like, knowing this makes such a difference in knowing how the sausage is made just makes a huge difference. I think that's really cool.

Marna, definitely you're a leader in tax. As we're talking about this evolving profession, what are the key skills you're looking for in employee's today?

We hear so much about the pipeline issues and getting people excited about accounting. You've still got to do your job as like hiring the best people for your place. Where do you look for in skills in your employees as you're hiring them?

Ricker: It's a great question and it's such a good career.

April, you and I have loved our careers and so I'm passionate about this issue, and so attracting people into the profession, and I'd say there are three big things that I think we're always looking for and tax technical and tax accounting are table stakes.

There just a price of entry into the profession and yet the industry and the way we're living our lives consuming, working at the technology advances, the conversation we're having today, we're seeing a lot on technology skills and so we're hiring cross STEM, mathematics as well. Because again, it's really high critical thinking skills and so a lot around technology, digital, math, STEM, skills as well.

At the same time, we're certainly seeing the soft skills, leadership skills, communication skills, high collaboration skills, ability to work with others, are really important in communicating really complex topics.

Tax technical topics are really important as well. Those three really critical thinking, tax technical, tax accounting, technology, STEM, math, and then obviously the soft skills around communication and collaboration ability to work with others. Empathy type skills are really important in this profession.

Those were the top three I'd say that we're looking for in the hiring and development and successful professionals.

Walker: I agree. I feel like I'm really primed to have this conversation because like I said, I was just at a conference that was talking about all of this stuff.

I'd love to know what you think about, we are talking about balancing soft skills, technical skills, different skills like technology. Do you think soft skills can be learned? Or how do you find that person that maybe they have the start of it, but how do you develop that, what's your preference?

If you have somebody who is like really strong technically and they had a glimpse of soft empathy. I don't know. I feel like it's like the spectrum and balanced.

Ricker: I do. I think maybe only so far. That might be the way I'd say that and so I think we're a human centric organization and we've done a lot of work with Oxford.

We really believe humans at the center if that's the right way to say it. You take your technical skill, and we add technology to that. We really understanding real human emotions and the way to drive the organization forward.

Again, you are who you are ultimately, but I absolutely think you can round that out and you can deepen trust and you can deepen your skills around that. We spent a lot of time training around that. Anyway, so we really do spend a lot of time on that and your ability as a leader to foster diverse and inclusive environment where you can come and bring your whole self to work. You and I just even in our earlier conversations, you can just show up as who you are.

You can be who you are and then you perform at your highest level as well. We spent a lot of time around that in investing in inclusive leadership skills and becoming better leaders, transformative leaders who bring their best selves to work every day.

That's probably what I care the most about and certainly what I've had the opportunity to do for almost 30 years here at EY. That's the way I'd say. You're only going to go so far to rounding that out. But I think the environment and the culture is really what is most important and allowing that to come forward.

Walker: Just quick follow-up on that for yourself personally, how do you balance, or do you have any tips on how to balance, like keeping up with all the technical changes, but then also making sure you're continuing to develop your leadership skills.

Ricker: It's a great question. I'm highly focused on time management, which might be my superpower tip, but I'm going to jump on a truly like you have a certain amount of time every single day, every single week, every single month, every single year.

I'm really focused on what is it I need to get done and how am I going to balance my time accordingly? You're only as good as the team around you as well and allowing them to have opportunities to grow and to learn.

Maybe one thing I learned really early is if it's something you already know exactly how to do, don't do it twice. Pass that opportunity, that learning and growth opportunity on to somebody else who hasn't had that experience and that is something I think a lot about. If an opportunity comes to me that I've already done it already know how to do. I'm going to pass that on.

Walker: I'll appreciate that too. Everybody wins.

Ricker: Yes, exactly. I have an amazing team around me and I get to be on amazing teams too.

I think that's building high-performing teams is I think the heart of it, that balancing, might be the right way to say it.

The other thing I would jump into April that is I am a passionate person around technology, around generative AI in particular, that is obviously about a year old now. We're just passing that moment around gen AI.

When we learned on ChatGPT-4, and in particular, and all that now that we're seeing out of other organizations. That is one where you think about the opportunity to have a second brain, a co-pilot next to you. I'm sure we'll jump into that topic a little bit. Like when you think about balancing and you think about being uber productive and the ability to really accelerate where we're headed. I'm really excited about that.

Walker: I think it's funny. I was at breakfast with some friends this morning and they're like triathlete friends that I hadn't caught out whether awhile and somehow we got on this topic of AI and all the cool things it can do for you personally and professionally.

I feel like it's such a booming every day, something new happens. But as you think about it, since you brought it up, I'd love to know what you think. How do you see AI and all of these emerging technologies that are happening? How do you see it changing the tax function?

Ricker: I am so with you, I'm going to give up personal on really quick April since you said that this morning. Similarly, I set aside 30 minutes really early this morning to write a letter, a personal lawyer recommendation to somebody. I ended up just using Bing chat to do it and I just kept prompting and prompting to make it better. It took me seven minutes. I mean, to your point.

Walker: No, that's amazing.

Ricker: I had 23 minutes to drink my coffee.Anyway, so you got your question was how is it changing the tax function.

To just to jump into that so I really feel like AI’s moment is now this is something that's here to stay it's making all of our lives. Like I said, I just gave a personal example it's making all of our lives better. It's a transformative technology it is really changing the tax world now and it's changing both obviously in our business, how are we going to deliver our services?

It's changing obviously how tax departments ultimately will get their jobs done and then it's obviously changing governments and tax administrations and how they'll get done. We're seeing it, really seeing it everywhere. Maybe I'll just, here are some examples.

I think that's I think about it, keeping up with ensuring compliance with laws and regulations as well. That's transfer pricing policies, ESG policies detecting discrepancies and real-time data using predictive analytics to spot challenges before those problems or risks. Think about it streamlining compliance processes and enabling real-time data sharing between taxpayers and tax administrators making that process even easier for both. Think about it lowering tax controversy.

Because again, you're predicting ahead of time what we're going to see and able to make real-time adjustments. Then think about inside of an organization, a new era of forecasting and optimizing decision-making is because again, it's going to automate complex calculations and allowing tax departments in your organization so real-time adapt to changing regulations and market conditions. Because again, it's going to be predicting and analyzing and prompting you about what's coming.

I could go on and on with examples, but really powerful and it's when its ability to predict and analyze as opposed to needing to be told. Again, we're seeing multiple applications of that already inside of our own organization. It's been really fun to do we have invested almost $1.4 billion. This will continue with a unifying platform that brings all that together called EY.AI, clever naming there, they're focused on obviously education, learning, and development our own professionals through what we call EY Tax Copilot and that's really where we're focused on getting our own people educated as quickly as possible so we can continue to take advantage of all the rapidly evolving technology that's out there so very fun for us moving forward.

Walker: That's cool. We are advocates for all members of all firms sizes at our organization, of course. But we have a lot of small firm solve for our listeners and you guys have, like you said, you have money to put into a policy, but definitely, I think for smaller firms they'll eventually be able to benefit from some of that knowledge that you guys are working on now.

I think our message is, don't be afraid to play around and figure things out and make sure that you're obviously using security measures and not putting personal information in there, but just because you're a small firm, your AI is not going to take away the role of a very important tax adviser.

That there's still a role for or at least that's my opinion. But if you are shying away from this completely, saying, no, this is not good, then I feel like you're just really losing out on some of these really cool things that technology can do.

Ricker: It's the opposite. I look, eat what I would say is think about the intellect, the tax technical in the judgment that comes with the work that we do. Tax work that we do, that will be even more in demand. Because that ultimately is what are the clients and what obviously individuals and companies value. The ability to have something that makes you even more productive and able to do that type of work, which is what gen AI does, it helps us be far more productive and being able to spend our time in that type of work is really powerful.

When you were asking me about what would I tell my 30-year younger self that having that with me alongside me for this last 30 years, it makes you even better at that type of work. I can't wait to see what our young professionals, how smart they are going to be in, how experience they're going to be, and what their careers will look like. Having had the benefit of a copilot, a second brain right next to you for 30 years. They're going to be extraordinary professionals.

Walker: Yes, I love that perspective. It's not one you always hear, but I'm an optimist and I look for the bright sunshine all the time. I appreciate that perspective.

Marna, this has been great. I'd love for you, given a ton of advice, but one more piece of advice that you'd like to give to our next generation of tax leaders who are looking to build those soft skill, build the technical skills, lean into technology. What do you have for them.

Ricker: Maybe it's again, this will be you and I as optimum optimism, maybe my number one would be reach for the stars. Just go for it. Whatever you want your career to look like as a tax professional, I would absolutely be that, but it's hard for me to do one.

If I can just add one more, would be that would be one because I think it's an extraordinary career and I think it's so dynamic and interests and so that would be one. My second would be take good care of yourself. I take great care of yourself, take care of your family, and then take care of your fellow colleagues. I just think this whole concept of being great builders, a teams and great builders of your colleagues is the most important thing you could do because it'll continue to give you and it'll give those around you extraordinary opportunities. That would probably be my biggest piece of advice.

Walker: Love that, yes, self-care and then just being kind and considerate to others. It always circles back.

All right, I don't know if you've listened to this podcast before, but if you haven't, or even if you have, in closing, I liked the name of our podcasts is Tax Section Odyssey so I like to think about as taking a journey together towards a better profession. I love to hear a glimpse of my guests other journeys outside of tax. Share a page from your travel journal somewhere you recently been that was amazing or memorable trip you have planned.

Ricker: I love that. So I just was in India, April, and talk about an amazing country truly. It is so on the rise from Old World to the New World and its blend of all of that together is one of my favorite countries in the world for that reason.

The culture is so rich and it's, it's kind and it has such high ambition and where it wants to go and such work ethic to get there and so anyway, it's just a beautiful country and so anyway. I just got to spend, I was lucky enough to get to spend almost 10 days there and so I just it was just a joy.

Walker: I assume it was a work trip, but hopefully you had some ability to do some fun things.

Ricker: I always carve out time for fun and my family is my two great boys and amazing husband. But I also have a great work family and so it was just a joyous time and it's a very special country.

Walker: I've never been. I keep a list as I'm doing this, I keep adding things to my travel bucket list. I'm going to have to add India there, awesome.

Marna, this was so fun. I didn't even feel like work, so I hope you feel the same. Enjoyed it. Thanks again for listening. 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 podcasts and please follow us so you don't miss an episode if you already follow us thank you so much. Please feel free to share with other like-minded friend. You can also find us at aicpa-cima.com/tax. We find our other Odyssey episodes, as well as getting access to resources that we mentioned. Thank you so much for listening and hope you have a wonderful holiday season.

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.

The new Schedules K-2 and K-3 aim to improve reporting by standardizing international tax information to partners and flow-through investors, making it easier for them to report these items on their individual tax returns. However, implementing the required changes continues to cause transitional challenges for the tax community. Although the IRS has released IR-2022-38 and a series of frequently asked questions (FAQs), more guidance is needed.

On this episode of the Tax Section Odyssey, April Walker, CPA, CGMA, Lead Manager — AICPA Tax Section, talks with  guest Stephanie L. Chapman, CPA, Director, International Services — Belfint, Lyons, Shuman, CPAs, about where we are with Schedules K-2 and K-3 reporting and discusses procedural tips for preparation.

What you’ll learn in this episode

• Timeline of Schedules K-2 and K-3 information releases and AICPA resources and comment letters (0.47)
• The potential for a full delay in implementation (2.28)
• Who must file the new schedules (4.58)
• Filing requirement exceptions (8.12)
• What taxpayers can do in tax software if country codes are unknown (11.02)
• Woes with PDF attachments when forms aren’t available in software (13.08)
• Client management guidance, billing practices and engagement letters (15.23)

AICPA resources

• IRS Schedules K-2 and K-3 guidance and resources — Access resources to advise clients on IRS Schedules K-2 and K-3, such as a client information letter and an earlier podcast episode from November 2021, which are used to report items of international tax relevance from the operations of pass-through entities.
• AICPA additional comments regarding Schedules K-2 and K-3 reporting – The AICPA submitted comments on Feb. 18, 2022, requesting a delay in the implementation of Schedules K-2 and K-3 to 2023 and recommending the IRS provide additional guidance.
• AICPA comments on proposed international changes to Form 1065, Schedule K-2, and Schedule K-3 — The AICPA submitted comments in 2020 on the proposed international changes to Form 1065, Schedule K-2, and Schedule K-3, including the recommend transmittal of Schedule K-3 in portions and minimizing overreporting by allowing partnerships the ability to determine the reporting needs of its partners.

Other resources

• Schedules K-2 and K-3 Frequently Asked Questions (Forms 1065, 1120S, and 8865) — A set of FAQs released by the IRS on the new schedules and their reporting requirements.
• News Release IR-2022-38 — The IRS announced further details on additional relief for certain partnerships preparing Schedules K-2 and K-3 for 2021 on Feb. 16, 2022.

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.

In these challenging times, many CPAs may be contemplating if working in the profession among constant chaos is worth it.

In this Tax Section Odyssey episode, Tony Nitti, CPA chats with April Walker, CPA, CGMA, from the AICPA Tax Section, about the current state of the profession and its future. Professionals at all levels of their careers will find something they can relate to and perhaps hear some insights worth considering.

Tony also discusses what’s next for him in his career and gives a sneak peek as to what attendees will hear in the upcoming webcast — Tax Practice Quarterly: 2022 Busy Season Readiness happening on December 6 and rebroadcasted on December 8.

 What you’ll learn in this episode

• What’s up next for Tony in his career (1.07)
• A preview of what Tony will cover in the upcoming AICPA webcast (3.01)
• Ways CPA professionals can move out of survival mode to a thriving mode (11.23)
• Closing thoughts (29.41)

AICPA resources

• Tax Practice Quarterly: 2022 Busy Season Readiness — Tony Nitti, CPA, highlights the key takeaways from this year to help you proactively and effectively plan with your clients before year end with this free, CPE-eligible event for Tax Section members.

 Note: If your podcast app does not hyperlink to resources, visit https://taxodyssey.libsyn.com to access show notes with direct links.

This episode is brought to you by the AICPA’s Tax Section, your home base to maintain your professional edge. To learn more about the Tax Section, check out aicpa.org/tax or sign up for a free web tour.

Melanie Lauridsen, AICPA & CIMA VP of Tax Policy & Advocacy, provides an update on several key tax initiatives that are top of mind right now. Highlights include the latest updates on beneficial ownership interest (BOI) reporting as well as what to expect from pending tax legislation.

 AICPA resources

• Decision holding Corporate Transparency Act unconstitutional appealed, The Tax Adviser, March 12, 2024
• Federal court holds Corporate Transparency Act unconstitutional, The Tax Adviser, March 5, 2024
• Plaintiffs: FinCEN should pause all CTA enforcement, The Tax Adviser, March 5, 2024
• Beneficial ownership information (BOI) reporting resource center  — Access resources to learn about the beneficial ownership information reporting requirement under FinCEN’s Corporate Transparency Act (CTA).
• Client letter and FAQ for a government shutdown during tax season — Share some considerations with your clients as the potential for a government shutdown looms, and IRS services will be affected during tax season.

The impact of disasters can be life changing. Fortunately, special tax law provisions may aid in the recovery efforts for individual taxpayers and businesses alike. Depending on the circumstances, the IRS may grant additional time to file returns and pay taxes. Victims may also be able to deduct casualty losses that occurred.

In this Tax Section Odyssey podcast episode, Jerry Schreiber, CPA, partner at Schreiber & Schreiber in Louisiana, the recipient of the AICPA’s 2018 Arthur J. Dixon Memorial Award and dubbed the “Master of Disaster,” along with Amy Miller, JD, CPA, Senior Manager — AICPA Tax Policy & Advocacy, Association of International Certified Professional Accountants, representing AICPA & CIMA, join April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, Association of International Certified Professional Accountants, representing AICPA & CIMA, to discuss tax-related disaster relief and insights to resources available for taxpayers and their CPA practitioners.  

 What you’ll learn in this episode

• Top AICPA member concerns during disasters (1.18)
• How tax relief is applied if either the CPA practitioner or the client is not located in the disaster area (2.30)
• Summary of the steps CPA practitioners can take to help clients impacted by a disaster (3.38)
• Tax-deductible charitable contributions (7.17)
• How CPA practitioners can assist their business clients in disaster situations (11.18)
• AICPA advocacy efforts in the disaster arena (12.36)
• Helpful resources in times of disasters (16.28)

 AICPA resources:

• Disaster Tax Relief Guidance and Resources —Provides answers to frequently asked questions (FAQs) concerning a disaster, casualty or theft; how these events may impact a client’s tax returns and business affairs and a list of valuable resources to help navigate the complexities of a disaster.
• Disaster financial issues tools to help with disaster recovery — Tools included on this page include the Disaster and Financial Planning Guide and Disaster and Financial Planning Guide Checklists by the American Red Cross.

Other resources:

• Guides for CPAs to providing disaster assistance — Please contact Jerry Schreiber at ghschreiber@bellsouth.net to request detailed, state-specific guides on disaster-related topics, including the disaster declaration process, tax implications of disasters, IRS filing relief, insurance company claim numbers and FAQs on charitable contributions for aid given to disaster victims. The guides are frequently updated.
• LA-2021-04, August 31, 2021 — IRS announces tax relief for victims of Hurricane Ida in Louisiana
• IR-2021-175, August 31, 2021 — IRS announces tax relief to victims of Hurricane Ida
• fema.gov — The official website of the Federal Emergency Management Agency
• Revenue Procedure 2018-08 —Provides safe harbor methods that may be used in the case of casualty and theft losses occurring as a result of any federally declared disaster.
• Tax Relief in Disaster Situations — IRS website housing the most recent tax relief provisions for taxpayers affected by disaster situations
• Publication 584, Casualty, Disaster, and Theft Loss Workbook — Designed to help to help taxpayers figure losses on personal-use property in the event of a disaster, casualty or theft.
• Publication 584-B, Business Casualty, Disaster, and Theft Loss Workbook — Designed to help taxpayers figure losses on business and income-producing property in the event of a disaster, casualty or theft.

Note: If your podcast app does not hyperlink to resources, visit https://taxodyssey.libsyn.com to access show notes with direct links.

This episode is brought to you by the AICPA’s Tax Section, your home base to maintain your professional edge. To learn more about the Tax Section, check out aicpa.org/tax or sign up for a free web tour.

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

OECD BEPS 2.0 - Pillar One and Pillar Two — The OECD BEPS 2.0 sets out to provide a tax reform framework allowing for more transparency in the global tax environment.

Advocacy

Comments to Treasury on tax issues of OECD Pillar Two, Feb. 14, 2024

Comments to Treasury on Amount B of OECD Pillar One, Dec. 12, 2023

Other resources 

OECD BEPS – Inclusive Framework on Base Erosion and Profit Sharing

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 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.

Knowing the right time to end a client relationship can be tricky. No matter the reason for termination, managing the practical components plus the human emotions can be difficult.

In this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, Association of International Certified Professional Accountants, representing AICPA & CIMA, chats with Daniel Moore, CPA, Owner — D.T. Moore & Company, LLC, and Brandon LaGarde, CPA, JD, LLM, Director — Postlethwaite & Nettervile, about their perspectives on when and how to terminate a client relationship for a successful outcome for both parties.

What you’ll learn in this episode

• The first steps in this process (1.22)
• Tips and tools for ranking client relationships (3.40)
• Client Evaluation Tool from the Private Company Practice Section (PCPS) (5.46)
• Example of “buckets” of client relationship types (7.00)
• The next steps after the client evaluation process (13.16)
• Client termination letters (15.09)
• Should you explain the why to your clients? (18.23)
• Thoughts on referrals (20.45)
• Considerations from a firm administration standpoint (23.53)
• Final thoughts (27.22)
• A page from the guests’ travel journals (29.33)

 AICPA resources

• Client Evaluation Tool — Use this tool to identify your firm’s better clients who deserve more of your time and attention.
• Client Termination Practitioner Checklist and Notification Letter — Terminate a client relationship by following these helpful practice management reminders and then formally communicate the termination to your client.
• Practice Management & Professional Standards — Browse tax practice management resources and guidance to help keep your firm performing at the optimal level.
• Reimagining Your Tax Practice Q&A roundtable sessions — Tackle today’s top practice management issues with a free interactive virtual Q&A roundtable series. Get innovative advice from our panel of experts on running an efficient, agile and profitable practice.

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.

The Corporate Transparency Act (CTA), enacted Jan. 1, 2021, requires many entities to file a beneficial ownership information (BOI) report with the Financial Crimes Enforcement Network (FinCEN) beginning in January 2024. Its goal is to increase transparency about who owns or controls an entity and deter money laundering activities.

Tune in to this podcast episode to hear from Melanie Lauridsen, Vice President, Tax Policy & Advocacy — AICPA & CIMA, Roger Harris, President and COO — Padgett Business Services, and Larry Gray, Owner —Alfermann Gray & Co LLC, on the latest with regards to BOI reporting.

What you’ll learn in this episode

• Background on BOI reporting (0:57)
• Professional risks associated with completing BOI reports for clients (1:50)
• Advice for CPAs considering an engagement (3:58)
• Roger’s take on the unauthorized practice of law (UPL) (5:32)
• Larry’s view on how he’s handling this UPL (7:33)
• How to communicate to clients about BOI reporting (11:00)
• Recommendations on managing risks (13:51)
• How to relay changes that would impact reports to clients (16:40)
• FAQ from fellow practitioners (19:02)
• Final thoughts (25:13)

AICPA resources

• Beneficial ownership information (BOI) reporting — Access resources to learn about the beneficial ownership information reporting requirement under CTA.
• Risk Alert: Navigating Corporate Transparency Act/Beneficial Ownership Reporting – Risk alert from AON, issued Oct. 17, 2023, and updated Nov. 30, 2023.

  Other resources

• FinCEN's Beneficial Ownership Information — Access FinCEN’s comprehensive information on BOI reporting, including a reporting rule fact sheet, FAQ and newsroom.

Transcript

April Walker: On today's podcast, listen to hear more about the Corporate Transparency Act and beneficial ownership reporting.

Hello everyone, and welcome to the AICPA's Tax Section Odyssey podcasts, where we offer thought leadership on all things tax facing the profession. I'm April Walker, a lead manager from the AICPA Tax Section. Today I'm joined by Melanie Lauridsen, she's AICPA's VP of Tax Policy and Advocacy.

I'm also delighted to be joined by Roger Harris. He is president of Padgett Business Services, who represents the interests of small businesses who are clearly impacted by this reporting regime that we're going to be talking about today.

Larry Gray, Larry is a CPA who owns his own accounting practice and represents tax professionals and their considerations regarding BOI reporting.

Just want to do a quick background before we delve into the questions today. As you likely know, the Financial Crimes Enforcement Network, which is also known as FinCEN, establish a beneficial ownership reporting requirement, which we will refer to today as BOI, under the Corporate Transparency Act and that requires many businesses to report information on their beneficial owners, and that starts January 1st of 2024.

We're recording this today on December the 14th, and that January date is definitely rapidly approaching. We've actually done a podcast on this before, some other more details, but we wanted to provide some information based on what we know now around that reporting requirement, provide some clarity when we can on questions that we've been hearing.

I'd love to start out with you, Melanie. Let's start off by talking about just general professional risks related to CTA that CPAs are facing right this minute.

Melanie Lauridsen: Sure. As you know, a lot of people and firms, there's not a lot of information with BOI and they are debating is this something that they can or can't take on as an engagement for either themselves or the firms.

There's a couple of things to know overarching and that there are risks, whether you choose not to or if you choose to take on this type of engagement and the first one is failure to advise the client that this reporting requirement even exists.

You wouldn't want a client to come back to you and say, you knew about this. You didn't say anything to me and now I'm facing these fines and penalties and keep in mind, the fines and penalties are pretty steep, we’re talking up to $10,000, two years in jail time and you would never want somebody to come and point the finger at you if you knew that they had this filing requirement.

The other overarching risk that people have is as we get closer and closer to the deadline, it's become more of a topic of conversation and people can just ask you for advice. There is hesitancy there that you should have because providing any off-the-cuff advice could lead to incorrect information if you don't have all the specifics and can also lead to violations because you don't know what is happening at that state level.

There is something called unauthorized practice of law. I just need to be clear that no state bar has made this determination of whether it is unauthorized practice of law for non-attorneys to be providing advice or working within the BOI engagement.

Well, I can also tell you is there is an AON members insurance program risk alert, and it really has outlined all the different risks and how to manage this engagement, so I highly encourage you to take a look at that.

Walker: Yeah, that's great. We'll dig into some of those a little bit later and talk to Roger and Larry about them. But let's say that a firm is considering providing services related to BOI. What would you say to them, if they're asking you like Melanie, what should I do? Should I take on this engagement or not?

Lauridsen: That's a common question that we get. But here's the thing about this engagement. There is no yes or no answer. It's not a blanket, yes, you should take it on, no, you shouldn't take it on. So we really encourage people to take a look at their scenario.

The first thing that they need to know is they need to understand their own risk tolerance as to whether or not they want to take on this engagement. The second piece is they really need to understand their clients, and the needs of those clients and the level of service that you would be providing to that client. Then, of course, you would have to take a look at inventory. What are the realistic risks that I can mitigate to prevent unwanted outcomes?

I need to say that with any engagement and I don't just mean BOI but every time we take on any engagement with a client, there are levels of risk associated. BOI is new. There's still a lot of guidance that needs to come and so I think a lot of people are a little bit panicked by it because they just don't know when we don't understand everything associated with it.

I'll also say that different firms and different peoples can come to different conclusions and that's okay. It just depends as they take inventory within themselves. Again, I'm going to reference the risk of work that came out because that really does walk people through that.

Walker: All right. Roger I'd like to bring you into the discussion now and just we'll start out with just a flat-out question.

To lay your take on whether you believe engagements around BOI are considered unauthorized practice of law or UPL.

Roger Harris: First of all, thank you for inviting me today.

No, I don't think they are. I just recently had a discussion with our corporate attorney because the BOI, as you mentioned, it's right around the corner and people are questioning what should they do and what should they not do and I think we're going to find that our clients are going to fall in a couple of buckets.

One is where it's pretty straightforward, it's a single member, corporate or LLC. There are no other owners out there that is remotely considered could fall under the bill, our rules.

But then you get into a case where there may be this person lurking in the background that could have this substantial control or whatever the terms they use and we're trying to make a determination about how does this person's situation fit into the law.

I think that's when we get into that case, that's when stretching over into whether it's practicing law or just giving advice that we're not qualified to give. I think we're going to find that the clients are going to fall in two basic buckets, ones that are pretty straightforward. We can probably assume into a lot of points Melanie made. We're willing to accept the risk because nothing is risk-free even if it's cut and dry.

Those we can probably help and then there's going to be those others where we're going to have to defer to an attorney to make a determination because not only is it somewhat ambiguous, it's brand new, and we don't have any history or cases or guidance or anything to help us make a determination, so it's going to be in our best interests to let the attorneys take that risk.

Walker: Even the form, we haven't seen the form, we will see it on New Year's day as we are recovering from New Year's eve, we all log in to FinCEN and look at the form. I don't know what I'm envisioning. Larry, I'd love to hear your take on this and how you're handling this issue with your clients.

Larry Gray: Well, first, thank you for the invite, and just real quick, I think in parallels; I want to speak as a practitioner and a small community, but also I do Missouri Society of CPAs presentations. So, I presented this as late as of yesterday. They both come out the same way.

I think first, we have to decide how we're going to assist the client, which means we're in this game because where the client's going to go. As far as I look at it as two groups and I'll say what I said yesterday to about 500 practitioners.

I think first thing is this coming year our clients we currently have in business, we have 12 months to find out what happens and Roger and I in earlier conversation, we both are on the same page there. We're going to wait toward later in the year to let it flush out.

FinCEN day before yesterday, updated the frequently asked questions; almost weekly, they update it. I think in that light, we got to first know our client and then know their business. And then that's when we take the risk assessment and I can say as a small practitioner, there’s going to be the majority of my clients, I'm going to be able to say, here's what you need.

I don't really feel it’s unauthorized practice of law if you say put in your name, your address, and your driver's license number or your name, address and your company's ID number.

It's when it's that section of the law that says substantial control. At that point in time, we got to pull the attorney in to do that. But again, I think every practitioner has a responsibility to service the client.

I think first thing, and Melanie, I’m going to steal part of what you said. Speaking, I follow three different malpractice companies, I talk to attorneys, we had one law firm at every of the five locations, and they were talking about this same BOI.

And, the fact is, the two biggest mistakes we can do is not advise it at all to make them aware, and then off-the-cuff advice. But in between that, we are a value resource, we want to keep our clients, we want to give them a professional service and I think part of that professional service is to keep them compliant without practicing law. And again, I will go back and summarize it.

As long as we're not over there, and this is a lay person, I'm not an attorney. But as long as we stay away from what is substantial control and it is that sole proprietor. If it's a husband and wife — they're the company, they’re the beneficial owner. So, when I look at my clientele, the majority of my clients, I want to be able to say, here's a fact sheet, this is real facts. You can do this. Here's where you go.

But if we have a question at that point in time, then I think risk starts to set in. Who is your attorney? That's the group we have now. The group that starts January 1st is the newbies and they have a time period 30, 90 days in order to get right.

When they come in and say I'm a new client or I'm setting up a new entity, I'm going to say who is your attorney and I'm going to coordinate that and I have to do that starting January 1st. I think we have two types of clients, know your client, know their business, and you're going to be able to do this.

Walker: Great. Thanks. And Roger, I'd like for you, we talked a little bit about this. There's such a lack of awareness about this issue with the businesses, with attorneys, and we're trying to do our best to really get information out there to make sure our CPAs and tax practitioners aware of this issue.

What do you see as ways that you're reaching out to clients? Or what ways would you recommend reaching out to clients about this issue and thinking about that, the knowledge and awareness piece?

Harris: I think that's probably…I've said this many times for something that impacts this many people, this is the most misunderstood law that I've seen in years.

There's such a lack of understanding. Again, we're a couple of weeks away from the new year, there's, as you mentioned, attorneys that don’t know anything about it. I bet the awareness, and the small business community is minimal unless an adviser has actually come to them and make them aware of it.

Within our community, I'm not sure that the awareness is where it needs to be, so we have a huge lack of awareness. One of the things that we're telling our people, I’ll refer to something that Larry references. He and I talked about…we're not in a hurry to fill out forms, but we are really in a hurry to inform that we're going to take this filing season.

We will interact with almost all of our small businesses to make them aware of this requirement because most small businesses think most law exempt small businesses where this one targets. They probably, if they heard about it, felt like that doesn’t apply to me. I'm a small business; it doesn’t apply to me.

We're going to spend the filing season to really inform people. Ask for their patience while we dissect liabilities and rules and ever-changing landscape, and take advantage of the fact that we have the entire year. But I know we worked early on with AICPA on developing some communication that has gone out because I think you guys recognized early on the lack of awareness and you’re to be congratulated, we're happy we could have helped with that.

But I think everybody in our industry needs to really focus over the next few months on informing people about the law, the seriousness of it, the penalties that are available if you fail to comply and ask for their patience while we try to figure it out how to administer something that while well intended doesn't really fit well in anybody's business model.

Not just the initial filing, but the potential for updated filings when subtle things, little things that have never been important to us change like somebody's driver's license changes. None of us, I don't think it probably ever been concerned about the exploration of our clients’ driver's license. But in the world of BOI, it might be pretty important.

Walker: I want to talk about something, that is, if firms have decided, made the decision to evaluate the risk and decided to provide these services, what recommendations would you say on managing their risks, Melanie? You take that one to start with?

Lauridsen: Absolutely. Just like any engagement, you need to have very thorough documentation. Documentation is a key.

With BOI, I would recommend people to talk to legal counsel right off the bat to understand the nature of the work, particularly in their jurisdiction. Again, I can't stress enough that this isn't a yes or no, whether or not you should take on the engagement.

There's a lot of factors that come into play, including your jurisdiction laws and also your insurance carrier. What are they saying? How are they handling this perspective? Again, have thorough documentation, acceptance procedures, make sure that you talk that through with the client if you are going to take it.

I would say provide a distinct and separate engagement letter if you are going to do BOI to address specificity of BOI. And, if you're not going to take on this engagement, make sure you have very clear language and all your other engagement letters saying you are not doing BOI work with it. Then of course, you have to keep up-to-date, Larry.

Gray: Just to follow up on the last two questions. One, Melanie, I think you had a very important point.

The thing I stress is the engagement letter. This year we're putting in a paragraph in all of our engagement letters saying this engagement is not part of BOI. But I think it's so important even in our engagement letters for BOI. we’re very specific because, at this point in time where we're at, we're going to determine what we're going to look at with the client, look at their business and say, yes, we can help you and here's what we're going to do.

Now we haven't gotten to the point of we're going to do a frequency update to keep compliant. If the client says we had to change, we want to educate them. But I think the engagement letter is so critical to be very clear to where it starts and where it stops.

And, then Roger, back on the communications. We're putting it in our newsletter. We have a trifold out front. I'm doing a YouTube on it. I'm reaching out to do some local speaking engagements — free. Things like the real…we're offering it to banks because it is so critical.

But one of the most important training elements and communication is our staff. The staff needs to know where we're at on this because my biggest concern with a staff of about 10 is the off-the-cuff advice. We have there inside the building, there's going to be three-point people to take care of that situation. I think communications and training.

Walker: Roger, you mentioned about the change. We worry about change in somebody's driver's license or what have you.? How are you thinking about letting the client know that they need to let you know or how are you tracking that information or how are you not tracking it? I guess is a better part of that question.

Harris: Yeah. That's something we're actually looking into right now because I think all of us have the desire to want to help our small business clients. Because, know they're coming to us to help them with this, and so we're trying to balance a client's desire and protecting ourselves.

I think we're all going to settle in and find the right mixture of what we do, whether we just do advice, we do advice and initial filings, we do advise the initial filings and updates. Whatever we settled in, we have to be very clear in our communication what we will do, what we will not do.We can't leave anything for interpretation.

Then we need proper engagement letters and whatever. We all start with the same goal; we want to help our clients. We know we are a resource that they want to call them. We're trying to find a way to help them, but also protect ourselves and we'll settle in on that.

We don't have the answer yet. The only answer we were told about updates is be clear. Be clear that you're either doing it or not doing it. Don't leave it up to interpretation, so that when something doesn't get done, the excuse is I thought you were doing it. We're clear in that. Now we're trying to figure out how to be clear and whether or not we can do it or be clear and tell him we're not going to do it.

Lauridsen: I'm going to chime in here and I'm going to add onto what Larry said and then what you said, Roger, about clarity. Also, with engagement letters and in communications with the client, be clear as to what your scope is.

For example, you guys have talked about this straightforward entity arrangement where you know who the beneficial owner is. When they provide you that information, it's clear that you're not providing advice to them. They're giving you that information and you're handling it from an administrative perspective to help them out. It has to be made crystal-clear that you're not providing advice on that.

Walker: Roger, I am on various webcasts doing Q&A and I get the same questions over and over again. I'd love if I could pick your brain on a few of the frequently asked questions that I get.

Let's start with schedule C, disregarded entity LLCs, are they required to file?

Harris: Probably the best way I can answer that is because it's like everything in the world we live in — it depends. That's the answer that we all give.

Think about it this way. Did you register that entity with your state? I can't speak for all 50 states. I know here in Georgia, if you're a sole proprietor or single, you don't do anything, you just become one.

But if you have any registration with the state and you meet the other qualifications about number of employees in size, then, I think it would apply to you.

Again, it may be dependent on where you are, and do you need to register your entity? Again, this is part of the problem. We have no history of court cases, nothing to look back. I'm falling back on the broad rule.

If you register with your state, this applies if you're within the size and others.

Walker: I'm in North Carolina and if you create an LLC, you have a yearly LLC report requirement, which to me says you registered with the state.

If you're having to continually file an annual report that feels like registering to me. But like you said, we're going to have to flush some of this out.

Another question I get…because on one of the exemptions it says accounting firms, just very brief accounting firms. But then if you dig into the FAQs, it says something more specific. Are accounting firms which are people listening today for the most part, do they need to file?

Harris: All the exemptions that are listed, be careful and read what they really mean. They're not as broad as we would like to think they are, there are very specific examples in there. I would say that most of the people listening to this podcast are not covered by that exemption, though there clearly are some.

But Melanie, I'll let you speak from the AICPA standpoint, but it's like anything. When it's taxes or something we read until we get where we want, then we stop reading. Don't stop here. Keep reading because you're not going to be as happy.

Lauridsen: So Roger, I think you'd make a good point. The FAQs within FinCEN’s FAQs, they have the list of the 23 exemptions and one of them says accounting firms. But that's just the title because when you actually read and dig into what that means, it's the accounting firms that are registered under Sarbanes-Oxley to be able to do public audits for public companies.

There aren't too many of those companies that are registered to be able to do these audits, I would say, like Roger said, the majority of those listening to this most likely don't qualify for the exemption and do need to file.

Walker: Another question I see a lot, what about inactive entities. There is an exemption. But again, like you said, you've got to follow through the whole thing.

I think it's six things that have to be met. But what is your thoughts on things to consider for active entities? Then I'll add on, if you dissolved or terminated during the year, is there a requirement to report that? Do you have to say I'm done reporting?

Harris: I'm going to be honest, I certainly hope so that you can take yourself out of this mess at some point if you're out of it. But those are some of the challenges.

There's reporting agent requirements. If you become a reporting agent, you're there forever if you've set it up. But if you are a preparer or whatever they call it and you want to change, there's all of these things about how you change this or how you change that, what you do that I don’t think are crystal clear and I think we have some guidance that says if your entity has done that, you mentioned these six things, you're inactive, and a $500 a day penalty when you don't really know the answer, what's the safest thing to do?

Hunt through an attorney or do it because it's cheaper to do it than to put yourself out there for penalty because again, we have no history of how a situation will be looked at by FinCEN and determine whether you complied or not complied. And that's why we find ourselves in a, listen, for all the criticism people give the IRS, at least they've got guidance, we've got history, we've got things to fall back on. For most of us, this is the biggest interaction with FinCEN.

Walker: Only with FBARs and I think that's what trips a lot of people up is FBARs are reported on or can be reported with a tax return and so people are just so confused.

Just to clarify, is there a report, is there something that can be filed with your accounting software? How do we think this is going to do? Melanie.

Lauridsen: With regards to how you can file. When you start FinCEN, there is no form out there. They have not released it. There will be software on FinCEN's website, supposedly January 1st. We haven't seen it, it's not live, it's not out there.

What FinCEN has also said is they are working to be able to provide third-party software similar to what they did with the FBAR, where third parties or third parties on behalf of, in this case, small businesses will be able to file for them, but that is coming down the road for right now. According to FinCEN, you have to go to their website and be able to file there. Again, this goes back to the whole point of there's just a lot of information…a lot of unknowns right now.

Walker: Absolutely. I think that's maybe the theme of this. The theme of this podcast is the questions we can answer, the questions we can't, which seems to be more can't than can, but hopefully it's providing some information.

Those are my main, I'll say, frequently asked questions for me. What to do now is, Roger, just think about any final thoughts you'd like to share with our listeners as we are evolving through this requirement. This is definitely not the last you'll hear from us. We are continuing to monitor and provide resources as we know more but just as here we are middle of December getting ready to approach this requirement, what would you like to share?

Harris: I think the advice I would give to the listeners is the same thing I'd give to our people is, first of all, over-advise in terms of the requirement to make sure that everyone is aware of it. That we're aware of it more importantly, but we're going to take advantage of the time that we've been given to find out some of the details that we've discussed here.

So be very aggressive in telling people about the requirement. Be a little hesitant in doing anything until some of these questions that we can answer, we hopefully get answers to and then make sure that you have all the bases covered when you decide how you want to offer this service.

Make sure you have the engagement letters in place, make sure you have the errors and omissions insurance in place, make sure you have the attorney relationships that you need. We will help our clients.

I think at the end of the day, this will settle to somewhere where we'll find our role, we'll find the attorney's role, we'll find the roles that we can all fit and we will help our small businesses comply. But let's take advantage of the fact that we have time to do it, let's be cautious.

But I think, as I said earlier, we all want to help our clients. That's what they come to us for, that's what we want to do. But we have to do it in a right way. The thing that scares me the most is I had a practitioner tell me, how hard is this. It's a form. We fill in forms all the time and I thought this a like all the forms we fill out all the time, so be a little careful. Let's be careful, but let's try to help our clients.

We'll find our role. I think we're just never land right now where we're still trying to let it settle, but we'll find our role and we'll do a good job and we have the best interests of our clients at heart and I think as long as we're cautious, that will serve as well.

Walker: Wonderful. Thank you, Roger and thank you so much for joining us today. Larry, can you give me some final thoughts as we're thinking about this requirement?

Gray: Yeah. The final plot would be as Roger and Melanie and I have said, you've got to decide what you're gonna do. You have to at least make the client aware, that's a given.

I think beyond that, what you have to realize is be clear in the engagement letter. I think also, you have to stay current. As I said, FinCEN is updating the frequently asked questions. They updated eight of them, two days scope, but it's almost weekly. Now what I have to do is look at the small engagement guide that they have, which is very good. But there's frequently asked questions. That guide hasn't been updated yet.

I would say clear communications including your engagement letter and I think the other thing is stay current on the FinCEN website. You can go online and ask to be sent out notifications. We will work through this and your current clients, you probably want to wait till later in the year. Melanie, April, I so thank you for including me.

Walker: Thank you so much, Larry. Melanie, I'd love for you to give some final thoughts. Just as I'm thinking before you go, just there’s…and hopefully you'll hear today, there's a variety of approaches to this. There's a variety of ways that you can approach it and you don't have to know right now, but it would be helpful if you have thought about it and thought about the risk so that when you are dealing with your clients during tax season, you are able to say, here's the requirements. I'm not going to do it, but he can hear some alternatives, or I am going to do it, but you will have to provide me the information and I can help you with the reporting.

If there's any advice that needs to happen. It cannot come from me, it has to come from an attorney. That's my final thoughts. What about you, Melanie?

Lauridsen: I agree. This is new and it seems scary, but keep in mind back in the day, even the practice of tax was considered unauthorized practice of law. So things evolve and things change.

I think once we get more clarity, it will settle and ultimately, Roger can talk about those too. When he's approached lawyers, a lot of the lawyers don't even know what they are. We've found that they don't want to take on this engagement and who does that leave the small businesses to turn to?

I also know that CPAs and tax professionals, it is in their nature to want to provide services to their clients. Larry and Roger, and I echo the sentiment have said over and over again, we'll figure this out. We just need a little bit more time, a little bit more information, and I think we're going to get there to be able to help the client. I do think it's our responsibility to be able to provide a service and I'm not saying it has to be a why, but it did provide a level of service to our clients.

Walker: Wonderful, thanks. Alright, thanks everyone. Again, this is April Walker from the AICPA Tax Section. This community 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 this wherever you listen to your podcasts 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 life founded friend. You can also find us at aicpa-cima.com/tax, and find our other episodes as well as resources mentioned during this episode and others. Thank you for listening and wishing everyone a safe and healthy holiday season.

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.

In this episode, listen to a conversation with Jody Padar, the Radical CPA, about the evolving role of CPAs in the face of technological advancements. Jody emphasizes the need for proactive communication, year-round tax planning, and restructuring business models to prioritize client needs so that CPAs can maintain their relevance in the accounting industry.

To learn more about Jody and her new book coming out soon, please visit her website.  

AICPA resources

Reimagining your tax practice — Tackle today’s top practice management issues with insights and tips from pioneers in the tax community.

Transforming Your Business Model — “Transform” indicates a dynamic but collaborative change that our business models will support. This concept invites firms to join the discussion and explore their businesses through the lens of the five focus areas.

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 — All eyes on Moore v. U.S. plus a history lesson on tax cases.

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 pieces of precedence and yes, the concept of attribution is alive and well, we can take this income earned at the CFC level and attributed to the Morris.

Then they just took some steps to take apart the Moore's argument that Sec. 965 is somehow vastly different from Subchapter K and S and Subpart F because they said, this argument that partnerships are never respected as separate tax-paying entities. We know that's not the case and we have case-law here that says, at various moments in time, we've been able to levy taxes at the partnership level and we know that for variety of reasons for federal tax purposes, partnerships are respected as their own entity. Maybe not necessarily tax paying entity, but their own entity and aren't mere aggregates of its partners. From an S corporation perspective, you say that every shareholder has to consent to the election and they do.

But think about if the shareholder mix changes and now you have shareholders owning 49% of the stock and they want to revoke that S election. You need more than 50% consent to revoke an S election. You can have 49% of shareholders who do not consent to that election, but they're powerless to do anything about it. They said the mirror requirement that you consent is not enough here to differentiate sub S for 965 and then Subpart F the argument for the Morris was largely based on the degree of control that shareholder had to have in the CFC. But it's the same 10% control for 965 purposes as it is for Subpart F purposes.

The court just basically said your arguments Moore aren't convincing to us. We're going to keep this simple. We're going to attribute the income of the CFC to you here and say that is perfectly constitutional. The decision was a little anticlimactic, but should not have been surprising.

April Walker: Little bit anticlimatic on the decision. And the focus on attribution versus realization. But Tony, is there anything we can gleam or learn from this decision?

Tony Nitti: I certainly think there is. We've got a 33 page dissenting opinion from Justices Thomas and Gorsuch that could best be described as a strongly worded, maybe scathing, whatever you want to call it. But it was very clear that these two justices, in descending to the majority's opinion, really felt like the Supreme Court had a missed opportunity here to address this ambiguity in the law and figure out once and for all whether or not there was a realization requirement. Because they accused the majority of this is a direct quote, “changing the subject in addressing attribution over realization”. But then went on to say pretty definitively, no pretty about it. They went on to say definitively, we believe there's clearly a realization requirement inherent in the 16th Amendment and so we don't agree with this ruling. Listen, it's a dissenting opinion so to some degree that angry arguments set forth is the legal equivalent of Grandpa Simpson shaking his fist at a cloud.

But we should still pay attention to it because I believe that it was a well-crafted argument by Justices Thomas and Gorsuch as it goes through the evolution of the Constitution that I think could absolutely serve as a foundation for future defenses against, for example, a tax on unrealized appreciation. I think there's a lot to be learned from this dissenting opinion where Thomas and Gorsuch build out their argument as far as why there's a realization requirement in the 16th Amendment.

If you've got a couple more minutes April, I certainly wouldn't mind taking our listeners through it. Because like I said, I do think it's well thought out. But we don't have to go through the whole history again, like we did last time about how the constitution came to be but it is important that we understand a couple of steps in the evolution. You want to hear the entire sorted history, you can go back to the original podcasts, get all your fill of Hamilton references as April said.

But for today's purposes, it's 1787 we're at the Constitutional Convention and we are aware that we need to be able to generate revenue for the federal government, but at the same time, we have to be sensitive to the sensibilities of the country's citizens who, after that nasty breakup with England, were not going to be particularly receptive to taxes.

The Constitution starts out with Article 1, Section 8 Clause 1, that just grants the government it's general taxing power. It says that the Congress can enact taxes imposed duties, excises, and pretty much leaves it at that. But that concept of taxes, we knew they were going to need more guardrails around because people were so sensitive to it and after some heated negotiations between the Southern and Northern states that we go into detail about in the first podcast, they come out and say, the two most likely taxes that we're going to impose at the federal level are what we call a poll tax or a tax per head on humans simply for existing and then a tax on the ownership of real property.

One of the guardrails we want to build into the Constitution is that these types of taxes, what we will call it direct taxes had to be apportioned among the states based on relative population. They added a second clause to the Constitution, Article 1, Section 9, Clause 4 what's become known as the Direct Tax Clause and that clause simply just says, all direct taxes have to be apportioned among the states based on population. Quick example of how that would work if Congress were to enact a national tax on each acre of land and the total tax is going to be $10 million to be collected from all the states.

If Connecticut and Virginia, even though they may have different acreages of land within their state boundaries, if they have the same exact population, they're going to pay a portion of that overall federal tax. You take the national tax and you say, each state pays its share based on its relative population as a part of the whole. That was supposed to provide some safeguards and some guardrails. The problem as we delve into in our first podcast is that nobody really understood what a direct tax was and that's been a bit of a problem.

Tony Nitti: A couple of years later we add a supreme court case called Hilton, where the Supreme Court ruled that a tax on the ownership of carriages for the conveyance of persons was not a direct tax. In that case, the justices, each of them, to some degree, came out and said, at this point, we think the only things that truly are direct taxes are taxes on people and taxes on ownership of real property. That's how things stood for the next 100 years, April until post-civil war, Congress tried to enact its first ever peacetime income tax.

Tony Nitti: That got challenged right away in a case called Pollock versus Farmers Trust and the taxpayer said, look, this income tax is unconstitutional. Why? Because it is a direct tax. If we stop right there, like wait a minute, you just said that direct taxes were things like a tax on people and a tax on owning real property. How can an income tax be a direct tax? Well, the taxpayer was arguing, look, we know a tax on ownership of property, like real property is a direct tax. The tax on the income that comes from that property, we don't have any mechanisms in the constitution to distinguish between those two, to separate between the two.

Tony Nitti: We have to treat a tax on income that comes from property like rental income from real estate, the same way constitutionally, we would treat a tax on the underlying ownership of the real property and everybody acknowledges that is a direct tax. A tax on the income from the property should also be a direct tax. Then extending that concept to personal property, they said the same thing. They said, if you own stock and we want to tax the dividends that come from that stock. Well, taxing that income is akin to taxing the ownership because we have no means to distinguish between the two, and so that would also be a direct tax.

Tony Nitti: If you can't tax dividend income, you can't tax rental income, a big part of your income tax isn't going to work anymore and that's exactly what happened, April. Much to the surprise of Congress and in one of the most analyzed, scrutinized, debated cases in the supreme court's history, Pollock versus Farmers Trust, the Supreme Court rules that the income tax, in large part, is a direct tax that has to be apportioned among the states based on population. Obviously that doesn't work to apportion and income tax among the states based on population, and so the tax disappeared. The income tax was gone.

Tony Nitti: But Congress couldn't just sit there and do nothing. They needed a way to generate revenue and so they did something that would be largely unthinkable in today's environment, but they amended the constitution. This piece here, April is critical to understanding the arguments set forth by Justices Thomas and Gorsuch. Because in the 16th Amendment, it was done specifically to counteract the ruling in Pollock. Congress came out and said, okay, we're going to amend the constitution to say that congress shall have the power to lay and collect taxes on income from whatever source derived without apportionment among the states.

Tony Nitti: But what they didn't do, April when they added that 16th Amendment, and again this is critical, is they didn't get rid of the direct taxing clause, right? They could have just ripped that from the pages of the constitution say, we're getting rid of this requirement that a direct tax has to be allocated among the states, but they didn't. They left it there when they added the 16th Amendment, which says, we can tax income without apportionment.

Tony Nitti: In the eyes of Thomas and Gorsuch, and this is not in their eyes, I should say, this is a fact and then I'll get to their opinion, the fact is post 1913, we have three distinct categories of tax regimes in this country. Number one, we have indirect taxes like duties, imports, and exercises that we don't need to worry about for this conversation. Number two, we have the direct tax clause, direct taxes have to be apportioned among the states based on population. Then category three, we have an indirect income tax that doesn't have to be apportioned.

Tony Nitti: The point that Justices Thomas and Gorsuch make, and it is an interesting one, is that if we're going to have category two while adding category three, and we're going to retain both those categories. There has to be some way to distinguish when an item falls in category two as a tax on property, a direct tax, versus when it falls in category three, a tax on income. That process, according to the two justices, by which an item that's being taxed moves from category to a tax on property, a direct tax, to category three a tax on income, is this process of realization, this idea of realization.

Tony Nitti: We can further refine this idea of realization in both legal and layman's terms right, from a legal perspective, they said, hey, look at the 1920s decision the supreme court you had someone who invested money in a corporation, and then got a stock dividend, and that stock dividend didn't make them richer. It gave them more slices of pie in the corporation, but reduced the value of each slice. So their overall value of their ownership hadn't changed.

Tony Nitti: But the IRS tried to tax it and the supreme court said you can't because it's not income. The reason it's not income is because there's been no realization. In defining realization, they said, look, when you make a capital investment in a corporation like this, you don't have realization until you have something of detachable, separable value in your hands as the shareholder that you can do whatever you want with, that you can use at your disposal. Since you don't have anything of value here, there has been no realizations, so that's the legal definition.

Tony Nitti: A more simple definition, April that I find helpful is if we want to distinguish between what is a tax on property in category two, that's a direct tax and what's a tax on income that's not, is to think of it in terms of a tree and the fruit that it bears. You own a tree, you own property, right? Taxing the ownership of that tree would be a direct tax. But if that tree bears fruit, think about fruit. You can only fully enjoy fruit if you sever it, if you detach it, if you harvest it from its source from the property.

Tony Nitti: In the eyes of Thomas and Gorsuch here, the dissenting justices, what they're saying is, we have to have that moment where the fruit is detached from the tree and only then does the fruit become income that can be taxed as income, not have to be apportioned among the states, so it's that critical moment of realization. April, if you appreciate your analogies being food-based, I don't know maybe that tree and fruit analysis helped you.

April Walker: It certainly did.

Tony Nitti: Yes, it's extending that argument two more, the facts and more. It becomes very simple for Justices Gorsuch and Thomas because they say, the Moores invested in a corporation, that is a tree, that is a property investment. Show me where the fruit was. They never got any fruit. They never got a distribution. They never got anything in their individual capacity, and so if we were to tax what is effectively an ownership of stock here and treat it as if it were taxing the fruit that never came, taxing it as if it were a tax on income, then what we're doing from a constitutional sense is we are ignoring Congress's decision to preserve Category 2, to retain that direct tax clause. Because for them to take the time and effort to keep the direct tax clause means that Congress believes some items should continue to be treated as a direct tax on the ownership of property. Until property bears fruit, any tax that you tried to assert on that property should continue to be respected as a direct tax or else what was the point of preserving that direct tax clause when you added the 16th Amendment.

Tony Nitti: They then went on, and hopefully this is making it more clear for the listeners and not more confusing, April, but this concept of a tree and fruit, I think is helpful. Until you've got fruit in your hands, how can anything be taxed as income. They went on to say, think about it in terms of a tax on unrealized appreciation. Imagine that you, April, buy real estate today for a million bucks, and over the next year, you don't rent that real estate out. You don't sell that real estate. You don't generate a penny of income from the real estate, but it does appreciate and value, it doubles by next year at this time.

Tony Nitti: If Congress were to come in and try to tax you on that doubling in value. What Justices Thomas and Gorsuch would say, April, "Is there any fruit in this situation? Did you receive anything of separate detachable value that you harvested from the tree? Now have in your individual capacity to do what you want with?

April Walker: Seems no.

Tony Nitti: Seems like no. They would say is if it seems like no, then you can't possibly be taxing fruit. The only thing you can possibly be taxing is the ownership of the tree, the real estate. Since 1787, people have appreciated that a tax on ownership of real estate is a direct tax that Article 1, Section 9, Clause 4 of the Constitution requires to be apportioned among the states based on population. That's it, that's the thrust of their argument.

But it's really an interesting one because the constitution is obviously very much like the tax law in the sense that, I don't know if a lot of people notice about the tax law, but the way the tax law has to be interpreted by the courts is that no single word in the code or regulations is superfluous or unnecessary. Which seems crazy, right? When we think about the length of the code and regs. But everything has to have a purpose.

Tony Nitti: Same thing with the Constitution, if they took the time to preserve the direct taxing clause, but added a 16th Amendment that allows us to tax income. There's got to be some critical distinction between those two categories of taxation, and then the eyes of dissenting opinion of Justice Thomas and Gorsuch, that critical distinction is when income becomes realized when the tree ultimately bears fruit. I think because their analysis is one of constitutional evolution, that it is well formulated and that it very well may serve as the backbone for a future defense because at some point, we're going to end up right back in front of the Supreme Court finally, deciding whether or not realization is required. Who knows what the composition of the court looks like at that time? I say their argument is well crafted. What do I know?

Tony Nitti: People could put together other arguments that are more well-crafted or contrary arguments that are better crafted. But I do think that this is something we should be paying attention to in this more opinion, even though it's in the dissenting opinion, even though they were overruled 7-2, because I think it is logical. I think it is, as I said, well put together when you look at the evolution of the Constitution. You can get some insight into at least how these two justices view a realization requirement. I think also if you were to go and read the concurring judgment opinion by Justice Barrett and Alito, you'll see that they certainly have some concerns about realization as well. But that's a decision for another day. I did say decision for another day, and so for people who are frustrated, I get it. But we shouldn't have been surprised because the writing has been on the wall since December.

April Walker: Wonderful. As we're wrapping up a little bit, I'd like to talk about what your opinion is on how this decision might affect future tax reform efforts. I guess I'm thinking wealth tax.

Tony Nitti: Maybe I'm wrong about this, but I view the wealth tax as being an entirely different issue with much bigger hurdles to get past than, for example, a tax on unrealized appreciation. The reason I think I say that is because with a wealth tax, it gets very hard to argue necessarily that there has been any fruit born because you haven't earned any income at all. They're not even attempting to tax you on income necessarily. They're taxing on the value of assets. I don't know how a wealth tax and necessarily fits within the 16th Amendment definition of income.

Tony Nitti: One of the things that I found very fascinating about the Moore case when we got to the oral arguments, is that they talked in the oral arguments with the government about their thoughts on a wealth tax. In this case, the government conceded that, look, if we were to try to tax the value of someone's assets for just a specific moment in time, I believe they said that was a quintessential direct tax that must be apportioned and I might be quoting it wrong, so please somebody double-check me on that. But I think they more or less said the government, hey, in this case, we can see that a tax on value for specific moment in time would be a quintessential direct tax. But we can tax and increase in value between two different points of time because that represents income.

Tony Nitti: I think a tax on unrealized appreciation, we saw how that argument may well go. You've got Justice Jackson saying that Congress can tax whatever they want. There's no realization requirement. You've got, at the very least Justices Thomas Gorsuch saying, " Not a chance, there's absolutely a realization requirement." I would presume that some other justices will join them. But a wealth tax, I just think is a more difficult argument to make unless there's constitutional angles and there probably are that I just don't see. Because you're not even pretending to tax income necessarily, you're taxing value at a specific point in time. If you go back to my tree verse fruit analogy, how in a wealth tax environment are you not conceding that you are taxing ownership of the tree rather than the fruit that it bears.

April Walker: Well, this is about as breaking news as this podcast gets. Any final thoughts you want to share with us, Tony, as we're reflecting on this long awaited decision.

Tony Nitti: Anytime the Supreme Court talks tax, we have to pay attention, we have to listen. I would just encourage people to read it all of it, read the majority opinion, read the two concurring opinions, and certainly read the dissenting opinion just to see how this may all shake out at some point in the future. But obviously it's all at the mercy of when it eventually becomes in front of the court. But to me, it's just a fascinating history lesson on the evolution of taxes. Really, I've always said, when I do podcasts with my old buddy Damian Martin. Bring him up one last time, I've always said there's no better way to learn the tax law than reading case law. I think the 80 pages or so here, more, even though it may not be what everyone hoped it would be, certainly offers a lot of insight and a lot of educational value.

April Walker: Perfect. Yes, I like to leave people with some homework and that's some good homework to do. Go read the decision. Thanks again, Tony. This has been delightful. I appreciate your time and energy on this.

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 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 friends. You can also find us at aicpa-cima.com/tax. Check out our other episodes, as well as the aforementioned one earlier about this case and also get access to the resources. Thanks again 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 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.

The past 15 months have been a whirlwind in the tax arena with several COVID-19 relief packages introducing new tax provisions and enhancements to older ones now passed and packed away. President Biden, his administration and Congress are turning their attention to more permanent legislative tax reform measures.

On this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager – AICPA Tax Section, sits down with Lauren Pfingstag, Director of AICPA Congressional & Political Affairs, to discuss the possibilities of tax legislation in the near future.

 What you’ll learn in this episode

• Broad overview of what’s included in the various proposals (0.49)
• Outlook regarding the regulation of tax return preparers and the AICPA’s position on such regulation (3.00)
• Three potential tax proposal scenarios considering competing political forces and procedural limitations (6.11)
• Timing and likelihoods for tax legislation (13.30)

AICPA resources

• COVID-19 tax resources - Developed resources and information to help CPA tax practitioners navigate the tax world in the COVID-19 pandemic.
• Tax advocacy– Consolidation of the AICPA Tax Policy & Advocacy team efforts as they advocate for legislative, regulatory and administrative tax matters on behalf of members. See also AICPA advocacy news and recent comment letters.

Resources

• GovTrack – Tracks the United States Congress and publishes the status of federal legislation and information about members of Congress.

Note: If your podcast app does not hyperlink to resources, visit https://taxodyssey.libsyn.com to access show notes with direct links.

This episode is brought to you by the AICPA’s Tax Section, your home base to maintain your professional edge. To learn more about the Tax Section, check out aicpa.org/tax or sign up for a free web tour.

A new year has arrived, and it’s an opportune time to pause and take some time to reflect on new goals and consider what’s possible.

It’s been a rough 18 months since the start of the pandemic, and tax practitioners continue to brave the storm of seemingly never-ending tax legislation, related guidance and client mentoring. April Walker, CPA, CGMA, from the AICPA Tax Section and host of the Tax Section Odyssey podcast, reached out to tax practitioners to find out if they have goals for the upcoming year. Sit back, relax and take a few minutes to hear what your fellow tax practitioners have down for their 2022 resolutions on this Tax Section Odyssey episode.

Featured resolutions

• Compilation of mailed responses (1.35)
• Charles J. Kelly, CPA, Chief Executive Officer — CJ the Smart Guy’s Tax Services, LLC (4.10)
• Orumé Hays, CPA, CGMA, MST, Managing Director — Hays CPA (5.06)
• Chris Wittich, MBT, CPA, Partner — Boyum Barenscheer (5.37)
• Larry Marietta, CPA, Owner — Marietta Financial Services, Inc. (6.28)
• Amie K — livingthetaxlife.com (7.15)
• Daniel Moore, CPA, Owner — D.T. Moore & Company, LLC (8.40)

AICPA resources

• AICPA Town Hall Series— Bi-monthly, high-impact news broadcast series that delivers the latest news, analysis, insights and practical guidance to accounting and finance professionals and responds to pressing issues facing the profession.

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.

April 18 marks the close of tax season 2023. This is a time for many practitioners to reflect on the past few months and decide what went well and what could be improved for future tax seasons ahead.

Nicole Davis, CPA, has one word to encapsulate this tax season. She also shares her wins and challenges along with solutions she implemented including the pizza tracker protocol and videos.

What you’ll learn in this episode

• Tax season 2023 defined in one word (1.24)
• Changes/improvements that made a difference (2.35)
• Advantages of using a tax process explainer video (5.25)
• The pizza tracker tool (8.05)
• Tax practice management software Nicole uses (10.55)
• Challenges and lessons learned (12.09)
• Nicole’s take on IRS service level (16.21)
• Final thoughts (18.01)
• A page from Nicole’s travel journal (20.15)

Related resources

• Tax season resources – With constant changes to the tax landscape, being prepared for tax season is critical for success. Set yourself up for a smoother filing season by tapping into the wealth of AICPA and Tax Section resources.

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.

In this episode, Brian Davis, owner of One Stop CPA, 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

Tech stack wars in 2024 | Reimagining Your Tax Practice — 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.

Transitioning to a tax-focused CPA financial planner | Reimagining Your Tax Practice — 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.

Transforming Your Business Model…Technology — 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, you can control those settings, and now you can get even more advanced with, endless opportunities.

I mean, I have when I'm doing video deliveries that, now sometimes I'll do a tax return and I'll send you a Loom video that will kind of answer the questions I know you're going to have so that that way, when you look at it, you're not hey, I got questions, and I'm busy because I'm at digital CPA. Let me show the video, send it to you. I have a script writer that will help me write the script. There's so much different ways you can play around.

I mean, I feel like AI is just getting better and better, so I can't say that I'm an expert on it because it's who it is. It's it's such an early stage but it's great. I'm definitely impressed with it. I try to do as much improvement as I can because it's kind of an assistant. We used to go to Google, research different articles, different people's opinions on tax. Now, you could kind of use it as a research assistant.

April Walker: To get you started, at least.

Brian Davis: Hey, I'm researching these tax things and I have these questions. This is the idea that I want to present to the client. How would you approach that? Of course, I'm not going to just forward that, but it's definitely better to have that with you kind of just to help you out. I see it as another team member. It's like another team member.

April Walker: Yeah, we use Copilot.

Brian Davis: Well, one way that I'll be using it now, and I got to give a shout out to Automation Town, it's a community that I'm part of with Chad Davis. One thing I even expressed him, I said, well, the Zoom AI summary after I have my discovery call, Zoom gives a pretty decent, recap of the meeting. But I can't just forward that to the client because there's sometimes there's little, I want to put all that. It's kind of look at it before you send anything to a client. Before I start running off tasks to people, I want to put a little bit of, that would be me, something I would go and manually do. I said, well, he kind of laid out a way where you can combine Zoom's AI summary that comes to you by email with a zappier integration that can create a new Google document with action plan, potential action task for the team, a potential agenda recap that you can send to the client.

Then pair that with you tell it stuff about your firm. Well, hey, we talked about this, we want offer this afterwards, and now it already knows what you mean. It can get very customized. You just got to play around with it. It's so cool. There's so many different ways people are using it, and you don't have to be any kind of super tech-forward. You can play around with it.

April Walker: I think that's right. I mean, just keep in mind the security aspects, and don't put personal information in there, and then just have fun.

Brian Davis: Yeah, get those settings right where you're not uploading your life to the cloud. You know, it's analyzing everything, but, once you're in there, I mean, it's helped me design chat messages that I send to clients just enhancing, hey, I want to come across this way because when we're accounting, you wouldn't even want to see some of the emails I used to send to people just to summarize our meeting.

April Walker: Oh my gosh I know.

Brian Davis: You got to be an accountant to read this but you know, you could say, hey, read this so it's easier to digest. It's great that you could do those. It's pairing it with our knowledge. As accountants, we got so much that we're good at. Now there's these tools that help us out.

April Walker: Brian, we've had a great conversation today. I love it. I don't know if you have listened to our podcast before. It's called Tax Section Odyssey. On it, I like to think about taking an Odyssey together, journey together towards a better profession. We'll pip it a little bit to do you have any dreams outside of the world of tax that you have a bucket list or any travel you've got planned that's still there.

Brian Davis: No, well, I definitely want to start traveling in the future. Again, before COVID, that was the one thing when I went out on my own, I got to start traveling. That's why I was hooked on, okay, I got to make this firm work because then I could keep doing these trips. My son, he's 11 months now, so when he's starting to walk, he's starting to stumble so when he starts walking, we want to  spend the summer in a different country and those things. I'd love to do that.

April Walker: My daughter had a passport before she was two, so do it.

Brian Davis: Right. Exactly. Definitely looking forward to some travel, and just building the firm that can run smooth. I don't plan on selling my firm anytime. I do enjoy being an accountant. I kind of lost that love when I was at the firms and having trouble breaking through to the partners - hey, we should do this, there's some tools that we could use to save me time. We have to document every 15 minutes that we're doing. Now that I got out on my own, I saw that there's a better way that you could actually run an amazing firm.

I know that there's a shortage of accountants that are trying that are getting into it because it's  seen as this heavy, burdensome job and there's definitely ways you could break through. In the future, you know, just being a part of that, whether it means helping accountants that are kind of coming up in my shoes. I talked to a lot of my friends and fellow CPAs that just  may have met me on a Zoom or something or met me on a community chat or something, and they're just, you know, looking for these tips to help them get out on their own.

What is the tech stack you use? What should I maybe start off with?. Maybe some kind of coaching thing where I'm just helping out profession a little bit. That's something like an Odyssey.

April Walker: I love that. That's great. On an Odyssey. Brian, thank you so much for joining me today. I enjoyed it.

Brian Davis: This is great. Thanks for having me.

April Walker: Of course. Again, this is April Walker from the AICPA Tax section. This community is your go to source for technical guidance and resources design, 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 podcasts, 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. Thanks again 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 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.

The 2021 PCPS CPA Firm Top Issues Survey polled firms of all sizes to get a pulse on the top pressing issues impacting them.

In this Tax Section Odyssey episode, April Walker, CPA, CGMA, from the AICPA Tax Section and Brad Barbour, CPA, from the AICPA Private Companies Practice Section, and host of the Small Firm Philosophy podcast discuss tax-related challenges that emerged in the 2021 CPA Firm Top Issues Survey.

What you’ll learn in this episode

• Overview of the survey and highlights of results (1.18)
• What’s happening with tax law that is keeping practitioners up at night (2.07)
• Advice from the AICPA Tax Section to help tax practitioners remain up to date and communicate tax changes with clients (3.07)
• Challenges when working with the IRS (5.01)
• Relevant AICPA Tax Section resources (8.00)
• Resources available to help practitioners deal with workload and deadlines (10.24)
• Staffing issues (13.20)
• A page from Brad’s travel journal (15.41)

AICPA resources

• Resources to address CPA firm top issues — The PCPS and the AICPA provide a variety of resources that can help address the issues identified in the 2021 PCPS CPA Firm Top Issues Survey. Also included in this toolkit is the Client Evaluation Tool.
• PCPS CPA Firm Top Issues Survey — Professional insights highlighting the results of the biannual firm top issues survey conducted in May and June of 2021.
• Small Firm Philosophy podcast — This podcast shares big ideas about small firms. You'll hear from leaders of small accounting firms about their philosophies on running a successful practice in today's rapidly changing environment.
• AICPA tax hub — Compendium of tax guidance and resources.
• IRS Hotlines Quick Reference Chart — Summary of contact telephone numbers for various IRS departments to help practitioners resolve IRS tax matters for their clients.
• Contacting the IRS FAQs — Answers to frequently asked questions help you navigate your correspondence and activities with the IRS.
• Client Termination Practitioner Checklist and Notification Letter — This checklist will guide you through some important items to keep in mind when terminating a client relationship. The notification letter is used to notify a client about the termination of your professional relationship with them and remind them of other unsettled matters.
• Extension Reminder Letter for Client Tax Return — Customizable letter to send to your clients to help them understand the tax return extension process and inform them of what financial information you need from them and when.

Other resources

• IRS Operations During COVID-19: Mission-critical functions continue — COVID-19 continues to cause delays in IRS services. The page is kept up to date to inform taxpayers and practitioners of the status of IRS functions.

Note: If your podcast app does not hyperlink to resources, visit https://taxodyssey.libsyn.com to access show notes with direct links.

This episode is brought to you by the AICPA’s Tax Section, your home base to maintain your professional edge. To learn more about the Tax Section, check out aicpa.org/tax or sign up for a free web tour.

In this episode Jason Staats, CPA, MBA, Firm Runner and Content Creator — Realize, joins April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, live from ENGAGE 2023 to highlight the fast-paced world of transformational technology and its prominent impact on the accounting profession. He explores how emerging technologies including artificial intelligence (AI) are not only changing the way things are done but also redefining the rules of the game.

What you’ll learn in this episode

• Getting started with cutting-edge technology (1:30)
• Tips from a practice management standpoint (3:17)
• Ways firms can incorporate AI such as ChatGPT (5:26)
• Tips for memo and email enhancements (8:28)
• The optimal time to incorporate/upgrade technology (10:05)
• Jason’s parting thoughts (12:09)
• A page from Donny’s travel journal (12:56)

Related resources

• Jason.CPA YouTube channel — Jason Staats talks about how to build calm, sustainable accounting firms.
• The digital download — ChatGPT, AI and data security | Tax Section Odyssey — AI is transformational for the tax profession. In this Tax Section Odyssey episode Ashley Francis, CPA, shares her experience with ChatGPT and BingAI.
• AICPA Technology Library — Technology is evolving at an unprecedented speed and affects each of us in almost all facets of life and business. This hub provides you with access to the latest technology information, tools and resources to best serve your clients or support the organization where you work.

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.

An engagement letter is an important written agreement that describes the business relationship and the types of services agreed upon by a client and a professional firm. The letter details the scope of the agreement, terms and costs and sets expectations for both sides of the arrangement.

In this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, Association of International Certified Professional Accountants, representing AICPA & CIMA, chats with Deb Rood, CPA, MST, Risk Control Consulting Director — CNA, about the importance of engagement letters and determines why a well-drafted engagement letter can help prevent a misunderstanding with a client from turning into an expensive liability claim.

What you’ll learn in this episode

• The necessity of engagement letters (0.57)
• Liability claims and engagement letters — the statistics (2.24)
• Specific understandings and agreements that should be included in an engagement letter (5.35)
• Timing and fee topics in engagement letters (7.32)
• Electronic engagement letters (10.44)
• Tips for those getting started on using engagement letters or for those that want to improve their processes (11.30)
• Resources, including those related to client terminations (13.44)
• A page from Deb’s travel journal (16.45)

 AICPA resources

• 2022 engagement letters — The 2022 engagement letters are available for Tax Section members to download. These resources are part of the Annual Tax Compliance Kit — a library of engagement letters, client organizers, tax return checklists and practice guides to help you get ready for the next tax season.
• AICPA Member Insurance Program education and resources — Brought to you by AON, on this hub you can find articles, tips, calculators, checklists, webinars, letter samples and downloadable materials.
• Advice for when it's time to say goodbye (to clients) — On this Tax Section Odyssey episode, professionals discuss how ending a client relationship is a weighty decision for any CPA. Whatever the reasons are for the termination, disengage cleanly and timely.
• Rogue behavior: Risks your CPA firm should avoid — Deb Rood shares claim experience of the AICPA Professional Liability Insurance Program that demonstrates that rogue behavior, especially at the partner level, can lead to professional liability claims.
• Use of e-signatures for engagement documentation — The question of whether a client's electronic signature on engagement letters, management representation letters and other documents is acceptable is examined. 
• Surviving tax season: Checklists to manage your risk — Access these interactive checklists to help you navigate tax season and manage your professional liability risk.
• Client Evaluation Tool — Use this tool to identify your firm’s better clients who deserve more of your time and attention.
• Client Termination Practitioner Checklist and Notification Letter — Terminate a client relationship by following these helpful practice management reminders and then formally communicate the termination to your client.
• Practice Management & Professional Standards — Browse tax practice management resources and guidance to help keep your firm performing at the optimal level.

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.

The April 2022 tax deadline has passed and many tax practitioners are soaking in a well-deserved respite. Now may be the opportune time to think about starting up your own tax practice. While the thought of being a successful entrepreneur may seem daunting, there’s some best practices to get you started.

On this episode of the Tax Section Odyssey April Walker, CPA, CGMA, Lead Manager — AICPA Tax Section, talks with Kelly Rohrs, CPA, P.C., Owner — Kelly A. Rohrs, CPA, about her transition over the past year to owning her own tax practice and lessons learned for success.

What you’ll learn in this episode

• Motivating factors that influenced Kelly to open her own practice (1.57)
• Important lessons learned over the past year (4.09)
• Finding help for administrative tasks (5.38)
• Knowing your optimal technology stack needs (7.20)
• Tips for having a successful work-life balance (10.06)
• Evaluating social media platforms(15.22)
• Billing practice suggestions (17.53)
• Final thoughts from Kelly (22.10)
• A page from Kelly’s travel journal (23.06)

AICPA resources

• Key considerations when buying a CPA practice | Tax Section Odyssey — Raleigh Cutrer, CPA/PFS/ABV, Shareholder at Matthews, Cutrer and Lindsay, P.A., talks about five key areas to consider when exploring whether to acquire another CPA practice.
• Key considerations when selling a CPA practice | Tax Section Odyssey — Raleigh Cutrer, CPA/PFS/ABV, Shareholder at Matthews, Cutrer and Lindsay, P.A., talks about five key areas to consider when in the process of selling your CPA practice.
• AICPA Town Hall Series– Bi-monthly, high-impact news broadcast series that delivers the latest news, analysis, insights and practical guidance to accounting and finance professionals and respond to pressing issues facing the profession

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.

"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

S Corporation Shareholder Compensation: How much is Enough?, 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 every piece of law I ever wanted to know when I hadn't prioritized that to them.

They were trying to run a business and I helped them run a business. The fact that I hadn't learned what I needed or wanted to learn, that was on me. That's when I made the conscious decision to invest in myself. And April, it really was as dramatic a switch as I'm making it sound here. Four and a half years of my career, zero priority on my passion, learning the law. That day everything changed.

The way it changed is, first things first, desperate times call for desperate measures. And I had a big gap between what I could do and what my resume said I could do. To solve that gap, I applied that day to the graduate tax program at University of Denver. Because I needed to be spoon fed tax law as quickly as I could. But as soon as I showed up in that program, what happened is I realized I had made the right choice in making this the focus of my career. Because I forgot how passionate I was about the law about learning and growing.

Because now I'm sitting there in this class and they're feeding me the law and every day I am going to bed, a little bit smarter than when I woke up in the morning. And I'm saying to myself, this is what attracted me here, this needs to be the focus. Then the second thing is, I'm listening to these professors and I finally know what I want to be in my career. I don't mean a professor, even though that's a great gig as well. I just wanted that substance.

I'm listening to them cite case law from 50 years ago, off the top of their head and reference private letter rulings down to the final digit. And I'm saying, I want to be able to do that, because one, that's where my passion lies, but two, I'm guessing if I can have that substance, I will never have to have this horrible feeling again of feeling like I can't deliver what I should be able to deliver.

That just set me on the right track, but it didn't solve all the problems, obviously. This decision to invest in yourself, it's got to become a career-long process. I graduate from the program. I felt like the program really helped me bridge that gap, but I knew the process was just starting. Coming out of the program, the one thing I know for sure is that, yes, my one true passion in this industry is to live in the law. Let's be honest, we can argue about it, but you said in your intro. If you truly love working in the law all day and solving complicated problems for sophisticated clients, one could argue there's nowhere you can do that at a more regular level than National Tax group for a big Four firm.

That was my dream job back in 2005, when I came out of DU, but it was never possible for me. The reason I say possible is because, look, if we had all the time in the world, we'd be talking about not just pursuing your passions professionally, but also personally. I am a guy that has a lot of passions from a personal perspective. From the time I was 16-years-old, I knew that I was not going to be a happy adult unless I lived in a mountain town where I could be on skis, 70 days a year and riding my mountain bike another 250 days a year. It had to be that way.

When I graduated in 2005, I was already laying the groundwork to move up to the mountains of Colorado in 2006. At that time, if you were going to work in Big Four National Tax, you had to physically sit in DC. It's something I never even sent a resume, never even applied for. Because I knew that even if I were happy professionally, if I were miserable personally, it wasn't going to be a winning formula.

What I did instead was I took a job at a wonderful regional firm called Withum. And they were so wonderful, in fact, that they let me work remotely at a time where remote work was not really prevalent within our industry. But they let me work from Aspen, even though they were an East Coast firm. But we finally get now to the lesson, how? How do you connect with your passion for your industry? Knowing that my passion was learning the law, now starting at a brand new firm. I don't have anybody spoon feeding me tax law every day. How do I unlock the secret to a happy career? That secret is not really a secret. You want a happy career, do more of the work you love and less of the work you don't.

How do I get my hands on this type of work I love and the decision that I made. There are people listening who are at that crossroads right now who may have to say, it sounds like a lot of work, but I get it. Maybe it's time for me to make that decision as well to invest in myself. Was that if I can't bring myself to Big Four National Tax and do the type of work I love, I am going to find a way to bring the type of work I love to me. I realized that the responsibility is mine to show this new firm that I'm passionate about working in the law and that I'm capable of working in the law.

Part of that happens obviously on the job. Part of it happens by doing diligent research and coming up with good answers and thinking outside the box. But I knew that I needed to really prove to everybody where my passion lies so I could get more of that work. What I did, and this was the thrust of our AICPA class, is I instituted this three-step process that I had been using for the last 20 years and just repeating over and over again, and it has served me better than I ever could have dreamed. But what I did was Step 1, I'd say, I am going to learn everything I can about some narrow area of the law.

I would pick an area of the law, usually one that I found that the industry was struggling with. What I mean by that is we all know there's certain things we do in the tax world that all of us do, and we apply it all the time for our tax returns. We never truly understand why we're doing what we're doing. That was back to what we said earlier, the same as last year's stuff. Perfect example would be allocation of partnership liabilities under Section 752. We all fill out a K-1 on a 1065 and allocate recourse and non-recourse liabilities. But how many people truly understand what makes a liability recourse and non-recourse or how those liabilities should be allocated?

I would say, Sec. 752. I am going to learn everything I could about 752. This is a part people don't want to hear, but it would happen outside work hours. I would read the code, I would read the regs, I would read the editorial content, I would read the key cases and the rulings and things like that. And I would read and re-read and make notes and do outlines until I felt like I understood what it was I was reading. Then I would move on to Step 2. Step 2 is, how do I cement this knowledge? I would sit down and say, if I truly understand all that stuff I just read, I should be able to explain it to other people.

I would sit down and I would write up everything I just read. Try to re-package and re-purpose the law in a way that would make someone who read what I was writing understand. Maybe some of your listeners know that later and we'll get into this, I would go on to write for more national publications. That's not what I'm talking about here in 2006, April. I didn't have a platform. When I say I'm writing about the law, I was quite literally putting together an email for my firm's tax department that absolutely nobody asked for. I would summarize 752. I would put together a PDF decision tree and flow chart and show how we should be allocating things.

I was doing it for two reasons. The reason I like to tell people is I wanted to help my firm understand 752. But the true selfish reason I was doing it is because I wanted to understand that law, and I wanted to show everyone else that I understood that law and that I was passionate about that law. I would send out this email to my firm's tax department explaining 752. Going through that process of writing it up really did cement that knowledge for me because I had to think about the law in a different way from reading it to say, how do I now explain it?

April Walker: How did they react to those emails?

Tony Nitti: You could almost hear the eyerolls in the system. You can almost hear, who is this kid? What is he doing? I wasn't even a kid at that point, I was near 30. Here's the thing. We're going to talk some life lessons here, but I was talking to somebody after the presentation at AICPA. Sometimes the key to success in any career is just being willing to do the thing other people won't. What I mean by that is those books, the code, the regs, we all have access to them. What I was doing is I was diving in and saying, I'm going to figure out what they say and what they mean. Other people probably rolled their eyes when I would summarize law that nobody asked for. But you know what those same people would do when they had a 752 issue? Who were they coming to?

April Walker: For sure.

Tony Nitti: Well, the only other option was to open the books themselves.

That's what I mean about doing what other people won't. That's not everyone's priority and I'm not here to say it's right or wrong, but the reality is when I showed people that I'm willing to open the books, I started to get that work because other people aren't. Not everybody, but there are just people who say, I'd rather just push it to someone who enjoys that stuff and that became a common theme of my career where people come to me and say, I know you love this research stuff, so I'm going to give it to you. You probably give it to me because you don't want to do the research stuff. That's fine by me because I do want to do it. I do want to do this work. To your point, there are eye rolls, but those eye rolls, I'm sure, were the same people who'd say, I got this question. I know this dude seems to care about this stuff. I'm going to go to him and let him answer it for me, which is exactly what I was hoping for. After that writing step, I would go to Step 3.

Step 3 was the uncomfortable step. Because as much as I enjoy writing, and I know this sounds strange because we're doing a podcast about a presentation I gave, but speaking in public, not for me. We're going to talk more about this later, but terrifies me. And I would go into my partner's office, and I'd say, you see that email that I sent around about 752? I need to teach it. I need to teach here at the firm - some lunch and learn local office or the firm's annual update, but I need to teach it. Why would I ask to teach if I was terrified of it? It's because I was terrified of it. Because if I want to know that law, there is no greater motivator than fear. If I'm going to stand in front of a room full of my peers or some people who've been practicing 20 years longer than me, I was really going to make sure I understood that law really well.

To this day, I don't give a presentation that I don't walk around my house and rehearse to air, just to time it out, to make sure I'm comfortable with the transitions, to make sure I know the law. Because that fear still exists from a public speaking perspective. I would go through that process, and by the time it was done, by the time I was done handling that fear and speaking in front of -  these are tiny rooms. These are my firm. These are not strangers to me, but by the time I was done, I would say, that area of the law, that is in my back pocket. I feel like I know that well, and more importantly, my firm now knows that I know that well.

All those questions are going to come to me. I would just repeat that process, every year, not every year. I'm just repeat it over and over again with deducting accrued liabilities or 263(A) or prepaid expenses. I would just repeat the process if the firm. Read about it, write about it, teach about it. The more I'm doing it, the more they can see where my passion lies and that I'm capable. To the point where 2008ish, the firm decides to launch its version of a National Tax Group and in addition to our mutual friend Brian Lovett, who's still at Withum, and I get to be one of the founding members of that National Tax Group. Now all of a sudden, I have brought national tax to me and my passion is much more of the focus of my career. As I said, that's the recipe, right? Do more of what you like and less of what you don't and that's what I'm getting now as a return on my investment.

That's where the proactive decisions I made to help improve my career, that's pretty much the end of them. From there, it's just life has taught me because now you get to 2008, April and my career is going really well. I'm doing the type of work I love to do. Personally, I am living in Aspen and like I said, I'm on skis 70 days a year. I'm living on my mountain bike all spring. Life is good.

April Walker: That's when life smacks you in the face.

Tony Nitti: Exactly. That's when the headache started, and I'm your audience with the entire story, obviously. But after one particularly brutal race in Aspen, I was rushed to the emergency room with a terrible migraine-type headache. But I imagine more intense than most migraines because eventually, what they would figure out, it took a little bit of time, was that I had an aneurysm in my brain. Most people know somebody impacted by brain aneurysm and those stories typically do not have happy endings. The reality is once an aneurysm leaks blood into the brain cavity, 70% of people are dead by the next morning. As my surgeon so eloquently put it, of the other 30%, half of them will wish they were by the next morning because they're permanently disabled. This is something where I went from thinking I was invincible at 33 years old to absolutely certain that I was going to die. The only reason we bring this up here is because I had to face my mortality, and I had to go in for 8 hours of surgery to save my life. I had that morning to lay on that metal table before they wheeled me in for the surgery. They were very clear about the risks.

There's a 5% chance I go into vasospasm and I never wake up. There's a 15% chance if I wake up, I've got memory problems, right side of the body problems, cognitive deficit, and that's terrifying. Laying there that morning, I know it sounds cliche, but looking back at 33 years I'd spent on the planet, I wasn't spending any of that morning regretting the things I had done that maybe didn't go the way I wanted him to do. I was spending the time regretting the things I had said I was going to try, but I hadn't tried yet. It was eating away. Like, I thought I had so much more time, and now the prospect that either I don't wake up or I wake up a different person and I never get to find out some of those things about myself. It was not something you ever want to have to face. That the tomorrow you thought you had may never arrive. Now, obviously, I had a good surgeon.

April Walker: Given that that was in 2008?

Tony Nitti: Yeah. Doctor Jefferson. He fixed me right up. I knew within 48 hours that all the Simpsons references, all the code sections, they were all still in there. But I did come out of it a changed person. Not cognitively, necessarily, but I came out of it saying, I'm going to live the rest of my life slightly different than I did before, starting with the fact that I'm leaving no stone unturned. This is what we were talking about earlier. Anything I've been curious about - personal, professional, could I be good at it? Would I enjoy it? I am going to find out. I'm going to say yes, because I just want to know. It started simply enough. I wasn't even in my professional capacity, like silly little thing. I spent my whole childhood saying I wanted to learn how to play guitar. I never bothered to learn guitar. I had a year, basically year it took me to recover from that surgery before I could get back to my normal life, and I spent that year playing ten years worth of guitar. But what happens is you realize, I love this. I thought I would enjoy it.

Tony Nitti: I do enjoy it. I shouldn't let other things slip past me like this. I should try everything. Within my career, it's now 2009, and I've made partner at Withum. There's no impetus to try new things in my career. I've gotten the last promotion I'm never going to get. But that's not what's driving me at that point. What's driving me is this primal realization that, life is fleeting and so I'm going to go find out whatever I want to find out about. We go back to how we started this conversation. Growing up, the only thing I ever thought I would enjoy was being a writer. I had been doing those emails to my firm, but I never tried anything bigger than that because I just assumed I didn't have the ability. What bothered me after the surgery is I never even risked it enough for someone to tell me I wasn't any good. I just decided it for myself. I said, look, I'm never going to write the Great American novel. I'm not that talented, but they say write what you know and I know some things about the tax law.

April Walker: Sure.

Tony Nitti: I said, I just want to find out. I want to find out what I'm capable of. The next time I went through that three step process, it was about a court case that came out on S corp reasonable comp. I said, well, this time, even though no one's pushing for it, no one at my firm cares, it's not anything anyone else values, I'm going to find out if I can get this thing published externally.

I wrote up the entire case history of S-Corp Reasonable comp for The Tax Adviser. I wrote and rewrote and I edited, I reedited and I eventually submitted it for publishing and they published it as a feature article. What I had learned in that process was not that I was a talented writer, but that I was as passionate about it as I thought I would be. I loved it. I love the process of trying to explain the law to somebody else in the hopes that the light bulb goes off and they go, I never understood that before, now I understand.

Of course, I looked from a selfish perspective having to learn the law that well, to read all of the cases that had ever been settled. It was just a really gratifying process, but the problem is, my firm's not paying me to sit around and write articles all day, so it's a bit of a bummer. Because I had done it, I loved it. But how do I get to do more of it? This is where the worlds collide between leaving no stone unturned, but also investing in yourself. Where the article, it went well.

Tony Nitti: It went well to the point where The Tax Adviser asked me to write a couple more articles, and I did. Then what happened is just if you invest in yourself, I firmly believe good things happen. You get a return on that investment. CCH reaches out to my firm and they're like. Hey, we see this writing this kid's doing, it's pretty darn good and we need someone to co author a treatise on consolidated returns and we'll pay your firm for six months of his time if he can contribute a bunch of chapters to this treatise.

Tony Nitti: My firm comes to me and says, CCH wants you to write a treatise on consolidated returns, you want to do it? Like any rational human being, every instinct in my body said, absolutely not. Why would I want to write a consolidated returns treatise, it's terrible. It's the worst area of the law. But the point is, who am I to say no? I'm passionate about writing. I want to be challenged, and it's just this idea of leave no stone unturned.

I'm going to write it just to see if I can write it and to see if good things come of it. Now my firm is getting paid for me to write, so they allow me to do more of the type of work I'm passionate about. I got to write that treatise, which is probably the last time I thought about a consolidated return. But it just things snowballed. From there, April and now the editor at Forbes, Janet Novack, she's reading my writing. She reaches out to me more than day. I'd never met her, or heard her.

She reaches out to me and says. Hi, I like your style of writing. Would you move your platform over to Forbes? For a regional firm like Withum at that time, the exposure was tremendous. Of course, we'll do it and so that's how I land at Forbes, where now anyone who ever read anything I wrote on Forbes, I'm not making up this three step process. Because the entirety of my writing on Forbes, for the most part, was this, like trying to explain complicated areas of the law. There was that whole Tax Geek Tuesday.

That's all it was. Breaking down things that no one was insane enough to want to write about because it's so dry and so complicated, like opportunity zones or 263 A or whatever it may be. Now all your listeners know my deep dark secret, which is it may have looked like I was doing all that writing because I wanted to help the industry, which obviously I'm joking. Obviously, I did. But why else was I doing it? Because I wanted to learn that stuff. I wanted to build that expertise and hope that it would pay off.

One of the things we'll finish with in a couple of minutes is how that ended up paying off with my dream job. But even at that point, even with the writing, and this comes full circle to how this class came to be for us because of what happened in Engage this summer. But at that point, we're talking 2011. I've never done public speaking. Outside of my firm, outside of a lunch and learn, I've never stood in front of a room full of strangers and taught.

What happened was you do enough writing, eventually, someone's going to come to you and say, you're decent at explaining a tax law, wouldn't you like to try it, like in person. So you don't have to trust that someone's going to read your writing and understand it all, first try, things like that? My friend Mark Friedlich at CCH approached me and said, "We do this conference every year. Come speak at the conference.".

Again, every fiber of my being said, Mark, absolutely not. Because I am someone who has got more than my share of social anxiety. I just do, I'm an introvert. There's a reason I love having my nose in the books. The idea of standing in front of a room full of strangers, it terrifies me to this day. I just learned to deal with it a little bit better.

Then, of course, there's the impostor syndrome that comes with it. I'm like, why would anybody want to listen to me? There's so many people who know this stuff better than I do. I said, "Mark, it is not for me." Because as much as I always knew I would enjoy writing, I knew I would hate public speaking. He just said, "Look, just give it a try. What's the worst that could happen?" Eventually he's right. Who am I to say no to this?

The whole point of this second act I'm getting in life, is say yes, find out what you're capable of, find out what you might enjoy. I flew to Arizona, April and I did 90 minutes on the tax consequences of foreclosures and short sales. That tells you.

April Walker: That's very specific.

Tony Nitti: It's 2011. This is where it's getting real for the crash and so everybody's dealing with foreclosures and short sales. I went in there and I talked for 90 minutes, and let me tell you, it was every bit as awful as I thought it was going to be. But when I walked out of that room, I knew my goals in my career. I knew my passion in my career had changed, had evolved. Because I walked out of that room saying, I need to do more of this. But why? If it was so terrifying, why?

Because it was so gratifying, Just to have even one person come up to you afterwards and say, "I struggled to understand that now. The light bulb went off. I get it." This desire to communicate and help other people and explain the law in a way that people can understand. It's fun to do it in writing. Maybe not that efficient. You have to trust that they're going to read the whole thing, not have any follow up question. But with speaking, I could read their faces. Are they following along?

Do they look lost or are they tilting their head to the side like my pup Maggie does in some futile attempt to understand what I'm saying to her? I'm like, I'm not built for this, but I need to do it. For me to be the best version of myself, the happiest version of myself in my career, I need to do this thing regularly that terrifies me because the reward is so great.

That ability to repackage and repurpose the law in a way that connects with other people in the industry. Of course, the byproduct of learning it so well. If I'm going to stand in front of the room and talk about foreclosures and short sales, that's another thing I'm going to get to add to my quiver as far as areas of expertise.

It's funny, because like I said, growing up, I knew I'd be passionate about writing, and I was. Knew I'd be terrified to speak publicly, and I am. But I'm just as passionate about it now as I am the writing. One final story to just tie everything together and just show you how. Look, I don't know. Maybe my experience is unique. Maybe we need one of those things to run on the bottom of the podcast that says. What is it? Past performances are not  indicative of future performances?

April Walker: Future yeah?

Tony Nitti: I don't know. Maybe it's just unique, but this right place, right time. The rewards I've gotten on the decision to invest in myself from Withum's willingness to create a national tax group, to Forbes noticing my writing and bringing me on. Just the little things that have impacted the course of my career. It's remarkable because listeners out there, especially the younger variety, they're going to think it's these big decisions that I stress out about that are going to impact the course of my career. Which job do I take or what area of the law do I focus on? But my goodness, it's sometimes the smallest things.

What changed the course of my career was a decision in 2013 to waste my Thanksgiving weekend. Because 2013, right around this time, the IRS issues regulations under 1411, the net investment income tax regs. I didn't want to necessarily spend my Thanksgiving weekend learning about those regs and writing about them, but it was new. I love writing about new stuff. I love trying to explain to people how to read [how the] law works and so I said. I'm going to sit down and go through the three step process, at least the first two.

For now, I'm going to learn about it, I'm going to write about it. I wrote about the net investment income tax regs. It was no different than any other article. There's nothing special about it. The only thing that was special is a couple of days later, I get an email from the attorney at the IRS who wrote those regulations.

April Walker: Spoiler.

Tony Nitti: Felt encouraging. He just reached out to me to say, here's what you got right. Here's what you got wrong. I want to send a unified message out to the people. You know [David] Kirk, so there's probably some expletives thrown in there.

April Walker: Absolutely.

Tony Nitti: I just thought, that's so admirable that this guy would take that level of ownership over his work. Dave and I would become what I would loosely call friends. I think we met in person once at National Tax, but other than that, we maybe connected once a year for the next decade. But the point is, this return on investment, that decision to write that article would change everything. Because 10 years later, Kirk is not at the IRS anymore.

Now he's at EY running one of the National Tax groups, and one of his partners is retiring and unbeknownst to me, he's been keeping track of my career the entire time and he's seeing this investment I'm making in myself. He's seeing my passion for learning the law and whatever small ability I might have to explain that law to other people. He's saying. That's the guy I want. He's going to his bosses and saying. This is the person I want to come in as the new partner in EY National Tax.

In 2021, he reaches out to me. And I was working for an amazing firm at the time, Rubin Brown, and I loved my job.  But he reaches out to me and he says. Come work with me and work in this National Tax group. The opportunity, obviously, to work with Dave Kirk is pretty much all you need to hear. But of course, me being a pain, the first thing I say is, do I have to move to DC?

Now, this is the benefit of the post pandemic world. We can do this remotely from Aspen and so he's offering me my dream job, April. What's amazing about that is I spent a couple months agonizing over that decision. I very nearly turned it down. Why?

Because, honestly, I was scared. I couldn't do it. It was back to almost that feeling of being a fraud again, but just feeling, I don't know. This guy has forgotten more about the law than most people know. And I had that impostor syndrome kick in again. Can I do it? Am I capable? Who knows? Maybe I'm not and the firm has just been lying to me for the last three years.

The point is, I almost didn't take it and then I sat down and said, hold on a second. What is it that makes you not want to take this job? I'm scared because I think I might have to learn a lot to be able to hang.

Then I'm like, wait a minute. What is it you're most passionate about in your career?  Where you're forced to learn a lot so that you can hang? Finally, it just became obvious to me that I had to take the opportunity because this was my dream. My dream to just live in the law all day, every day, and it came about in the most bizarre fashion.

April, I didn't submit a resume because it didn't mesh with my personal goals. But then this decision to invest in myself, which eventually led to Forbes, which got me in front of Kirk. It's just crazy. Crazy to think how it all unfolded. The message for someone listening out there, is I was no kid when Dave Kirk called me.

I was 45 years old. 45, to land my dream job in this industry and patience is certainly a virtue. The bigger virtue is just understanding some of the things we talked about here today. Which is, look, no one wants to hear this. The easy way out is to say, I'm in a bad situation, no one's treating me fairly. I'm not learning what I want to learn.

Look, there are bad situations out there. Like I said, if you're in one, it's pretty easy to move. Problems are going to follow you even to good situations, if you don't take ownership over your own career and if you don't say at a certain point, it's no one's job to make me the professional that I want to be other than myself. That's not easy. It comes with a lot of extra work.

You think I wanted to be reading Bittker & Eustis on the beach on a weekend back when I was fielding materials a lot? Of course, I didn't. The BNA portfolio at night? No, but I was making an investment in the hope that it would pay off. The way it paid off, like I said, was doing more of the type of work I love, which is all you can possibly ask for.

It's not an easy thing to communicate to people - as much as we work in this job, sometimes you have to you go above and beyond to show people what you're passionate about and that you're capable of handling it. If you don't show, no one knows and you can just get lost in the shuffle and end up being that person we talked about that's doing the same tax returns five years in a row and not growing and not learning.

If you haven't shown people that you're not content with that. If you haven't shown people where your passions lie, human nature is such that firms of any size are just going to say, April just keeps doing what we ask for every year. We're just going to keep asking her to do it.

April Walker: I think that's great. It's funny when you were starting to tell your story about that you hadn't learned anything. I had a question in my mind, like, don't you think that's partially the firm's responsibility that they hadn't invested in you to send you enough trainings or things? Then you answered the question. That's a personal responsibility thing.

Tony Nitti: Perfect example of that. They did send me to trainings. I can remember most of those trainings, and everyone knows someone like this. Being the guy who spent half of the trainings outside the room, doing work for my senior or my manager back in the office because I didn't value the training.

What I valued was getting promoted. If my senior manager said, I need you to do something right now, even though I was at a training at St. Charles for Andersen, I was going to walk out of that room and get that work done for them.

Everybody wants a villain. Life is always easier with a villain. PWC was no villain. Because it's not like I asked them to teach me and they refused to. I showed them what I valued and they rewarded that. If I only valued promotion, they gave me promotion.

Since that point in my career, when I showed my employers that I valued the type of work I love, I valued being challenged, I valued living in the law, I have gotten rewarded with more of that type of work. I refuse to believe my experience is a one-off, that it's completely unique. I definitely got some very lucky breaks at some key points in time.

Then I got dealt a harsh lesson that I wouldn't wish upon anybody. I don't want anyone at 33 years old to have to face their mortality. But that was an impetus to say, I got to find out more of what I'm capable of. And that opened up doors that I never dreamed, April, that I would spend as much of my career doing.

When I say passionate about my love for writing, I just never thought it would even be an option in a career in tax. Then it ended up being a huge part of what I did for so long. I refuse to believe that that's unique to me. I think that anybody who says, I'm willing to do what the other person isn't. I'm willing to get into these books, learn what they say, show people that I care about what they say, and that I can communicate them to other people, that really good things are going to follow.

April Walker: Writing might not be your passion, but I think the message today, as we're wrapping up, figure out what that passion is. It doesn't matter how old you are. You can try to figure it out and do more. I just read this book that was talking about -  do the next right thing. The big picture might feel huge and scary, but just whatever the next step is, just do the next right thing.

Tony Nitti: The way I've always described that too, April, is you shouldn't at any point in your life be finished finding out what your passions are. That's the whole point, is you should be a fundamentally different person at 35, that you're at 25 and 45 that you're at 35. You should be saying yes to opportunities that help you unearth new passions and new things that you are capable of doing.

Because like I said, there is no scenario, and people who know me well know what I mean, where I should be making career out of public speaking, doing as much public speaking as I do. It is so foreign and uncomfortable to me. But I look past that, because I'm passionate about it and so I find a way to make it work through truly ridiculous levels of preparation.

April Walker: Some might say you're good at it. I'll give you a little spoiler. Your two sessions were the top rated at National Tax, so there you go.

Tony Nitti: Now, you have to edit out earlier today when I said, we're doing this without the safety net of the evaluation.

April Walker: I didn't want to tell you in advance.

Tony Nitti: See that. Again, but that is proof that anybody, if I can make any career out of public speaking, anybody can. That's why you got to try. That was the thing at ENGAGE that started all this, is when we were just talking about say yes to opportunities because you know what, if you are as bad as you think you're going to be and you hate it as much as you think you will, you haven't lost anything. You just go back to not doing it anymore, but you might unearth new passions that move the goalposts on what you need out of your career. That's a goal in life to keep growing and keep finding things that really drive you. Hopefully, April, something we said resonates with the listeners, but I guess we'll find out.

April Walker: I hope so too. This is our last podcast episode of the year. You can listen to it at the end of the year. I used to love your resolution articles. I think that was a Forbes thing. I love these articles. I miss those articles and people come up to you still all the time and are like, I really miss those articles.

Tony Nitti: What's funny is the last thing I ever wrote for Forbes was one of those resolution articles and I don't know. Maybe I wrote 200, 300 articles for Forbes over the 10 years, but the last thing is my favorite thing I ever wrote because it had absolutely nothing to do with tax. I had to do with my pup Macy.

April Walker: I know.

Tony Nitti: You knew well and Macy was on her way out of the world at the time and just to be able to even have a platform to write about my pup, that is still the one thing I've ever written that I go back and read. I don't hate this. I don't want to change anything.

April Walker: That's good. Thank you so much, Tony. This was so fun. I know our listeners will enjoy it. Also, again, thanks a bunch. 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 podcasts and we encourage you to follow us so you don't miss an episode. If you already follow us, thank you so much.  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. Thank you so much. Have a wonderful holiday season and come back and 2025 is going to be an exciting tax year. I just feel it. Thanks 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 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.

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

Annual Tax Compliance Kit — Engagement letters, organizers, checklists and practice guides help you manage your tax season workflow.

Say "I do" to engagement letters — Uncover the importance of establishing parameters of client relations and detail the scope of services to be provided.

Other resources

Frequently Asked Engagement Letter Questions — 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 not be afraid to openly discuss what might happen if things don't go as planned. Now, this doesn't have to be a doom and gloom or threatening conversation. But, hey, I need your help here to make this go smoothly and if I don't get your help, here's what the downside to you client might look like. I would hazard to guess that outside of a small population of clients that repeatedly get fired by their professional, most clients don't think about the prospect of what might happen if they don't hold up their end of the bargain.

Talking about client responsibilities openly and soberly and what happens if the client doesn't support the work might help make this prospect not so remote. Because unless the client just doesn't care about their taxes, and those are out there. I have to believe most clients do not want the prospect of either paying some unexpected amount on the due date or trying to find assistance at the last minute. If you think about it, a lot of client angst really revolves around those two items, paying more than expected or necessary and having the government come back and stress them out later. Use that and have an honest conversation with the client about what they need to do to avoid either of those outcomes. Then make sure it's in your engagement letter.

April Walker: Like I said, our conversation today boils down to communication and so I think those are good thoughts and good conversations to have. I mentioned it earlier but you and I are both in the public accounting world, and we're aware of the pressure that you can face with client demands and deadline demands and all of that. What do you think - do you have to balance that, with the need for thorough quality control? What are some of your thoughts around that question?

Michael Reese: I'll challenge it a little bit just because.

April Walker: That's fine.

Michael Reese: I don't want your listeners thinking that they need to make a choice between quality control and something else. You and I both know when the clock hits the week before deadline, ten, 11, 12th, a lot of things start getting squishy, I guess, maybe is the best way.

April Walker: Squishy is a good word.

Michael Reese: You got hard rules all of a sudden those rules get a little squishy. The term balancing may give some the impression that if one end is weighted more heavily, the other one is up in the air. Practitioners shouldn't view the quality control as optional if their reputation is built on doing quality work.                                                             

I think most if not all practitioners would say that's the case. I want to look at both parts of your question, thorough quality control and deadline pressure/client demands. Now, the most obvious answer to me for dealing with the pressure of a tight deadline and client demand is to not have deadline pressure or client demands. I know. Before I get laughed out of the room, I've had my share of deadline horror stories. We all have. The concept really isn't that outlandish. I'm starting to see a lot of evidence slowly, but surely practitioners are challenging that default notion that tax due dates have to be this pressure filled exercise that makes you wonder or question, why do I put up with this every year? If you can create optimal work conditions, that's a huge win rather than simply accepting that there's no alternative and suffering the consequences.

 For those that aren't fully to a stress free deadline yet, and I know they're out there as well, your quality control, whether that's informal or it's a 50 page document that no one reads or refers to, it needs to be designed in a more intentional way. To me anytime you talk about quality control, I think you have to look at your process and your process design. Then you have to look at the people integral to the process, including the client. A lot of process is iterative, organic, reactive. When that happens, there's no design, there's no intentionality. You're just patching holes as they appear or responding to the latest impetus.

On the other hand, when there is design, sometimes we fall into the trap of designing to a best case scenario instead of a worst case scenario or realistic scenario. Mistakes happen all the time, but I don't think it's far fetched or controversial thing to say that in periods of high stress and pressure, the likelihood of a mistake is higher.

When I say process design requires intentionality, I'm really trying to highlight that the design needs to operate from the base assumption that the players involved aren't always going to do things in a rational, uniform or expected manner.

The question is, can your process for quality control withstand the sheer hysteria of those last days before the due date? Because if it can, you're not really balancing quality control or sacrificing quality. Your system accounts for the insanity as a given and then responds appropriately.

For those that have QC in place, I want you to ask yourself, are they rules or do they become suggestions in the face of competing interests? Do they become squishy, as we said before? Is it easy to rationalize an exception to the rule on April 13th compared to January 13th?

Part of this depends on what habits you have as a professional. If you have strong habits, the answer or choice you make doesn't change regardless of day or situation. I think the last thing I want to say about QC design is often practitioners are challenged because they don't know what they don't know, and that is a real and legitimate hurdle. We completely understand that.

We get a lot of calls on the risk management hot line where practitioners have never had to deal with this before and I get it. You can't design for what you don't know. But that's where I think you tap into your professional network, attend conferences, like National Tax Conference, where you and I will be and understand what resources are available to you, whether it's a tax section or your insurance carrier or your state society. There's tons of ideas out there, maybe too much, but there's nothing that says you have to keep doing it the same way and expecting a different outcome. I think that's called insanity.

April Walker: I particularly love that we start off talking about engagement letters, but then we circle back to thinking about a new way to operate in tax, which I do think is possible and one of my passion projects. I love that.

I just wanted to note another important aspect of quality control that in my mind, is a best practice for firms to minimize errors and omissions, and those are checklists that help you consider, have you addressed these key issues and making that not just a rote check.

It's a real part of your procedures and really stepping away and making sure you have a process for all of the things. Making sure you have a process for getting your signed engagement letter before you start your work, making sure every return has some review procedure.

Even if you're a very small practitioner you should have some kind of [review process]. Is it stepping away for a period of time before you look at the return again or something like that. Speaking of the checklist, they will be available soon in mid December as part of the annual tax compliance kit. Look forward to those.

Thank you so much Michael for this discussion today. I think it was a good one and hopefully a educational one for our listeners. In closing on these podcasts, if you're a listener, I hope you are. You know that this next question is coming and so it's Tax Section Odyssey we're taking a journey together towards a better profession.

In doing so I like to hear about my guest other journeys outside of tax. Talk to me about something that's on your bucket list or a recent trip you've had, something that you've got on the horizon.

Michael Reese: I have not had any recent trips, but I do have an upcoming trip next month and then I will give you a bucket list one as well because I'm always happy to talk about bucket list travel. Next month and we started this maybe eight or nine years ago.  We took our daughter to Vienna for Christmas. We got away from the house for Christmas. I'm taking the family including the grandmothers. We are going to Germany to do Christmas markets. We're going to trips around Germany for about two weeks and visit a couple of Christmas markets and we'll make a pit stop in France to do some markets there. And my mother has never been overseas and so I'm really looking forward to that just reliving that child like joy that comes around the holiday season. That's what we'll be doing next month, lots of plans going into that. That will be a little bit of an odyssey as well because we'll see how well I can survive with my mother for 12 plus days. Shouldn't be an issue, but we'll see. Fingers crossed.

April Walker: Inter-generational trips.

Michael Reese: Exactly. I would say bucket list and I was talking to a couple of friends about this actually earlier this week, I would love to go to Easter Island and see the Moai and the Rapa Nui. That's a really long trip. But that's one that I think has been on my bucket list. If I can take that one off that would be really cool . I think maybe was it last month where Easter Island had the full solar eclipse? I would have loved to have been down there for that. But if I can get down there and check that out, I will definitely be in a good spot.

April Walker: Wonderful. I look forward to hearing about your trip to Germany and the Christmas markets. That's definitely on my bucket list as well.

Michael Reese: I will tell you all about it.

April Walker: 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 and mine. This is a podcast from AICPA & CIMA together as the Association of International certified Professional Accountants. You can find us wherever you find your podcast, and we encourage you to follow us so you don't miss an episode. If you already do 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 check out our other episodes and get access to all the resources, including those wonderful engagement letters 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 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.

The employee retention credit (ERC) is a new credit created in the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in March 2020 and later modified with subsequent legislation.

Tax preparers and their clients have been anticipating updated guidance on several remaining questions related to the ERC. On August 4, the IRS issued Notice 2021-49 and accompanying IR-2021-165. Further, on August 10, the IRS issued Rev. Proc. 2021-33, which provides a safe harbor permitting employers to exclude certain amounts from gross receipts solely for purpose of determining eligibility for the ERC.

Notice 2021-49 provides guidance on the ERC provided under Sec. 3134 of the Internal Revenue Code, as added by Sec. 9651 of the American Rescue Plan Act of 2021, and applies to qualified wages paid after June 30, 2021, and before Jan. 1, 2022. The notice amplifies Notices 2021-20 and 2021-23 with additional guidance on claiming the ERC in the third and fourth calendar quarters of 2021 as well as guidance on several miscellaneous ERC concerns.

In this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, Association of International Certified Professional Accountants, representing AICPA & CIMA, and Kristin Esposito, CPA, MST, Director — Tax Policy & Advocacy, Association of International Certified Professional Accountants, representing AICPA & CIMA, dissect the latest guidance.

What you’ll learn in this episode

• Are wages of >50% shareholders and their spouses are considered qualified wages? (2.25)
• The calculation of gross receipts and a discussion on how Paycheck Protection Program (PPP) loans and other COVID-19 relief programs are incorporated (3.56)
• Are cash tips considered qualified wages? (5.25)
• The use of full-time employees or full-time equivalents in the determination of whether a business is a small or a large-eligible employer and the period for this calculation (5.53)
• Timing of the wage deduction disallowance (7.11)
• Determination of eligible employer status clarification for the 2021 credit (9.06)
• Recovery startup business overview (9.58)
• What is a severely financially distressed employer? (11.55)
• Potential legislative impacts to the ERC (13.27)

AICPA resources

• Employee retention credit guidance and resources — The ERC is an important of the COVID-19 relief legislation for small businesses. This library provides the ins and outs of calculating this credit.
• AICPA Town Hall Series — Bi-monthly, high-impact news broadcast series that delivers the latest news, analysis, insights and practical guidance to accounting and finance professionals and responds to pressing issues facing the profession
• Challenges with contingency fees and the ERC — Explore the prospect of contingent fees for ERC work and how regulatory rules govern its usage with the AICPA’s April Walker and Ed Karl on this Tax Section Odyssey episode from June 2021.
• What to know about the 2021 ERC before April 30 — On this April 2021 Tax Section Odyssey episode, Jan Lewis, CPA, with Haddox Reid CPAs & Advisors, reviews the latest ERC guidance and important information to help your clients benefit from this credit.
• PPP and ERC in 2020 — This Tax Section Odyssey episode from March 2021 reviews the IRS Notice 2021-20 and highlights what you need to know about the interaction between the ERC and PPP.
• Breaking down the employee retention credit – This February 2021 Tax Section Odyssey episode contains a deep dive on the calculation of the ERC.

Other resources

• FAQs: Employee Retention Credit under the CARES Act — IRS answers to frequently asked questions on the ERC
• Rev. Proc. 2021-33 provides a safe harbor that permits a taxpayer to exclude certain items from “gross receipts” under Sec. 448(c) and Sec. 6033, as applicable, solely for purposes of determining eligibility to claim the ERC
• Notices 2021-20 — Guidance for employers claiming the ERC for calendar quarters in 2020
• IRS Notice 2021-23 — Guidance on the ERC under the CARES Act for the first and second calendar quarters of 2021
• Notice 2021-49 — Guidance that amplifies Notices 2021-20 and 2021-23 by providing additional guidance on claiming the ERC in the third and fourth calendar quarters of 2021.

Note: If your podcast app does not hyperlink to resources, visit https://taxodyssey.libsyn.com to access show notes with direct links.

This episode is brought to you by the AICPA’s Tax Section, your home base to maintain your professional edge. To learn more about the Tax Section, check out aicpa.org/tax or sign up for a free web tour.

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

Employee retention credit guidance and resources — A library for comprehensive guidance, essential tools and the latest news on the ERC.

Traction with the Tiger — 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 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.

President Biden signed the Inflation Reduction Act, H.R. 5376, into law on Aug. 16, 2022. Tax professionals must now undertake the task of quickly understanding the tax provisions, including the new corporate minimum tax, based on financial statement, or "book," income and various energy credits, which include several new credits for clean energy and fuels and clean vehicles and other transportation. The bill also extends several temporary existing credits.

On this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — AICPA Tax Section, and Kasey Pittman, CPA, Senior Manager, Washington National Tax — Baker Tilly US, dissect the tax stipulations in the new tax and climate legislation.

What you’ll learn in this episode

• What’s in the Inflation Reduction Act, H.R. 5376 (1.35)
• 15% minimum tax for large corporations (5.07)
• 1% excise tax on corporate stock buybacks (11.12)
• Extension of the Sec. 461(l) business loss limitation (13.24)
• Clean energy measures (17.22)
• IRS funding provisions (24.14)
• A page from Kasey’s travel journal (28.33)

 AICPA resources

• AICPA comments on tax provisions in Senate reconciliation legislation released on July 27, 2022 — On Aug. 4, 2022, the AICPA submitted comments regarding important profession and tax policy issues that are in the Senate reconciliation legislation released on July 27, 2022.
• AICPA comments on the corporate profits minimum tax in reconciliation legislation being considered — On June 21, 2022, the AICPA recommended that Congress reconsider and clarify the rules associated with the proposal regarding implementing a minimum tax on corporate adjusted financial statement income due to complexity and because it may have many significant and potentially negative implications. The AICPA previously submitted a letter on Oct. 28, 2021.
• AICPA request for additional guidance and relief regarding Sec. 461(l) – limitations on excess business losses of noncorporate taxpayers — On June 22, 2020, the AICPA submitted a comment letter requesting for additional guidance and relief regarding Sec. 461(l). The recommendations address treatment of previously reported excess business losses and relief for underpayment of estimated taxes.

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.

Non-cash compensation has become more familiar in the workplace, with nearly one-in-five individuals holding some type of equity. As such, taxpayers need to have the right mix of tax, financial and legal advice, as well as appropriate technology solutions, to confidently make critical decisions around wealth management. 

On this episode of the Tax Section Odyssey, April Walker, CPA, CGMA, Lead Manager — AICPA Tax Section, talks with  guest David Snider, Founder and CEO — Harness Wealth, about his mission to make financial advice accessible, intuitive and valuable using a holistic wealth platform.

What you’ll learn in this episode

• Who is Harness Wealth and its unique approach to financial planning (3.01)
• What is a “NextGen” client and why is this important to business operations? (5.29)
• How technology alters the needed skill sets for CPAs (9.22)
• Some unique characteristics of NextGen clients’ needs (14.14)
• What the phrases “financial planning” and “wealth management” really mean and how tax advisers implement these areas of practice (16.02)
• Fees and billing strategies (18.43)
• Serving clients investing in cryptocurrency (21.22)
• Important advice practitioners can offer to clients early in their careers (23.51)
• A page from David’s travel journey (24.54)

AICPA resources

• Virtual currency tax guidance and resources — Sharpen your cryptocurrency tax skills and advise clients on virtual currency tax complexities and strategies.
• Personal Financial Planning — Navigating personal finance decisions is more complex than ever. Your position as a trusted adviser in tax, retirement, estate, risk management and investment planning is critical to helping clients prepare for the future. Here's everything you need to know to serve as their primary point of contact.

 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.

On this episode (an updated version of the previous episode ERC updates & deadlines) 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

Employee retention credit guidance and resources — A library for comprehensive guidance, essential tools and the latest news on the ERC.

IRS FAQs about the Employee Retention Credit — On March 20, the IRS provided updated FAQs on income tax and ERC.

Traction with the Tiger — 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 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.

Many tax practitioners think their clients are insulated from the world of international tax issues. However, as the business environment continues to evolve globally, tax practitioners need to make sure they are taking inventory of various international tax matters. International tax policies can dramatically affect business decisions, job creation and retention and office and plant locations. Having exposure to international tax issues will allow tax practitioners to spot potential issues and provide a value-add service to clients.

In this Tax Section Odyssey episode, April Walker, CPA, CGMA, from the AICPA Tax Section and Jason Freeman JD, CPA,

Managing Member — Freeman Law, highlight the latest happenings in the current and future international tax landscape. Jason provides an avenue for CPA practitioners to learn more at the upcoming Freeman Law International Tax Symposium taking place November 18-19, 2021 and shares various AICPA resources and programs.

 What you’ll learn in this episode

• What international tax issues should a tax practitioner focus on (1.42)
• Overview of the Freeman Law International Tax Symposium (2.50)
• Why all tax practitioners need to have awareness of international tax issues (5.59)
• Jason’s advice for small practices without an international alliance option and how to find specialists (8.02)
• Potential international tax policies that could be included in future tax legislation (10.19)
• Reporting requirements for Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations (14.41)
• AICPA U.S. International Tax Certificate program (16.08)
• A page from Jason’s travel journal (18.19)

AICPA resources

• AICPA International Tax Hub — A compendium of international tax resources
• S. International Tax Certificate program — The AICPA U.S. International Tax Certificate Program provides accounting and finance professionals the competencies needed to navigate the international tax environment.

Other resources

• The Freeman Law International Tax Symposium — Join leading tax experts from across the globe on November 18–19, 2021 as they discuss tax trends that are reshaping international taxation.

 Note: If your podcast app does not hyperlink to resources, visit https://taxodyssey.libsyn.com to access show notes with direct links.

This episode is brought to you by the AICPA’s Tax Section, your home base to maintain your professional edge. To learn more about the Tax Section, check out aicpa.org/tax or sign up for a free web tour.

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):

·       Sifting through ERC questions | Tax Section Odyssey

·       ERC suspended: What happens next | Tax Section Odyssey

·       Employee retention credit and professional responsibilities | Tax Section Odyssey

ERC guidance and resources — 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.

Employee Retention Credit (ERC): Fact or Fiction? — Use this guide to educate yourself and others on common misconceptions surrounding the ERC.

Employee Retention Credit Decision Tree — 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

·       IR-2024-169 — IRS news release on June 20, 2024, discussing the next stage of ERC work

·       IR-2023-169 — IRS news release on Sept. 14, 2023, ordering the immediate stop to new ERC claim processing.

·       IRS ERC resource center — 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 not been processed. You have told them. I know the two of you have told them, no question, they need to amend their income tax return for the period of the ERC claim, and statutes either have already run or getting ready to run. Chris, talk a little bit about talking points here. What you're talking with your clients about, trying to help them understand where they are with this.

Chris Wittich: Yeah, there's definitely no good answers, and I think just being honest with the clients and telling them that upfront. The biggest thing is to discuss it with them, make sure they're aware, and then let them choose which bad choice they want to make.

But the timing of the income tax statutes, they are going to close, and especially with this recent announcement, we basically know that these moratorium claims are not going to get processed before the statute closes, lots of claims or high risk, so they're not as likely to get processed before these statutes close.

A lot of the 2020 statutes are probably already closed, 2021 will go next year. A lot of the time you're left with a choice which is pay tax, which you simply cannot afford to pay because you have not received the money, or let the statute run and potentially do it after the statute, which is not a good feeling, and neither of those is attractive.

The third common scenario is I paid my tax already, but now my claim has been sitting for 18 months and I'm worried I'm not going to get all of it. So do I push back to those same two options again, do I amend now to take the income back out? And I'm left with the same two choices of when to pay the tax or to do it late, or do I look at some protective claim to hopefully protect me if the IRS adjusts my claim down, then I want to be able to get a refund of the income taxes, which I've already paid.

I think all of those scenarios are lousy choices for a taxpayer to make. I see my role is just making sure they know all of the lousy choices available to them, and it's going to depend on their financial situation. Sometimes you simply cannot afford to pay the tax, that's just not a choice, if I'm going go bankrupt by paying the tax, I guess we're not choosing that option. So making them aware.

I think it would certainly be a consideration as to how high a risk a claim do you think they have. Some claims are based on gross receipts decline that's very obvious, and all the calculations are done correctly. Other claims are based on government orders and trying to figure out what a more than nominal impact is, and there's some question as to maybe a grouping or something like that.

Some claims are inherently going to seem like they're higher risk and making sure the clients are aware of that, and then just letting them go with one of these lousy options. I wish I had something better to tell them. It's kind of a depressing conversation to have with people, but it's one that you don't want to avoid because that is the worst outcome. Because if you don't talk to them about it.

Dan Chodan: We can't avoid it, we need to make the recommendation to the client. Here's what the rules are, you've made the claim, here's what it is. We have to advise the rules, but we can't force someone to amend either, we have to meet our duty in that and there's the reality of their situations that will come into play and their decision. But we have to do our end of things.

What will be interesting is the proposed bill that was out there to change some things on the ERC would align the income tax statute with the enforcement. There could be relief on some of this for the ones that get thrown out later, may at least not have that double whammy of inability to get the income tax back, so there may be some relief for those bad cases at some point.

But right now, before these statutes run, 2020, maybe closed, 21 is still open for sure. Those ones that could be risky, I'd have those conversations. Also on our end, if we know clients that have a shaky one, they may be in a position where they don't want to wonder what Congress will do in the future, will they give us this relief or not? They may look to get that cash back on the income tax side now and then redo this in the future as needed. But at least you can lock in if you know that you're in a really sticky spot, so that's something to consider.

April Walker: I told you that this was the section of no-good news and that's not generally how I roll. I generally like to provide bright light and positivity, but this is a tough one.

But I think this is where you need to show that you're an advisor and show your value even if you're coming with not a lot of great news. All right, as we're wrapping up, let's see, I'll start with you, Dan. Is there any final thoughts or takeaways that you'd like to leave our listeners with today?

Dan Chodan: Sure. This is a very interesting release that pushed us to have this conversation today. I think it's very telling, but also at the end of the day, we're in the same spot. The IRS has the situation where it wants it. The advertisements have disappeared. The deluge of claims is way less. It's not that they're without problems, but the IRS has been immensely successful on this already, so you got to give them some credit.

This release gives us a lot of information, but when you look at it, it means what we've been experiencing is probably going to continue. We're probably going to get another doubling of the experience we've had to this point. The fact that they say the vast majority of these show risk of being inproper just really supports what has been seen, what they've been worried about all along, and is also just echoed in the compliance efforts.

They said two billion dollars to date in compliance through the VDP, through withdrawal and enforcement efforts. That's a huge number. Not a huge number to the total of the program. But when you think about, that means that's what's been accomplished so far, so how much more is out there if that's what has been withdrawn, if that's what has been enforced to date, even with limited resources and small amount of audits there's a much bigger pool and it speaks to the fear and the risks that's out there.

A lot more to come. If there's no congressional action at all related to this program and everything just stays as is going forward, I'd be surprised. Something's going to happen in some form, even if it's not exactly what was out there in the last proposed bill. I feel like this is going to come in some way, shape, or form in the next couple of years, and the IRS will have more releases. There'll be more twists and turns on this.

More to come, unfortunately though, for those that aren't in a spot to get a taxpayer advocate referral and have a hardship claim to push this. I think you're just along for the ride until you're in that real need, unless you're going to go that refund litigation route, you're just going to have to be along for the ride here, unfortunately. A lot of other tough conversations we've been having for a while now are just going to be continuing, that we're going to have to wait and see.

April Walker: Thanks, Dan. All right. Chris, what's your send-off thoughts for us?

Chris Wittich: I would agree with everything Dan said. I guess I would just wrap it all the way back to the discussion that we had in April of 2023. I'd encourage you to circle back. In April 2023, we talked about the IRS OPR announcement. We talked through the Circular 230 issues, the SSTS issues, what are the ethical responsibilities of a tax preparer of a CPA. I would cross-reference those conversations with where we're at today.

You want to advise your client of the rules. You want to be sure you know what the IRS is saying currently. But I would cross-reference, we got this new press release, there's some new information in there. They're clearly targeting these bad claims, so what do we do about the bad claims? There's a few solutions available now, but I also need to understand my ethical responsibility. I'm sure it'll be linked, but I would go back and take a listen to that with this new press release in top of mind.

April Walker: Yes. That is exactly right. That's when we were together last to record talking about that, and none of that conversation is out of date. We're in a different place with claims, but all of that conversation is very relevant.

Now, you're not going to get out of my fun question. Even though you've been with me before, you still have to answer these questions. I like to think about us taking a journey together towards a better profession. Always journeying toward that. Chris, what journeys are you taking outside of tax? I think you're getting ready a month or so to have baby number 2. I don't want to put words in your mouth. Where are you headed this summer?

Chris Wittich: With a baby on the way, travel plans are limited. These days our travel plans consist of going to grandma's house or going to the other grandma's house. About 20 minutes in either direction is our maximum travel distance, but excited too. I'll be at National Tax in November. I'll be in DC.

April Walker: That's fun travel, and there'll be some good hotel sleeping for the tiger. Dan, you don't have the tiny little ones running around, so hopefully you got some fun travel on the agenda.

Dan Chodan: We're going to get them back to the beach this summer. They'll be really excited for that. But my favorite travel this year was a bucket list item for my wife. It was our 10-year anniversary. She always wanted to go to Nashville. Big country music fan. That was a great time. We did that. Just got back. I'll admit country music isn't all that bad after being steeped in a little more of it, so I'm coming along to it.

April Walker: Okay. It's not it's not my favorite either, but Nashville is quite a fun town, so glad you were. And that was a without-kids trip?

Dan Chodan: Yeah.

April Walker: Those are always the best. Love the kids. Love them. You all are great. But so nice to be having adulting trip. Chris, maybe one day.

Dan Chodan: Different kind of fun.

April Walker: Exactly. Thank you guys so much for sitting down with me. I think this was a great important conversation. In the next stage, I feel sure we're going to talk again, so look forward to that.

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 aicpa-cima.com/tax, and find our other episodes, as well as resources mentioned in this episode as well as linked back to other podcast episodes as we discussed. Thank you so much for listening and stay cool everybody.

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.

In June 2021, the IRS released final versions of two new international-related schedules that are being added to passthrough entity returns:

• Schedule K-2, Partners' Distributive Share Items — International
• Schedule K-3, Partner's Share of Income, Deductions, Credits, etc. — International

The new international-related schedules will be required for 2021 partnership and S corporation returns and 2021 Schedules K-1, Partner's Share of Income, Deductions, Credits, etc.

In this Tax Section Odyssey episode, April Walker, CPA, CGMA, from the AICPA Tax Section, welcomes Amy Miller, JD, CPA, from the AICPA Tax Policy and Advocacy team, David Sites, CPA, Managing Partner of International Tax Services — Grant Thornton, Kyle Dawley, JD, CPA, Principal — Clifton Larson Allen, and Tim Chan, CPA, Managing Director — KPMG, to discuss the new schedules and related past and future AICPA efforts.

 What you’ll learn in this episode

• Background of the AICPA Foreign Passthrough Reporting Task Force and its past activities (1.19)
• Summary of the September 2020 AICPA comment letter (2.08)
• AICPA recommendations that were adopted by the U.S. Treasury and IRS (3.24)
• What the IRS is trying to achieve with the new schedules (4.20)
• Timing of schedule furnishment to partners (6.29)
• Thoughts on potential postponement of the Schedules K-2 and K-3 (8.06)
• Status of form instructions and major issues that practitioners and clients need to be aware of (10.37)
• Parts II and III reporting for those with 100% U.S. source activity (14.37)
• Country-by-country reporting requirement (16.49)
• Interaction between international forms (e.g., Forms 8858 and 5471) and new reporting requirements (18.00)
• Filing requirements for entities that are not required to file Forms 1065 or 8865 (20.37)
• What an upper-tier partnership should do if a lower-tier partnership does not provide any or all of Schedule K-3 information (21.30)
• Next steps for the AICPA Foreign Passthrough Reporting Task Force (23.00)

AICPA resources

• Comments on Proposed International Changes to Form 1065, Schedule K-2, and Schedule K-3 — The AICPA submitted comments on the proposed international changes to Form 1065, Schedule K-2 and Schedule K-3. The AICPA recommended transmittal of Schedule K-3 in portions and minimizing overreporting by allowing partnerships the ability to determine the reporting needs of its partners.

Other resources

• Notice 2021-39 — The IRS announced draft 2021 instructions for Schedules K-2 and K-3 for partnership and S corporation Forms 1065, 1120-S and 8865 as well as transition relief from penalties for any incorrect or incomplete reporting on the schedules.
• About Form 1065 and About Form 1120-S — The recent developments section provides updates as Schedules K-2 and K-2 are finalized for the 2021 tax year.

 Note: If your podcast app does not hyperlink to resources, visit https://taxodyssey.libsyn.com to access show notes with direct links.

This episode is brought to you by the AICPA’s Tax Section, your home base to maintain your professional edge. To learn more about the Tax Section, check out aicpa.org/tax or sign up for a free web tour.

According to the FBI, cybercrime has increased by 300% since the start of the COVID-19 pandemic. Now, more crucial than ever, tax practitioners need to remain vigilant and one step ahead of cybercriminals in the everchanging world of data security.

Listen in to a frank discussion on cybersecurity with April Walker, CPA, CGMA, Lead Manager — AICPA Tax Section and special guest Byron Shinn, CPA, Partner — Carr, Riggs & Ingram, LLC, on this episode of The Tax Section Odyssey.

What you’ll learn in this episode

• Is a cyberattack a real threat? (0.43)
• What does a data security plan look like (3.15)
• How often should you review a data security plan (8.16)
• Cybersecurity insurance considerations (10.14)
• Attorney recommendations to help in the cybersecurity arena (13.55)
• Real-life examples of CPA firm concerns and data security plan insecurities (16.29)
• The why and how of independently testing network security (16.47)
• Example of encryption hack; ransomware and cryptocurrency (18.51)
• Lack of cyberattack reporting and high-profile cases (20.40)
• Important takeaways for cybersecurity (22.31)
• A page from Byron’s travel journal (24.38)

AICPA resources

• Cybersecurity resources — Access additional resources on our Cybersecurity Resource Center to help organizations and businesses, including CPA firms, assess risks.
• Best Practices for Keeping Client Data Secure — Learn about proactive data security tips for practitioners to implement to keep client data protected from identity theft.
• Gramm-Leach-Bliley Act Information Security Plan Template — The Gramm-Leach-Bliley Act requires financial institutions to have a written information security plan. Use this template to document your firm's policies.
• Identity Theft Checklist — Provide this checklist to clients to help them appropriately and efficiently address identity theft issues.
• Letter to Advise Client on Tax-Related Identity Theft — Notify a client of a potential tax-related identity theft and/or outline the steps that can be taken to address the issue.
• Letter to Client to Protect Against Tax-Related Identity Theft — Help clients take steps to secure their personal information and prevent identity theft.
• Tax Identity Theft Toolkit — CPA tax practitioners need to combat tax-related identity theft daily as it has become pervasive globally. Use this toolkit to tackle tax identity theft issues with your clients.

Other resources

• Get An Identity Protection PIN (IP PIN) — An IP PIN is a six-digit number that prevents someone else from filing a tax return using your Social Security number or Individual Taxpayer Identification Number.
• PTIN Requirements for Tax Return Preparers — Anyone who prepares or assists in preparing federal tax returns for compensation must have a valid 2022 PTIN before preparing returns.
• Publication 1345, Handbook for Authorized IRS e-file Providers of Individual Income Tax Returns – This guide addresses the rules and requirements for participation in IRS e-file by authorized IRS e-file providers filing individual income tax returns and related forms and schedules.
• Publication 4557, Safeguarding Taxpayer Data — This guide seeks to help tax professionals to understand basic security steps and how to take them as well as recognize the signs of data theft, how to report data theft and understand and comply with the FTC Safeguards Rule.
• Tax Preparer Tips for Hiring a Cybersecurity Professional — The IRS provides tips for tax preparers to consider when evaluating and selecting a cybersecurity professional.
• Treasury Inspector General for Tax Administration (TIGTA), IRS Impersonation Scam — Fill out this online form to report an IRS impersonation scam. Note that a taxpayer may also call (800) 366-4484 to report the scam.
• What to Do After a Tax Professional Data Compromise — This IRS video gives steps tax professionals should take if they are the victim of a data compromise.
• Why Tax Professionals Need a Security Plan — In this IRS video, learn the importance of tax professionals establishing data security plan.

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.

Elizabeth (Liz) Young,  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

Say "I do" to engagement letters — Understand the importance of establishing parameters of client relationships and detail the scope of services to be provided.

Tax Extension FAQ for Clients — 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.

Annual Tax Compliance Kit — Engagement letters, organizers, checklists and practice guides help you manage your tax season workflow

Tax season resource center — 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 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 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.

On this podcast, Mark Gallegos, a partner at Porte Brown, provides advice for getting ready for tax season. He discusses the importance of preparing staff, communicating with clients, managing workloads, taking care of yourself, and setting expectations. With the right preparation and mindset, the next few months leading up to April 15 don't have to be too difficult.

AICPA resources

Tax season resource center — Access the AICPA’s central hub for guidance, tools and developments throughout the tax filing season.

Beneficial ownership information (BOI) reporting — Access resources to learn about the beneficial ownership information reporting requirement under FinCEN’s Corporate Transparency Act (CTA).

Transcript

On today's podcast, listen to hear how to get a jump on your to-do list for tax season.

April Walker: Hello everyone and welcome to the AICPA's Tax Section Odyssey podcast. Happy 2024. On this podcast we offered 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 Mark Gallegos.

Mark is a partner at PorteBrown. He's on the Tax Practice Management Committee, which I'm the liaison for and he's quickly become one of my favorite volunteers. Don't tell any of the other volunteers, Mark, but I do mean that. Welcome.

Mark Gallegos: Thank you for having me appreciate it.

Walker: We're recording this today on January the 17th and as always, there's a lot of noise in the tax world. There's potential for tax legislation, there's an impending government shutdown, there is filing season is getting ready to start in a couple of weeks.

I thought it would be nice to remind our listeners to take a deep breath, first of all. But, then I'd love to hear what's on the top of your mind as we're getting ready to take a leap into tax season. How does that sound Mark?

Gallegos: Sounds great. I think there's a lot to unpack there.

Walker: Absolutely. Start at the very beginning. What are the top couple of things on your to-do list today? What are the most urgent items that you're trying to get accomplished in the next couple of weeks.

Gallegos: Yes. Right now, there's a number of things.

One, from the firm's standpoint, making sure everyone's up to speed on everything we do to get ready for tax season. We're already in the flow of it as a firm from the audit department and accounting and consulting department. But for the tax side, really getting them up, ramped up and ready to go.

As a firm, we are very processes- and procedure-driven. We break out into teams and trying to figure out what's the best practice for us as a firm to truly make sure everybody is prepared as we go into the preparing business returns, trust returns, individual returns, and everything else that goes with that.

We spend a lot of time trying to meticulously make sure that our system is proper, so we're doing a lot in that area.

Then you have making sure everyone's up to date on all tax law changes that are effective for this filing season. The good thing is headed into the beginning of this year, there's not a massive amount of tax law changes.

However, yesterday there was an agreement between Senate Finance Committee and the House Ways Committee regarding a potential tax legislation. Again, just an agreement, not law. But as I look at that and I start to communicate with the firm, some of these things could create issues within our firm, in our planning.

One, if these provisions are enacted, when would that happen? How does that impact our tax season? How does that impact the software provider we use to be able to roll out any changes so that we can be streamlining this process. You have that going on.

At the same time as a firm, dealing with our clients. One of the things is communicating with your clients. So at the early part of this stage, letting clients know, there's potentially is a government shutdown that's looming. We've let them know in the fall, but here we are on January 17th and we still have this throughout tax season that we may have to deal with, which affects a lot of things, not only the client, but also us.

If there was a shutdown of the IRS [could] furlough two-thirds of its employees and then you would have assistance centers closed. But the reality is if you have to paper file returns or if you have to call the IRS or if you [hear] I got this notice. We set the response in on behalf of the client. Clients say, Mark, what is the status of this and you can't talk to the IRS now. You can't get a response, but they keep getting a notice saying, you owe money, just automatically coming out.

Those are the headaches that I always say could take your tax season as a preparer off track. It's the client is assuming you're handling something, you're relying on the IRS hopefully to resolve something and in the meantime, you're just that middle person trying to field the questions and resolve it. If they get shut down in some form or fashion, it really comes into play where we get hampered.

Communicating with the clients, communicating with the staff, communicating with just everyone in general [that] this is looming out there. Let's do everything we can to get on top of it now, let's not wait on things, let's be proactive. I think that's one thing I believe that's very important.

The other thing is that we can't file a tax return until I think January 29th…is when they opened the E-file system I thought I saw. We got time before we have to file returns, and even with having software completely ready, not every form is out of draft yet.

But with that being said, small clients, rentals, and small businesses, get those books in. If they're using QuickBooks or whatever, get it in and let's get going on this stuff. Let's not all push it off [and then say] wow, it's February 28th and we got all these returns we want to try to get out the door. The more you can do up front, the more you are going to make your life easier as the season goes on.

Again, we don't want anyone working so hard that they're all stressed out right now, we need their energy for later. On the other hand, it's not a sprint, it's a marathon, and we need people in the firm to really manage their time. Sometimes we have to, as partners and as managers, manage their time for them. We need them at the end when we're trying to get all these extensions done or filing returns. How do we do that? All these things come into play [and] that's on my mind right now.

In addition to that, we got this new thing that's out there, beneficial ownership interest, part of the Corporate Transparency Act that started in January and we've dealt with as a firm. I'm sure every firm, every practitioner out there in some form or fashion is dealing with this right now.

As a firm, we have taken the position that we're not going to prepare it, we're not going to advise on it. We're not going to do anything. What we've done is we're letting all our clients know that. There's plenty of people in where we are in Chicago land area that do this and we're happy to refer them to attorneys if they don't have one, to other groups that do this, but we're not taking that work on.

We've come to that conclusion based on discussions internally with our outside counsel. But everyone needs to do that on their own to determine is this best fit for you and everything else going forward. If you are listen to this and you don't know anything about the beneficial ownership interests, recommend there's plenty of information out there on it.

Walker: We'll point to a couple of podcasts; we'll point them to the resource center. Absolutely. ASAP, you need to get on board with what's going on with that.

Gallegos: But it's an area that again, without getting into [the details of it], it doesn't really fall on the tax preparer side as far as the compliance aspect of it, from an IRS standpoint. However, what I have seen [with] questions coming from my client, is this part of FinCEN?

You guys file my foreign bank account reporting the FinCEN [Form]114, so why wouldn't you do this? Having those conversations, educating your clients as to what you can do, what's in your purview as a preparer and what's not. I think the more you communicate, the more your clients will value your service but also know that you're still their trusted adviser and you're here to help them get to the right people to do so. That’s it.

Walker: You gave me a lot to unpack there, Mark. Let's see. Let's start with you said you're getting your staff ready and you're communicating with your clients. There probably isn't a one-size-fits-all. But what's your best tips for communicating with clients if you're trying to do either mass communication or how do you wrap your head around that?

Gallegos: We can do mass communication as easily as an email blast. We have our news blog that goes out every week and so from that standpoint, we sent out. You and I know not every client reads emails or ignore them and you know how it is.

From that standpoint, it requires everybody in the firm to be on top of things. Meaning, we like to go out to the clients. We want to be in communication with the client. It's not like, April, you're my client. I'll talk to you next year. See you then. We're all year round. We do a lot of year-end tax planning for everybody. We really are heavily involved. [There are] a lot of touches throughout the year.

With that being said, this time of year where you have clients, whether it's making sure they're getting their books in order or [they need] 1099s or whatever the case may be from a compliance standpoint in January. [We] reach out to them, not just on making sure you're getting things together, but here's some other things that I want to make you aware of based on the filing season, based on everything else.

Because what I have seen, at least with our client base, is most clients want to get things rolling and get done with this aspect of it. Whether they ought to extend later or not, that's a different story, but they want to know where they sit.

Like I said, so we have this system where we have not just the partner but managers and people that are in charge of clients and all the staff that are on those particular clients. It's all budgeted and all put together. And there's a team that literally is reaching out to all these clients.

For example, my clients, there's no way I can sit around just talk to every client all day, I would never get off the phone. So I have to rely on people and delegate that work down so that people feel empowered to do that. In doing so, one, it gives them the ability to build that relationship with the client. But two, really shows that as a firm, it's just not me and a few partners — it's everybody…has a key role in making sure that the client is up-to-date on what's going on. Not only what we want to communicate, but vice versa — what's coming from the client and so we are aware of whatever concerns they have. Very important.

Walker: Not everybody listening to this is going to be a big firm so they aren’t going to have a lot of people. But I feel as I talked to members and as I talk to CPAs, you hear so much about you doing everything. I think that's a good lesson learned.

Maybe you can't change that in January for this year but try to figure out ways that you can delegate work and client responsibilities and it's okay to let it go. I feel like that's a message that a lot of people need to hear if you're proactive about it and you're still staying in the loop, of course.

Gallegos: Very important there, April. One of the most important things, I don't care if you're a small firm or a large firm, I guess the bigger you are, you have more resources. But as a firm we even use, we have interns, we bring in. We have admin. We probably have more admin than most firms our size and we use the admin for all kinds of functions. The reason why is the more I can delegate down.

I think sometimes as a partner we can get to these assumptions of how important we are. Oh, everyone needs me and I'm that important, blah, blah, blah and all this. Maybe it strokes our ego or whatever.

But the reality is, if you stepped away for a few weeks, these clients will be taken care of. You really not as important as you think you are. I think the more you learn to delegate — I have learned in my career — the more free you are to say I'm working not in the business, I'm working on the business so I'm truly helping this place grow and I think that's important.

Walker: Yeah, great point. You also talked about starting strong in January, like having a good January and that to me leads into hopefully a smoother tax season. Again, there are some out of your control. Is there going to be a tax law that's going to have retroactive changes? We don’t know right now yet again, Wednesday the 17th; we don’t know. Hopefully we'll know more soon.

I liked you [saying] it's a marathon, not a sprint. How do you manage that increased workload? People like to control their own schedule. I certainly like to control my own schedule, but I also sometimes I need to understand what are my priorities. How do you make that balance work?

Gallegos: One of the ways is we budget. Every client got a budget, whether if I'm using taxes for an example, tax prep, tax review, partner review, signer review to admin. Every step of the way, we’ve got a workstream step and we got to put some time to it. Again, it's not a perfect science, but the more you do it, the more you realize how much time [things take].

Then from that we have some amazing people in our firm that take all that and budget. Okay, April, you are one of my staff, I'm going to assign this client to you and it's for X amount of hours, it's going to fall in this week or this particular day, or I need you to be at this client. We're managing schedules that way.

Workload management, the planning that is involved is all year round. Again, things happen, people get sick, people leave, people come in. It’s constantly changing — it's fluid. But understanding how we work and do the workload management that makes sure that if I have two staff and one person's working a crazy amount of hours and the other person's not. The person not working most likely is because they just don't have the work assigned to them.

As a partner, I can get caught up [with] my own work and I know I need to get work [done] but I'm just not pushing to do that. When we have people managing this process, we know that it gets spread out more evenly. It helps the workload management so no one is truly working more than the other person. That's important, very important. We're a team and everyone needs to help out in some aspect of it.

I think that is probably one of the best things we do as a firm to help our employees and keep that longevity. We don't work crazy hours and because of that, we get a lot of work done. I wouldn't say it's the easiest amount of hours, but a reasonable amount compared to what I’ve seen out there.

Walker: Got you. Yeah, that's good. That's probably a whole another podcast episode where we can talk about and delve into that. Because that's not a 20-minute conversation, but great point.

How are you personally handl[ing] the stress and long hours that come with tax season? I know because I've gotten to know you over the last little bit how much you love your job and tax and so you probably work a lot, but hopefully you also take some time for yourself. How do you manage that?

Gallegos: Yeah, I do love my job. I love what I get to do. I find it a privilege. On the other hand, making sure that I'm healthy in the process because if I'm not healthy than all this is for naught. I wouldn't say I'm mechanical, robotic, I guess it could be viewed sometimes, but I get up early in the morning and go to the gym and workout. Again, depending on the day, the week and where it is in the season, I go and I feel great. Even if it's like just stretching and light or whatever, I feel great. It kicks my day off on a positive note. Then from there, you head into the office and you just manage your day properly. Whether you're going to clients or whether you're dealing with staff or whatever the case may be.

Then making sure that eating somewhat properly. It's so easy to like, I don't have time to get lunch or I didn't bring anything so let's hit a vending machine and that can get ugly quickly. You could just be eating sugar and carbs and everything that's probably you're not supposed to do. The idea is to try to manage your eating.

And then get some sleep There's no sense in work[ing] into two, three in the morning and then turning around and trying to do this again day after day. I know I talked to professionals that do this. I don't know how they do it and function. Get a solid night's sleep, whatever. If you need six hours, eight hours, whatever it is, you've got to figure out how to get that.

At the same time while you're doing all this, whatever your hobbies are outside of work, you still got to do it. I've always had the habit of Monday through Thursday I work my hard, longer hours within my little schedule. Then Friday, I’m always done at five. I don't care what's going on. I don't care if the deadline is Monday. I'm done at 5:00 and I'm gonna enjoy Friday night, whatever that looks like. Saturday I'll work, but I'm out working past 3:00 or 4:00 in the afternoon.

I've done that my entire career no matter whatever other pressure [there] is, and it's just my own way of keeping tax season in balance. So again, I always say everyone is different and everyone's got to figure out what works for them, but truly keeping things you like in your life. Just because it's tax season, it doesn't mean the rest of your world shuts down and it shouldn't.

I think some of the stress that gets created in this is probably from our own doing. I'll give you a prime example. You're working and you're like, I'm going to get all this done this week, and then a client calls, no, I'm going on vacation, I need my return now. And then okay figure out how to get this done even though it's not scheduled. And oh, there's another issue. All these things pop up and we just let all that stress just get to us. Oh my gosh, how am I going to handle this. Instead of just, hey, it's fine. Take a deep breath and let's just put it into a process, and let's just get it done in the order, and communicate what expectations look like, etc. You feel so much better because everyone's on the same page. No one's putting the pressure on you, we're just doing it mostly internally and you feel better. So again, we sometimes just got to get out of our own way to make things happen.

Walker: You're right. I probably needed to hear that today myself. Because even though I don't work in practice anymore, I still have like crazy things going on and deadlines, so I also need to hear that. Take a deep breath. Step-by-step. Wonderful. So I like to hear your best advice for our listeners to ensure a smooth and successful tax season.

Gallegos: So number one, I think besides taking care of yourself, that would be number one, because if you can't take care of yourself, you're going to be no good to the rest of your team. That's number one, to manage your stress.

Number two, make sure that people that work for you are valued. Make sure that they know they're valued. Whether you're providing mentoringship or coaching to them, giving feedback. If you're someone who reviews tax returns, and you find errors or you find things that need to be adjusted, make sure you let them know what those are. Not, “I'm so busy. I'll let you know after tax season”. Because you won’t, and everyone thinks they're doing a great job.

The prime example of that — you could review a bunch of returns three weeks after a person prepared 20 returns, and they made the same error on all 20 of these returns. So the sooner you can get in and see, what little errors or what adjustments can be made and communicate that. Communicate it with some sort of grace of, it's okay, we all make mistakes. Because I know and I'm sure you did when you're a staff person, on the other end of these things, sometimes the feedback, especially if someone's in a hurry or maybe not in the greatest mood, can come across as the mistake I made is the worst thing in the world.

Again, I want my people to understand, it's okay to make mistakes, that's why we have a review process, that's why we check things. Let's learn and grow from it together and have fun doing this. Making sure your people are taking care of. You see that they're struggling. Let them go home or wherever you need to do to make sure that this is a place that is not only trying to get a lot of work done, but it's a great place that they want to invest in for their career.

Then beyond that, making sure you're managing your clients, they're not managing you. I know that's always a battle. The reality is they're paying you for a service because you have knowledge and you have the experience to provide them something that they can't get from someone else. Because of that, you have to let them know, based on my schedule that just because you called or emailed doesn't mean I have to drop everything now and turn to you and get it done. Then they have to understand expectations. But if you're always dropping everything to help them, then they're just always going to assume you're going to get it done. It's nothing against them, they're just like Mark responds to me. So why is he not now?

So again, understanding that, setting clear expectations with your clients is great leadership for the rest of your firm too, so they see, if Mark's doing that, then maybe I can follow the same methodology. I think that's good. And learning from each other in the process. That to me if you can find a way, there's no perfect sauce to this, but if you can find a way to start working towards that, I tell you, this three-and-a-half months or whatever it is to April 15th, it's not that bad.

Last week I was at Fort Lauderdale speaking, and then I flew back and then we had 14 inches of snow, and then it's been like -15 degrees here. I'm going to say tax season doesn't bother me when it's -15, but as it starts to warm, and the sun comes out and spring is in the year. Boy, it makes it harder, right? The more upfront we can manage some of this, we get to the end and everyone's going to be happy.

Walker: Lovely. I think [that is all] great advice. If you are a listener of this podcast, you know what's coming next, which is in closing on the podcast, I like to think about all of us taking a journey together towards a better profession. Tax Section Odyssey — we're journeying. I like to get a glimpse of my guests other journeys outside of the world of tax. You said you were in Fort Lauderdale, but that doesn't count because that sounds like it was a work trip. Give me a page from your travel journal, or a bucket list, or something you've got planned for the horizon.

Gallegos: For this year I have a beach house already reserved in July for the Outer Banks, North Carolina. Every year, I always go to the Outer Banks. I love the Outer Banks. Why? Because it's the ocean, the beach, and because I've gone there so much, I find it a place where I can relax. Where you could just sit back, relax, have a good food, spend time with your family, and just enjoy the water and the beach and the sand. Again, I look forward to that. I do other little things throughout the year, but that to me is like the one thing I look forward to more than anything.

Walker: Wonderful. The Outer Banks is beautiful. I’ve been there many times being from North Carolina but highly recommended. Thank you so much, Mark. This was insightful, delightful. It was a great way to start off our podcast season for 2024.

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 podcasts. 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 this on the aicpa-cima.com/tax and check out our other Odyssey episodes, as well as find resources that are mentioned. Thank you so much and have a wonderful start to the tax season.

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.

The Tax Cuts and Jobs Act (TCJA), P.L. 115-97, imposed a $10,000 limitation on individual taxpayers for the deduction of state and local taxes (SALT) for tax years 2018 through 2025. In response, many states enacted laws allowing (or mandating) passthrough entities (PTEs) to pay the taxes at the entity level instead.

In November of 2020, the IRS issued Notice 2020-75, which clarified that partnerships and S corporations may deduct their SALT payments at the entity level in computing nonseparately stated taxable income or loss. The notice also indicated that the IRS intends to issue proposed regulations to this effect.

While electing a PTE tax election can be very beneficial overall, certain aftereffects — while small alone — when stacked together, may reach a materiality level where it should be second-guessed.

On this Tax Section Odyssey episode, David Kirk, CPA, CFP, LLM, Private Tax Leader, National Tax — EY, discusses with April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, several concerns that could lead to reconsideration of making a PTE election.

What you’ll learn in this episode

• S corporation issues (3.08)
• State crediting complications (11.54)
• State governments sharing in a “piece of the pie” (14.24)
• Alternative minimum tax (AMT) matters (16.11)
• Grantor trusts considerations (20.10)
• Non-grantor trusts concerns (22.48)
• Thoughts on refunds (25.00)
• Final thoughts (28.29)

Related resources

• SALT Roadmap — State and Local Tax Guide — Navigate the complex world of state and local taxes with a compilation of information and quick links to additional guidance and references. Use the map to access information on the types of state and local taxes imposed, tax rates, nexus, passthrough entity (PTE) tax elections and mandates, due dates, government websites and CPA society information. Also quickly determine commonly used state and local tax forms and easily locate versions and their instructions.
• State and Local Tax Advocacy Resources — This page provides information and documents created by the AICPA State and Local Tax Technical Resource Panel (SALT TRP) on state-level tax advocacy issues affecting tax professionals.
• State implications with the PTE tax | Tax Section Odyssey — States continue to look at the PTE tax to sidestep the federal $10,000 SALT cap deduction limitation following the IRS’s Notice 2020-75.
• Questions to consider before electing into a PTE tax, The Tax Adviser, Sept. 1, 2022.
• Map of states with adopted or proposed PTE level tax — AICPA downloadable map open to everyone.
• Links to PTE taxes states' legislation and tax authorities' information and guidance — AICPA downloadable document open to everyone.
• Taxpayer and practitioner considerations for whether to elect into a state PTE tax — AICPA downloadable document open to everyone.

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.

Starting Jan. 1, 2024, most companies created in or registered to do business in the U.S. will need to report information on their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) under the Corporate Transparency Act (CTA). In 2024, 32.6 million entities should submit their initial BOI reports with approximately 5 million initial BOI reports filed each year thereafter. The AICPA, as part of a coalition, calls attention to the new BOI reporting requirements to taxpayers and practitioners. 

Listen in as Art Auerbach, CPA and Andy Mattson, CPA, Tax Partner — Moss Adams LLP, delve into the 5 Ws (who, what, where, when and why) of BOI reporting with April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA to help raise awareness that is critically needed.

What you’ll learn in this episode

• Why is BOI important? (0:54)
• Who must file and who is exempt? (2:55)
• When must entities file? (8:01)
• What are the reporting obligations? (11:04)
• Where to file (what agency) and other concerns, including the potential for unauthorized practice of law? (15:00)
• Resources to help (21:59)
• Final thoughts (22:32)
• A page from Art and Andy’s travel journals (24:56)

Related resources

• AICPA BOI reporting resources — Access resources (FAQs, summary of data fields, advocacy efforts, etc.) to learn about the BOI reporting requirement under FinCEN’s CTA.
• FinCEN BOI reporting resources — FinCEN resources on reporting requirements, fact sheets and FAQ.

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.

The employee retention credit (ERC), the refundable tax credit designed to reward business owners for retaining employees throughout the COVID-19 pandemic was signed into law on March 27, 2020, as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and further significantly expanded in 2021.

Eligible business owners can claim up to $5,000 in refundable tax credits for each employee on their payroll in 2020 and up to a $7,000 credit per quarter (excluding Q4) for each employee in 2021. The calculation and procedures are complex, and taxpayers continue to seek help from trusted advisers to help them successfully claim their benefit.

On this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — AICPA Tax Section, and Chris Wittich, MBT, CPA, Partner — Boyum Barenscheer, discuss eligibility requirements for the credit, how to help clients with their ERC needs and pitfalls when working with questionable third parties.

What you’ll learn in this episode

• Overview of ERC qualifications (2.47)
• What is an acceptable government order (4.50)
• How to collect documentation regarding government orders (9.00)
• Supply chain disruptions effect on the ERC (11.46)
• How to handle clients that don’t qualify (13.43)
• Marketing strategies for clients (17.09)
• Contingent fees (21.29)
• Experiences with refund statuses (24.50)
• Wrap-up (27.14)
• A page from Chris’s travel journal (28.07)

 AICPA resources

• Employee retention credit guidance and resources — The ERC is an important of the COVID-19 relief legislation for small businesses. This library provides the ins and outs of calculating this credit.
• Challenges with contingency fees and the ERC | Tax Section Odyssey — Explore the prospect of contingent fees for ERC work and how regulatory rules govern its usage with the AICPA’s April Walker and Ed Karl.

Other resources

• FAQs: Employee Retention Credit under the CARES Act — IRS answers to frequently asked questions on the ERC.

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.

October 16 is in the rearview mirror. Brandon Lagarde, CPA, JD, LLM, Partner — EisnerAmper, chats with April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, to review what went well during the extension tax season and what to look forward to in 2024.

What you’ll learn in this episode

• 2023 tax extension season highlights (0:58)
• Challenges and concerns to think about for 2024 (3:05)
• What’s keeping Brandon up at night (7:30)
• Sneak peek of the National Tax & Sophisticated Tax Conference (10:13)
• Final thoughts (14:24)
• A page from Brandon’s travel journal (15:35)

Related resources

• AICPA & CIMA National Tax & Sophisticated Tax Conference 2023 — This premier conference provides tax experts with the latest updates and information on new regulations. Your team will hear from IRS executives on current challenges and opportunities. Use promo code NTA150 at checkout to save $150 (exclusions apply).
• Annual Tax Compliance Kit — Engagement letters, organizers, checklists and practice guides help you manage your tax season workflow and excel as a tax and financial planning adviser.
• Tax Season resource library — With constant changes to the tax landscape, being prepared for tax season is critical for success. Set yourself up for a smoother filing season by tapping into the wealth of AICPA and Tax Section resources.

Transcript

April Walker: On today's podcast, listen to hear more about a practitioner's extension season and learn about what you will hear about at National Tax.

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, a Lead Manager with the Tax Section, and I'm here today with Brandon Lagarde. Brandon is a partner at EisnerAmper in Baton Rouge, Louisiana. Welcome Brandon.

Brandon Lagarde: Thanks for having me.

April Walker: We're recording this today on October the 20th and earlier this week, Monday, October 16th, was the deadline for what we think of as the end of extended tax season. Brandon I thought we could talk a little bit about some lessons learned. Let's first start with a good; I like to do that. What are some things that went well for you during this extension season?

Brandon Lagarde: This is always our busiest time of year — the extended busy season — largely because it involves more of our larger individual clients and even some of our larger pass-through clients.

September 15th is a pretty busy day for us. September 30th is also a pretty busy day with fiduciaries and states being done, and then October 15th, again, of course, being, which is October 16th this year is a huge day for us.

When we try to plan out our year, we'd certainly look at August as getting ramped back up. If I had anything good to to say about this year it is that we recently went through merger within the last few months — merged May 21st with EisnerAmper — and with that, we were able to get additional resources help.

One of the good things that happened during this extension season was, again, the ability to have more people help us get returns done and get the work out. That's probably the biggest positive we had. I wish we would've started sooner. Seems like June and July was slow for us, and we're waiting and anticipating for the wave to occur. We tried to ride the wave as best we could, but I would say that it was still a pretty stressful time even with the additional help we could get.

April Walker: I feel like when I think back to my days in public accounting, it's always hard to ramp back up, but the sooner that you can ramp back up after taking a little bit of a breath, that makes for a better September — October. That’s great that you had some additional staffing.

Maybe we'll move to the lessons learned. What are some things that didn't go as wel,l and some things you'll try as you look towards the 2024 tax season? What are some things that you're going to implement and work on?

Brandon Lagarde: One thing that we did during our regular tax season (and it never translates for us to extension tax season), and that is really trying to set some expectations with clients on when we expect them to get us information.

When we get work done internally during regular busy season, that March–April timeframe, we're much more deliberate on getting that work in the door, telling clients we need your information by this date to get the work done. We are much more deliberate on scheduling that work during busy season because we are more focused on it. Then summertime comes and I think everyone, including our clients just get lazy when it comes to their taxes and getting work done.

What we didn't do so well, and we've thought about this internally, is on the backend with the second busy season coming up in August, we really need to do a better job of pushing clients to get information and pushing ourselves to continue to work on stuff during the summertime.

Just seeing that this year specifically, I don't know if it's still coming out of the COVID-19 pandemic work issues or just coming out of first summer where people did a lot of travel. Again, there definitely was a lull that we should have prepared for a little better.

Certainly one big lesson learned is we really need to keep our foot on the gas through the extended busy season and really get started earlier because as I mentioned, one of the good things that happened to us this year was we did have additional help to get work done. Without that help, we would have been extremely backed up and not sure we would've gotten the job done.

So really pushing that deliberateness that we took during the busy season in March and April. Really pushing that to the summer and staying on top of clients, staying on top of our people and just saying, “hey, we need to make sure that we're not pushing this back further than we need to,” that's a huge lesson that we'll take from this tax season.

One of the challenges we face with our September 15th deadlines is when you have flow-through entities and we're getting K-1s on September 9th, 10th and 11th, that puts a huge strain on getting work done on the 15th.

We try [for] clients that have that multi-tier, we at least try to back that up and try to get those out before [because] we know they're going to impact other clients we're dealing with. But that's just a huge backlog that happens. Again, I don't know how you incentivize clients because sometimes it's not in their hands.

April Walker: Absolutely. But I think you can make sure you're communicating and make sure [maybe] it's getting the best draft information you can get [entered in the system] so that you're really truly just waiting on a few pieces of information and really pushing [clients]. I'm not trying to tell you what to do Brandon, but just some ideas like thrown out there and just making sure that your clients don't put you into a box where you're having to scramble.

Brandon Lagarde: That's one big lesson is never too much communication with a client, especially if you're trying to get information from the client or really trying to push the client to get you the information. To some degree, it takes some deliberateness on everyone's part to say, let's sit down first week of June and go over what financial information we need from the client, get with the client and help them to put it together and even set up meetings with the client to make sure that they understand that we're waiting on them for something.

I find that happens quite often is communication just falls apart and the client doesn’t realize we’re waiting on something or the client doesn't really understand what we're waiting on, even though we tell them waiting on something, so it certainly involves overcommunicating is going to be a huge solution for anything.

April Walker: I think that sounds good. Just a final question as we're thinking about looking forward, what's keeping you up at night as you're thinking about its the middle of October tax season. Unfortunately, we will be here again. What's keeping you up at night thinking about that?

Brandon Lagarde: We already had a meeting this morning with our partner group [and] our local group, and really starting to talk about what we need to be focused on [at] year-end and starting the process early on this communication with the clients and starting the process early on determining which clients we are going to continue to work with and which clients we may need to part ways with and getting engagement letters out and organizers.

These things need to occur now and not wait [until] January — Is just getting those things done, just getting a process down to do that, that's what we've just taken off right now. Because I think it's going to be pretty quiet legislatively in the near term, but hopefully there's no major tax things we have to deal with. Again, it's a normal year.

April Walker: But it's always thinking forward, thinking about 2024 presidential election [and] also thinking about sun- setting of TCJA — that's not until the end of 2025. But still just planning ahead, and again, you're talking about communication with clients is always a good thing.

Brandon Lagarde: Making sure we're getting in front of the clients and remind them that bonus depreciation continues to go down and things that are changing and whether there's a fix to the R&D or not and keeping people abreast of whether employee retention credit claim is currently pending because we have a lot of those that we get calls every day from clients asking, “where's our money?” We tell them that it is sitting in Washington DC — so call their congressmen.

But, as always, fun to talk to clients about and end of the year is at time and its extent that we can again have a full conversation with them, not just year-end planning, but also getting ready for the 2024 tax season, and go back to lessons learned from this year, just trying to get information earlier from clients.

If we can get in front of them towards the end of the year and even beginning of the next year and help them clean up their books or help them with organizing their stuff before it gets too late into the tax season, that's a win for everybody. Really, that's going to be our focus in the next two months is really just some of the administrative stuff done. Let's refocus our efforts on those clients that we need to be focused on and work towards making sure over communication is integral to the process.

April Walker: Brandon is a wonderful volunteer for the AICPA. He is the current chair of the Tax Practice Management Committee. He's also a first-year co-chair of the National Tax Conference, so I'd like to talk a little bit about that's upcoming really soon in the next couple of weeks. I heard yesterday, there is an additional promo code which I'll share in the show notes. Brandon, tell us, why should you come to the National Tax Conference besides getting to hang out with you and I?

Brandon Lagarde: That would be the first thing, you get to hang out with April and myself, which is always a fun time. You could visit the O museum.

This will be my sixth year attending and first year as a co-chair and I've been on the planning committee for the last couple of years. And it's always just a great conference I go to. It's in DC, you're around the IRS officials, the IRS Commissioner comes in and talks and this year we have a new Commissioner. So we get to hear from the new Commissioner and his vision for the IRS and with the $80 billion that they have to spend, what's their priorities? We hear from other IRS officials to get an idea of what their priorities are to in the coming year. It's a great place, not only just to learn from other practitioners, but also to learn from the IRS and the government officials that are there and again, you're in DC.

This is a great conference this year and we're hoping to have some good discussions and good content around AI and how it's impacting the tax practice. The committee has spent a lot of time working through that issue and just trying to provide some good information and some good commentary. I heard just this morning that we're going to have a staffer from the Senate to also be a part of the AI discussion because Congress eventually is going to get involved with putting guardrails on artificial intelligence. I know they have a committee that they're working on, talking about what should their role be. And again, what better place to learn about all that in DC.

It's a great conference and I think this year is by the [National] zoo, so we get to go to the zoo as well and go see the pandas.

April Walker: Absolutely, the pandas are leaving. That's one thing I'm doing. If you'd like to join me, give me a shout out, I'm definitely going to the zoo on Sunday.

But thank you for sharing about the [conference]. That's exciting. I always love the sessions and it's one of my favorite. It's one of my favorite times. You've talked about some of the sessions, but do you have any other specific sessions that you're looking forward to attending yourself? Or again, I like to always provide that there are some concurrent sessions happening. If there's a couple of things you would like to see at the same time, you can go back and watch them later. That's a definite benefit. But what are you looking forward to you the most?

Brandon Lagarde: With this conference being at the end of the year, certainly you get the IRS officials and you get to hobnob with them and you get to meet them and get to hear from them.

But also you get some really good year-end things to think about. Well, we're always, as I was saying earlier, the things that keep us up at night is making sure that we're talking to clients about things they need to be doing at the end of the year for tax planning. This conference gives a lot of tips, a lot of things to think about to bring back.

We try to make it very practical — practical sessions that could be applicable to everybody. In this past year, we now are integrating the sophisticated tax planning conference as well, so again, you add a little more estate planning concepts and ideas in addition to just the income tax. It's a really well-rounded tax focused, and again, given time a year is perfect.

You go to a conference, you hear a bunch of things and then two weeks later you forget about what you learned. Here, you can take what you learned and go bring it out to your clients immediately.

Again, it was a very successful tax season for us. All returns are filed that needed to be filed. Everything went as smooth as it possibly could go. Definitely can go smoother, and every year you just have to look and see what went well, what didn't go well.

One closing comment on that, we started doing this years ago was having a debriefing session for [the] tax group and for every level. Staff, managers, senior managers, partners get together and just have a debrief on what went well, what didn't go well. [We] get our admin team together, talk to them about what went well, what didn't go well, because what went well, in my mind, may have gone terribly for somebody else, but we just didn't see it at the time because people are just busy. Really sitting down with the team and just going through and [talking about] what we do here that went well, what went wrong and how can we improve and how can we fix? Because I'll say everyone can improve on something even if it's small. That's the good thing to do for the firm and good thing to do for your practice.

April Walker: Absolutely. Thank you again so much, Brandon, and I appreciate you very much. You've been on this podcast before, so you know what's coming, but on these podcasts, I like to think about us taking a journey together. Like a journey towards a better profession. In doing that, I like to get a glimpse of my guess’ other journeys outside of tax, so what is a trip you'd like to share about? Either a trip you have planned or a trip you have recently been on?

Brandon Lagarde: Yeah. I knew this was coming and I didn't have a thought until you asked this question. My wife and I are celebrating our 20th anniversary this year.

April Walker: Wow, congrats.

Brandon Lagarde: Yes. We were going to do a little bit longer of a trip, but we shortened it. We're going to Las Vegas in a couple of weeks, and been debating on this whole sphere thing and should we go to the U2 concert in it or not, but so far I think we're, we're not. But unless somebody convinces me, otherwise, we're not. But I think I'm just going to stand out in front of the sphere and take pictures of certain things, like everyone does.

April Walker: Yes. I was hoping you were going to go check it out so we could possibly, when we're together in June, next June, we could see if whether it's worth it or not, I don't know. Think about it again.

Brandon Lagarde: Yeah, we're definitely going to go check it out as don't know if we're going to go to anything inside of it. We may just go walk around outside. But Las Vegas is the fun place and we're going to hopefully have some fun, even though I don't gamble.

April Walker: Lots of good shopping and lots of good food.

Brandon Lagarde: Lots of eating.

April Walker: Yes. Happy Anniversary.

Brandon Lagarde: Thank you.

April Walker: 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 podcasts 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 friends. You can also find our podcast at the AICPA-CIMA.com/tax and find our other episodes, as well as getting access to resources mentioned during the episode. Thanks everyone 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 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.

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

Digital assets and virtual currency tax guidance and resources — Sharpen your tax knowledge on digital asset and understand the tax complexities and strategies involved with virtual currency and cryptocurrency.

AICPA advocacy resources

AICPA makes recommendations for digital asset transactions regulations, March 7, 2024

Other resources

Rev. Proc. 2024-28 — Guidance to allocate basis in digital assets to wallets or accounts as of January 1, 2025

Final Regulations 2024-07-09 — 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 that are required to do it right now. We don't have it on the self custody side. I guess the overarching thing is you could end up with perpetual mismatches. And when I say perpetual, they could go on forever - definition of the word. But it could go on for a very long time. Just to make a point there, you have a perpetual mismatch between what you have been tracking with your crypto tax software and what the broker actually has on file.

If it was Coinbase, for example, Coinbase and the assets that are on Coinbase were actually purchased there. Coinbase is going to have a record in that scenario. Then your tax software may have under the universal method have already spent some of that basis. Because again, those transactions are treated as if it was all one big wallet. You've got a mismatch off the start, even if you do a proper allocation on your own side, you may not even know what the broker has. So the question is, how can you communicate with the broker and let them know?

The centralized exchange services or these brokers, they can receive user provided basis, but they're not required to, but they may accept it. If you have some that accept it, that may be one path that you could try to match up what you have from your allocation and communicate that to the broker so it matches up. But again, that's not going to be perfect because not every centralized exchange is going to do that. Only some of them are. Even in cases where they do provide that as a courtesy to their customers, that's not a magic wand either. If there's other things that can happen there, we could get into the weeds further on that.

But one of the things is when you transfer in tokens to a broker, that they don't have any cost basis there. Again, if you wanted to report it because they're accepting it, yes. Otherwise they wouldn't have the information. There's just no way for them to know. If you think about the different assets that they may have in your account, they're going to have some that they know the basis for which would be the ones that you traded with them. Then they're going to have other transferred in assets from customers and they're not going to have any basis information on that.

That just exacerbates the issue of what basis they have, what information they have and what's getting reported. You're going to have basically you could have 1099-DAs and so on that get reported on your behalf or the basis information is not correct. I think you know what is going to happen in those cases. You can imagine the challenges of trying to reconcile. That's what it was going to come down to is creating a really challenging reconciliation process with what the broker reported and the software with the software not really having features enough to give you reconciliation, the ability to reconcile to the degree that we're talking about.

April Walker: We've talked a little bit about there are times certainly where you get it 1099-B and the basis that the broker reports, doesn't match for this or that reason? It can be inherited and who knows a couple of different scenarios. But generally, you can rely on what the basis is. I'm not sure that's going to be the case in this situation. But again, we're just scratching the surface on some of these complex issues. More from an issue highlighting, you can recognize that this is coming. Kirk, This has been great, we've covered a lot of great information, gives us some good takeaways as we're wrapping up listening to this podcast and what can practitioners do in the next quarter coming up or then as they're starting working on a 2024 tax returns.

Kirk Phillips: Yes, I've got some great key takeaways and key points here. Then again, these things will be some of the stuff that I was suggesting in the beginning where you incorporate it into your blogs and newsletters, etc. This ongoing communication that's going to be critical. One of those could be strategically setup and tee up this allocation process in such a way that it is less complicated and has less issues. There's really going to be a strategy that could alleviate some of that. It's not relegated to whatever challenging process is going to be for any specific client. One way you can do that as potentially consolidating wallets.

If there's an example, like I said, the client that's got the 37 wallets and the six exchanges. You can consolidate those down. Now whether it whittles down to a single wallet, probably not, with that many for various different reasons. But if you could go from, say, 37 and six, what's that? Forty three. If you go from 43 and you're able to whittle that down to say four or five. You're automatically going to have less challenges and the less complicated allocation process. Really strategically consolidating assets and wallets is one way that could make this process easier. And then also similar and in conjunction with that could be to take the assets off the exchange.

Because again, if you don't have the ability to communicate with that particular broker because they're not receiving user provided information. If you take the assets off the end of the year, and then you put it back, they're going to have a zero basis. Again, that's its own issue, but I think it's the lesser of the evils, if you will. It's a better scenario for them to have a zero basis because then you're going to report something for it. Rather than they have some number and you have some different numbers. It's kinda like cost basis cleansing and you could call it that.

The other thing here is the third key takeaway. I talked about all crypto software has limitations and challenges and issues, all different from one another. You really need to know [whether the software can help]. For example, if a software provider is going to provide some tooling to be able to help in this process, they may actually provide it to the user. And say, hey, you could just click a box here and we're going to lock down the inventory. Then we're going to do this reallocation for you and you think to yourself, that's great.

I don't have to do any of the work, but you're still going to need to check that. You can't just rely on that. Then furthermore, if there is anything [available] like that, the question [comes] back to safe harbor. Does just checking a box, is that an action that proves that I took an action, a timely action, and allows me to be in the safe harbor or not. I think one of the best takeaways is, regardless of any of these pathways, is that you got to have a workpaper of some sort. And it says, I examined this. Here's a work paper that shows I did the work.

Because it's one of the things that the software doesn't lock down the previous inventory. Find out what software the person uses. Because you may know or you may not know. It depends how you work with the client. [You need to] really understand what is that software provider doing to handle this. That's another key thing. This is really a big, interesting brain teaser for CPAs who were in the digital asset space.

April Walker: For sure and we appreciate you taking a walk with us down, at least to start or the path and more to come. Kirk, this first time you've been with me on this podcast. We call it Tax Section Odyssey. We think of it as an Odyssey, a journey toward a better profession. In doing that, I like to get a glimpse of my guests other journeys outside of the world of tax. What's something on your travel bucket list? Something you have planned. Give me something to add to my bucket list.

Kirk Phillips: Yes. I will be going to Orlando in about a month to see my sister and I don't get to see her much. But one of the things I like to do is backpacking. I am involved with Scouts and I discovered backpacking in 2021 for the first time. I just love going on the Appalachian Trail and all different kinds of trails,  whether it's with Scouts or other things. That's one of the things I like to do a lot.

April Walker: Nice being outside and in nature and there's some beautiful places to hike for sure. You'll have to share some pictures from your hike when you're back with us. Thanks again, Kirk. This was very informative for me, as it always is. I didn't give a shout out to our digital asset page, but I will certainly put it on the resources.

Again this April Walker from the AICPA Tax Section. This community is your go-to source for technical guidance and resources designed especially for CPA tax practitioner 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 podcasts 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 check out our other episodes, as well as getting access to resources mentioned during this 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 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.

On this episode, Mark Gallegos, CPA, MST, Partner — Porte Brown, discusses strategies for thriving during tax season. Mark highlights his current challenges but reiterates the importance of staying educated and focused in order to foster a spirit of collaboration and support to get through busy season.

What you’ll learn from this episode: 

• Practical tips on supporting staff during busy season
• How to stay focused and avoid getting distracted with all the noise
• The importance of providing support and guidance to your colleagues
• Tips on managing workflow and deadlines

AICPA resources

Reimaging your tax practice — Tackle today’s top practice management issues with insights and tips from pioneers in the tax community. Join the upcoming session on March 19 at 3pm ET to hear about Tax Season Triage: Your questions answered.

Beneficial ownership information (BOI) reporting — Access resources to learn about the BOI reporting requirement under FinCEN’s Corporate Transparency Act (CTA).

Transforming Your Business Model: Talent — Tap into the Private Company Practice Section (PCPS) toolkit for resources around attracting, retaining and developing talent to ensure the growth of the profession and position your firm for success.

 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.

The IRS recently released long-awaited guidance related to PPP forgiveness with three revenue procedures — Rev. Procs. 2021-48, 2021-49 and 2021-50.

Earlier in the year, the AICPA submitted a letter to the IRS requesting guidance for a range of issues which are addressed in the revenue procedures. These include:

• The timing for tax purposes of when PPP loan forgiveness is received or accrued
• How partners and partnerships may allocate PPP forgiveness as exempt income and allocate deductions resulting from expenditures attributable to the use of forgiven PPP loan proceeds
• How eligible partnerships subject to audit procedures under the Bipartisan Budget Act of 2015, P.L. 114-74, (BBA partnerships) may file amended returns.

Consequently, amended returns remain an area of confusion for many professionals. On today’s Tax Section Odyssey episode, Jan Lewis, CPA, Tax Partner — Haddox Reid Eubank Betts PLLC, discusses some nuanced issues with amended returns, and when they can be used and when they should be used.

What you’ll learn in this episode

• Jan’s overall perspective on the newly released guidance (2.00)
• Reflections around when an amended return is needed and how to broach the subject with a client (5.12)
• Timing issues with the employee retention credit and the Form 941X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund (10.12)
• Billing considerations with amended returns (13.37)
• Final thoughts from Jan (18.00)
• A page from Jan’s travel journal (18.48)

AICPA resources

• AICPA Town Hall Series— Bi-monthly, high-impact news broadcast series that delivers the latest news, analysis, insights and practical guidance to accounting and finance professionals and responds to pressing issues facing the profession.
• Employee retention credit guidance and resources— The ERC is an important of the COVID-19 relief legislation for small businesses. This library provides the ins and outs of calculating this credit.
• SBA PPP resources for CPAs— Tools and resources on the ever-evolving PPP

Other resources

• IRS Operations During COVID-19: Mission-critical functions continue — COVID-19 continues to cause delays in IRS services. The page is kept up to date to inform taxpayers and practitioners of the status of IRS functions.

Note: If your podcast app does not hyperlink to resources, visit https://taxodyssey.libsyn.com to access show notes with direct links.

This episode is brought to you by the AICPA’s Tax Section, your home base to maintain your professional edge. To learn more about the Tax Section, check out aicpa.org/tax or sign up for a free web tour.

From a record number of unprocessed returns to the inability to contact the IRS, these ongoing issues continue to be a problem for taxpayers and tax practitioners. The Tax Professionals United for Taxpayer Relief Coalition — a diverse group of stakeholders from the tax community including the AICPA — is taking steps to help by providing recommendations the IRS can implement now and raising the profile of the systematic issues.

Hear how the IRS can do more on this Tax Section Odyssey episode where April Walker, CPA, CGMA, Lead Manager – AICPA Tax Section, is joined by Ed Karl, CPA, CGMA, Vice President – AICPA Tax Policy & Advocacy.

What you’ll learn in this episode

• History of IRS service level issues (1.20)
• Steps the AICPA is taking to try to impact the current situation (3.43)
• What the IRS needs to be able to improve the situation (6.01)
• Practical recommendations and tips the IRS can take to mitigate the need for practitioners and taxpayers to contact the IRS (7.22)
• Upcoming events to attend for the latest updates (17.53)
• Will the April 18 tax deadline change? (19.12)
• Final thoughts from Ed (20.56)

AICPA resources

• Is Help on the Way from the IRS for this Filing Season? — Hear how the IRS can do more in this free, one-hour webinar (no CPE credits offered) on Feb. 8, 1pm ET.
• AICPA Relief for Taxpayers for the 2022 Filing Season — The AICPA led a coalition of stakeholders to urge action from the IRS to mitigate anticipated challenges in the upcoming tax season. The coalition also requested a meeting with IRS officials to discuss their concerns and recommendations and directly address any questions.
• AICPA Town Hall Series— Bi-monthly, high-impact news broadcast series that delivers the latest news, analysis, insights and practical guidance to accounting and finance professionals and responds to pressing issues facing the profession.
• Press Center — The Press Center includes news and information for reporters and editors, including press releases, media advisories and other official statements from the AICPA.
• Tax season hub — With constant changes to the tax landscape, being prepared for tax season is critical for success. Set yourself up for a smoother filing season by tapping into the wealth of AICPA and Tax Section resources.

Other resources

• IRS Statement — Providing meaningful assistance to taxpayers in the current environment — IRS statement on January 27, 2022
• Understanding Your CP80 Notice — A notice that states credited payments and/or other credits to a taxpayer’s account for the tax period; however, the IRS hasn’t received the tax return. Due to processing delays for 2019 and 2020 tax returns, the issuance of CP80 and CP080 notices have been suspended. If a taxpayer received a notice for the 2019 return and it was filed timely, please refile the return. If a taxpayer receives a notice for the 2020 return, do not
• Your Online Account — Encourage your clients to sign up for an IRS online account to access their individual account information including balance, payments, tax records and more.

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.

The homestretch of the tax season is drawing near. On this episode of the Tax Section Odyssey April Walker, CPA, CGMA, Lead Manager — AICPA Tax Section, highlights three top-of-mind items lingering on as we near the end of busy season 2022.

What you’ll learn in this episode

• Status of relief around Schedules K-2/K-3 (0.50)
• Updates to the Gramm-Leach-Bliley Act Safeguards Rule (3.45)
• Where to hear more about the “billionaire tax” and other proposed tax reforms related to the 2023 fiscal year budget (6.36)

AICPA resources

• Gramm-Leach-Bliley Information Security Plan Template — Tax preparers must implement security plans to protect client data. Failure to do so may result in a Federal Trade Commission (FTC) investigation. Download and customize this template to document your firm’s policies.
• The 2023 tax revenue proposals released by the Biden Administration — In this March 29, 2022 episode of the PFP Section podcast, Bob Keebler, CPA/PFS, highlights the relevant proposals to CPA financial planners.

Other resources

• General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals — Commonly referred to as the “Greenbook,” the document summarizes the Administration’s tax proposals contained in the fiscal year 2023 budget.
• FTC Strengthens Security Safeguards for Consumer Financial Information Following Widespread Data Breaches — The FTC announced on Oct. 27, 2021 updates to the Safeguards Rule to better protect the American public from breaches and cyberattacks that lead to identity theft and other financial losses.

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.

The end of the year is upon us. While the hustle and bustle of the holidays and winter hibernation sets in, April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, fills you in on some quick updates about a few trending tax topics to keep you in the know, including Schedules K-2 and K-3, Form 1099-K, Payment Card and Third-Party Network Transactions and tax legislation developments

What you’ll learn in this episode

• Second draft of Form 1065 Schedules K-2 and K-3 instructions revise domestic filing exception (0.34)
• Continued concerns regarding the revised reporting threshold for Form 1099-K (6.13)
• Year-end legislation, including the potential for tax extenders (8.31)

 Related resources

• AICPA Comments on Form 1099-K Reporting Threshold — The AICPA has deep concerns regarding the Form 1099-K reporting threshold that was lowered to $600 for 2022 and will lead to significant confusion in the tax system in the next several months.
• Form 1099-K — New lowered threshold for 2022 — New reporting requirements for Form 1099-K are effective for tax years beginning in 2022. Access information and tools to help you with the changes.
• IRS Schedules K-2 and K-3 guidance and resources — Access resources to advise clients on IRS Schedules K-2 and K-3, which are used to report items of international tax relevance from the operations of passthrough entities.
• JCX-1-22 (January 13, 2022) — The staff of the Joint Committee on Taxation has prepared a list of Federal tax provisions that expired in 2021 or are scheduled to expire in the future.

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.

The tax treatment for digital asset losses can be a complex area. Not to mention, misleading information can cause confusion for tax practitioners and taxpayers alike. Learn more about the intricacies of how realized digital asset losses are reported and why it likely makes sense to avoid having the digital asset be considered worthless or abandoned based on the current tax treatment. 

AICPA resources

• Digital assets and virtual currency tax guidance and resources —This hub is your go-to library for AICPA guidance and resources as well as current legislation, IRS initiatives and tax advocacy project
• Crypto loss tax reporting fact or fiction — With the prevalence of recent virtual currency exchange bankruptcies and digital asset volatility, taxpayers may have misconceptions on reporting tax losses. 
  
• AICPA comments on digital currency losses, April 14, 2023

Other resources 

• IRS Chief Counsel Advice (CCA) 202302011 — Memorandum that addresses the applicability of IRS Sec. 165 to cryptocurrency that has declined in value 
• IRS Digital Assets  — Resources and guidance available on the IRS.gov website

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 Annette Nellen. Annette is a professor and director of the MST program at San Jose State University. She's also a wonderful AICPA volunteer and has been on the podcast before. Welcome back, Annette.

Annette Nellen: Thank you.

Walker: This episode is Part 2 in a three-part series that we're focusing on digital assets here on the Tax Section Odyssey, a journey through digital assets, if you will.

Today's episode is going to focus on a common question that we get in this space, and that is how our losses on digital assets treated for tax purposes. A second underlying question as you're listening to this might be, what are the misconceptions? What are the things that you hear people saying…you read on the Internet about this topic that might or might not be correct.

Annette is going to really help us dig in to those. Annette let's start off at a basic level and remind our listeners, just basic digital asset 101. What do we know about digital assets in general, and what does that mean for the treatment of digital asset losses?

Nellen: Well, thank you April, the key guidance here came out in 2014. That is [IRS] Notice 2014-21, where the takeaway was digital assets. That notice actually just talks about convertible virtual currency. That is before we were using the term digital assets because that was actually added to the law in November 2021 with the infrastructure investment and jobs act.

But the notice talks about treat this virtual currency cryptocurrency treated as property. It is not treated as foreign currency for tax purposes. They answered several questions in the notice. Some were pretty obvious like if you're paid by your employer in a virtual currency, is that taxable? Yes, of course it's taxable. That's fair market value at the time they receive it.

But the key takeaway and what they said [if] something isn't addressed here. Basically go to the rules on the taxation of property transactions and that probably will answer your questions. Now it doesn't always because there are some unique features of how virtual currency, digital assets operate that other ones do not operate in that way.

For example, a virtual currency could have something called a hard fork. I'm not aware of any other property that really has a hard fork with something just breaks off from it and continues on its own. Doesn't have a good analogy there. We do occasionally run into situations where [it’s] not real clear.

That's a lot of ones where the AICPA Digital Asset Tax Task Force is trying to address those and seeking guidance from the IRS if they can point out. Because this is a question people have, what do you think the answer is? We can all be on the same page here.

Walker: Yeah, that brings up several good topics. I generally have converted to saying digital assets. We can also say virtual currency. We could say cryptocurrency, all of those being, at least in general, the same thing. If Annette says a different word or I say a different word, that's all what we're meaning.

Then also that there's some really tricky things that can happen with this type of property that's way different than some of the really complex investment type property. That's why we have to be on top of this and learn.

That was our message in Part 1. We cannot escape this. We can't just bury our head in the sand and pretend like it doesn't exist.

Annette let's take this a step further. What if a client comes to you and says, I had digital assets. This is probably a pretty common thing that happened in 2023. “I had these digital assets in this wallet and it dropped tremendously in value — like right now it's only worth $0.30 or something like that. Did I have a realized loss? And if so, how do I treat that realized loss?

Nellen: Well, that is a good question. It seems to be one that the IRS was getting as well because in January of 2023, they issued a Chief Counsel Advice 202302011. It had a few reminders in there, but doesn't address every type of loss that people might encounter with their digital assets or cryptocurrency.

The fact pattern at Chief Counsel Advice was that the person had purchased a cryptocurrency at $1 per unit, and by the end of the year, it was trading for less than $0.01. That's something also unique about this virtual currency or cryptocurrency. It can certainly be trading for far less than one penny. That itself raises an interesting question because tax we're usually rounding everything up to $1. If something's worth less than a penny, does that mean it's worthless? Probably not.

Now, in that fact pattern though, where that cryptocurrency had dropped to below $0.01 It also was still, of course, owned by the taxpayer. They hadn't done anything to have a realization event. It was still actually being traded on at least one cryptocurrency exchange. It was still possible that they could have sold that in what would have been actually an on chain transaction.

Now, the Chief Counsel Advice does not go into doesn't matter if you sell it on chain, meaning you go through the normal like the blockchain transaction, actually get that completely transferred to somebody else versus I had the code for this. I'll write it down on the piece of paper and sell it to somebody. But then technically you still arguably have the code. You could have even memorized it. It didn't go into that, but it did state that with this fact pattern — worth less than a penny, you still owned it and it was still traded at least one exchange, you did not have a realized loss. They also said it wasn't worthless and that arguably makes sense. It's not worthless because you could still actually trade it. There's some place you could get somebody to buy that from you. Of course it's not abandoned, you actually still own it.

This Chief Counsel Advice did tell us that it's not a realization event, you don't have a loss. It does talk a little bit about the general rules on worthlessness and abandonment, but it doesn't talk about how would you know if a cryptocurrency had become worthless? How do you abandon a cryptocurrency? But I do want to state and I'll probably state this more than once.

Today, you don't want to have worthless or abandoned cryptocurrency because that results in an ordinary loss because there's no sale or exchange of a capital asset. You don't have a capital gain or loss, you have an ordinary loss.

But remember deductions and losses are matter of legislative grace. If you can't point to a code section allowing you to claim that loss, you cannot claim it. If you look at Code Section 62, 63, and 67(g) and this Chief Counsel Advice highlights Section 67(g). The only place this loss, if you did have a worthless or abandonment loss on the cryptocurrency, the only place it would fall would be as a miscellaneous itemized deductions subject to 2% of AGI limit — which for 2018-2025 is not allowed at all. The taxpayer would have been better off selling that before it became worthless so that you at least have a capital loss on that. So, a lot in that answer there.

Walker: It was a lot to unpack there. A lot of times I feel like I think when you're thinking back on worthlessness and whether something has been abandoned, a lot of times people want to convert it from a capital loss to an ordinary loss. That's generally where they're going with this. But that's really not the case in this scenario, at least that was presented in the chief counsel.

Nellen: Another thing to bear in mind here is that while you think, if I had worthless securities, I get a capital loss on that. That's because there's a special rule at Code Section 165(g). Maybe just a quick review of a few more code sections. What is a capital gain or loss? That's defined at Code Section 1222. Two key things you need for a capital gain or loss is a sale or exchange of a capital asset.

Now, if you're holding cryptocurrency for an investment, yes, that's a capital asset, but abandonment and worthlessness are not a sale or exchange. It's not a capital loss. It'd be an ordinary loss. What makes worthless or abandoned securities a capital loss is Code Section 165(g). But it's limited to securities, where it says, if you have worthless securities, treat it as if you had a sale or exchange on the last day of the year, that's what's then causing you to have sale or exchange of a capital asset producing that loss for you.

Then the Regs under [Section] 165 note that abandonment is the same treatment as the worthlessness, but the cryptocurrency is not a security. I know people say, oh, but look at the head of the SEC is saying all of it's pretty much a security. That is not necessarily true for. I don’t know about securities law, but that's not the definition for tax purposes here. You're ending up with an ordinary loss.

Then I've seen on web pages and among practitioners, oh, ordinary loss, great. We claim that above the line. Now again, you saw the point to a code section. Again, if you go through Code Section 62 defining adjusted gross income, Code Section 63 and 67, really defining taxable income and allowable deductions. There's no place where it falls other than it's a miscellaneous itemized deductions subject to 2% of AGI limitation, which actually is still allowed in California. California never conformed to that, but for federal purposes, and probably most states [in] 2018-2025, that loss is not allowed.

Also just odd stuff out there as well. There are some websites, at least the ones I've looked at, it says right at the top, worthless cryptocurrency. We will take it and they'll take it for some set amount, which is a fraction of a penny. But it's troubling that they're saying at the top of the website, worthless. Now if it's really worthless, why are they giving you anything for it and that you're arguably already having a transaction with the person.

Probably that does generate a capital loss from the sale or exchange of that. That'd be an example where it'd be nice if the IRS could say, even though you didn't negotiate the price, because that website is going to give everybody the same fraction of a penny for your "worthless". But again, it's arguably not worthless as I'm taking it from you. But that'd be viewed as a valid sale or exchange. We didn't negotiate the price, but again, we're talking about a price for something is worth less than a penny, would they ever come back and say, hey, if that's the main feature, just worth less than a penny, it's worthless.

In the letter that we sent off, the Digital Asset Tax Taskforce, we sent off a letter in April 2023. The Chief Counsel Advice is quite helpful, but it doesn't address everything. If one of the things that we asked was could you tell us what you think would indicate that a cryptocurrency is worthless and how you could actually abandon a virtual currency? Because then taxpayers would know how to avoid those situations, because that's not an ideal tax result for an investor.

Walker: Those are some great points and like you said, I will definitely put the chief counsel memorandum in there and also some of the letters that the Digital Asset Tax Taskforce has done and continues to do. While we're on that topic, let's talk about some more things that we might have done around digital asset losses. You do reference that letter and we'll put that in there and other guidance that's needed.

Referring back to that website I guess they're probably not saying worthless as in worthless for tax purposes. Maybe that's where they're going with that. But still it's very misleading for consumers as well as probably for tax practitioners who might not operate in this space.

Nellen: The taxpayer who's done that [and] transferred it there. I believe that actually is an on chain transactions, so that's good because that's indicating there was some way you still could transfer it.

Because one of the questions we've asked the IRS, both on the letter and when we occasionally meet with them is, what if it's the blockchain is down, nobody's verifying these transactions on X coin because it's over 9,000 virtual currencies out there. Maybe one just seems to be gone, you can't transfer anything. Would that indicate it's now worthless, because maybe sometime in the future, it'll get reactivated. Plus probably if you had the code on a piece of paper, there's somebody out that it will probably buy it from you for five dollars or something just to say, hey, maybe it will go back into business. Which is why I think these websites are taking all these things that people think are worthless, which clearly aren't worthless, somebody's making a market for these items.

Would that be a permissible transfer when it wasn't on chain. Just I wrote down the code, but arguably do I still have access to the code and then had convinced the buyer [that] I [have] erased it from my mind. I've burned the piece of paper and any other place I wrote it down. That's another topic that I hope the IRS will address it some time because it’s also relevant if you're gifting virtual currency to your relative. Do you have to do it on chain to make sure it's a valid transaction that everybody would know. Yes, it’s on the blockchain that just got transferred and you no longer have any access to it at all, only the recipient.

I would certainly say if you're going to make a gift to somebody, do it on chain, that's more likely should be a valid gift because you relinquish every ability to access that. But these are examples that come up. But it would be nice if the IRS could tell us what would make something worthless, what would make a cryptocurrency abandoned.

But I do hear from practitioners, so someone trying to do that because they think this ordinary loss that I can claim against my wage income and other income, that's not the case. I will encourage you to take a look at the chief counsel advice in the code sections it's referring to and we have an analysis of that in the letter as well.

But it does get confusing because people might just do a Google search and come across things that sound convincing. But remember, we're respected practitioners, we need to be looking at the law itself. Is that any support for this answer in the law itself?

Another code section we raised in the letter, erase a variety of things. Could you address this issue? There's a Code Section 1234(A), which we don't see many cases on, but occasionally we do. Where it's basically saying certain terminations of a right to a capital asset would be treated as a sale or exchange, then giving you that capital gain or loss situation. What is a termination of a cryptocurrency? The fact that the blockchain is no longer having transactions and nobody is verifying these. The blockchain has somehow been destroyed and I guess you destroy all the software or something. Would that be enough?

Then you also have the issue of what about the part that is dealing with their right to a capital asset. Is that what cryptocurrency could be defined as?

We've also raised the question, well, what about lending digital assets? Because the word lending and then digital assets. If we're thinking about currency, we're lending currency. But remember, the Notice 2014-21 said that the cryptocurrency/virtual currency is not treated as currency for tax purposes, it's treated as property. It's like you're lending your car to somebody. What happens if it doesn't get returned?

Also, what about the income you're generating from that [digital asset]. Is that portfolio [or] is it a trade or business? Obviously relevant for passive activity loss purposes under [Section] 469 and a variety of other issues.

These are tough issues for the IRS to deal with as well and have the magic answer. They're doing research, but some places it might be that maybe you just need to have a position. Hey, if this happens, we would treat this virtual currency as worthless, then we would all be on the same page at least of how that is viewed. Then we also in our letters, always make the statement or asking for guidance. We'd like to have binding guidance like a revenue ruling, revenue procedure, regulations. A chief counsel advice unfortunately, it's not binding guidance. Of course, the law [code] sections and there's all citing to binding guidance code, regs, court cases, things like that.

Walker: FAQs they did a round of those.

Nellen: But some of them are just restating binding law. But there were a few in there that were new.

Walker: I think some of the terminology also gets mixed up in there too, and that's part of the clarification in the letters. This has been really helpful Annette. I feel like sometimes we come out of this with more questions or I do, with more questions than answers, but at least you've got us pointing to asking the right question around us as we're looking to do 2023 returns that have this digital asset activity. Any final thoughts that you want to leave us with on this topic?

Nellen: I encourage you with losses, do take a look at that chief counsel advice [memorandum], the letter that the digital asset tax taskforce prepared and some of these comment letters — plenty of ones from the AICPA, New York State Bar and the ABA often have a lot of background information as well. Because it's not always a lot of information out there tax-wise on these on what are relatively still new transactions you've been around since about 2009.

When again, always remember we need to go to the primary authority for determining what is the tax treatment of something because there's a lot of misinformation out there. Unfortunaty also from accountants and attorneys. Sometimes they're just saying a statement that they haven't really dug into or they don't really know enough about the digital assets to realize that there is something different out there. Or they forgotten about Code Section 1222 or things like that. But the taskforce continues to look at what is going to help AICPA members to deal effectively with their clients? Where could we benefit from more binding information from the IRS?

Walker: We're wrapping up and closing on these podcasts I like to talk about us taking a journey. We're taking a journey through digital assets. We're just taking a journey towards a better profession, or that is my goal. But I like to hear about my guests other journeys outside of tax. Annette, you have been on here before. But tell us a trip you have planned or a trip you have been on recently that was memorable.

Nellen: Memorable would be right before Christmas, I did take my daughter, son-in-law, 9 year old grandchild, and infant grandchild to Disneyland. That was nice experience and all that. More immediately, I get to go to the American Taxation Association, which I'll mention because most members probably don't know but that, but that's a very large group of primarily tax professors and a few folks from accounting firms. We are having our mid-year meeting down in Long Beach where I've a couple of presentations with the AICPA.

Walker: Nice. Anytime a beach is involved, I'm always like yes, please. Even if it involves also some works stuff. Great. Thank you again Annette for this very helpful walk-through digital assets, virtual currency, cryptocurrency losses.

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 listened 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 this at aicpa-cima.com/tax, and find our other episodes as well as get access to the resources that we mentioned on this episode and others. Thank you.

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.

The employee retention credit (ERC) has been a significant lifeline to struggling businesses in the wake of the COVID-19 pandemic. The refundable credit was first established in March 2020 with the enactment of the Coronavirus Aid, Relief and Economic Security (CARES) Act. Since then, is has been expanded in various other relief legislation, most recently in the American Rescue Plan Act, H.R. 1319 enacted in the first quarter of 2021.

While at its core the mechanics may appear straightforward, its practical application has shown to be complex and tax preparers have been an integral part of making it a reality for clients. Meanwhile, some professionals debate whether contingent fees should be considered in this area.

On this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager – AICPA Tax Section and Ed Karl, CPA, CGMA, Vice President – AICPA Tax Policy & Advocacy, delve into the intricacies of what is considered a contingent fee and how the AICPA Code of Professional Conduct and other regulatory rules address its usage.

What you’ll learn in this episode

• What is a contingent fee (0.40)
• AICPA Code of Professional Conduct surrounding acceptability of contingent fees for original and amended returns (2.04)
• Alternative acceptable fee arrangements (5.39)
• History and evolution of contingent fee usage (6.51)
• Treasury Department Circular No. 230 considerations for contingent fees (9.48)

AICPA resources

• AICPA Code of Professional Conduct – Dedicated hub for the AICPA Code of Professional Conduct which provides guidance and rules to all members in the performance of their professional responsibilities
• COVID-19 tax resources – Resources and information to help CPA tax practitioners navigate the tax world in the COVID-19 pandemic
• Getting to the Bottom Line about Contingent Fees – Blog post by Edward Karl, CPA, CGMA on Oct. 16, 2014
• Tax advocacy – Consolidation of the AICPA Tax Policy & Advocacy team efforts as they advocate for legislative, regulatory and administrative tax matters on behalf of members. See also AICPA advocacy news and recent comment letters.
• Treasury Department Circular No. 230 – Consolidated information and a link to the rules governing the recognition of attorneys, certified public accountants, enrolled agents, enrolled retirement plan agents, registered tax return preparers and other persons representing taxpayers before the IRS.

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This episode is brought to you by the AICPA's Tax Section, your home base to maintain your professional edge. To learn more about the Tax Section, check out aicpa.org/tax or sign up for a free web tour.

In this episode two members of the AICPA Virtual Currency and Digital Assets Tax Task Force (VCDATTF), Nik Fahrer, CPA, Senior Manager, National Tax Professional Standards Group — FORVIS, and Robert Tobey, CPA, Partner — REID CPAs, LLP, share their expertise with April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, on how to vet potential clients with digital asset activities, including questions to ask, as well as how to gain more expertise in this evolving field.

What you’ll learn in this episode

• Expertise tax practitioners need to be proficient in the digital asset field (0:55)
• Best places and ways to gain digital asset tax expertise (3:00)
• Examples of processes and procedures to set in place before accepting a client with digital asset activities (5:59)
• Record keeping responsibilities (14:05)
• Red flags (15:04)
• Highlights from Rev. Rul. 2023-14 (16:41)
• Current projects of the VCDATTF (18:36)
• Final thoughts (20:48)

Related resources

• Frequently asked questions on virtual currency transactions — IRS webpage explaining virtual currency questions and answers.

AICPA resources

• Digital assets and virtual currency tax guidance and resources — Sharpen your tax knowledge on digital assets and understand the tax complexities and strategies involved with virtual currency and cryptocurrency. This hub is your go-to library for AICPA guidance and resources as well as current legislative and IRS initiatives and projects the VCDATTF is monitoring.
• Crypto Loss Tax Reporting: Fact or Fiction — With the prevalence of recent virtual currency exchange bankruptcies and digital asset volatility, taxpayers may have misconceptions on reporting tax losses.
• Rev. Rul. 2023-14 — The ruling provides that cash-method taxpayers who stake cryptocurrency native to a proof-of-stake blockchain and receive additional units of cryptocurrency when validation occurs (i.e., validation rewards) must include the fair market value (FMV) of proof-of-stake validation rewards in their gross income for the tax year in which they gain dominion and control over the validation rewards.
• AICPA Comments on the IRS Draft 2023 Forms 1040, 1065, 1120, and 1120-S Digital Asset Question — The AICPA submitted comments on the digital asset question that is first appearing on the draft 2023 Forms 1065, U.S. Return of Partnership Income (version dated June 23, 2023); 1120, U.S. Corporation Income Tax Return (version dated June 2, 2023); and 1120-S, U.S. Income Tax Return for an S Corporation (version dated June 22, 2023). The AICPA also commented on the draft 2023 Form 1040, U.S. Individual Income Tax Return (version dated June 22, 2023), digital asset question.
• AICPA Comments on Non-Fungible Tokens – Notice 2023-27 — The AICPA submitted comments on Notice 2023-27 on the treatment of certain non-fungible tokens (NFTs) as collectibles. The AICPA is requesting that Treasury and the IRS provide further guidance on the issues suggested in our comments.

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 Robert Tobey and Nik Fahrer to delve into how to interact with clients and potential clients that may have digital asset activity.

Nik and Robert are on the AICPA's Virtual Currency and Digital Assets Tax Taskforce so I thought they would be perfect to share some thoughts with us today.

Digital assets, virtual currency, there's so many different terms of art here. Cryptocurrency. It is such a unique and fast-moving field. Kick us off with what kind of expertise is needed to be able to be proficient in this area. Proficient is maybe a hard word, but at least to be able to practice in this area.

Robert Tobey: First of all, you have to have a general understanding of the different types of digital assets that are out there. Right now, in particular, practitioners are probably dealing mostly with cryptocurrency, miners, traders, stakers, and non-fungible tokens which indicate a specific ownership interest (it's like a derivative of some type of underlying asset).

You need to have an understanding of what each type of these assets are. Since the tax code treats them as property from each one of these activities. If you are a miner, that's generally self-employment income. If you're an investor, that is just buying and selling, that's long or short-term capital gains.

If it's NFTs, that's treated generally as a collectible and that's taxed at 28% if it has a gain. That is ordinary income also, but the timing of recognizing that is still up for debate.

Really unless you have an understanding, my feeling is if a client comes to you or if you have these types of assets, you should seek out council, an accountant, a lawyer that understands these types of assets.

If you're a practitioner and a client comes to you and you're unsure, you should seek out help from the digital asset task force where we can answer some of your questions.

But this is one of those areas because the rules are so different and the different types of assets have different attributes to them. If you're unsure, don't practice in this area unless you really know what you're doing.

Walker: We're going to talk a little bit more about some of those questions a little bit later, but I like to think about it. It's a whole new vocabulary. It's a whole new vocabulary for understanding — what even is staking? You have to understand that stuff so that's a great way to kick us off.

Nik, as you're trying to think about learning this, where have you found to be the best place to gain expertise in this area?

Nik Fahrer: First of all, thank you April for having me on here today.

Walker: Yes. Thank you for joining me.

Fahrer: The first piece of advice that I would recommend is just dabble in this on your own. Find some insignificant amount of money, and just go out there and play around with it.

I think the best way that you can learn something and the mechanics of how these things actually work is to sign up for an account on a centralized exchange, just to name a few in the US would be Coinbase, Kraken or Gemini. Put an insignificant amount of money in there. Buy, sell, but then take it even further.

Don't just buy and sell on a decentralized exchange, send it to a non-custodial wallet and connect it to a decentralized application, like a decentralized exchange and play around with it on there. Stake some of your crypto to see how that works and just generally figure out the mechanics.

I think that's generally the best way to understand what some of these words mean. It really feels like there's a entirely new vocabulary when you get into the space.

When a client comes to you and they're like, “Hey, I just staked some Ethereum and earned X amount of dollars through staking.” You're probably wondering what the heck is staking? Doing it on your own with an insignificant amount of money is a really easy way to learn how this stuff works.

But taking it a step further, if you want to learn how these applications within this new technology actually apply within the Internal Revenue Code, the AICPA has a really good webpage.

IRS has an FAQ webpage. They also have a web page dedicated specifically to digital assets where you can go out and see all of their guidance that they've previously issued, both binding and unbinding guidance that they've issued out there. That's a really good resource as well. I would start there with those two things and then just be a critical thinker.

Try to understand as you're working with your clients in this space, where are the risks and then also, what's the cost versus benefit analysis? If a client comes to you and says, “Hey, I did all these hundreds of thousands of transactions in crypto,” and they tried to turn over an Excel document to you to go through and calculate all of their basis and proceeds. That's going to be a huge time suck.

Is that really worth the cost versus what may actually be captured on the client's tax return could end up being an overall net $1,000 gain? Use some common sense as well and just try to understand what are the risks, but also what's the cost versus benefit analysis here?

Walker: I like that and thank you for bringing up the AICPA's page. We'll put a link to that in our show notes and as well as the IRS page.

Robert, you are a partner at Reed Accountants and Advisers. Talk to us a little bit about is there any specific processes or procedures in place that you guys have before you either accept a client that has digital asset activities or how you're dealing with a client that might start dabbling in it? Also while you're at it, just talk to us a about advice you might have for those with smaller practices.

Tobey: It's interesting if someone comes to us and is just a trader. Like they have a Merrill Lynch account for cryptocurrency. There's not a lot of risk in that type of account and it's easier for us to accept and understand because they're trading — it's like they’re trading stock. If they hold it, they can be a trader in the securities which allows them to deduct their expenses differently then if they're an investor.

If they are an investor, they may be holding it for long-term gains, [but the trader is] going to have short-term capital gains and losses. That's easier to understand.

If somebody comes to me and says, I'm a miner, and I'm working with a client right now, that's a miner. I go fine. What do you mean by you are a miner? What do you do? Where do you do it? What currencies are you working with? Where is your mining rig located? Because that has some state income tax implications with respect to it.

This guy lives in Connecticut and his mining rig is in a facility that hosts it in Texas. When you mine, it's like you're self-employed and you're earning income. What do you do with that income once you earn it? You recognize it as ordinary income, you deduct your Sec. 162 ordinary necessary business expenses against this.

But now you have cryptocurrency, that once you hold it in your hands, it is an investing type of asset. What do you do with it once you have it? Are you staking with it? Are you trading it? Are you holding it for investment? Because of the complexities of the subject matter, I go through a lot of questions.

I have a checklist of questions I go through to ask people who were more than merely investors (like they hold stocks) in cryptocurrency before we choose to accept them.

You [have] to make sure that there's not any risk with respect to this. Are they doing things offshore? Are they doing them in a manner where there's some subterfuge about what they're owning because they want to potentially hide their assets offshore? There's also firm risk that we have to take into consideration.

Then once I talk to them, I determined what a fee might be because this is generally complicated stuff [more than for a] regular tax return. Our firm is really trying to get away from just doing standalone 1040, so we're talking to a lot of businesses. I'm talking to a cryptocurrency venture fund to figure out what they're doing and how I might be able to help them. That brings another level of complexity.

I lived in Charlottesville, Virginia for 25 years and there are a lot of small practitioners down there that serve the community. They're more likely to see someone who's a trader.

They really need to go to either the AICPA website or the IRS's website and become familiar with the rules regarding cryptocurrency of recognizing gains and losses and what types of gains and losses are there. Also they need to understand the fact that sometimes regular security rules don't come into play here because investing in cryptocurrency is not subject to the wash sale [rules].

There are some unique aspects to it that they really need to understand. Again if I'll go back and say what I said before. If you're unsure of it, don't put your toe in the water. If you're going to work in this area, at least get up to your knee, so you understand what's going on and you have some technical background with respect to it.

Walker: I think that's great advice. Also, it's more than just asking the very simple question that you have to ask to be able to check the box on the 1040. I like that. You need to think about and ask what those different levels of deeper engagement questions are.

Nik, what about you? You're at FORVIS, so a bigger firm. [Do you have] additional steps, or additional recommendations you have about when you're dealing with clients with digital asset activities?

Fahrer: Absolutely. I can speak to that. The best piece of advice that I would say is, let's start with the basics first. Let's not complicate things before we get too far down the road, but let's first ask those basic questions of, one, do you have the competency to serve this client, or does someone in your firm have the competency to serve this client?

Two, what is the reputation of the client and is this a client that you want to be connected with and work with? Maybe one that is not so obvious is can they pay your bill? Robert alluded to this a little bit earlier, but these are complex issues. Maybe the fees are a little bit higher than normal.

Is this something where you need to be concerned about the volatility in the market and the client may be underwater in their investments and not as liquid in their cash position. Let's ask those basic questions first and then we can start to move into the more digital asset specific questions that need to be asked in that client acceptance.

This isn't fully inclusive, but some of those could be how clean are their records? That's probably the biggest one that you want to ask is where are you keeping track of all your records, especially if the client gets off of a centralized exchange.

I alluded to this earlier whenever I was talking about how to get expertise, or some experience and doing it on your own. Don't just stick to a centralized exchange. Send your crypto to a non-custodial wallet, play around with on-chain transactions, because more than likely that's what your clients are going to be doing that need your help. Then now that you have this experience on your own, you can relate to them and know what to look for when they come to you, and know what to expect in the recordkeeping as well.

[For] on-chain transactions, there's a record of all of them on the blockchain, but there's no standard 1099 reporting, at least as of yet. We're waiting for some more guidance from the IRS here, or Treasury, one of the two, to understand what the standardized reporting is going to look like in the future.

Because of that, there are software companies out there and I'll just name a few that can help automate the on-chain transaction reporting. [For example] CoinTracker, or Ledgible, or Cryptio, or a Bitwave are several of them out there. That's not all inclusive. There is more than just those.

But they can basically connect their software to the clients wallets and exchanges and it will automate a vast majority of the transactions, and a lot of them will even raise red flags if they are unable to match cost basis, based on all of the wallets and exchanges that they've connected into that software. That's another thing that helps you as a practitioner know, hey, the client hasn't given me all their information. They say they've connected to all of their wallets, they say they connected all of their exchanges, but we're missing information for a lot of the cost basis of these transactions. It's a tool that you can have in your tool belt that'll really help you take this to the next level.

Walker: I'm glad you brought up recordkeeping. That was actually one of my questions, but that's great. Thank you for the recommendations.

I'll ask Robert if he has any also, because I feel like this could become a fire drill situation. When you got somebody coming in and they have all these crypto transactions, and then you have to go back and try to figure it out. Hopefully this is a proactive conversation. What do you recommend to your clients to help with recordkeeping, Robert?

Tobey: I'm not recordkeeping for [them].

Walker: Absolutely.

Tobey: Here's the deal. This isn't looking at a [Form] 1099-B where the column 15 [has all the information]. Most of the people that I deal with that are investing in, or dealing with crypto, have thousands of transactions. Unless they use Coinbase or some other [tracking software].

Fahrer: [Some options are] Ledgible, CoinTracker, Cryptio, Bitwave. Those are all just a few, just to name some.

Tobey: Unless they use those and they bring us the records and we can tie them out, or they have a spreadsheet that they've done themselves.

Our firm will not do that. We're running out of people just to do regular work and to sit there and to try to keep track of somebody's 10,000 crypto transactions in any one year that are not large dollar amounts in and of themselves. We just can't do that. It's a client responsibility and they wouldn't want to pay me to do it frankly.

Walker: Absolutely. That's a red flag if you've got somebody coming in and they are just like, I got crypto transactions and I haven't done [anything with] it. That's a red flag. What are some other red flags that should send a signal up that this is may be not the best client for you?

Fahrer: One question that we generally like to ask is, how did you acquire your digital assets? If they don't have a good answer to that question, that's generally a red flag.

Tobey: And where are you holding it? Are you holding it in the U.S., outside of the U.S.?

I'm really interested in the risk I'm going to have with somebody that's dealing with exchanges that are not U.S. exchanges and they should be reporting it, but they shouldn't necessarily be transacting on the exchange. I agree that if they can explain where they got it, if they can explain ins and outs of the transactions and they tell me that they're doing stuff offshore. The offshore ones have stopped me dead in the water.

Fahrer: I think one thing that you can do as a practitioner to protect yourself and your firm is to get some sort of representation from your client that says, hey, I've provided you with all of my wallets, exchanges and transactions, and that there are no other ones out there that I haven't already provided to you. That protects you that the client is saying that they've given you everything.

Tobey: We have that in general in our engagement letters. That we've told you everything, we've provided you everything you needed to prepare our tax return. Now that you say that, I actually might put an extra sentence in there about cryptocurrencies.

Walker: We're all learning. We're going switch gears just a little bit and I want to talk about guidance the IRS recently released. Revenue Ruling 2023-14, talking about cryptocurrency, staking, and rewards. Robert, you want to give us a very high-level overview of that. I know that it can get really complicated, really fast. Just tell us what we need to know about that guidance.

Tobey: This is a timing is everything revenue ruling. It was issued while a couple named the Jarretts are in the Sixth Circuit Court of Appeals, having their case heard with respect to a refund and that the IRS gave them with respect to how they reported their staking activities.

The long and the short of it is the Jarretts take the position that staking activity is nothing more than a baker putting ingredients together, baking a cake and doesn't recognize the income from baking the cake until he sells the cake. That's the simple discussion of it.

The IRS says okay if you stake, once you earn the income or have dominion and control over the rewards from staking, you need to recognize it as income. It's a very big deal. The IRS came out with this to put the stake in the sand with their position regarding the Jarretts. You got to follow it because it's a revenue ruling.

If people have a feeling that they want to take the position that the Jarretts do, you're going to have to file a disclosure form with the IRS stating that you've taken a position contrary to the law. You can do that, but it'll give you the free pass to the IRS audit auditors.

Walker: Yes, it will, okay, that's great. We'll link that in there so you can read it, and learn more and make sure that you're following that guidance. I mentioned that both of you were on the Virtual Currency Digital Asset Task Force. I want to say thank you for that. Thank you for your volunteer service.

Nik, could you give us a quick rundown on just a few of your top priorities for the group or that the group is working on?

Fahrer: Yeah, absolutely. Maybe I'll touch on a few that we just completed too.

We actually just released a resource that is basically questions to ask your clients if they invest in crypto.

We also recently released an FAQ on taxpayers taking losses. Specifically, taxpayers that may have had crypto tied up in a centralized exchange like FTX. Can they capture those losses in 2022 tax year? If not, how did they capture those in the future?

We also, recently sent a letter on the new virtual currency question that's being added to our 1120-S, 1120-C corp, and then also, 1065 partnership returns. It's very similar to the 1040 question. We sent a letter to the IRS about that.

Also sent a recent letter to the IRS about Notice 2023-27, which is guidance on NFTs as collectibles. As you can tell, we've been really busy, this year sending a lot of letters and working a lot of resources for you all.

Upcoming, we're looking at responding to the Senate Finance Committee letter, that asks basically nine or ten different questions of, how does the ambiguity in the tax law apply to digital assets?

Senators Lummis and Gillibrand also recently proposed a bill in the Senate [Lummis-Gillibrand Responsible Financial Innovation Act to create a comprehensive regulatory framework for crypto assets], and we're going to respond to that as well. Then this [ruling], 2023-[14], which talks about the timing of when to pick up staking income in gross income.

Walker: Perfect. Yes, as you said, you've been very busy, and I'm sure will continue to be as there's seems like to me, as we learn more about virtual currency and digital assets, there's more to learn, is the way I feel about it. Thanks for helping get that guidance out there.

Robert, as we're wrapping up just any final thoughts you want to share on this topic, or with our listeners about digital assets?

Tobey: The loss issue with respect to FTX and some of the other digital exchanges is really problematic. It's a timing issue. A lot of times losses can only be taken as miscellaneous itemized deductions which are no longer allowed after the Tax Cuts and Jobs Act. It could be interesting to see what the IRS comes out or whether they come out with guidance that will allow some of these losses.

There's a vibrant market today in the bankruptcy claims from FTX. How were those treated for tax purposes? Are there two different property rights there? Is there a bankruptcy claim property and there's a claim, but the underlying cryptocurrency? Even though you sell your bankruptcy claim, do you still own the underlying right to the cryptocurrency? I don't know. Neither does the IRS. We've asked for guidance from the IRS on this.

Can you take a bad debt deduction with respect to cryptocurrency and I don't believe that's allowed because bad debts are only allowed with respect to cash. That's another area that we need some guidance from. When it [comes] from bankrupt exchanges and other things, it's unclear of when you can and whether you can claim any loss at all. The IRS is going to have to deal with this because, I read that there was another exchange that was near bankruptcy this week. This isn't going away.

I will tell any practitioner that's listening to this. If you have someone who comes to you and says, here's the facts and circumstances of my losses with things. You need to stop and really look at several things. What was the underlying investment? What was the underlying cryptocurrency? When did the event occur? Claiming it currently in 2022, I think in a lot of cases would be problematic.

Walker: That's super helpful. Thanks for bringing that really important topic. What about you, Nik, what [are] some final thoughts you have as we're wrapping up.

Fahrer: One thing that I'll say is that I think this technology is really polarizing. We seem to have people on both sides of the aisle. We have people that just really love this new technology. We have people that, just haven't really bought into it and they don't see the benefit to it.

The question I would pose though is, given the IRS is issuing a lot of new guidance on this new technology, given that it is a hot topic in DC, why would they regulate it if it's something that's going to go away?

My personal opinion is, they probably wouldn't. I think it's going to be here to stay. It's probably going to be around for awhile and to just completely brush it off and ignore it completely is maybe a mistake as this continues to grow in adoption.

Tobey: I'll tell you that they'll be some upheaval in it this year.

The recent administrative law judgement decision that cryptocurrency that was bought by individuals on an exchange, is not a security where crypto assets bought by institutional investors are securities. That it'll be interesting and that's going to go, if it was by administrative law judge, I can see that going to the regular court system now because, I don't see how you can say it's a security for one type of investor and not for another.

There's another court case, that the Supreme Court is going to hear next term. Similarly, about rulemaking by the SEC in general, that will have an effect on this. Because one thing, when you're dealing with crypto and dealing with all these other assets — for the IRS, its property. For the SEC, it's a security. For the CFTC, it's a commodity and in some countries, it's a currency. We're dealing with US tax law. We know what property is, but you've got to take into consideration,what it is in other jurisdictions and what it is to other rule-making bodies within the United States.

Walker: Thank you so much, Robert and Nik. This is definitely not be the last time we talk on this podcast about virtual currency. But I think this gave our listeners, a lot of good topics to dig into and think about as you're dealing with your clients.

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 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 this wherever you listen to your podcast 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 other like-minded friends. You can also find this in aicpa-cima.com/tax to check out our other Odyssey episodes and also to get access to all the resources that were mentioned during this 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 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.

Securing data against bad actors is crucial to the long-term success of a business. The average cost of a data breach in the U.S. in 2022 was over $9 million. With proper planning the risk can be mitigated, and even if an incident occurs, the cost and the time to recover can be significantly reduced.

In this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, Association of International Certified Professional Accountants, representing AICPA & CIMA, speaks with Ashley Grover, Cybersecurity Threat Intelligence Analyst — Sylint, on the latest trends in cybersecurity and how businesses can better protect themselves.

What you’ll learn in this episode

• Ashley’s role as a cyber threat analyst (0.33)
• Why businesses should take cyber threats seriously (2.20)
• Coordination with information technology (IT) department/providers (4.47)
• Safeguards rule contained in the Gramm-Leach-Bliley Act (7.53)
• Actions for an IT department to safeguard data (8.32)
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• What a cyber incident response would entail (21.20)
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 AICPA resources

• Gramm-Leach-Bliley Information Security Plan Template — Tax preparers must implement security plans to protect client data. Failure to do so may result in an FTC investigation. Download and customize this template to document your firm’s policies.
• Professional responsibilities in data security for tax professionals — Safeguarding your client’s data is paramount. Use these laws and guidelines to help you help your clients.
• Tax Identity Theft Toolkit — CPA tax practitioners need to combat tax-related identity theft daily as it has become pervasive globally. Use this toolkit to tackle tax identity theft issues with your clients.

Other resources

• Cybersecurity and Infrastructure Security Agency (CISA) — CISA works with partners to defend against today’s threats and collaborates to build a more secure and resilient infrastructure for the future.
• National Institute of Standards and Technology (NIST) Cybersecurity Framework — A set of industry standards and best practices developed by NIST to help organizations manage cybersecurity risks.
• Center for Internet Security (CIS) Controls Framework — A prioritized set of actions to protect an organization and data from cyber-attack vectors.

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.

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On this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, goes behind the scenes with Jerry Schreiber, CPA, partner at Schreiber & Schreiber in Louisiana, dubbed the “Master of Disaster,” and Adam Silva, senior manager at Crowe LLP.

What you’ll learn in this episode

• Distinction between a “qualified disaster loss” and a disaster loss (1:02)
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Related resources

• Lookback period extended for refunds related to pandemic postponements, The Tax Adviser, March 1, 2023
• Disaster tax relief guidance and resources — Provides resources and guidance regarding the disaster relief process as well as answers to frequently asked questions (FAQs) concerning disaster, casualty or theft losses and how these events may impact a client’s tax returns and business affairs.
• Automatic postponement date lookback period for allowing tax credits or refunds for all disasters — AICPA submitted comments to Treasury and IRS requesting that the IRS apply the relief given in Notice 2023-21 regarding the lookback period for allowing tax credits or refunds to all federally declared disasters.
• Road to recovery — Primer on disaster tax relief | Tax Section Odyssey — The “Master of Disaster,” Jerry Schreiber, CPA and Amy Miller, JD, CPA from the AICPA discuss tax-related disaster relief and resources to aid in recovery in this podcast episode.
• AICPA tax season library — With constant changes to the tax landscape, being prepared for tax season is critical for success. Set yourself up for a smoother filing season by tapping into the wealth of AICPA and Tax Section resources.

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.

Misconceptions about digital asset tax compliance are common. With business tax returns now requiring taxpayers to affirm their taxable digital asset transactions, it is even more important to ask the right questions. Educating yourself and your clients in this area is important to fulfill your due diligence requirements as a tax practitioner.

AICPA resources

•  Digital assets and virtual currency tax guidance and resources —This hub is your go-to library for AICPA guidance and resources as well as current legislation, IRS initiatives and tax advocacy projects.  
•  Questionnaire for Individual Clients — Before accepting clients that are engaged in digital asset activities, there are certain questions CPA practitioners should have answers to.

Advocacy

• AICPA comments on the proposed Sec. 6045 regulations on gross proceeds and basis reporting by brokers, Nov. 8, 2023
• AICPA comments in response to the July 11, 2023, Senate Finance Committee letter on taxation of digital assets, Sept. 8, 2023   
• AICPA comments on the IRS draft 2023 tax forms digital asset question, July 28, 2023

Other resources 

• IRS Digital Assets  — Resources and guidance available on the IRS.gov website

Transcript

On today's podcast, listen to hear more about how you need to carefully ask your clients about their digital asset activity.

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 Nik Fahrer. He's a senior manager at FORVIS in their National Tax Professional Standards Group. He's been with us before talking about this topic, and I'm delighted to have you back, Nik.

Nik Fahrer: Thank you for having me back, April. I'm excited to be here.

Walker: You are our digital asset expert on the podcast. No pressure. We're going to delve into some questions that [are centered around that] here we are in February and we're getting ready to start talking to our clients. We're going to talk a little bit about that. I feel like the more I learn about digital assets, they have different names- cryptocurrency, virtual assets, the more I need to learn.

Hopefully today we're going to help you be able to have a conversation with your clients. Maybe your client is more knowledgeable than you are or you just need to get up to speed. That's our focus for today.

I'd like to start with what are your most common misconceptions that you encounter about digital asset tax compliance when you're thinking about working with clients?

Fahrer: Sure. I really like to break this down into four different categories. I think the first category is, do we have a taxable event? There's a big common misconception out there, especially with clients, that maybe there needs to be some education and educating our clients. That just because you invest in crypto and perform some trades, but haven't settled back to US dollars, doesn't necessarily mean that you don't have a taxable event.

Let's take an example. Let's say I buy some Bitcoin and then I trade that Bitcoin directly for Etherium, then I trade that Etherium directly for Solana. There's multiple taxable events in there because the IRS treats cryptocurrency as property. Even though I haven't settled back to US dollars and cashed out, a lot of clients think, I haven't traded my crypto back into US dollars, so I don't have to report it on my tax return. That's actually false. Those trades in that example, from Bitcoin to Etherium, that's a taxable event, and then from Etherium to Solana, another taxable event.

The second bucket, I would say here is completeness, so really making sure that we have all of our sources and transactions accounted for. What do I mean by that?

Another example, if you have a client that comes to you and says, hey, I transacted in crypto in 2023 and I need help reporting that. Clearly identifying what were all of the exchanges that they used, what were all of the wallets that they used, and does that account for all of their transactions. Like we just mentioned in the previous bucket, do we have a taxable event?

Almost every single transaction in the space is going to be a taxable event. We have to make sure that we can account for all of those and have the proper records. It can be difficult to track them all down because it's so easy to just open up a new wallet.

Third bucket, I would say, is understanding the character of the gain or loss. I mentioned earlier the IRS says this is treated as property. That doesn't necessarily mean that all of the transactions are capital gain or loss, some of them could be ordinary.

Some examples would be mining income, staking income, air drops, hard forks. All of these in the eyes of the IRS are likely considered ordinary income at the fair market value at the time of receipt.

One question you want to make sure that you're asking your clients is, not only can you give me list of your transactions of trades, but you also want to make sure that you're getting a list of transactions for some of these ordinary income items, which may be listed separately.

A lot of times our clients are using a software provider to generate a [Form] 8949. Well, those ordinary transactions aren't necessarily going to be captured on that [Form] 8949 because that [Form] 8949 is going to be your capital gain or loss.

Second, within this third bucket of the character of the gain or loss of NFTs, the IRS has come out and said that, are likely treated as collectibles and those could be subject to a higher tax rate as well. We want to make sure that we are capturing those NFT's and marking the appropriate box and letter associated letter on the [Form] 8949.

The fourth bucket, and I would say this one probably gets looked over the most, is are there any additional surtaxes associated with the client's activity? For example, net investment income tax. A lot of our clients are not CPAs, they're not accountants [and] are not aware of this may be additional tax that their capital gain or loss may be subject to. It's making sure that we're having these conversations with them so that they're aware that the max capital gain rate is 20%, but may be subject to this net investment income tax, which is an additional 3.8%. That's important when we're thinking through estimated tax payments, things like that.

Of course, there's self-employment tax if you're in the trade or business of mining or staking, for example, and that could be up to 15.3%. Then the additional Medicare tax of an additional 0.9% on maybe the net self-employment earnings associated with mining or staking or some of these other activities.

Just to recap, the four buckets that I would really say are, one, making sure that we identify all of the taxable events. Two, completeness. Making sure that we have all of our activity in some sort of Excel spreadsheet or [Form] 8949 that's generated from a software. Number 3, what's the character of the gain or loss? Doesn't necessarily mean it's always going to be capital. Could be ordinary. Then four, what additional taxes may be applicable as well? Net investment income tax, self-employment tax, additional Medicare tax, things like that.

Walker: Thanks Nik. That's super helpful. Definitely things I've heard too and probably misconceptions that I have as I'm still learning and try to understand and wrap my head around these topics and how the IRS treat digital assets compliance.

Another thing I wanted to bring up, and you've likely seen it, the IRS just did an announcement about it. We've talked for several years — I should have gone back and looked and seen how many years there has been a digital asset question on the 1040.

But, in addition to that, they've tweaked the language throughout time. But in addition to the 1040, there's also now that same digital asset question about, did you receive sell, or exchange or otherwise dispose of a digital asset? Those are going to be on business returns and also trust returns for 2023.

Just thinking about that, how are you thinking about getting that information from clients? Probably the same situation as you have been already for individuals. But any tips and tricks on navigating those questions that might be new for people?

Fahrer: I think this is a very important topic because that question is subject to penalties of perjury. So we want to make sure that we're probably erring on the side of caution and making sure that we're capturing this information from our clients.

One thing that we do is we add this question to our client questionnaires. Every single one of our clients fills out a questionnaire, and we word it almost verbatim to the question on the 1040, and now these other forms that you mentioned. Did you essentially transact in digital assets? I'm oversimplifying it, but that's basically what it's asking. Put that question on your client questionnaires and that's a really easy way to get that information from your clients.

Maybe another suggestion is consider adding this as a question to your client acceptance process as well. When you're first going through the process of having conversations with clients or whatever that intake process looks for you and your firm, consider adding that as a question to your client acceptance process.

Then I always recommend getting ahead of it as well. Get a good idea of the types of records that your clients can provide on the front end. This goes back to client acceptance as well. Good records go a long way whenever we're talking about reporting digital asset activity.

If a client can't provide you with good records, or maybe for example, they provide you a spreadsheet with hundreds or thousands of transactions and you have to go in there and manually calculate cost, basis, and proceeds. It's very time intensive, very costly, and that's going to help you understand what to quote them on fees. It may also help you push them in direction of maybe trying to sign up for a software like a CoinTracker or Ledgible or Cryptio, or Koinly.

There's several different softwares in the market where clients can go out there and connect their wallets, connect their exchanges and it will do a really good job of summarizing almost all of the activity on your behalf and generate [a Form] 8949, generate supporting schedules and things like that. Most of the time you're going to run into scenarios where there's software, it's an extra expense, but it's going to more than cover its cost to save you all the headache and time that you're going to have to calculate everything manually.

Walker: Definitely, some unique challenges in tracking and reporting digital assets as opposed to if somebody is just holding securities or mutual funds in a brokerage account, that's pretty easy. There can be some complicated transactions in there, but it's not the same thing as digital assets.

Then, like you said, there's so many different, usually if they're transacting, it's going to be a large number of transactions, that Excel spreadsheet could look like a nightmare, I would imagine. Any best practices or strategies or tips, and you mentioned some softwares and things, when do you see that a client has made the flip from I can just track this in an Excel spreadsheet to needing software?

Fahrer: Yeah, that's a really good point.

Maybe to add some context to why we even have these Excel spreadsheets. [Form] 1099 reporting is not currently required for crypto transactions. Typically clients get to 1099B at the end of the year for their stocks and securities. Those transactions are all summarized for us and it’s super easy as a practitioner to then take that information and transfer it to the tax return.

Whereas here there is no [Form] 1099. Maybe going back to the misconceptions that we talked about earlier, another misconception is that a receipt of a [Form] 1099 triggers the tax reporting requirement. Most of us know that's not true. It's not the receipt of the 1099 that triggers the reporting requirement, it's the taxable event itself, but our clients may not be aware of that. That's why it's even more prudent to ask these questions on the front end of, did you transact in digital assets, to get a better understanding of what all needs to go into the return?

I also think that self custody is something that's unique to this industry, if you will. We have the concept of you control your own assets means that there may not be a third party intermediary. There may not be a broker to keep track of your cost basis, and then that burden falls on the taxpayer. If the taxpayer is unable to provide records or proof of cost basis, the IRS is going to assume it's zero, which is the worst case scenario.

But to go back to your question April and really answer it more directly, I think if you have a client that has more than 20 transactions in a single year, it's probably worth it to work through one of those softwares that I mentioned before to get them to sign up for that, connect their wallets, their exchanges, and hopefully bring in everything in one central location and automate a lot of it.

Then I think there's some good resources out there too on how to stay up to date and understand maybe some changes that are going on in the industry. We have an AICPA web page that's dedicated to this topic. It's a very good resource.

There's also a questionnaire on that web page that you can download. It goes through and is basically built for practitioners to know what questions to ask. We don't know what we don't know if you're not in the space. This is a great questionnaire to go out there and just cherry pick what you think would be beneficial to ask your clients. This is a resource for you.

The IRS also has a website that is specifically dedicated to digital assets. If you just google IRS digital assets, I'm almost fairly certain it's going to be one of the first ones that pops up. It has all of the guidance that they've ever issued in this one single web page. Then of course, there's several people that are very vocal on LinkedIn and Twitter [X] that you can follow and good resources there as well.

Walker: Perfect. Thank you for highlighting those resources. The questionnaire is what spurred wanting to have this discussion. Nik actually did a few videos for us on the website related to that questionnaire, and we wanted to dig a little deeper. In the show notes I'll put a link to our digital asset page and that's going to have that questionnaire as well as like you said, other resources, it also links to the IRS.

One thing I wanted to note is the IRS does do I think a good job of [what] you might just be struggling with, hey, that question [on the tax return] — How do I answer it? Is there a way for me to answer no? There probably is an answer. I think we discussed this, but I wanted to say you have to answer that question. If we didn't say that specifically [earlier], I wanted to say that you have to say yes or no.

The IRS provides ways that you must check the box yes, if they did this- received digital assets for payment or digital assets for this or that. Then it also tells you a couple scenarios for no. Again, I'll put link to those resources in the show notes linked to the questionnaire. Which is great, especially if you have clients who are really in this space.

I wanted to share that Nik is on a Digital Asset Tax Task Force with the AICPA. That is a mouthful that I had to say very slowly. So thank you, Nik for doing that. I have a couple of other members of that task force and we're going to do some follow ups.

Nik referenced that there is no 1099 for digital assets you may be aware about. There are some reporting requirements that are coming in future years that we're going to have somebody who's going to talk about that. We're also going to talk about what happens for digital assets if you've experienced a loss. There's some tricky tax rules related to that. Just wanted to give a little bit of a teaser for that coming up.

Nik, you provided a lot of great information. I'd just like to give you an opportunity, is there any final thoughts as you're thinking about this topic or any good advice for our practitioners that are listening.

Fahrer: I just want to say thanks again for having me, April. We have a saying at FORVIS, if you see risk seek help. I would just encourage our listeners. If you come across a client where there may be some complex situations with digital assets, don't hesitate to reach out to somebody in your network that may be able to help you. It's very ambiguous right now, we don't have a ton of guidance and I would just encourage you to reach out to those in your network that may be able to help.

Walker: Perfect. In closing on these podcasts, I like to think about us taking a journey together towards a better profession. In doing that, I'd like to hear about my guest other journeys outside of the world of tax. Nik, I'd love to hear a page from your travel journey bucket list or a memorable trip that is on your mind.

Fahrer: I'm actually really excited to travel to Alaska for the first time this upcoming May. Really excited about that trip.

Walker: Nice. Are you doing a cruise or just exploring around in Alaska?

Fahrer: Yeah. Just flying into Anchorage and then renting a car and trying to explore as much of it as possible as part of the shoulder season. Not everything will be necessarily open yet. I really want to make it to Denali, but we'll see.

Walker: Okay. We'll have to follow back up on another podcast that will, sorry, probably be about digital assets, but I appreciate you being able to talk about it in such an understandable way. Thank you again, Nik.

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 and mind. This is a podcast from AICPA and CIMA together as the Association of International Certified Professional Accounts. You can find us wherever you listen to your podcast. 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 it with a like minded friend. You can also find us at aicpa-cima.com/tax and find other episodes as well as get access to all the resources that we mentioned a lot on this episode. Thank you so much for listening.

On this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — Association of International Certified Professional Accountants, representing AICPA & CIMA, and Larry Pon, CPA/PFS, CFP, EA, USTCP, AEP — Pon & Associates, review the changes to the 2021 child tax credit (CTC) and discuss the latest news regarding the related advanced payments.

The American Rescue Plan Act enacted in March 2021 temporarily expands the CTC amount for certain taxpayers, made the credit fully refundable (meaning taxpayers can receive it even if they don’t owe the IRS) and directs the IRS to make advance payments equal to 50% of IRS's estimate of the eligible taxpayer's 2021 CTCs during the period July 2021 through December 2021.

In a letter currently being sent to taxpayers, the IRS explains that taxpayers will automatically receive advance CTC payments —assuming they are otherwise eligible to receive the CTC — for 2021.

To date, the IRS has unveiled the following:

• Child Tax Credit Eligibility Assistant – allows families to answer a series of questions to determine whether they qualify for the advance payments
• Child Tax Credit Update Portal – allows families to verify their eligibility for the payments and gives them an option to unenroll from receiving the monthly payments
• Child Tax Credit Non-filer Sign-up Tool – allows families who are not required to file a tax return but who are otherwise eligible for the payments to report their qualifying children.

What you’ll learn in this episode

• Changes to the CTC for 2021 (1.13)
• What we know about the advance payments (3.50)
• How qualifying children are defined for the advance CTC (5.29)
• What practitioners should be discussing with clients in the next few weeks and related financial planning tips (6.28)
• Scenarios in which practitioners should advise clients to opt out of receiving advance payments and what is involved in the opt-out process (9.33)
• Tips for billing clients for work in this area (14.41)
• The CTC in 2022 and beyond (16.50)

AICPA resources

• Child Tax Credit Client Letter – Client letter template for tax practitioners to use to notify their clients about the child tax credit changes and encourage clients to contact their CPA for additional tax and financial planning guidance.
• Child tax credit: New portal for opting out of advance payments – The Tax Adviser article published June 22, 2021 detailing the latest about the new portal.

Other resources

• Advance Child Tax Credit Payments in 2021 – The IRS dedicated site that houses information related to the advance CTC payments as well as the eligibility assistant, update portal and non-filer sign-up tool
• 2021 Child Tax Credit and Advance Child Tax Credit Payments Frequently Asked Questions – Consolidation of answers to frequently asked questions related to the CTC and the advanced payments, separated by topic
• Proc. 2021-24 – Procedures for individuals who are not otherwise required to file federal income tax returns for taxable year 2020 to receive advance child tax credit payments under Sec. 7527A.

Note, if your podcast app does not hyperlink to resources, visit https://taxodyssey.libsyn.com to access show notes with direct links.

This episode is brought to you by the AICPA's Tax Section, your home base to maintain your professional edge. To learn more about the Tax Section, check out aicpa.org/tax or sign up for a free web tour.

ESG is becoming an increasingly familiar acronym, standing for environmental, social and governance. Similarly, ESG analysis has become an increasingly important part of the tax compliance process and, for CPAs, it’s a key area to understand as part of a taxpayer’s overall financial snapshot.

On this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, chats with April Little, CPA, Partner, Tax Risk & Advisory Services — Grant Thornton, about the importance of ESG matters and why tax practitioners need to be part of the conversation.

What you’ll learn in this episode:

• High level introduction to ESG and sustainability topics (0.54)
• Why accountants are (and should be) interested in the ESG area (6.35)
• Why all-sized firms, including smaller firms, need to get up to speed and focus on ESG (9.02)
• Where tax specifically fits in with ESG (11.05)
• A deeper dive into the “g” of ESG — governance (13.47)
• What companies are currently doing around ESG and tax risk management (14.59)
• A page from April Little’s travel journal (18.06)

Related resources:

• ESG and taxation: A necessary part of a company’s strategic objectives, The Tax Adviser, Oct. 6, 2022
• Key tax provisions in the Senate reconciliation bill, The Tax Adviser, Oct. Aug. 8, 2022
• Energy Tax Credits And ESG Client Letter — Inform your clients about ESG investing and energy tax credits for electric vehicles and residential energy efficiency
• Inflation Reduction Act Energy Credits Chart — Learn more about the energy credits related to home improvements and electric vehicles from the Inflation Reduction Act.
• Tax Policy & Regulatory Change — Stay informed on the latest in tax legislation and tax policy developments. To support members and the profession, we have collated relevant guidance, resources and learning opportunities — and will continue to add new materials as tax law changes unfold.

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.

In this episode, Tim O'Neill, CPA, Senior Tax Manager — Wipfli LLP, joins April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, live from ENGAGE 2023 to discuss the current environment for recruitment and retention of employees in tax and how to build deeper connections with staff to help them feel more invested in their organizations.

What you’ll learn in this episode

• Strategies for employee retention and engagement (1:01)
• Differences between a “manager” and a “leader” (2:48)
• What it means to prioritize outcomes vs. outputs (5:04)
• The notion of no more timesheets (7:20)
• Final thoughts (8:05)
• A page from Tim’s travel journal (9:31)

Related resources

• Practice Management & Professional Standards — The AICPA Tax Section provides the guidance and tools you need to manage a successful tax practice and maintain the highest level of ethical standards in tax.
• Reimagining your tax practice — Tackle today’s top practice management issues with insights and tips from pioneers in the tax community. The Reimagining Your Tax Practice webcast series will tackle these issues and more in a Q&A roundtable series with tax pioneers from the profession.

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, Lead Manager from the Tax Section, and I'm here today with Tim O'Neill. He is a Senior Tax Manager with Wipli in St. Louis. Welcome, Tim.

Tim O’Neill: Thank you. Thank you for having me.

Walker: Yeah. We're here together today recording at the ENGAGE conference.

O’Neill: That's all right live in person.

Walker: Yeah and yesterday I attended Tim's session which was titled, “Recruit, Retain, Repeat.” Welcome Tim. I thought we could share some of your insights with our listeners from your session.

O’Neill: I'd love to.

Walker: I don't think it is a new concept for people listening today that recruitment and retention are a huge problem in tax and accounting profession, that sort of thing. I thought maybe from your perspective, you could share a few strategies that you have found that worked for you for employee retention and engagement.

O’Neill: Yeah, absolutely. Like you mentioned, this is the million or $2 million question.

Walker: Yeah, for sure.

O’Neill: What can we do as leaders to try and increase our retention increase overall employee experience? Really there's no right or wrong answers — it's all very individualized.

But what I found through my experience with AICPA committees, my experience within Wipfli, prior firms or organizations that I've worked with is being an effective leader and authentic is the best way to build these deeper connections with staff and employees that really makes them feel invested in the overall organization. I'm trying to think of some of the more important things that we've done, but it's just so individualized.

It's difficult to an extent, but if you can get across the idea that we don’t need to put together these formal programs to help retention. It really doesn't come down to that. It's just about being transparent, authentic and empathetic is a big one that we've seen.

With sessions here there is a lot of talk about being an empathetic leader. We've had tons of sessions on ideas about what can we do internally and externally to help retain employees. Obviously outside of maybe the psychology of the retention, recruiting and rewarding employees, maybe look at some of the action items, some low-cost solutions, mid cost solutions, high cost solutions, I'm happy to talk more about any of those.

Walker: You mentioned some of these characteristics, but one thing you talked about yesterday that really resonated with me was talking about differences between a manager and a leader. I think we can all agree that there is a difference.

O’Neill: There is a huge difference.

Walker: Maybe talk about some of those differences and for those people who see themselves as a leader — How do they figure out like where they land on that spectrum?

O’Neill: Yeah, and it's funny, you said — “some individuals see themselves as a leader” — we like to call those the heroes of their own stories. Is that a great leadership quality? Probably not. They might think that they're fantastic leaders, but they're not necessarily connected on that personal level with a lot of their employees or direct reports.

Honestly, to me, the difference between a manager and a leader, it's mainly…we think about a manager is very work centric. They're more about how and when are we going to get the work done? They're very much more process focused than people focused.

A leader on the other hand, they're more what and why? What are we doing? What can we do? Why are we doing this? Being transparent and showing the thought process behind all of it, and being able to communicate that to the individuals within their organization. That is, by far the largest difference between the two.

As we have been talking about pipeline challenges, the leaders within organizations — and this is not just specific to accounting, but really every industry. We've had to evolve over the last, let's say, three years with COVID and everything that was fallout from that. We've had to evolve and say we need to be much more hands-on and personalized with our approach.

Walker: You mentioned this, but I really liked when you talking about prioritizing outcome versus output. As I work with firms and members trying to help them with some of these issues and we've worked with a lot of small firms.

You're from a bigger firm, but you may have experience with or some ideas and thinking about how that can work like shifting with limited resources. How or what does it mean? What does it mean to be prioritized outcome versus output?

O’Neill: Sure. Even Wipfli, we're a top 20 CPA firm, but we do a very good job of operating as a collaborative group of smaller firms. We're in quite a few markets. But we do a very good job of still having that small firm feeling.

The firm that I was with previously, we merged in with Wipfli. We're about 100 person firm in St. Louis. I have a little bit of experience at a, we'll call it a smaller firm and culturally we aligned really well. Both firms are obviously based out of the Midwest and so on a cultural level, we had the same identity. Again, it gets into the hands-on personalized leadership approach, outcome versus output.

Billable hours — that's the driving force in public accounting. Let's get our billable hours up because this is where we make our money. But is that really where we make all of our money? Or do we have value in some of these hours that individuals are working?

We like to call them impact hours. Is there value in these hours that maybe we can't charge the client for it, but we're definitely [either the staff or the client even to an extent] getting value from it. Think of CPE, performance coaching, mentoring, client relations. Those are all impact hours.

What we've tried to do in both of my previous firm and Wipfli is we don't want to emphasize the billable hour as long as we're getting the outcome that we need and we're getting the client is first and foremost, served. At what point are we punishing efficiency? There are a lot of individuals that can get done in 20 hours while somebody else can get done in 40 hours. At what point are we punishing their efficiency and it's defeating to those individuals.

Walker: You talked about and it's so true. How they're punished as they get more work, like they can do 20 hours. Thank you so much. Sir may I have some more?

O’Neill: There was one brave lady in the audience, but that's exactly what I asked. I said what happens when you're good at your job and it was silent and she said, you get more work.

Walker: It's true. Something else you've made me think about, have you gone to any sessions that we've have talked about the no time sheets thing?

O’Neill: That's the rumbling. I've got a couple of people ask me, “Have you heard this idea of no more time sheets?” I said I haven't heard this idea.

Walker: Yeah, I've known some people that have been able to do it, but it's fascinating.

O’Neill: It's funny. We all know people that have been in public accounting and they've left, and I've got close friends that have moved into a new career paths within the CPA realm, but new career paths. I said, What do you enjoy the most? No time sheets. I don't have to keep track of every six minutes of my day.

Walker: True, you never know, we're always evolving.

O’Neill: Yeah, that's right.

Walker: As we're wrapping up, do you have any other thoughts on whether there's a magic bullet to solve this problem? You've actually already answered that question. There's not a magic bullet, but do you have some closing thoughts for us as we're thinking about this important topic about recruiting and retaining good employees.

O’Neill: Yeah, there really is no magic bullet.

One of the slides that I had in my presentation talked about the employee value proposition. As an organization, we have to be competitive in some of the basic stuff. So think benefits, compensation, some of the well-being programs that we offer and flexibility.

But really what it comes down to is there's no one-size-fits-all. There is no silver bullet because everybody is their own individual person and what I feel to be the most effective is taking this idea of being a human-centered leader and having the employee experience driven by the associate themselves. I want them to come to me and tell me what they want do. I need to be, again, genuine and saying, I'm here to help you. I want to help you.

We've heard the old saying, people don't quit jobs, they quit people. Now they're not staying for jobs. They're staying for people who have evolved into that human centered leader. That's where we're going to build the strongest relationships and where we are going to see higher retention.

Walker: Awesome. Tim, thanks for joining me. In closing, I'd like to do a little fun thing where we're taking a journey together towards a better profession. I like to get a glimpse of my guests other travel journeys. Tell us about a bucket list travel location you have on the books or something fun to share.

O’Neill: Bucket lists and travel. I tell you June has been the traveling month for me. I was in Nashville for the Craft Brewers Conference, I have a lot of craft brewery clients.

Walker: We will have to talk about that later.

O’Neill: Then Vegas and then I'm shipping off with my family here in about three days to go to Key Biscane for a week or so. Then I'm in Dallas for another conference and so all over. But bucket list — I'm a big rugby fan. I'll preference this with saying huge Ireland rugby fan. That's all in the last name O'Neill.

Walker: Got it.

O’Neill: Definitely make it out to the Six Nations tournament over in Ireland for one of the home matches. That's a bucket list trip for me for sure.

Walker: Very good. I'm actually headed to London on Sunday. Fun stuff. No rugby or anything.

O’Neill: No, that's okay. From the desert to the rain.

Walker: There you go. Thank you again. So 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.

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.

The Association of International Certified Professional Accountants provides the world’s most highly skilled accountants with knowledge, insight and foresight to meet the demands of a disruptive world. It is a driving force in a dynamic profession that powers trust, opportunity and prosperity for people, businesses and economies worldwide.

But the Association can’t do its work without the dedicated group of volunteers behind the scenes. Approximately 2,500 volunteers serving across nearly 200 official groups work and are committed to protecting the public interest, speaking with the power of more than 650,000 professional accountants and students around the world. In addition, all AICPA conferences have volunteer committees that work diligently on the logistics and content creation to help plan the spectacular events held year-round.

In this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, Association of International Certified Professional Accountants, representing AICPA & CIMA, and Brandon LaGarde, CPA, JD, LLM, Director — Postlethwaite & Nettervile, chat about what it means to volunteer with the Association on official groups and with conference planning committees.

What you’ll learn in this episode

• Tips on making the most of a conference experience (1.07)
• An important tidbit Brandon learned at the recent ENGAGE 2021 conferences (7.05)
• Brandon’s experience volunteering with the AICPA and advice for others (8.49)
• How and where to submit a volunteer application in Volunteer Central (12.31)
• How to express interest in speaking at a conference (13.04)
• Overarching thoughts about volunteering at the AICPA (15.58)

AICPA resources

• Volunteer Central – Repository of the official AICPA volunteer groups and hub for the volunteer application process.
• Webcasts & Conferences – Explore all the upcoming conferences and filter by such categories as topic, content type and CPE credits to find your next event.
• Email the Tax Section – Let us know if you’re interested in learning more about volunteer opportunities in tax.

Note: If your podcast app does not hyperlink to resources, visit https://taxodyssey.libsyn.com to access show notes with direct links.

This episode is brought to you by the AICPA’s Tax Section, your home base to maintain your professional edge. To learn more about the Tax Section, check out aicpa.org/tax or sign up for a free web tour.

In this episode of the Tax Section Odyssey, April Walker, CPA, CGMA, Lead Manager — AICPA Tax Section, talks with brand, marketing and growth strategists, Manny Torres and Kenny Harper from Growth Amplifiers.

Growth Amplifiers works with business advisors to help them increase their profits and the success of their businesses. The organization provides tips, tools and strategies to help advisory businesses elevate the value and experience they provide to their customers and/or clients.

What you’ll learn in this episode

• What Growth Amplifiers offers to business owners (1.52)
• Strategies to help tax professionals elevate the type of clients that they serve (3.17)
• Tips for attracting the right clients (8.58)
• How to decide what range of services to offer to attract ideal clients (13.11)
• The profit-growth formula (15.35)
• Communication strategies to overcome the overwhelming feeling during tax season (23.01)
• Final thoughts (29.16)
• A page from Kenny’s travel journal (31.24)

AICPA resources

• CPA Marketing Toolkit — The resources in the CPA Marketing toolkit help you communicate with prospects and clients throughout your career. These tools help you demonstrate your strength as a trusted adviser, assisting with all aspects of your clients’ financial situations.

Other resources

• Business Advisor Growth Guide — Growth Amplifiers offers a free downloadable resource to amplify your practice.

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.

In this episode, Jamie Lopiccolo, CPA, CGMA, Founder and Managing Member of Capocore Professional Advisors, and Will Hill, Owner of Will Hill Consults, 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

Broadridge Advisor Spotlight for Tax Section Members — Tax Section members can access sample resources from Broadridge Advisor which provides client education and communication tools on personal financial planning.

2025 Tax and Financial Planner — 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 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.

In 2017, Congress made several permanent changes to the taxation of foreign earnings with the enactment of the Tax Cuts and Jobs Act (TCJA), P.L. 115-97 . The TCJA imposed a deemed repatriation (Sec. 965). In the Moore v. United States case, the constitutionality of this policy is being challenged.

Listen to Tony Nitti, CPA, Tax Partner — EY, and Damien Martin, CPA, Tax Partner — EY, discuss the pending case live from the 2023 AICPA & CIMA National Tax & Sophisticated Tax Conference, as well as the top tax cases of all time.

What you’ll learn in this episode

• Background on the case and case law history involving U.S. taxation (0:44)
• Deeper dive into the history of U.S. tax law (11:41)
• Hylton v. United States, 3 U.S. (3 Dall.) 171 (1796) (20:38)
• Temporary income tax enactment (23:47)
• Pollock v. Farmers’ Loan & Trust Company, 157 U.S. 429 (1895) (26:06)
• 16^th Amendment (28:36)
• Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955) (34:13)
• Lead up to the Moore case (35:20)
• Advice for how to explain the Moore case to clients (41:24)

IRS resources

• Section 965 Transition Tax — IRS webpage detailing Sec. 965, including an overview, what taxpayers are impacted and what potentially impacted taxpayers need to know.

Other resources

• Charles G. Moore, et ux., Petitioners v. United States — Case whether the 16th amendment authorizes Congress to tax unrealized sums without apportionment among the states.

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 in person at the National Tax Conference with Tony Nitty and Damien Martin, both partners at EY.

They have a session here that's titled, “The Top Tax Cases of All Time.” If that's not a high bar to set, I'll be surprised, but I thought it might be fun to go over some of the highlights of that session on this podcast episode today.

Damien and Tony, I'm going to be here if you need me, but otherwise, I'm going to let you guys talk about the top tax cases of all time. Take it away.

Damien Martin: All right Tony, I don't know how we get better than that saying — the top tax cases of all time. But, I’ll let you set the stage here because we're not just going to geek out like we usually do. We're going to do that.

Tony Nitti: Somebody likes his buddy. I don't know how high up our gratitude needs to go. I don't know if it's April or the AICPA planning committee. I don't know if it's the Supreme Court in the United States. I don't know if it's a power even higher than that, whichever one you believe in, but somebody is looking out for us because, like you said, the description for this class is Tony and Damien are going to talk about the top court cases of all time.

As you alluded too, yeah, we were totally geek out on that. But, I know we were both a little bit worried that it would be more of an academic exercise and there wouldn't be any real practical takeaway.

It's not like everyone's going to go back to their respective offices and be better off because they understand the finer points of Duberstein or North American Oil. We were a little worried. But then we get this gift. We get this gift out of the State of Washington. A little court case involving $14,000 in disputed tax that the district court dismisses in favor of the government. Ninth Circuit does the same. But the Supreme Court of the United States decides, we're going to listen to this case.

Now it changes everything for you and me because when these oral arguments start in a couple of weeks, mid-December, everybody is going to be talking about this Moore case. And when I say everybody, I don't just mean like the people at AICPA National Tax, or people make their living in the tax world. It's gonna lead morning talk shows and it's going to be the front page of papers.

It's because while it's a small case, the implications are potentially huge. If I were to have to convince you, Damien Martin, why you should be paying attention to Moore and why all practitioners going to have to be able to talk about this stuff with their clients? What if I were to tell you that if the Supreme Court rules for Moore gone from the code goes section 965, the mandatory repatriation tax that was born as part of the Tax Cuts and Jobs Act, and potentially along with it, a couple of hundred millions of dollars of, did I say millions, a couple of hundred billions of dollars of federal income tax collected by the government.

Would that be enough to pique your interest?

Martin: You had me at a Supreme Court tax case, but when you're going to add billions to the hundreds of billions at that I'm sold.

Nitti: Okay, you're sold.

I don't make my living much in the international regimes. So, if it were me alone, I don't know if that's enough to pay attention, but what if I were to then say that depending on how a Supreme Court were to rule, also gone for the Internal Revenue Code could be all of the Tax Cuts and Jobs Act.

Everything we've spent the last few years getting our arms around lower individual rates, lower corporate rates, doubled the state tax exemptions, 199A, all of it gone. That would be interesting, right?

So, I'm going to listen to this conversation. Then what if I were to layer on top, buddy, that depending on how the Court would rule, it would open up the possibility soon stripped from the code could be all of pass-through taxation. No more subchapter S, no more subchapter K, no more S corps, no more partnerships. Say goodbye to all the pass-through regimes.

Now, everybody is going to be like, I need to stand up and take notice. How can one case potentially jeopardize all of that?

Martin: That's like a third of the code or something, but I'm a little bit…and you have to help me out here, Tony, because you said $14,000 was like $14,729. A third of the Internal Revenue Code itself. I'm a little bit like those are not the same thing.

You're going to have to bridge that gap for me here as to why something about $14,000 is in front of the Supreme Court.

Nitti: I'll do that. You're not alone with that one-third number. I think that's the same ratio that Paul Ryan, the former Speaker of the House, put on this and said, depending on how Moore goes, we can be kissing goodbye to a third of our tax law.

What makes this cool as we go through this process is in order to understand exactly the answer to the question you just asked, like, how is this possible, you and I need to go through the same cases that we would have been going through if Moore had never come to be only now we get to do it in a context that's meaningful for people here at the conference because they can take this information they're going to learn and then go back to the respective offices and actually use this in the coming weeks.

That's why I say somebody likes us because we get to have the same conversation that we both would have loved anyway, but now feel better about ourselves that we're adding some value to the people who are actually listening.

Moore, like this is not a complicated set of facts. There's nothing about the facts that speak to just how meaningful this case can be. It's a married couple out of the state of Washington. They retired, and in 2006, they have a friend and the friend sees a need in India to get small tools in the hands of farmers.

He conjures up this idea to form a company based in India, and the Moore's are intrigued and so they invest right around $40,000 for a 13% interest in this corporation's stock. It's pretty much the facts right there. Now, time goes on and the corporation does well, I think better than anybody could have hoped it would do. It's making some income year over year, but none of that income was distributed to the Moores.

In the international regime that we operated under at that time, when you have income being accumulated in a controlled foreign corporation, or CFC, generally speaking (and we'll get into one of the exceptions later in Subpart F), but generally speaking, U.S. shareholders don't pay any tax on that CFCs income until it's repatriated to the US in the form of a dividend.

Years are going by and this Indian corporation is making money but it never once repatriated anything in the form of a dividend to the Moores, so the Moores is never once have any taxable income as it relates to this investment in this corporation. Then 2017 rolls around.

Do you remember what happened in 2017, Damien Martin? What changed your life in 2017?

Martin: It's quite interesting. I can remember a lot of late evenings reading a lot of texts and that's different than usual, I guess. I'm not exactly sure but we had the Tax Cuts and Jobs Act.

Nitti: So the Tax Cuts and Jobs Act comes along. As part of that TCJA, and this is a world that you and I don't live in as much as others, but as part of that regime, they are going to switch us from a worldwide system of international taxation to a territorial system.

Really as a way to shortcut that explanation — in this new territorial system, if US shareholders own stock of a controlled foreign corporation, some of that income is going to be subject to the GILTI regime. But when the money is eventually repatriated in the form of a dividend from the CFC to the US shareholder, it won't be subject to tax.

But you can't just flip a switch and move from a worldwide regime to a territorial regime because there were trillions of dollars stashed overseas that had never been taxed in the US. Suddenly we put up a green light and say, you're free to repatriate those dollars and there won't be any dividend income at the US level, that income would never be subject to US tax.

To prevent that windfall, what they did in the TCJA is they added Section 965, mandatory repatriation tax. The mandatory repatriation tax says, look, we get that you haven't gotten these distributions from the CFC but at the end of 2017, we're going to pretend that all 10 percent or more shareholders of a CFC have received their pro rata distribution of the CFC’s income accumulated from 1986 until 2017. You're going to pay tax on that deemed distribution and then now you can move forward in the future knowing that any distribution you get will be tax-free. We're going to pave the way for this move to a territorial regime.

Now for the Moore's, that means my share of this income over the last 2006 to 2017, 11 years or so is about 132,000 bucks, as I recall and so we're going to pay tax on that right around $14,700. They get to thinking and they are like something doesn't sit right with me because I'm paying tax on $132,000 of income. I never touched the income. I never got a penny from this corporation. It doesn't feel right.

And so they immediately challenged, as I said, and the district court dismisses and rules in favor of the government, appealed up to the Ninth Circuit. Ninth Circuit does the same. Now, the Supreme Court is going to hear and they're going to hear it because of why they're disputing it and why everyone has to stand up and take notice because it's not just a run-of-the-mill argument about $14,000.

The Moores are saying, and when we first introduced this concept, it's probably not going to make a lot of sense to a lot of people, but we'll drill into it a little bit. The Moores are saying that Section 965, this mandatory repatriation tax, is unconstitutional. That's a big deal.

They say it's unconstitutional because the 16th Amendment grants Congress the power to levy and collect taxes on income from whatever source derived without apportionment among the states and that's the part that's going to trip people up, but we'll get there.

What they're saying here is, when's 16th Amendment says we can tax, income has to be realized. I have to have been made richer in my individual capacity to have to have something severable from my investment in the CFC that I can go and spend however I want. I never had any of that.

If this 965 tax isn't taxing something that fits under the definition of income, then it is required to be allocated among the states based on relative population. Now, is that surprise you, or is that something where perhaps in your free time you are a constitutional scholar and I'm not privy to that, but I'm guessing for most of our listeners there, I don't know what you're talking about as far as taxes allocated based on population.

Nitti: There's going to be a recurring theme. I think there's a lot of our knowledge about what's happening here comes from popular culture and that's okay. However you get it as long as you get it, that's what matters.

What they're doing as we drill in a little bit more here, is we need to look at two clauses of the Constitution at a high level and then we'll understand how they came to be. But as I said, 16th Amendment says, you can levy and collect taxes on income from whatever source derived without allocating among the states.

Then you have this Article 1, Section 9 Clause 4 of the Constitution that says all direct taxes must be allocated among the states or based on population. It's a very simple argument by the Moores. What they're saying is income has to be realized. You can see it right there in the 16th Amendment where it says is income from whatever source derived. That means it has to be derived from a source. There's this realization requirement, and here under 965, I never got a penny.

You're just forcing me to pay tax on something that I never received and so it can't be a tax on income. What is it then? It's a tax effectively on my ownership of stock in this Indian company, and that is what we believe to be a direct tax on property.

According to Article 1, Section 9 Clause 4, direct taxes have to be allocated among the states based on population. I know how weird that sounds but to understand if the Moores are correct in this argument, we honestly have to go back to the very birth of this nation and get a grip on how these two provisions of the Constitution evolved and then what subsequent court decision said that the Moores are ultimately relying on and so going back to the opening remarks here, that's why this works out so perfectly for us, because we would have been going through most of these cases anyway.

Martin: That's right. It's fascinating because it seems like something like income, the income tax, direct tax, these would be defined things. But maybe as we often see, and this is why you said it's back to are going through the cases and whatnot it actually isn't clear and maybe that's exactly why we're talking about it now.

Nitti: No, I think that's well said. We're going to get into an issue that I think has plagued the United States government for 200 years. This is a very meaningful piece of this country's history and to understand where it started, we truly have to go back to the constitutional convention in the late 1700s. Now, you were a music major, were you?

Damien Martin: I was.

Nitti: I'm guessing the extent of your familiarity with the Constitutional Convention is from your repeated viewings of the Broadway musical Hamilton.

Martin: That definitely again, pop culture is what did you learn to write out. We're going to do a little Hamilton here, is that we're here to sing for us?

Nitti: I will, but I would like to dispel a couple of myths about Hamilton. While undeniably entertaining, there are some historical inaccuracies. First of all, it turns out most of our founding fathers, not actually talented rappers.

Nitti: You wouldn't know that, but that's the truth. But we're talking about that cast of characters here at the Constitutional Convention were talking about Hamilton and James Madison, William Paterson, they're all there and they're figuring out the road map for this new country.

They recognize that they're going to have to generate revenue at some point, pay the bills, but they're particularly sensitive about the whole tax issue because of the whole relationship gone bad with England. They add a section to the Constitution, which the exact citation escapes me at the moment, but basically says, look, we can levy taxes, and then we also are going to look to primarily collected revenue from duties, excises and imports.

The only requirement for things like duties, excises, and imports is that they've got to be assessed uniformly throughout the country. You can't have one rate on federal tax for something in New Jersey and a different rate in New York. Fair enough.

But then there's that first part of that clause where they do have the ability in addition to duties, excises, and imports to collect taxes. What's that going to look like?

They start to kick around what a tax regime may take shape as in this new government of ours, and right away, the southern states start to freak out a little bit. The reason they freak out is because that time in the country's history, what they thought would be the two most likely forms of tax, are one what we call a poll tax or just a tax per head or tax for being alive, being a person, so every person were going to have a tax or whatever, 50 bucks.

Then the second most likely tax would be a tax on land. Just take acres of land and apply a rate per acre, and that's going to be your tax. To understand why both of those taxes scared the hell out of the South, it's probably best to take the second one first. Like this idea of a tax on acreage of land.

The South relative to the North at that time and large swaths of relatively unpopulated land that wasn't highly productive, and so you had fewer landowners with more land and less income that would have to bear the burden of this tax on land if it were simply assessed based on acreage and the people on that acreage.

Then, as far as why they were worried about a poll tax or tax per head, this is where you might say, Tony, and you just got done telling me that the South was more thinly populated than the North, so you would think that a tax per head would hurt the North more than the South, what the South was worried about was, when you're talking about tax per head, how would Congress view slaves?

The South was very concerned that slaves would count in a poll tax. What the South did is they said, any other tax we're going to add here, that you might impose at some point in the future, we want a requirement that those taxes be allocated among the states based on population.

That if Connecticut and Virginia have the same population, they will pay the same share of some national poll tax or national land tax. That seemed reasonable and the North was open to it. But the North said, even still, if we're going to allocate based on population, we would like to count all your slaves for your population for purposes of allocating this tax.

The South said, if you're going to do that, then you got to count all our slaves for purposes of our representation in the House of Representatives, which the North wasn't nearly as keen on. What this led to is one of the darker moments of our country's history, but a compromise. You feel familiar with the 3/5 compromise Damien?

Martin: I am. It came up in elementary school at some point, to your point about going back in history books here.

Nitti: I only learned about it from a recent episode of It's Always Sunny in Philadelphia or Frank Reynolds was reading the Constitution on his phone to settle a dispute at the bar, but it is very much true and it is very much rooted in the tax law.

The 3/5 compromise was when the North and South, looking at the way they did, at slaves and how they would count for purposes of the direct tax said, we're going to split the difference and slaves will count as 3/5 of a person for purposes of allocating these direct taxes.

One of our darkest moments in our country's history is actually rooted in the tax law. Then what we're left with here is this provision. Article 1, Section 9, Clause 4, that says all direct taxes have to be allocated among the states based on population of free men and 3/5 of everyone else. It's all well and good, but here's the thing, buddy. It turns out, our forefathers were not altogether different than the people that you sit with in business meetings and the like.

What I mean by that is you can't tell me it doesn't happen to you all the time. You're sitting in a meeting and people are using buzzwords and you're just going. I assume everyone else knows what these words mean, but I have no idea what they mean, and I'm just going to sit here and pretend that I do and nod my head.

But it turns out that same thing man was happening at the Constitutional Convention, and we actually know this. Because here they are saying this very important term, direct taxes have to be allocated among the states based on population, but no one knew what a direct tax was.

We know it because in James Madison's notes, he notes that Rufus King, the rep from New York, raised his hand and said, what exactly is a direct tax? In his notebook, it says, no one answered. We move forward with this unbelievably important term. Direct taxes have to be allocated among the states based on population and nobody has any clue what direct taxes are.

A rough way to start our new country and its government, but we would not have to wait too long to get our first view of how the Supreme Court interpreted this direct tax law.

Martin: It's actually fortuitous for our tax court conversation or tax case conversation here, because now you can get to a tax case here.

Nitti: I think it's a case we would have gotten to anyway.

The reason we would have gotten to it anyway is because we've already talked about what's at stake, depending on how the Moore case goes for existing law, but it also has implications for proposals into the future.

When people think about things like a wealth tax, or even today I heard they're drafting up more language about a tax on unrealized appreciation for billionaires. That conversation and whether those types of taxes would be constitutional, would all start at this same origin.

What is the direct tax? A couple of years after the Constitutional Convention, Congress decides to levy taxes on the ownership of carriages for the conveyance of persons. Instead, I guess, and then interpret that how you will you own a carriage, you've got one parked in the garage, you're going to pay a tax on it.

There's this guy, Hylton, Daniel Hylton, H-Y-L-T-O-N, and he owned, I think it was 125 carriages, which struck me as being a bit excessive, but whatever reason he had 125 carriages. He's got a buck up on taxes for each of these carriages. Immediately he says, no, this isn't right because I shouldn't be bearing the burden of my carriage tax individually.

This is a direct tax. It needs to be allocated among the states based on population and it lands in the Supreme Court. What's meaningful about that is, who are the dudes on the Supreme Court at this time in the country's history?

The same dudes that we're just at the Constitutional Convention. We should get some pretty meaningful insight as to what they meant by direct taxes, and the court makes really quick work of this case.

They say, look, we've got to look at this logic. It's requirement that direct taxes be allocated among the states based on population. The only things that could possibly be direct taxes are those things that can reasonably be allocated among the states and yield an equitable result.

If we think about carriages. Let's just say for our sake that Connecticut and Georgia had identical population. They're going to pay the same share of this national carriage tax.

But if there are 10 times more carriages in Connecticut than there are in Georgia, then the carriage owners in Connecticut are going to pay the tax at one 10th the rate as the carriage owners in Georgia. Because either way, both states are bucking up the same amount.

If there's a lot more carriages to go around in Connecticut, the per carriage rate in Connecticut is going to be a whole lot less. The court said, no, this doesn't make sense. The only things that can be direct taxes are those that make sense to allocate among the states. Really that's going to be limited to a tax on people and a tax on land.

Which reiterates what we gathered from the Constitutional Convention. It wasn't long decision made pretty quick work of it and for the next hundred years or so, nobody really questioned it and it really didn't come up as an issue again.

But then we end up in the late 1800s and we need a temporary income tax. Congress enacts temporary income tax it doesn't look dissimilar from the one that we have today.

Martin: Before that though, no income tax?

Nitti: There may have been some brief moments, I don't know that they were income tax, I'm trying to remember.

There was like an insurance tax that popped up for a couple of years. It's a bunch of different things, but they need this short-term income tax, so we got graduated rates, we got taxed on service income, doctors and lawyers, we gotten tax on rental income. Doesn't look very different than today.

Of course, they start taxing income and a taxpayer called Farmers Trust says, once again, this is a direct tax, just like that carriage tax, it needs to be allocated among the states based on population. It's unconstitutional, I don't want to pay it. And it goes back to the Supreme Court.

You would have thought, based on the precedent we just discovered in Hylton, that the Supreme Court would have made quick work of this too, because how can an income tax possibly be allocated reasonably among the states based on population?

Go back to my example, Connecticut and Georgia, identical populations is going to pay the same amount of national income tax. Per capita income in Connecticut going to be a lot higher than per capita income in Georgia.

The people in Connecticut are getting away with one because they're in total paying the same amount as people in Georgia, but they've got a lot more income to go around. It doesn't make sense. But in a case that's been, I don't want to use the word panned because it's the Supreme Court, but in a case that's gotten a lot of criticism, they find that this income tax is a direct tax and violates the Constitution because it's not being allocated based on population.

The reason they did it was they said, look, we all agree that tax on the land itself, ownership of land is direct, so how's most income earned in late 1800s America? It's cultivating land, farming land, renting land, whatever it may be.

What they ultimately said was that if we know that a tax on ownership of land is direct tax and it stands to reason that a tax on the income that flows from the ownership of land is also a direct tax. Now, here's where the relationship to the present day becomes very important, because what they could have done, as they could have said, we don't like all of these taxes on income from land. We're going to strip them out and say they're unconstitutional, but the tax is on the doctors and the lawyers, that can all remain behind.

They didn't do that, they said we can't sever the part of this income tax bill that we don't like from the part that we do like, and so we're kicking the whole thing out. That's why we say the entire Tax Cuts and Jobs Act is potentially at stake because it is, depending on how the court would view things.

Nitti: Because we're talking about one thing to your point 965. But if it's all inseverable, then that's how you lose the entirety of it.

Nitti: There's your precedent for how that could happen from the Pollock v. Farmers Trust case where they said, "We don't like parts of this income tax law, so they all have to go."

Now, the more interesting part of that case, if you people are ever inclined to read it, is the dissenting opinions because they go after the majority pretty harshly for the reasons we've talked about, just that it doesn't make much sense to think that an income tax could be allocated among the states. But nevertheless, it's gone and so that's, I don't know, 1895 or so.

Congress is not going to take that lying down, they need their income tax. It takes them a while to get enough states on board, but they did something that would be unthinkable in modern times, they amend the Constitution. We get the 16th Amendment and what they could have done is just amend that previous Article 1, Section 9 Clause 4 about direct taxes and just do away with it or rewrite it in a meaningful way, but they leave that untouched and they create this third class of taxation.

Now we've got rule 1 that you can have duties, imports, and excises as long as they're a uniform rate. We got rule 2, that says direct taxes have to be allocated among the states based on population. Now we get rule 3 which says, "Congress shall have the power to levy and collect taxes on income from whatever source derived without allocation among the states."

We still have that direct tax provision, but in income tax isn't subject to that. That's what the 16th Amendment says and right now at this point you're probably going — The Moore’s argument is built on this concept, income has to be realized. Other than pointing at the language there that says from whatever source derived and saying it has to be derived from a source, which is the same as saying, realize, I don't know where their argument is coming from.

We're going to find in a minute that it's coming from some case law. But now that the 16th Amendment is passed, 1913 rolls around, Congress adds the modern income tax like the one you and I apply our trade in day in and day out now.

Just as we now have Section 61 which defines income, I think back then it was 22. But it did it in the same terms, a very catch-all that was meant to exert the full taxing power of Congress. It said, here's what's income and it lists out a bunch of stuff, interest, dividends, all that kind of thing, and then that catch-all at the end, or gains are profits from whatever source derived.

Same language as the 16th Amendment and so it's meant to be very broad, at least it sounds like it. We've got our modern income tax and again, at this point, hard to argue that there is a realization requirement unless you're really reading into the construction of the 16th Amendment.

But wouldn't take long, about nine years we end up back in the Supreme Court, a case we definitely would have been talking about today even without Moore and where this idea of a realization requirement comes from in Eisner v. Macomber.

Martin: What happened in that case, what's the situation there? What's the setup?

Nitti: Again, couldn't have a more simple set of facts.

Taxpayer owns shares stock in a corporation and they get a stock dividend. Stock dividend, think about, simple, me and you. We each own one share in a corporation where the only shareholders, corporations worth 20 bucks so each of our shares worth $10. Corporation decides tomorrow, "I'm going to get Tony and Damien one more share each."

Nitti: Company is no more or less valuable. We have, you and I more slices of pie, but the slices have gotten smaller. Instead of one share each valued at ten bucks, you and I now have two shares each value to five bucks, but nothing's changed. We just divvied-up the pie differently.

The taxpayer here and Eisner v. Macomber gets a stock dividend, which we wouldn't think based on the logic I just relay there that it would be a taxable event.

But the IRS they were still feeling things out and getting used to the new tax law. They say this is taxable to you. It ends up in the Supreme Court because taxpayers arguing that this stock dividend, how can this be income to me, I didn't really receive anything of value.

So in Eisner v. Macomber they get the decision in the sense that it shouldn't have been taxable income. But in doing so, they did two things that are come under a lot of criticism in the 101 years that have followed.

First, we've been talking about 16th Amendment income Section 22 from whatever source derived very broad definitions of income. Then Eisner v. Macomber comes along and says, income is gain or profit from labor or capital, or both combined. I know just hearing that off the top your head, you don't necessarily get a sense for how narrow and limiting that is.

But when we get to Glenshaw Glass and a couple of minutes, we'll see just how narrow that is relative from whatever source derived concept. Eisner v. Macomber is saying, for something to be income, it's got to be derived from labor or an investment in capital or both combined. That's it. That's all.

There's a lot of things that slipped through the cracks when you go with the definition that's that narrow. Not necessarily germane to this case, but still one of the major criticism of Eisner v. Macomber.

The second thing they did, was they said in this case the reason the stock dividend is not income is because you have this investment in capital in a corporation. But getting the stock dividend, you have not extracted anything of separable value from the corporation itself, something that you can, like I said before putting your pocket and go spend as you want. You have gotten another share of stock and all it's done is reduce your per-share value, but you haven't actually extracted anything meaningful from the corporation. That's why this shouldn't be taxable. That has been what's always been pointed to as the birth of this realization required.

Because in Eisner v. Macomber, they're saying you had investments stock. You didn't separate any value from that corporation in your individual capacity and so we shouldn't be taxing you on the receipt of a stock dividend. This is the big point the Moore's are building their case around that really the initial Supreme Court case after the birth of the modern income tax law interpreted the 16th Amendment is having a realization requirement and nothing that's happened after that should really change.

But what's interesting about Eisner v. Macomber is pretty soon after it was decided, you started to see even lower courts chip away at it, which is unique when you have a Supreme Court defining something as important as income, but lower courts just saying, that definition of income was helpful for a stock dividend, but I don't know that it should apply to everything. It just got more and more distance from that concept. Then it all culminated in another case we absolutely would have been talking about anyway in 1955, Glenshaw Glass.

Martin: Because of the significance.

Nitti: It's the modern definition of income. But I will admit I teach Glenshaw Glass in my master's programs all the time. I do it as extra credit on my exams.

What are the three components of income and Glenshaw Glass. But thinking about Moore has made me rethink what I've been telling people about Glenshaw Glass.

Martin: While at the same time, I'm going to ask you whether or not you're also including Eisner v. Macomber and now we're just more of a Glenshaw Glass.

Nitti: I always teach them Eisner v. Macomber. I was always down on the Eisner v. Macomber.

But Glenshaw Glass, I think I was interpreting it in the way that the Moores do. I don't necessarily know that I think that's the right way to interpret.

Another simple set of facts and Glenshaw Glass, you got a ccompany that's paying another company to manufacture equipment for them that they're going to use in their business. Deal goes bad, they sue, they win. In addition to whatever settlement they get punitive damages.

Punitive damages are not designed to make anyone whole. They are designed to punish the offending party. If you're the receiving party, it's just a windfall. Glenshaw Glass gets a windfall, and I'm sure you or I would have done the same thing at that point in time where knowing the Eisner v. Macomber defined income as gains are profits from labor or capital. None of that stuff is present here.

I've just got a windfall in the form of punitive damages. This shouldn't be taxable income to me. They believe it's not income. It ends up in the Supreme Court. This is where Glenshaw Glass really distanced itself from Eisner v. Macomber and said, Eisner v. Macomber was very helpful for determining if a stock dividend is taxable.

But beyond that, it gave us the modern definition of income and says, hey, this is income here because one, it's session well, it's been two, clearly realized and three, over which the taxpayer has dominion and control.

What's amazing about those three points right there is both the government and the Moores are looking at those three points to support their position about this case. The Moores are saying, look, it's said right there in problem Number 2, this is income clearly realized. Honestly, that's how I've always taught the modern definition of income. It has to be a session in wealth. It's clearly realized and over which you have control.

But what the government is saying, which I think is the right interpretation for whatever that's worth. But what I think is the right interpretation is that saying that in this particular case, we have income because these punitive damages were clearly realized, is not the same thing as saying it had to have been clearly realized to be income.

It's almost like they're just saying, we don't have to worry about realization here in this case because it's clearly been realized. But that's not the same thing as saying if it hadn't been clearly realized, you couldn't possibly be dealing with income here. You see that distinction.

Both sides are pointing to that and supported their position, which is pretty fascinating. From the government's perspective, as you go from Glenshaw Glass and bridge the gap from there to now, what they're just saying is, it's hard to fathom that 965 is unconstitutional because there is this requirement that income be realized when we have half a dozen provisions that we can point to in the existing code where realization does not seem to be required.

We already said, we have Subpart F that's existed since the 1950s. Let's say you own stock in a CFC that are in certain types of income, we're going to tax you on it even though it's not distributed. Yes, that's been pressure tested. All of these have except for 475, 1256 straddles that have an income recognition without realization has been pressured, tested in the courts and approved. Section 475, the mark-to-market regime for securities and dealers that hasn't been tested, but it was only recently enacted. One would think that would have been dealt with on committee level.

Then of course, how do you marry it with flow through taxation. We know with partnerships or S corps doesn't matter if you get a distribution, if the entity generates income, your share of it is picked up on your tax return. What they're saying, and this is pretty fascinating when you think about it. The government is saying, we get that, by and large, we don't tax income until it's realize, but you know why we do that? Not because we are required to buy the 16th Amendment, but because it's a pain to tax income that hasn't been realized yet. It's simply a question of administrative convenience.

If we wanted to tax Damien on his appreciation and is very substantial retirement portfolio every year we could. But it's just not easy.

If we wanted to tax you every time your house value doubles, we could, but we'd rather wait for closed and complete a transaction. Not because we have to, but because it's easier to but if we ever need to divert from that, we can, case in point.

Man, I don't remember the code section. It's up in the 800s I think we're I tried to stay out of, but if you flee the country. If you expatriate, you're treated on your last day as if you sold all of your belongings. You haven't sold them all, but you're treated as if you have on your way out the door, they collect their tax. No realization there.

Now to the Moore's credit, they've tried to do some interesting things with their argument. Number 1, they've crafted in a way that they're not forcing the Supreme Court's hand to throw out, for example, the entire Tax Cuts and Jobs Act.

They've crafted in a way where they really just focused in on 965 and not all of the Tax Cuts and Jobs Act. They're giving the Supreme Court a way out if the Supreme Court wants it to just say, hey, we're only going to focus our attention on 1965.

The other thing that Moore's are doing is they're acknowledging that Subpart F exists and pass-through taxation exists and things like that. But in their brief, they're pointing out reasons why those might be constitutional, but 965 is not.

For example, partnerships don't really exist. They're not a tax paying entity and S Corp, everybody affirmatively elects to be an S Corp. You get what you get what you ask for type of thing. They're saying that those are concept of what they call constructive realization. But with 965, there's none of that.

We're just being forced to pick up income. I don't know that I necessarily agree with the distinction they try to draw between Subpart F in 965, but that's not for me to decide. But that's the big thrust of their argument.

Whereas from a government's perspective, they're just saying that, listen, if you really want to get into the semantics here, we could argue that income has clearly been realized. It's just been realized by your corporation. There is nothing in 100 years of case law that prevents Congress from taxing shareholders on their piece of a corporation's income. You have all these different compelling arguments.

Who knows how this is all going to play out, but what's at stake, we already talked about it. It's a third of the code is you said plus a whole batch of potential future cases.

Martin: That's right. You just wound your way through history. You get Hamilton and I learned something new about the fact that all rapping…I guess at the time that they got the Constitutional Convention.

But again, I always had a mentor that told me this really honest say, subscribe to the Wall Street Journal because whenever a tax story hits the Wall Street Journal, that's the day that you're going to get a bunch of calls from your clients.

Now I'm sitting at my desk, Joe Client’s calling because of whatever article they've read winding through all of that, what do I tell him? Tony? How do I distill hundreds of years of everything you've just walked us through?

Nitti: The big takeaways are just the fact that the Moores are suggesting that if you have income that has not been realized, it's not really income at all that's being taxed, it's property ownership and that falls under a different purview of the constitution.

What really matters here is not whether 965 is going to go the way of the dodo, but what it would open up in terms of the potential for the rest of the code. Because as we said, you're talking about hundreds of billions of dollars at stake and 965 tax. Then people are going to want to know what does this mean that the next time I get a K1 from my S Corp and don't have a distribution that goes along with it? Can I sue that? It's unconstitutional.

If I'm required to market my securities to market the end of every year in the 475, can I go in and sue and say that's unconstitutional? Does this mean, because I could tell you this, if Moore is decided in favor of the taxpayer, they can forget these proposals.

They're kicking around for a wealth tax or like this billionaires tax on unrealized appreciation in assets under President Biden's proposal. They would fail this realization requirement, so it's a little case with huge implications. If you want to understand why we got to hop in the old way back machine and go back to the Constitutional Convention, and I'll take you through the evolution.

But it's really interesting stuff and obviously the timing is perfect because all arguments start in just three weeks I think. I think you're right, I think everyone is going to be talking about it and I think to the extent that people who are listening to this podcast can feel like they understand what's at stake? Why the argument is what it is? Maybe have a few thoughts of their own on how the Supreme Court may look at this thing.

The whole point is exactly what your mentor told you, which you don't want to have happen is somebody saying, we know about this Moore case and you look in with a blank stare and go. I'm too busy cranking out returns I don't know what you're talking about.

It's very rare that tax law rises to the forefront of the public consciousness and when it does, we've got to be able to speak intelligently about whatever's being bandied about and that is about to happen next month I had no doubt about that.

Martin: You want to be able to tell them more essentially is what you're saying. Yeah. I waited all this time but I guess that's ultimately why you say greatest tax cases of all time. How much bigger can you get in this concept of realization income? It's at the heart of what we do every day you and I.

Nitti: Even just take a more simplistic view than that, there's a chance that if we were doing this same session next year more depending on how it's decided might be on a list of the most important tax cases of all time.

We get a chance to deal with something in real time that I don’t think a lot of people are paying attention to now, but it could be all anybody's talking about in three or four months because no one knows how this is going to go.

The Supreme Court has been, how should we say, unpredictable maybe a bit? Who knows what direction this goes? But we were not being overly dramatic at the intro about what is at stake here. Like you said it, Paul Ryan said it, maybe a third of the code potentially either be thrown out with the decision which I think is unlikely based on the way it's crafted, but absolutely opened up for attack. If it's true that the 16th Amendment requires realization, then yeah, there's a lot of, Subpart F, I don't get how that's any different.

Nitti: When it opens up, although maybe it won't be the greatest case but there'll be like the greatest case that led to a lot of other cases, because you're talking about litigation that you're going to see if that happens. It's an interesting time and thinking about how all these pieces fit together. Even maybe the fact that I don't know if the thing that sticks with me, maybe as living in the individual, the human world.

The fact that actually absent that they would've paid more taxes as an individual at the individual rate. It would have been paid like 49,000 instead of the 14,000, it's fascinating aspects to this to the international side. It touches basically everything so it truly is fascinating.

Nitti: I know Annette Nellen said in her presentation today talked about how enjoyable it can be to actually read all these different briefs that have been filed and she's not lying.

The arguments each one has their own interesting point and counterpoint. I know some people are arguing that the problem with the mentor repatriation tax is that it tax you on your share of the CFCs income 1986-2017, even if you only acquired the stock in 2016.

I said, how can I be taxed on earnings that were accumulated before I became a shareholder? Allow me to introduce you to sub-chapter C because that's been happening for C corporations. If you and I buy stock in GE today and next month it makes a distribution out of income that was earned in 1914 doesn't change anything for us we have dividends income. That to me, that's again, something that's been pressured test it, so it's hard for me to understand that argument. It's going to be must-watch TV.

Martin: It's a Super Bowl for us tax geeks I think in a lot of ways.

Nitti: Like I said, this will extend beyond our little tax geek kingdom and go into the mainstream.

Martin: Next year April, maybe we come back and we really evaluate was more what it was kept up to date. But thank you April for hanging with us here.

Walker: I kept thinking that if Moore turns out a certain way then and the S Corp it goes away, then I don't know if Tony be employed next year. That's what I was thinking.

Anyway, thanks Tony for the history lesson, thanks Damien for walking us through this was so fun for me to hear it. Hamilton's one of my favorites and the only thing missing a little bit of rapping. Maybe that'll happen next.

Thanks again, you guys it was great. 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 podcasts and please follow us so you don't miss an episode. You can also find us at aicpa-cima.com/tax and find other Odyssey episodes. I think Tony sneaks in there on a couple of those, so you can go back and listen to some of those and get access to the resources mentioned during the episode. I guess once this airs we might have more information on the case, so we'll have to see how to follow along. Thanks everybody for listening and have a great day.

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.

Summer may be in full swing, but tax practitioners still need to be mindful of certain alerts and deadlines that might have gotten lost in the shuffle earlier this year.

Annette Nellen, CPA, CGMA, Esq., Tax Professor – MST Program at San Jose State University, and a past Chair of the AICPA Tax Executive Committee, shares her summer hit list of items to be aware of including:

• Discussion on how to repay any deferred payroll taxes from 2020
• Documentation needed for the employee retention credit (ERC) and other COVID-19 payroll tax credits
• Treatment of other COVID-19 relief including grants and debt cancellation programs

What you’ll learn in this episode

• General overview of the deferred payroll taxes (1.20)
• How self-employed individual and household employers can repay deferred Social Security taxes (4.29)
• Accrual method employer treatment of the deferred payroll taxes (9.42)
• ERC and sick leave credit documentation requirements (11.22)
• Tax treatment of other COVID-19 relief (23.00)

AICPA resources

• Employer retention credit guidance – Collection of resources and guidance on the latest with the ERC

Other resources

• Use Tax Pro Account – Information on how to request Power of Attorney (POA) or Tax Information Authorization (TIA) online
• COVID Tax Tip 2021-96: How self-employed individuals and household employers repay deferred Social Security tax – Provides information on how these taxpayers can repay the deferred payroll taxes
• COVID Tax Tip 2021-99: Making payments for deferred tax reported by third party payers – Pointers on how to make payments for deferred payroll tax by third party payers

Note: If your podcast app does not hyperlink to resources, visit https://taxodyssey.libsyn.com to access show notes with direct links.

This episode is brought to you by the AICPA’s Tax Section, your home base to maintain your professional edge. To learn more about the Tax Section, check out aicpa.org/tax or sign up for a free web tour.

Steve Turanchik from the AICPA’s Digital Assets Tax Task Force discusses upcoming reporting requirements for digital assets. Sec. 6045 will require brokers to report transactions involving digital assets, similar to how they report securities transactions currently. This is meant to combat anonymity concerns and improve tax compliance. However, the reporting rules have been delayed multiple times. The AICPA continues advocacy efforts in this area, providing comments to highlight issues and gaps in reporting requirements.

AICPA resources

• Digital assets and virtual currency tax guidance and resources — This hub is your go-to library for AICPA guidance and resources as well as current legislation, IRS initiatives and tax advocacy projects.  

.  Advocacy

·      AICPA submits additional comments on the proposed Sec. 6045 regulations on gross proceeds and basis reporting by brokers and determination of amount realized and basis for digital asset transactions, March 4, 2023

·       AICPA comments on the proposed Sec. 6045 regulations on gross proceeds and basis reporting by brokers and determination of amount realized and basis for digital asset transactions, Nov. 8, 2023

·       AICPA comments on virtual currency reporting under Sec. 6045 and Sec. 6050I, Form 8300 and instructions, Oct. 28, 2022

Other resources

• IRS Digital Asset page — Recently redesigned page to provide the latest IRS information on digital assets
• Treasury and IRS announce that businesses do not have to report certain transactions involving digital assets until regulations are issued, Jan. 16, 2024

Rev. Proc. 2022-19 appears in the Internal Revenue Bulletin 2022-41 for Oct. 11, 2022, and provides taxpayer assistance procedures to allow S corporations and their shareholders to resolve frequently encountered issues without requesting a private letter ruling (PLR) issued by the Internal Revenue Service (IRS).

 On this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, discusses the revenue procedure in detail with Tony Nitti, CPA, Partner — National Tax, EY. Tony combs through the circumstances in which a PLR will not be available or will not ordinarily be issued. In these cases, the IRS does not have a concern with the validity of the entity’s S corporation election or there are other avenues to address the matter outside of the PLR process.

What you’ll learn in this episode

• Setting the stage for Rev. Proc. 2022-19 (0.49)
• Generalization of the frequently encountered issues provided in Rev. Proc. 2022-19 (15.52)
• Principal purpose motivation (16.55)
• Disproportionate distributions (22.14)
• Missing shareholder consent (27.53)
• Missing an administrative letter relating to the IRS’s acceptance of an election (33.28
• Federal income tax return filing that is inconsistent with the entity’s S corporation status (34.20)
• Non-identical governing provisions (35.24)
• A word of caution (39.25)
• Tony’s final thoughts (43.57)

Related resources

• Rev. Proc. 2022-19 — Published in Internal Revenue Bulletin No. 2022-41 on Oct. 11, 2022.
• IRS Practice & Procedure — Browse the latest resources to help with IRS tax matters including news, guidance and tools.
• AICPA tax season library — With constant changes to the tax landscape, being prepared for tax season is critical for success. Set yourself up for a smoother filing season by tapping into the wealth of AICPA and Tax Section resources.

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.

Managing a future-forward tax practice that is efficient, profitable and agile can be overwhelming. Meeting client expectations, streamlining workflows and handling staffing challenges are just some top-of-mind concerns. One resonating topic throughout this year, is also the debate regarding shifting the tax filing deadlines. Will they remain what they currently are or is there an appetite for change?

The AICPA Tax Practice Resilience Task Force, composed of a diverse group of tax professionals, are tackling these issues.

In this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, Association of International Certified Professional Accountants, representing AICPA & CIMA, chats with three members of the task force: Chris Wittich, MBT, CPA, Partner — Boyum Barenscheer, Kelly Rohrs, CPA, P.C., Owner — Kelly A. Rohrs, CPA, and Chet Buchman CPA, CVA, CEPA, CGMA, CNC, Managing Partner — Swindoll, Janzen, Hawk & Lloyd, LLC, to discuss the genesis of the group, topics of discussion amongst the members and future endeavors.

What you’ll learn in this episode

• Mission of the task force (1.00)
• Top practice management pain points (2.20)
• Tax filing deadlines (5.37)
• Task force members’ viewpoint on changing tax filing deadlines (9.33)
• What changing tax filing deadlines entails (12.06)
• Conclusion regarding advocating for tax filing deadline changes (16.24)
• Potential alternative fixes that could make a difference (18.57)
• Future ventures of the task force (24.41)
• Upcoming Zoom roundtable sessions (31.12)
• Closing thoughts (32.12)

 AICPA resources

• Practice Management & Professional Standards — Browse tax practice management resources and guidance to help keep your firm performing at the optimal level.
• Reimagining Your Tax Practice Q&A roundtable sessions — Tackle today’s top practice management issues with a free interactive virtual Q&A roundtable series. Get innovative advice from our panel of experts on running an efficient, agile and profitable practice.

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.

Another busy season is upon the profession. With several tumultuous tax seasons in the recent past, the 2023 tax filing season is shaping up to be relatively normal, a welcomed changed for taxpayers, tax practitioners and the IRS. Normalcy doesn’t exactly equate to status quo, however. There are new rules, new guidance releases as well as established items with newfound scrutiny that practitioners and taxpayers need to be aware of.

On this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, conducts a tax season pulse check with Annette Nellen, CPA, CGMA, Esq., Tax Professor — MST Program at San Jose State University, and a past Chair of the AICPA Tax Executive Committee, touching on some key topics in the tax arena that are currently noteworthy.

What you’ll learn in this episode

• Latest in virtual currency/digital assets and the most recent AICPA comment letter (1.02)
• Confusion around “worthless” virtual currency (4.17)
• Practical discussion on the Form 1099-K and the transition year (13.14)
• Change in the bonus depreciation percentage for 2023 (23.31)
• Reminders about the accumulated earnings tax and personal holding company tax (25.18)
• ChatGPT (29.32)
• A page from Annette’s travel journal (34.02)

Related resources

• AICPA comments for IRS consideration on AICPA proposed FAQs on the new digital assets question on the 2022 Form 1040 — AICPA suggested for IRS consideration proposed frequently asked questions (FAQs) to assist taxpayers in responding to the new digital asset question on the 2022 Form 1040, U.S. Individual Income Tax Return and discussed in the instructions. Also see AICPA press release on these comments.
• AICPA tax season library — With constant changes to the tax landscape, being prepared for tax season is critical for success. Set yourself up for a smoother filing season by tapping into the wealth of AICPA and Tax Section resources.
• ChatGPT and the tax law — Official blog post by Professor Nellen on the 21st Century Taxation website.
• Chief Counsel Advice (CCA) 202302011 — Addresses the applicability of Sec. 165 to cryptocurrency that has declined in value.
• Frequently asked questions about Form 1099-K – Links to frequently asked questions about the Form 1099-K including general information, reporting requirements and filing the form.
• Internal Revenue Manual (IRM) 4.10.13.2 – IRM on accumulated earnings Tax (IRC 531)
• IRS Practice & Procedure — Browse the latest resources to help with IRS tax matters including news, guidance and tools.
• Reminder to answer the digital asset question on the 2022 tax return — In IR-2023-12, Jan. 24, 2023, the IRS reminded taxpayers that they must again answer a digital asset question and report all digital asset-related income when they file their 2022 federal income tax return, as they did for fiscal year 2021. The term "digital assets" has replaced "virtual currencies," a term used in previous years.
• U.S. Federal Tax law Hierarchy — Understand the weight of taxing authorities from highest to lowest for use in determining whether a source can be relied upon for a tax position.

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.

As a tax practitioner during the revolving door of tax law changes this year, you might have asked yourself questions such as:

• Can I bill my clients for PPP loan assistance?
• How do I bill my clients for employee retention credit consultations?
• How do I get my long-time clients to value and agree to pay for the high-quality services that I offer each year?

If any of the above apply, we have some tips. Loren Fogelman, a business coach for accounting professionals at Business Success Solution, provides some best practices on how to innovate your billing practices for the future.

 What you’ll learn in this episode

• Low-value vs. high-value clients (2.07)
• Ways that firms and practitioners can attract the right kind of clients (6.52)
• How firms determine whether it is time to move on from a client relationship (9.18)
• Step-by-step process to raise rates for existing clients (11.53)
• How to determine package services and pricing (14.40)
• The lowdown on timesheets and hourly rates (18.48)
• Formula for best pricing (20.22)
• How to handle situations when clients do comparison shopping with each other (24.10)
• Four takeaways on clients’ perceptions of value (27.08)

AICPA resources

• CPA Marketing Toolkit — These tools help you demonstrate your strength as a trusted adviser, assisting with all aspects of your clients’ financial situations.

Other resources

• 10 steps to package and price your services — A free resource from Business Service Solutions that lists steps to transition from hourly rates to packages.

Note: If your podcast app does not hyperlink to resources, visit https://taxodyssey.libsyn.com to access show notes with direct links.

This episode is brought to you by the AICPA’s Tax Section, your home base to maintain your professional edge. To learn more about the Tax Section, check out aicpa.org/tax or sign up for a free web tour.

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

Planning for tax changes – 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.

Tax Advocacy – 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 Phil Lam 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 the outreach had begun. 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 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.

The Inflation Reduction Act of 2022 increases the IRS budget by roughly $80 billion over 10 years. The funds are broken down into four main categories: taxpayer services, business system modernization, operations support and enforcement.

On this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — AICPA Tax Section, talks with Gloria Sullivan, Managing Director, Tax Controversy & Regulatory Services — PwC, who spent 37 years with the IRS Large Business & International (LB&I) division. Gloria provides her insights on differentiating between the funding categories and understanding the ins and outs of the IRS from a personnel, budgetary and personal perspective.

What you’ll learn in this episode

• Introspection at the IRS — How it’s changed over the years and the current environment (1.20)
• IRS funding provisions set forth in the Inflation Reduction Act of 2022 (8.48)
• Deeper dive and insider look at the funding provisions (14.44)
• Insights regarding the IRS backlog (18.42)
• Can the IRS move funds from one category to another (22.21)
• Enforcement insights on a comparison of statutes and the U.S. Treasury Secretary Janet Yellen’s letter to Commissioner Rettig (25.03)
• A page from Gloria’s travel journal (32.49)

 AICPA resources

• Inside look at the Inflation Reduction Act | Tax Section Odyssey — The Inflation Reduction Act, H.R. 5376, now law, includes a 15% corporate minimum tax, various energy credits and increased IRS funding.
• Breakdown of the Inflation Reduction Act of 2022 — The Inflation Reduction Act of 2022 contains several provisions that could affect your tax clients. Learn what's changed so you can adapt in this webcast.

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.

On Sept. 14, 2023, in release IR-2023-169, the IRS suspended the processing of new ERC claims to combat the prevalent fraud occurring. These measures will help to protect small businesses and aim to stop fraud by promoters of ERC mills.

 In this episode, Kris Esposito, Director — Tax Policy & Advocacy, AICPA & CIMA, joins April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, to discuss this important news development and break down the details of the announcement.

What you’ll learn in this episode

• Highlights of the announcement (1:24)
• How to find if submitted claims have been processed (3:53)
• When will recently submitted claims be processed? (4:41)
• Number of claims currently in the audit process (5:45)
• Client talking points (6:22)
• Available resources (7:38)
• Kris’ final thoughts (9:07)

AICPA resources

• ERC guidance and resources — 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.
• Employee Retention Credit (ERC): Fact or Fiction? — Use this guide to educate yourself and others on common misconceptions surrounding the ERC.
• Employee Retention Credit Decision Tree — 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

• IR-2023-169 — IRS news release on Sept. 14, 2023, ordering the immediate stop to new ERC claim processing.
• IRS ERC resource center — IRS hub for ERC information, including links to guidance, FAQs and the latest news.
• Employee Retention Credit Eligibility Checklist: Help understanding this complex credit — This IRS question-and-answer chart is used to help taxpayers figure out if they may be eligible for the credit. Use this chart if you are considering claiming the credit or have already submitted a claim to the IRS.

Transcript

April Walker: Hello everyone and welcome to this special edition collaboration between the JofA podcast and the AICPA's Tax Section Odyssey podcast. I'm April Walker, host of the Tax Section Odyssey podcast, where we offer thought leadership on all things tax facing profession.

Today I'm here with Kris Esposito. She's a Director on the AICPA's Tax Policy & Advocacy team. And we're recording this on Thursday, September the 14th.

You have likely seen some breaking news from the IRS about the employee retention credit. We wanted to hop on here and record, tell you the information we know, and let you know what our next steps are.

We've been really closely monitoring this evolving issue of third-party ERC promoters over the past couple of years. We definitely been advocating to Treasury and the IRS. We've also been providing resources throughout the whole time of ERC since its inception with the CARES Act in March of 2020 to assist tax practitioners as well as taxpayers.

Today, the IRS announced its latest initiative to support small businesses. Kris, I thought maybe you could walk us through the highlights of that announcement.

Kris Esposito: Sure. I'm happy to.

Well, due to the big surge of ERC claims and concerns from tax professionals, including the AICPA, and the aggressive marketing tactics by third parties, the IRS announced today a multi-pronged approach to taper this ERC fraud.

They're immediately pausing the processing of additional claims. They said that will go at least through the end of the year. After September 14^th, today, there will be no more processing of new claims.

They will be further scrutinizing your ERC claims that they already have received and not processed yet. Then they're also going to offer taxpayers an opportunity to withdraw claims that have not been paid out and that the taxpayer feels they may have done erroneously. So they're offering that to taxpayers.

There have been about 600,000 new claims that the IRS has received, and are awaiting processing. That 600,000, those folks, they're going to have the opportunity to withdraw their claims if they feel that they have put them in erroneously.

But for those folks who have actually willfully filed fraudulent claims or if they conspired to file a fraudulent claim, withdrawing your claim is not going to exempt you from potential criminal investigation and prosecution.

But the IRS has actually finalizing details on this withdrawal option. We don't have all the details yet, but there will be this option, it's just the IRS needs to finalize the fine print.

Then they're also going to offer taxpayers a settlement process to come forward for claims that have already been processed, but may have been erroneous, but the taxpayer has received the funds. Again, IRS is working out some details and they're going to come out with that program soon as well.

Walker: I think they said later in the fall, so we'll be monitoring that obviously.

The opportunity to withdraw should come out soon, very soon. They will provide the details there. I will share that as well as the settlement process.

You might have the question that I had when I saw this and was thinking about this — "Okay. I know I just helped my client file a claim for ERC. It's probably within that 600,000. How do I know if the claim has been processed or not?"

Probably as they have been slowing down, they've been saying that for the last couple of months that they've been slowing down processes. But our best advice is if you're in that gray area where maybe it's been processed, maybe it hasn't, the best advice we have is to call the IRS and ask [them the status] as you're walking through it with your clients on what your next steps are.

Alright Kris, what information did they provide about the timing? We’ve talked about how they're going to be slower, but what did they provided about when you can expect those claims to be processed, those 600,000?

Esposito: They did say the 600,000 that were recently received, they're going to be reviewed more intensely. They're going to be put under the microscope. They [IRS] target 90 days [to process ] new claims. I know they don't hit that target all the time. But they're now targeting 180 days.

Because they're thinking that [most of] the 600,000 don't qualify for the credit. They are really going to be looking at them, very closely and taking a longer time to do that. They may even ask taxpayers for more information so it's going to be a different ballgame now.

Walker: But that's good from a communication standpoint to your clients, if they are a part of that group that has filed a claim. In this announcement, did the IRS say anything about how many claims are in the process of audit or anything around that topic?

Esposito: Yeah, they have been auditing ERC and keep ramping up the audits of ERC because of the fraud. They did say they have thousands of claims in the audit process. They also have hundreds of criminal cases going on. They are definitely auditing the ERC and if a lot of these 600,000 are not withdrawn, a lot of them are going to go through audit as well.

Walker: As our listeners are trying to absorb this notice and thinking about [it] with their clients, about this announcement, let's talk through a few good talking points for them.

Esposito: You've wanted to throughout this process, have been in contact with your clients about the ERC. Whether it's because they qualified for the credit or they've been contacted by a third party provider, trying to influence them to apply for the credit.

As you're hearing about this announcement, you want to remind your clients of your past discussions and assure them that you're available for them, you can assist them. Whether that assistance is with support during an audit of an already processed claim, or help with the decision to withdraw their claim or to participate in a settlement agreement once those details emerge.

If they have claims that were filed erroneously, and if they filed an ERC claim that hasn't been paid out and they believe it's legitimate, you just want to let them know that, "Hey, you're processing times could be a lot slower and it may take even more time for them to get the money."

Walker: Just definitely another good opportunity to remind them that you're here to help advise them every step of the way. You are here and available. Were there any other resources that the IRS provided along with this announcement?

Esposito: Yeah. They sent out a decision tree, which gives businesses a very broad overview of when a business qualifies. Then they also have red flags associated with third party providers. If you want to go through this decision tree to figure out, "Do I really qualify or not?" —that's what that resource is there for.

Walker: I just wanted to highlight, we've talked about these on some other episodes, and we talked about them on Town Hall. We've talked about our resources the AICPA have been putting together throughout these years of ERC. We've actually opened up…it's called employee retention credit fact or fiction, which is another good companion piece to the IRS [resource]. I don't know if they call it a decision tree, but it is like a decision tree, where it's walking through the checklist of how you qualify.

But I think the [ERC] fact or fiction is another nice resource that you can help a client go, "Oh, wait a minute. This is what they told me about how I qualify and there's this resource that tells me that I need to think again."

We will definitely put links to those resources in the show notes. We have other podcasts on this topic and we'll put those in there. Take a look if that's something you're trying to find more about.

We wanted to have a quick episode today, but I'd love for you if you wanted to share anything that's on your mind, Kris, as we wrap up episode.

Esposito: Well, for years the AICPA has been warning CPAs and taxpayers, as well as the IRS and Treasury of these dishonest [ERC] credit mills, attempting to take advantage of the ERC and businesses. Because we wanted to put a stop to this or put a pause on this. We appreciate that the IRS is sending this strong message with this announcement, to these unethical credit promoters.

The announcement by the IRS today, it's made clear that meaningful relief is also going to be made available to small businesses that have been acting in good faith. I think those are important messages from the IRS. I think they did a good job with their latest announcements.

Walker: Thank you so much, Kris, for popping on here with me to record for this breaking news episode. We appreciate your expertise. This is definitely not the last you will hear of us on this issue. As we know more, we will definitely share more. Thank you for listening.

Again, this is April Walker from the AICPA Tax Section. This community is your go-to source for technical guidance and resources designed specially for CPA tax practitioners like you in mind. This is a podcast from AICPA & 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. You can also find us at the aicpa-cima.com/tax and check out our other Odyssey episodes and get access to all the resources mentioned, during this episode. 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 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.

In this joint episode, Neil Amato, host of the Journal of Accountancy podcast and Melanie Lauridsen, VP of AICPA Tax Policy and Advocacy discuss two recent Supreme Court decisions.

The Supreme Court ruling in Loper Bright Enterprises v. Raimondo overturned a 40-year-old precedent of deference referred to as the Chevron doctrine, affecting future rulemaking by eliminating the need for judges to defer to agency interpretations of ambiguous statutes. In Corner Post, Inc. v. Board of Governors of the Federal Reserve System, the Supreme Court ruled to alter the statute of limitations for challenging regulations, starting the clock when a plaintiff is injured rather than when the regulation is enforced.

These decisions introduce significant uncertainty for the accounting profession, particularly regarding IRS regulations and long-standing rules and emphasize the need for CPAs to stay informed and adaptable as the implications of these rulings unfold.

 AICPA Resources

Melancon: Supreme Court decisions are ‘big deal’ for tax pros, The Tax Adviser, Aug. 1, 2024

Supreme Court overrules 40-year-old Chevron doctrine, The Tax Adviser, June 28, 2024

Supreme Court decision on Chevron doctrine will affect tax pros, Journal of Accountancy, June 24, 2024

For a full transcript of the episode, see  Tax Section Odyssey on the AICPA & CIMA website. 

The future of accounting continues to require more automated processes and less transactional work, and accountants will be expected to lead the charge. More and more, accountants rely on  cloud software and artificial intelligence and boost their soft skills and leadership prowess to excel in the profession. 

Additionally, with cybersecurity threats on the rise, being proactive before a cyber incident happens is key — understanding potential threats, identifying vulnerabilities and planning around security optimization.  Adherence to cybersecurity frameworks will continue to be important, and financial institutions must comply with the Safeguards Rule as set forth by the Federal Trade Commission (FTC). Although updates to the Safeguards Rule are set to take effect on June 9, 2023, the requirement for each financial institution to implement an information security program has been in effect since May 23, 2003.

 Listen in as Donny C. Shimamoto, CPA/CITP, CGMA, Owner — IntrapriseTechKnowlogies LLC, chats with April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, on these topics and highlights the latest with regards to written information security plans as well as learning, networking and research opportunities available to practitioners.

What you’ll learn in this episode

• Takeaways from the recent webcast: Tax Practice Quarterly: Cutting-Edge Cybersecurity in 2023 (1:20)
• Q&A available with the webcast archive (3:53)
• Preview of Donny’s session at the upcoming ENGAGE 2023 conference (4:41)
• Center for Accounting Transformation research surveys (8:03)
• A page from Donny’s travel journal (13:00)

Related resources

• ENGAGE 2023 conference — ENGAGE 23 will help you evolve by turning the pace of change from a challenge to an opportunity. With nine tracks of expert content, you’ll gain exclusive insights, develop practical skills and walk away with tangible guidance to evolve at your own pace. Join us in June at the ARIA in Las Vegas or live online.
• Gramm-Leach-Bliley Act Information Security Plan Template — The Gramm-Leach-Bliley Act requires financial institutions to have a written information security plan. Use this template to document your firm’s policies.
• Webcast archive: Tax Practice Quarterly: Cutting-Edge Cybersecurity in 2023 — Jeffrey Birnbach, Senior Partner & Managing Director — Sylint, and Donny C. Shimamoto, CPA/CITP, CGMA, Founder & Managing Director — IntrapriseTechKnowlogies LLC, provided practical advice on mitigating cybersecurity incidents and protecting data privacy in this recent webcast from May 2023. Center for Accounting Transformation is conducting research on two important topics. Voice your opinions in the Advisory Services Research Survey and Staffing Strategies Research Survey.

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.

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

Disaster Relief Resource Center — 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.

State Disaster Tax Relief Guide — There is inconsistency in the tax relief states offer following federally declared disasters. This resource serves as a guide to reduce confusion.

IRS resources

IR-2025-41 — IRS reminder: Disaster victims in twelve states have automatic extensions to file and pay their 2024 taxes.

Publication 547, Casualties, Disasters, and Thefts — This IRS publication explains the tax treatment of casualties, thefts and losses on deposits.

Other resources

Federal Emergency Management Agency (FEMA) — 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.

Artificial intelligence (AI) is the simulation of human intelligence by machines, and the applications for use are rapidly increasing each day. Chatbots such as ChatGPT and BingAI are at the forefront of this movement, but Ashley Francis, CPA, Owner — The Francis Group, PLLC, notes that more than 1,500 similar AI were released in the past week.

Listen in as Ashley shares more insights with April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, including how AI is positioned to transform the future of tax compliance.

What you’ll learn in this episode

• Why the time is ripe for AI and why it creates both excitement and anxiety (0:48)
• Other players on the scene besides ChatGPT (5:03)
• The more exciting implications of AI for tax practitioners (9:07)
• Is this just a fad? (13:52)
• Tips for getting started (16:29)
• How to create a helpful prompt (19:48)
• Data security concerns, legal and ethical concerns and tips for risk mitigation (26:18)
• A page from Ashley’s travel journal (30:05)

Related resources

• The Francis Group, PLLC — At The Francis Group, Ashley offers expert technical services and personalized service to sophisticated taxpayers and family entities with high net worth. Ashley can also be found on Twitter.
• AICPA & CIMA ENGAGE 2023 — June 5–8, 2023 (live onsite at Aria Resort & Casino, Las Vegas, NV, or online), will help you evolve by turning the pace of change from a challenge to an opportunity. With nine tracks of expert content, you’ll gain exclusive insights, develop practical skills and walk away with tangible guidance to evolve at your own pace.
• Technology resource center — Technology is evolving at an unprecedented speed and affects each of us in almost all facets of life and business. This hub provides you with access to the latest technology information, tools and resources to best serve your clients or support the organization where you work.

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.

The tax ecosystem is in constant flux given the rotating release of legislation and regulations and reliance upon open communication with, and accessibility to, the IRS.  

On this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager – AICPA Tax Section, and Lauren Pfingstag, Director of AICPA Congressional & Political Affairs, review frequently asked questions (FAQs) that the AIPA Tax Section receives from members on topics such as the employee retention credit (ERC), tax-related legislation and IRS service levels.

What you’ll learn in this episode

• ERC-related topics (1.11)
  • Potential credit reinstatement possibilities for Q4 2021 (1.22)
  • Aggressive ERC services by third parties (3.08)
  • Timing, salaries and the ERC (5.20)
  • Other potential legislative action possibilities (6.59)
  • Timing of ERC refunds (8.00)
• Tax-related legislation on the horizon (9.43)
  • Tax-related legislative packages most likely to pass (10.12)
  • LIFO relief for certain industries (14.15)
• IRS-related topics (15.53)
  • Erin Collins’s 2023 Objectives Report to Congress (16.05)
  • Additional IRS funding (16.52)
  • Notices (18.56)
  • Proposed regulations related to RMDs (21.52)
• A page from Lauren’s travel journal (26.43)

AICPA resources

• Mythbust and maximize the employee retention credit— Helping eligible clients successfully apply for and receive the ERC is a once-in-a-lifetime opportunity for CPAs according to Chris Wittich, MBT, CPA.
• 2023 Objectives Report to Congress — National Taxpayer Advocate Erin Collins's annual midyear report for fiscal 2023 was released in June. The report reviewed the IRS's performance in the 2022 tax filing season, outlined 14 "systemic advocacy objectives" going forwards and lists internal goals and objectives for the Taxpayer Advocate Service (TAS).
• Relief for Taxpayers for the 2022 Filing Season (Coalition letter) — The coronavirus pandemic has created enormous challenges for taxpayers, tax professionals and the IRS. Implementing reasonable penalty relief measures, that the IRS can offer immediately, are necessary to help not only taxpayers and tax professionals but also the IRS during these challenging times.
• Proposed regulations update RMDs for SECURE Act changes — The Tax Adviser, Feb. 23, 2022.

Other resources

• Where's My Refund? — IRS tool that provides refund information for the 2021, 2020 and 2019 tax years.

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.

The IRS is now accepting and processing 2021 tax returns — a signal that the official start of the busy tax filing season is here. While it’s a new year, this tax season has similar vibes as the past two years but with some new obstacles as well.

On this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager – AICPA Tax Section sits down with Daniel Moore, CPA, Owner — D.T. Moore & Company, LLC, to discuss issues tax practitioners may encounter this season, as well as provide some real-world relatable examples and tips for a successful tax season.

What you’ll learn in this episode

• Reporting Paycheck Protection Program (PPP) loan forgiveness and S Corporations (4.15)
• Advance child tax credits and Letter 6419 (7.42)
• Economic impact payments and Letter 6475 (13.19)
• IRS service level issues and a real-life example (14.50)
• Unprocessed 2020 returns and overpayment application tips for 2021 filings (20.42)
• How to make cryptocurrency reporting as easy as possible (24.27)
• Schedules K-2 and K-3 for passthrough entities (28.05)
• Tax return extensions (30.37)
• Dan’s tax firm traditions (33.54)
• A page from Dan’s travel journey (35.19)

AICPA resources

• 2021 Paid Preparer’s Due Diligence Checklist – Form 8867 — A comprehensive tool to use when preparing Form 8867 that is associated with claiming the earned income tax credit, American opportunity tax credit, child tax credit (including the additional child tax credit), the credit for other dependents and head-of-household filing status.
• AICPA Relief for Taxpayers for the 2022 Filing Season — The AICPA led a coalition of stakeholders to urge action from the IRS to mitigate anticipated challenges in the upcoming tax season. The coalition also requested a meeting with IRS officials to discuss their concerns and recommendations and directly address any questions.
• Annual Tax Compliance Kit — This toolkit includes engagement letters, organizers, checklists and practice guides to help you manage your tax season workflow and excel as an adviser of tax and financial planning services.
• AICPA Town Hall Series— Bi-monthly, high-impact news broadcast series that delivers the latest news, analysis, insights and practical guidance to accounting and finance professionals and responds to pressing issues facing the profession.
• ENGAGE 22 Conference — Gain exclusive insights, develop practical skills, and network with your unique professional community online or in person over 4 energizing days June 6-9, 2022, in Las Vegas, Nevada.
• IRS E-Services Transcript Delivery System Quick Reference Chart — This handy, one-page, quick reference chart is geared to help practitioners obtain and effectively use transcript data via this e-Services tool. It offers practical tips for how to use TDS and answers questions such as “Who may use TDS?”.
• IRS third-party authorization guidance — This guidance provides a summary of the most common types of IRS authorizations and what each authorization permits the representative to do. Learn how to record authorizations with the Centralized Authorization File (CAF) unit, how to withdraw an authorization and other practice tips to help practitioners represent clients before the IRS.
• Tax season hub — With constant changes to the tax landscape, being prepared for tax season is critical for success. Set yourself up for a smoother filing season by tapping into the wealth of AICPA and Tax Section resources.
• The 2022 Winter Tax Rewind — In this Jan. 31, 2022, installment of the quarterly Tax Rewind series, Art Auerbach, CPA, CGMA provides an update on tax planning, legislative changes and the latest in IRS tax practice and procedures so you can proficiently advise your clients.
• Using IRS e-Services — An AICPA hub centered around IRS e-Services, a suite of web-based tools that allow eligible tax professionals to perform certain transactions online.

Other resources

• 2021 Child Tax Credit and Advance Child Tax Credit Payments Frequently Asked Questions — IRS frequently asked questions about the advance child tax credit payments in 2021, separated by topic
• General FAQs on Payment Card and Third-Party Network Transactions — IRS general frequently asked questions on payment card and third-party network transactions
• Instructions for Form 1120-S, U.S. Income Tax Return for an S Corporation — Final instructions released on Jan. 20, 2022
• Your Online Account — Encourage your clients to sign up for an IRS online account to access their individual account information including balance, payments, tax records and more.

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.

In this episode, Rudy Rudolph, Executive AICPA Risk Advisor — AON, and April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, discuss how data breaches can cause acute and lasting issues to victims.

Small businesses are often easy targets for cyber criminals because they typically have less security in place than larger companies. A customized cybersecurity insurance policy can help mitigate risks and provide coverage in an evolving market to protect your organization.

What you’ll learn in this episode

• Questions companies need to ask about cyber security insurance (0:59)
• The most common types of cyber attacks (3:56)
• Usual misconceptions about cybersecurity (6:14)
• Types of costs that cyber insurance covers (8:37)
•  Items not generally covered by cybersecurity insurance (11:12)
• Insurance consequences of not following your own cybersecurity policies (13:27)
• Rudy’s final thoughts (15:35)
• A page from Rudy’s travel journal (17:23)

AICPA resources

• Best practices for data security and cybersecurity incident mitigation — Learn about general, preventative and reactive data security tips to implement to keep data protected from identity theft.
• Cyber insurance solutions | AON — AON’s brokerage team understands the risks and how to arrange coverage in an evolving market. It’s not one-size-fits-all, so AON teams with you to create a custom cyber insurance policy fit for your organization.  
• Cybersecurity Lab — Building a nimble cybersecurity response plan | Tax Section Odyssey — In this podcast, Ashley Grover, Cybersecurity Threat Intelligence Analyst — Sylint, discusses how the cyber threat landscape continues to change rapidly. Keeping up with the latest cybersecurity trends is vital to not fall victim to attacks and data theft.
• Gramm-Leach-Bliley Act (GLBA) Written Information Security Plan Template — The GLBA Act requires financial institutions to have a written information security plan. Use this template to document your firm’s policies.
• Identity Theft Checklist | Tax Identity Theft Toolkit — Provide this checklist to clients to help them appropriately and efficiently address identity theft issues and access additional resources.

Transcript

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

Document Retention FAQs for Tax Practitioners — Having a written document retention policy for your firm is a must-do along with advising clients on taxpayer record retention.

Document Retention Policy Template for Tax Practitioners — Formalize your tax firm’s policies about retaining documents related to firm operations and client records.

Optimizing your tax practice — 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 feel free to share with a like-minded friend. You can also find us at aicpa-cima.com/tax and find all our other episodes as well as the resources mentioned in this episode as well as others. 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 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.

At the end of 2017, the Tax Cuts and Jobs Act (TCJA), P.L. 115-97 delivered the $10,000 state and local tax (SALT) deduction limitation. Before passage of TCJA, individuals who itemized deductions could deduct their state tax payments in full using Schedule A, Itemized Deductions, of their federal Form 1040, U.S. Individual Income Tax Return. Now that the amount of the deduction is limited, shifting the income taxes directly to the passthrough entity swings the deduction upstream.

In theory, a basic workaround seems simple. However, the varying mechanics of how each state’s workaround actually works has created complexities for taxpayers and practitioners.

On this episode of the Tax Section Odyssey, Alexander Scott, JD, LLM Senior Manager — AICPA Tax Policy & Advocacy, and Annette Nellen, CPA, CGMA, Esq., Tax Professor — MST Program at San Jose State University, and a past Chair of the AICPA Tax Executive Committee, join April Walker, CPA, CGMA, Lead Manager — AICPA Tax Section, to examine the current state of various passthrough entity (PTE) tax workaround regimes.

What you’ll learn in this episode

• Overview of the passthrough entity (PTE) tax  (1.07)
• Items to keep in mind that vary among states (2.23)
• Highlights of the Notice 2020-75 published in 2020 (4.05)
• Considerations for tax practitioners when working with clients (7.42)
• Terminology considerations, including “specified income tax payments” and “nonseparately stated taxable income or loss” (8.55)
• Additional considerations to keep in mind for compliance purposes, including what personnel within a client’s business you’re interacting with (10.55)
• Similarity to second class of stock complications (12.26)
• Form presentation and partnership agreement modifications (15.35)
• Timing sensitivities and mechanic issues (17.15)
• Final thoughts (21.42)

AICPA resources

• SALT Roadmap — State and Local Tax Guide — Navigate the complex world of state and local taxes with an animated map compiling basic state information and quick links to state's forms and instructions, government websites and CPA society information.
• State and Local Tax Advocacy Resources — Information on state-level advocacy issues featuring the AICPA position paper on state PTE tax implementation issues.
• States with adopted or proposed PTE tax — This map demonstrates state activity regarding PTE tax.
• The Tax Adviser —a collated list of the latest articles on the SALT cap deduction.

 Other resources

• Notice 2020-75 — The IRS clarified in 2020 that partnerships and S corporations may deduct their state and local tax (SALT) payments at the entity level in computing their nonseparately stated taxable income or loss. In addition, the notice announced that the Department of the Treasury and the IRS intend to issue proposed regulations of the same.

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.

Daniel Moore, CPA, Owner — D.T. Moore and Company, LLC, discusses the recent Department of Labor rule on determining the classification of workers as either employees or independent contractors under the Fair Labor Standards Act. He also highlights the potential legal and financial risks associated with worker misclassification.

The rule, effective on March 11, 2024, aims to align with judicial precedents, reduce misclassification risks and offer more flexibility for businesses engaging with independent contractors.

Factors for worker classification under this rule are:

• Opportunity for profit or loss that a worker might have
• Investments of resources by the worker and potential employer
• Degree of permanence of the work relationship
• Nature and degree of control an employer has over the work
• Extent to which the work is integral to the employer's business
• Skill and initiative of the worker

Dan highlights the importance of considering both IRS and Department of Labor rules when advising clients on worker classification and how to best communicate this change to clients.

 AICPA resources

·       Tax season resource center — Access the AICPA’s central hub for guidance, tools and developments throughout the tax filing season.

·       Employee or independent contractor? DOL issues new guidance, Journal of Accountancy, Jan. 10, 2024

Other resources

·       RIN 1235-AA43 published in the Federal Register — Department of Labor (DOL) rule

Transcript

April Walker: On today's podcast, listen to hear more about a recent Department of Labor rule that talks about independent contractors and employees.

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, lead manager from the Tax Section, and I'm here today with Dan Moore.

Dan is an owner of D. T. Moore and Company in Ohio, and he is another great volunteer friend of mine. And he's been on this podcast before, so welcome back, Dan.

Dan Moore: Thank you.

Walker: Today I thought we could spend a few minutes letting our listeners know about a new rule that the U.S. Department of Labor recently published in January. We're still in January when we're recording this, so very recent. It revises guidance on determining who is an employee and who is an independent contractor under the Fair Labor Standards [Act].

Just to set the stage a little bit, I'm not and Dan's not, an employment attorney, nor do we pretend to be one on TV or on this podcast.

We're going to approach this discussion as CPA tax practitioners and communicating this change to your clients. Because I'm sure you'll know and I'm sure as you're listening, you have clients who have struggled with this issue. It's not a new issue. It’s just, it’s a hard one to wrap our heads around.

So, we're going to talk a little bit about that. I will provide a link to the rule in the show notes. If you want to read more, it's very long, but we're not going to cover all the aspects and background about that rule. But just a quick little background on it.

In January 2021, the Department of Labor released a rule that was subsequently rescinded. This recent rule that was announced on January the 9th of this year, 2024. It replaces that guidance. It maintains that it's doing is [being] is more consistent with the judicial precedent. The rules that have been challenged in court and how the courts have come down on it. It also will reduce the risk that employees are misclassified as independent contractors, but also more flexibility, for businesses that still do engage with people who are in business for themselves and consider themselves independent contractors.

Let's start with an easy question, Dan. I'm sure it's easy. Maybe it's not easy. What's the definition of an independent contractor?

Moore: Thank you, April. It's always great to do these podcasts with you and I always enjoy the topics that you pick for me.

This one's a little bit challenging because independent contractor — it just depends to me where you're standing in the conversation. And although you can maybe reconcile and come to some conclusion under one aspect of the definition of an independent contractor, say, in the world of tax, when you step over to Department of Labor and you look at the Fair Labor Standards Act, you're standing in a different conversation.

And so, I may have figured it out on the tax side, but now I'm looking at it from the Fair Labor Standards Act. And now I've got to re-reconcile this whole concept as to whether or not someone is an independent contractor.

Independent contractors fall under a bunch of different names. You could call yourself an independent contractor. You could consider yourself to be self-employed. You could be doing freelance work. You could be involved in the much broader gig economy that is very popular and talked about frequently now. The tax aspect is going to be a little bit different about the Fair Labor Standards Act.

And first, before I define an independent contractor to the best of my ability based on the new announcement, I do want to touch on what the Fair Labor Standards Act is.

The Fair Labor Standards Act establishes a minimum wage for employees. It establishes the qualification or the right to pay overtime, record keeping. It discusses child labor law. It covers nursing mothers, 40-hour work weeks, breaks, how tips are to be paid to employees that are in an industry in which they receive tips as part of their compensation, and it prevents retaliation by an employer against an employee. There's a lot of things that the Fair Labor Standard Act covers, and the Fair Labor Standards Act covers employees, but it doesn't cover independent contractors.

So now we have to define — what is an independent contractor? — to see whether or not these set of rules do apply to independent contractors? And what we'll see as we go through this conversation today is although someone may seem like they're an independent contractor, once you apply the rules, for Fair Labor Standard Act purposes, they may be considered an employee in which you now have to apply all the Fair Labor Standard Act rules — an overtime payment would be one big one…a time and a half paid over 40 hours worked in a work week. A lot of these things are now going to apply to someone who may be sitting in the seat as an independent contractor, but fair labor standards are going to still apply to them.

So the easiest way — not necessarily easy — is we need to define what is an independent contractor. And that really isn't an easy question, and we have lots and lots of court cases to define it. [What] it really comes down to, is whether or not there is a matter of economic reality, and that the worker is economically dependent on the employer for work, thus an employee, or are they in business for himself and therefore potentially an independent contractor?

Like I said, there's a lot of different names, but also think of this too on the employer side with the Fair Labor Standards Act. The Fair Labor Standards Act is also there to protect the employer. Because if all employers are playing on the same level playing ground, then —your competition — it creates fair competition.

By establishing a 40-hour work week and overtime rules, that all plays a standard playing ground for all employers in which we're all going to play by the same rules in the sandbox. So now we have to look at who does this apply to? It implies to employees.

But how do we handle independent contractors and are independent contractors considered to be an employee?

And that's the big question of the day that this announcement in January (lovely time for new announcements to come out) This new announcement sets into play of, okay, independent contractor, are they subject to the Fair Labor Standards Act?

Walker: Gotcha. I was not trying to give you a trick question to start off with. I did know it was not a super easy question, but yeah, that's clear as mud for me.

However, thank you for that — doing a good job of setting the stage for us.

Now we know where we're going, how would one determine whether someone is an employee or an independent contractor under the Fair Labor Standards Act — once this rule is effective, which, noting that it is March 11th when the rule is effective.

Moore: Yes. First, we have to determine if an employee is a worker or an independent contractor. The rule came out with these six factors that you need to consider in determining whether or not someone is going to fall under employee versus independent contractor.

Now, this is not a true-false question. This is not, select A, B, C, or D as your answer. These are all subjective interpretations of these rules. And really, not one factor is weighted against the other. You have to just look at the rules [as a] stand alone. Try to apply them to your situation.

In my opinion, it almost comes down to, we have six factors. Do we have four to two, yay or nay, in determining whether or not someone should be really considered an employee for purposes of the Fair Labor Standards Act? So, you have to analyze them all on their own. This is going to lead back to court cases and precedents that is from the past, but also looking at the future at all of these tests.

So there's 6 factors I'm going to just go through real quick — each 1 of the 6 factors — and then I'm going to go back to each 1 and just add a little bit more detail to each one.

So, as you're sitting there, and from my standpoint as a practitioner, when I'm sitting there talking to my client, I'm going to say, okay, let's look at the six factors.

• The first 1 being the opportunity for profit or loss depending on managerial skill.

• Factor 2 is the investments by the worker and the potential employer.

• Factor 3 is the degree of permanence of the work relationship.

• Factor 4 [is] the nature and degree of control.

• Factor 5 is the extent to which the work performed is an integral part of the potential employer's business.

• Factor 6 [is the] skill and initiative [of the employee].

Now, again, subjective and many factors. Subjective on both the independent contractor, employee side versus the employer side. To what level of skill or the ability to profit? It’s going to be dependent on a facts and circumstances test, and it’s going to be dependent for each employee.

Lots to think about as I'm talking to someone, [to determine] whether or not they're an independent contractor for the Fair Labor Standards Act.

Factor 1 — I have to look at, okay, rule number one, what is the opportunity for profit or loss depending on managerial skill? I almost think of this as, are you punching a time clock and getting paid based on the number of hours worked? That's probably going to be an employee situation.

Or are you approached by a company to provide a service in which you, as the contractor, evaluate that project? You look at what, you think, the amount of time is going to be, the materials, the labor…do you determine what your profit margin is going to be on that job, what level of profit margin you're going to bid out that job for? There's a lot of factors in which you're looking at the actual profit and loss of that project, in which you probably would be sitting more in an independent contractor situation.

The common industries — not to beat up on the construction industry — would be typical, whether or not someone is sitting as an independent contractor. In this case, if you're really just showing up and doing the job as you're instructed by the company that you’re doing the work for, you’re probably going to fall under the employee test.

But if you're bidding out the job and you're determining how quickly you can [do] the job, determining how much profit you want to make on that job, you're using your managerial skill, then you would probably fall under independent contract. So again, that's just one of six tests that you're looking at.

[Factor 2] Now you have to move on to the next test, which is investment by the worker and the potential employer. And in this scenario, if you're showing up and the employer is providing mostly all of the tools and materials that you need to do the job…You're showing up and they're providing you, say they're providing you software, they're providing you office space, computer equipment, supplies, all of that's provided. You're just showing up and doing the work. You're probably going to be sitting in the employee side of things.

Whereas, on the flip side of it, you have your own equipment, you have your own tools, you're purchasing better equipment to make you more efficient as you're doing these jobs. In this scenario, you would be sitting more on the independent contractor side of the conversation. So again, the amount of investment and the type of investment you're making in that job would determine whether you're an [independent contractor] or an employee.

[Factor 3] After investment of the worker and the potential employer, let's take a look at the degree of permanence of the work relationship. This is the third prong of the question.

And you're looking at if you're going to the same work location day after day and it seems to be more permanent. That is almost as if you're going to work like anyone else, it's as you're looking at it as your job, and you're really not going out to work with another company. Your priority is given to this one company.

You're going to have a degree of permanence with that relationship that's going to lean towards more of an employee relationship. The flip side would be, you know what, I'm going to work maybe Monday, Tuesday this week, and Wednesday. I'm going to go do some work for another contractor on another project. Thursday/Friday, I might go work for someone else on a different project. The following week the makeup of that work could be completely different. And so there isn't a degree of permanence. And so that would lead more towards an independent contractor relationship. Again, that's factor three.

[Factor 4] Which then leads us into factor four, which is the nature and the degree of control. And when you're looking at the degree of control of the employer, the company that the individual is doing work for, are they setting the schedule?

Are they, having the independent contractor/employee show up every day to the same location at which they are given their duties for the day…sent out to various projects? Throughout the day, they're being monitored. They're doing check-ins with the company to see where they are on the project.

That level of control is really going to lead towards more of an employee status versus an independent contractor. Where an independent contractor may say, okay, I'm going to work on this project for you for the first part of the day. Then I'm going to go work on different projects for another contractor and switch it up. Or maybe they have their own project that they're working on.

[Factor 5] Now we move into the fifth factor is the extent to which the work is an integral part of the employer's business. If the individual is showing up to work and the work that they are doing is very integrated into the overall process. Maybe it's manufacturing and they're coming in every day and they're doing a very integrated part of the overall product development or what they're creating. That integrated part really is part of that process in which that would lead to, in most cases, the individual being treated as an employee, unless it's a very skilled process that is very infrequently used.

If someone's coming in and stepping in, integrated into the process, they're most likely going to step into an employee versus the independent contractor side of things where they're doing work for the company. Your accountant that is doing bookkeeping work for you that's not integrated into the overall process of what the business is in making money doing, then that individual would be sitting in an independent contractor standpoint because they're not integrated into the process of the overall product that the company is making.

[Factor 6] Then finally, we're looking at that sixth factor, and that is the skill and initiative. So again, skill and initiative, that's very subjective. What level of skill is the individual providing for the job?

If you have an independent contractor coming in to do something that is very technical, that very few people do…it's an integrated part of the job, but it's something very technical, and you may only need them on an infrequent basis to complete a project, that situation would generally lead to someone being independent contractor.

However, if they're coming in, they don't require specialized skills in performing the work. They don't necessarily require training in doing the work. They're being supervised. They're being trained on the job. That really could lead to being an employee relationship. So again, very subjective to the level of skill that the individual is doing.

And you have to look at it…and I think by industry. I'm just thinking, looking at my clients, I have some clients that are independent contractors. The work that they do is very specialized. And in some cases, there are very few, maybe in the region, individuals that are doing that type of work.

They pick and choose who they're going to work for and they freelance, they go out, they do that job, it is an integrated part, but they're very specialized, and they're not frequently used. They sit in an independent contractor position versus an employee position. Somewhat clear as mud.

Six factors that we're looking at, trying to say thumbs up, thumbs down. I don't think it's still an easy answer to that question.

Really, at the end of the day, I'm looking at this [and saying] — do I need to apply these rules? Do I need to make sure that if someone comes in and bids a job for me, [do] I need to do some record keeping to see how many hours they're working for me? And if they go over 40 hours, I'm going to have to renegotiate maybe that bid or that contract or figure out what the hourly rate is for that job to determine whether or not you paid them a minimum wage and whether or not they've been paid time and a half for that project. If they're sitting in the independent contractor seat, but really when you look at the factors, they would be considered an employee for the Fair Labor Standards Act.

And this is a very broad definition.

Walker: Great. just to recap a little bit, for our listeners. You have to think about this from your perspective as you're hiring people. Obviously, we're going to talk more about why do you care about this? Why are you spending time talking about this? And we'll delve a little bit into that, in a second.

Dan did a great job of going through all the six things, but it's each six things could be their own probably 30-minute conversations about what they mean, but that was great.

Something I, as I was preparing for this, I'm not sure that I necessarily understood this, and I think we alluded to it a little bit, but I want to make sure we're clear.

This six-factor test, this new rule that's effective March 11, does it override, or does it change the way the IRS determines worker classification, or other federal, state, or local laws that may provide standards for employee classification? How am I thinking about this?

Moore: This is an answer that we don't [know] often in the world of tax. Our answer is usually — maybe, or it depends, we need more information. When the Department of Labor comes out to answer this question, the question of whether or not does this override, does this change IRS determination of worker classification, when the Department of Labor comes out and says no, that is a pretty stern answer.

It's not an "it depends” situation. It doesn't override or change IRS classification because IRS uses its own classification. [It’s] own standalone set of standards, the Common Law Test, which is completely different than the Fair Labor Standards Act and the rule that just came out. When we're looking at the Common Law Test, and just real quick on the Common Law Test as IRS looks at it, you're looking at relationship considerations, behavioral considerations and financial consideration.

We may determine that someone is an independent contractor from a tax standpoint, from an IRS standpoint, but that doesn't mean they're not considered an employee for Fair Labor Standards Act when we apply those six tests that we just went over. So, a hard no on the IRS standards. Does that make things any easier for us?

Absolutely not. It does not. And then you have to look at federal law, there's state law, there's local law, and all these laws apply to employees. The best rule to follow and the rules that you should follow, again we're not labor law attorneys, but you want to apply the law that has the most protections for the employee.

So certain laws may have higher standards than others, and you're going to follow the law that protects the employee the most in this situation. And so again, still confusing. We’ve got two bodies of law, when we’re looking at IRS and Department of Labor. There's so many other factors and other things to consider when you're looking at employee versus independent contractor, but this is not changing the IRS law.

Walker: Okay, that's helpful. Let's talk about why as a tax practitioner, you care about this classification enough to spend time talking about it with your clients.

Moore: I get this question all the time. I work with a lot of startups, in particular. The startups that are like, I have this person, they're coming in, they're helping me out. They make their own schedule. I'm just, I'm scared. I'm not ready to put them on payroll. They're fine with being an independent contractor.

But that doesn't work. And a lot of times I find, particularly small businesses that are starting out, I look at them and I say, the first thing is that person could change their mind when it comes time for them to file their tax return and you may have had this wonderful agreement that they're an independent contractor and they go to file their tax return, guess what? They may not think they're an independent contractor any longer when they realize the impact of the self-employment tax. I have that conversation [that] you need to put your individuals that are working for you on payroll. They need to be part of payroll.

And then as the business grows, I have the discussion that, you know what, you started out, you had a friend helping you out. You have this independent contract relationship. That relationship has grown into something. more than what it originally was, and now it really seems to me like this independent contractor person is really an employee, and now you've hired more people, and you put them on payroll, but you have someone else doing really the same work that you're paying as an independent contractor, and I really think you can't have two people sitting in the same position doing the same work, treating one as an independent contractor and one as an employee.

These are all challenges that startup businesses have. We particularly have these conversations with our clients that are in the construction industry. [There] really [are] no bright line test here on who should be an employee versus an independent contractor? And you have to look again, these six factors, you have to look at the IRS rules to determine whether or not they're considered an employee versus an independent contractor.

Walker: Very good. When you get those red flags that arise as you're having those conversations, and you think that there's an issue, you talked about that — that you're having the conversation — but how do you put them on notice? What are your recommendations? Do you refer them somewhere? What are your next steps?

Moore: You try not to scare your clients into compliance, but we have a lot of stories that we can tell that are very scary that have turned companies upside down. They have turned small family-owned businesses upside down.

In a recent case, I had a construction company that had really what seems to be an independent contractor relationship with someone that was doing work for them. This individual had their own LLC — their own construction company. They came together to work on a job and that independent contractor fell, was severely injured and passed away. Now this construction company is having to deal with the fact that there were workers comp issues and are being sued over this issue from the family — the surviving family of the individual that passed away.

Maybe at the end of the day they'll rule and say, you know what, you did have this, independent contractor relationship with this individual. They [won’t] fall under workers comp laws and there won't need to be a payout under workers comp, but it's cost tens of thousands of dollars. There's a lot of legal fees involved with that time and stress of this is massive. And so those are just the war stories.

I say, you really need to sit down with someone that is skilled and understanding about labor law to find out what your real risk is in the worst-case scenario. Those are rare situations, but when they [happen], they affect your business. They affect your family and they affect your health. And you have to make a very hard decision, on making that relationship with an independent contractor.

There's so many factors. There's fair labor. There's IRS rules when it comes to independent contractors. You have to look at unemployment laws, workers comp laws, the list goes on and on. And to make sure that you're properly protected, you have to really think. I think a lot of companies need to think very hard about that independent contractor relationship. And many will probably discover, you know what, I want to sleep at night. I'm going to flip this individual to an employee.

Walker: Great. yeah, like you said, it's not about horror stories and it's not about scaring. But part of our job as trusted advisers are to let people know, hey, there's potential payroll tax obligations and liabilities, but then there could be also these [other consequences]. You don't want them to come back to you and say, hey, you never questioned this. You never said anything was wrong with this. I think that's important. And that's the point of why we're talking about this today. Any final thoughts as we're wrapping up, Dan.

Moore: Yeah, so I'll remove the gloom and doom. The scenario could arise that you have someone doing work for you as independent contractor, under these rules, the individual would be able to go to the Department of Labor and say, okay, I really, truly believe that I fall under Fair Labor Standards Act, and I was not paid overtime by this company that I was doing work for.

Department of Labor comes in, they do a ruling, you may have to hire an attorney to help you navigate this situation. Then you have to pay overtime, calculate that, look at your record keeping. That could be penalties assessed with it. So that's just a simple, someone said, you know what? I worked 45 hours, not 40 on that job and I didn't get paid time and a half. And so, a very minimal kind of situation that could eat up a lot of time within the company.

Walker: Thank you so much for walking us through this conversation today. It was not an easy, breezy conversation, but it was one that I think we needed to have as hopefully our listeners will take something away. In closing on these podcasts, as you know, since you're a repeat guest, I like to think of us taking a journey together. An Odyssey, if you will, towards a better profession. In doing so, I like to hear about our guests other journeys outside of tax. So, please share a page from your travel journal or bucket list or something you've got on the horizon, Dan.

Moore: So, I won’t do a travel, but I will say just on my own personal journey and pursuit to mindfulness and clear mind. I love to collect audio books that I'm going to find the time to listen to and I never find the time to listen to them. This morning I did a swim and this morning I was pretty excited I finally got my new headset to work. That I can now listen to books while I'm swimming. This morning I got a 40-minute workout in and also got to listen to 40 minutes of a book that I would not otherwise have made time.

Walker: Tell us the name of the book.

Moore: it's on NLP, Neuro Linguistic Programming. I should probably listen to that definition a little closer, but it's just really looking at our reactions, the words we use and also listening to how your employees and your clients are speaking and the way they're speaking really can help you to better understand their thought processes that are going through something. I think it's a great tool to have this time of year when we are face-to-face with all of our clients.

Walker: Wonderful. You’re improving your body, you're improving your mind, all at the same time, that seems like a win-win for everyone.

Thank you again so much, Dan. I'm sure we'll have you again. I'll try to pick an easier topic next time.

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 podcasts, and we encourage you to follow us so you don't miss an episode. If you already follow us, thank you so much, and feel free to share with a like-minded friend. You can also find us on aicpa-cima.com/tax to listen to our other episodes as well as get access to resources mentioned. Thank you so much.

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.

The Infrastructure Investment and Jobs Act was approved in the House of Representatives on Nov. 5, 2021 and is headed to President Joe Biden's desk to be signed into law. The House passed the legislation by a 228–206 vote after it passed the Senate by a 69–30 vote in August.

In this Tax Section Odyssey episode, April Walker, CPA, CGMA, from the AICPA Tax Section, highlights major tax-related items contained in the bill and shares several resources available for practitioners to navigate the provisions.

 What you’ll learn in this episode

• Status of the enactment of the Infrastructure Investment and Jobs Act (0.25)
• Early termination of the employee retention credit (ERC) (0.56)
• Cryptocurrency reporting (1.58)
• Build Back Better Act legislation status and related resources (3.30)
• Additional AICPA year-end resources (4.31)

AICPA resources

• Year-End Tax Planning Letter for Individual Clients — Use this letter template to get the conversations started with your individual tax clients to help them take a fresh look at their current and future financial health.
• Year-End Tax Planning Letter for Small Business Clients — This small business client letter template provides a handy list of key considerations for this year that your clients need to factor in for next year and a jumping off point for them to contact you as their tax and financial planning adviser.
• 2021 Tax Year in Review Presentation for Clients — A presentation to use as a touchpoint with your clients to update them on various tax law changes and year-end reminders and encourage them to talk with you about their long-term financial plans. This template also works as a starting point for presentations to networking groups, rotary clubs, chambers of commerce and many other groups.
• CPA Marketing Toolkit — A toolkit to help you communicate with prospects and clients throughout your career to help you demonstrate your strength as a trusted adviser, assisting with all aspects of your clients’ financial situations.
• Build Back Better Act: Where we are now — Recorded on Nov. 8, 2021, Bob Keebler, CPA/PFS, reports on the latest with the Build Back Better Act. Bob will also be speaking on a related webcast on Nov. 17, 2021.

 Note: If your podcast app does not hyperlink to resources, visit https://taxodyssey.libsyn.com to access show notes with direct links.

This episode is brought to you by the AICPA’s Tax Section, your home base to maintain your professional edge. To learn more about the Tax Section, check out aicpa.org/tax or sign up for a free web tour.

The employee retention credit (ERC) has been an important lifeline to many struggling businesses impacted by the economic uncertainty around the COVID-19 pandemic.

The ERC has helped support many businesses through the onset of the COVID-19 pandemic and taxpayers, many with the help of their CPA practitioners, have faithfully filed for refund claims.

However, some taxpayers have been approached by firms or consultants who may promote an overly aggressive narrative with the promise that any and every business can qualify for the ERC. Taxpayers should be wary of such aggressive claims and be conscientious of how to mitigate risks when applying for the ERC.

In this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, Association of International Certified Professional Accountants, representing AICPA & CIMA, welcomes back Kristin Esposito, CPA, MST, Director — Tax Policy & Advocacy, Association of International Certified Professional Accountants, representing AICPA & CIMA, to discuss this top-of-mind topic.

What you’ll learn in this episode

• The current environment (1.27)
• Concerns with overly aggressive firms or consultants (2.48)
• Steps for taxpayers who have fallen victim (3.51)
• IRS guidance available and on the horizon around this topic (7.35)
• Impact on those who have filed legitimate claims (9.02)
• The latest in processing times for filed Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund, and the coordination with examination activities (10.19)
• AICPA advocacy efforts around ERC (12.20)
• A page from Kristin’s travel journal (15.29)

 AICPA resources

• Employee retention credit guidance and resources — The rules to be eligible to take this refundable payroll tax credit are complex. This resource library will help you understand both the retroactive 2020 credit and the 2021 credit.
• Mythbust and maximize the employee retention credit | Tax Section Odyssey — Helping eligible clients successfully apply for and receive the ERC is a once-in-a-lifetime opportunity for CPAs according to Chris Wittich, MBT, CPA.
• ERC — What we know now | Tax Section Odyssey — Kristin Esposito, CPA, MST, addresses the much-anticipated employee retention credit (ERC) guidance released in August 2021 that answered many outstanding questions.

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.

In this episode, Mike Whitmore, CPA, Shareholder — HMA CPA, a member of the AICPA Tax Practice Management Committee, chats with April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA, about a checklist of items to consider when in the market for acquiring a CPA firm. He highlights red flags to look out for and green lights that signal a firm is a “go” for acquisition, and what due diligence is needed to ensure the perfect fit.

What you’ll learn in this episode

• The most crucial due diligence aspect when shopping for a CPA firm (2:08)
• Ideal time commitment you should dedicate to the due diligence stage (7:52)
• Red flags to watch out for (9:43)
• Green lights to follow (13:00)
• Lessons learned and a real-life example (16:07)
• A page from Mike’s travel journal (18:54)

AICPA resources

• Practice Management & Professional Standards — The AICPA Tax Section provides the guidance and tools you need to manage a successful tax practice and maintain the highest level of ethical standards in tax.

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.

The pressure to adapt business models to the present while simultaneously preparing for the future has always been a force acting upon professionals.   

On this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — Association of International Certified Professional Accountants, representing AICPA & CIMA, and Donald A. Nelson, EA, Co-Founder — Pacesetter Tax, discuss current technology buzz words and what it takes to become modern firm in a sustainable model.

What you’ll learn in this episode

• What the term “embrace the change” means (0.50)
• Evaluate your tech stack (3.08)
• The IRS tech stack (4.50)
• Key things to keep in mind when considering modifications to your tech stack (7.00)
• What a “modern firm” is (8.01)
• Ways to incorporate automation to facilitate efficiency (9.37)
• Steps firm leaders can take to help themselves and staff avoid burnout (14.58)
• Overview of Pacesetter Tax (17.39)

AICPA resources

• Technology hub – Provides access to the latest technology information, tools and resources to best serve your clients or support the organization where you work.
• Tax Practice Quarterly: Managing a Tax Practice in the Modern World | Tax Section webcast archive – Webcast archive from May 19, 2021 that covers important issues such as how to expand your service offerings as a result of the pandemic, delve into the evolution of the virtual tax practice and explore best practices from a human resource and a client-service perspective
• Talking to clients about the advanced child tax credit before July | Tax Section Odyssey – This podcast, recorded in late June 2021, covers the latest news to date regarding the child tax credit advanced payments and the related online tools and portals.
• 2020 tax software survey – Journal of Accountancy article featuring the results of their annual tax software survey

Other resources

• Pacesetter Tax – Integrated solution that allows tax preparation practices to work more efficiently and serve clients more effectively. Pacesetter Tax is designed to work seamlessly with whatever tax software your practice uses, from basic to top-of-the-line, and to replace the patchwork of other one-off tools that don’t play nicely together.

Note: If your podcast app does not hyperlink to resources, visit https://taxodyssey.libsyn.com to access show notes with direct links.

This episode is brought to you by the AICPA’s Tax Section, your home base to maintain your professional edge. To learn more about the Tax Section, check out aicpa.org/tax or sign up for a free web tour.

As virtual currencies gain more traction in the marketplace, the IRS is taking notice. Your clients may be unaware of the tax reporting requirements and the tax implications from their cryptocurrency transactions. 

In this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, Association of International Certified Professional Accountants, representing AICPA & CIMA, and Shehan Chandrasekera, CPA, Head of Tax Strategy — CoinTracker, delve into the cryptic world of virtual currency and discuss practical tax compliance tips.  

What you’ll learn in this episode

• History and the basics of cryptocurrency (1.01)
• Advantages and benefits of owning and transacting with cryptocurrency (2.39)
• Non-fungible tokens (NFTs) (4.18)
• The taxation of cryptocurrency and IRS guidance (5.56)
• Advice to clients regarding cryptocurrency activity and transaction tracking (8.39)
• How to answer the virtual currency question on the Form 1040 (10.53)
• Potential tax legislation and virtual currency (13.01)
• What to do when a client receives an IRS letter or notice regarding virtual currency activity (15.07)
• Journal of Accountancy podcast episode that focuses on the recent annual tax software survey (18.43)

AICPA resources

• Virtual currency tax guidance and resources — Consolidation of AICPA resources, comment letters and IRS guidance to help tax practitioners advise clients on cryptocurrency complexities
• Blockchain & Digital Assets — Hub of resources around this increasingly-common technology

Other resources

• Coinmarketcap.com — Website consolidating the various cryptocurrency properties and current prices
• IRS Notice 2014-21 —IRS guidance for individuals and businesses on the tax treatment of transactions using virtual currencies
• Rul. 2019-24 — IRS guidance that addresses common questions by taxpayers and tax practitioners regarding the tax treatment of a cryptocurrency hard fork
• The IRS also published Frequently Asked Questions on Virtual Currency Transactions for individuals who hold cryptocurrency as a capital asset and are not engaged in the trade or business of selling cryptocurrency
• CoinTracker — Software to help track cryptocurrency investment performance and taxes.
• Lukka — Data and software solutions to manage crypto assets on infrastructure built for the future of commerce. In December 2019, CPA.com announced a strategic alliance with Lukka to deliver crypto asset solutions to firms.
• IRS Cryptocurrency Tax Letter Guide: 6173, 6174, 6174-A, CP-2000 — Step-by-step guide to help taxpayers know what to do if they receive a cryptocurrency-related letter from the IRS
• Tax software: What CPAs like and dislike — Journal of Accountancy podcast where editors Alistair Nevius and Paul Bonner discuss details of the annual tax software survey.

Note: If your podcast app does not hyperlink to resources, visit https://taxodyssey.libsyn.com to access show notes with direct links.

This episode is brought to you by the AICPA’s Tax Section, your home base to maintain your professional edge. To learn more about the Tax Section, check out aicpa.org/tax or sign up for a free web tour.

On this episode, Steve Wrappe, a National Technical Leader of transfer pricing at Grant Thorton and Reema Patel, 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

International Taxation Resource Hub — Stay current on international taxation with the latest advocacy efforts, guidance and tools available in this AICPA & CIMA reference library.

Five actions finance teams can take on tariffs, AICPA & CIMA, April 11, 2025

Breaking down the reasons for a decline in economic sentiment, 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 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.

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

Planning for tax changes — 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.

Tax advocacy — 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.