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Weekly IRS Roundup January 23 – January 27, 2023

by Sarah M. Raben | Jan 30, 2023 | IRS Guidance, Tax Reform, Tax Refunds

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of January 23, 2023 – January 27, 2023.

January 23, 2023: The IRS released Internal Revenue Bulletin 2023-4, which highlights the following:

Proposed Regulation 114666-22: This proposed regulation modifies the participant election rules in Section 1.401(a)-21(d), providing an alternative to in-person witnessing of spousal consents required to be witnessed by a notary public or plan representative. The proposed regulation also clarifies that certain rules for the use of an electronic medium for participant elections also apply to spousal consents.

January 23, 2023: The IRS is requesting comments concerning Form 5227, Split-Interest Trust Information Return, which is used to report the financial activities of a split-interest trust described in Section 4947(a)(2) and determine whether the trust is treated as a private foundation and thus subject to excise taxes. Written comments should be received by March 24, 2023.

January 23, 2023: The IRS announced the beginning of the 2023 tax filing season, with a focus on improving customer service. The IRS also urged taxpayers to file their returns electronically with direct deposit to expedite refunds and avoid delays. The deadline for most people to file tax returns this year is April 18, 2023, however, storm victims in Alabama, California and Georgia have until May 15, 2023.

January 23, 2023: The IRS is requesting comments related to proceeds of bonds used for reimbursement. This regulation clarifies when the allocation of bond proceeds to reimburse expenditures previously made by an issuer of the bond is treated as an expenditure of the bond proceeds. Written comments should be received by March 24, 2023.

January 23, 2023: The IRS released Tax Tip 2023-06, which provides information about the adoption tax credit for families with adoption-related expenses. Taxpayers must complete Form 8839 to claim the credit and attach it to their tax return.

January 24, 2023: The IRS reminded taxpayers that they must answer a digital asset question and report all digital asset-related income when filing their 2022 federal income tax return. This is the same procedure as fiscal year 2021. The term “digital assets” has replaced “virtual currencies,” which was a term used in previous years. The question appears at the top of Forms 1040, Individual Income Tax Return; 1040-SR, U.S. Tax Return for Seniors; and 1040-NR, U.S. Nonresident Alien Income Tax Return.

January 24, 2023: The IRS reminded taxpayers to choose their tax preparer carefully. Taxpayers are ultimately responsible for all the information on their income tax return, regardless of who prepares it. Anyone who is paid to prepare federal tax returns must have a valid Preparer Tax Identification Number.

January 24, 2023: The IRS released Tax Tip 2023-07, urging taxpayers to avoid common mistakes when filing their tax returns by carefully reviewing them. [...]

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Weekly IRS Roundup January 9 – January 13, 2023

by McDermott Will & Emery | Jan 17, 2023 | IRS Guidance, Tax Reform, Tax Refunds

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of January 9, 2023 – January 13, 2023.

January 9, 2023: The IRS released Internal Revenue Bulletin 2023-2, which highlights the following:

Announcement 2023-2: This announcement provides transitional guidance with respect to the reporting of information on digital assets. Specifically, brokers are not required to report additional information on the disposition of digital assets until final regulations under Sections 6045 and 6045A are issued.

Notice 2023-8: This notice provides guidance for brokers to comply with the provisions of the final regulations under Section 1446(f) and certain provisions of the final regulations that apply to Section 1446(a) that relate to withholding on the transfer of an interest in a publicly traded partnership.

Revenue Rule 2023-1: This revenue ruling provides the applicable federal rates for federal income tax purposes for January 2023. The short-term federal interest rate will decrease to 4.50%, the mid-term rate will drop to 3.85% and the long-term rate will fall to 3.84%.

Treasury Decision 9970: This document includes final regulations that provide an automatic extension for providers of minimum essential coverage (including health insurance issuers, self-insured employers and government agencies) to furnish individual statements regarding such coverage and an alternative method for furnishing individual statements when the individual shared responsibility payment amount is zero. The final regulations also provide an automatic extension for applicable large employers to furnish statements relating to health insurance that they offer to their full-time employees.

Notice 2023-5: This notice provides updates on the corporate bond monthly yield curve, the corresponding spot segment rates and the 24-month average segment rates under Section 430(h)(2). This notice also provides guidance on the interest rate for 30-year Treasury securities as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate.

Notice 2023-4: This notice provides the percentage increase for calculating the qualifying payment amounts for items and services furnished during 2023 with respect to Sections 9816 and 9817 of the Internal Revenue Code, Sections 716 and 717 of the Employee Retirement Income Security Act of 1974 and Sections 2799A-1 and 2799A-2 of the Public Health Service Act.

Notice 2023-06: This notice explains the requirements for fuel to be eligible for the sustainable aviation fuel (SAF) credit, how to claim the credit and who must be registered. The SAF credit was created by the Inflation Reduction Act of 2022 and applies to a qualified fuel mixture containing SAF for certain uses or sales in the 2023 and 2024 calendar years.

January 9, 2023: The IRS released Tax Tip 2023-02, advising people to hang up if scammers call during tax season. The IRS says it will never (1) call to demand immediate payment using [...]

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Weekly IRS Roundup December 19 – December 23, 2022

by McDermott Will & Emery | Dec 27, 2022 | IRS Guidance, Tax Reform, Tax Refunds

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of December 19, 2022 – December 23, 2022.

December 19, 2022: The IRS released Internal Revenue Bulletin 2022-51, which highlights the following:

Revenue Ruling 2022-23: This revenue ruling announces the interest rates for the first quarter of 2023. The new interest rates are as follows:
- Overpayments: 7%
- Overpayments for corporations: 6%
- Corporate overpayments for portion exceeding $10,000: 4.5%
- Underpayments: 7%
- Large corporate underpayments: 9%

Announcement 2022-26: This announcement notifies taxpayers that payments made to property owners under Suffolk County’s Septic Improvement Program are not required to be included in gross income for federal income tax purposes.

Revenue Ruling 2022-24: This revenue ruling provides tables for covered compensation related to qualified pension, profit-sharing and stock bonus plans under Section 401(l)(5)(E) and related income tax regulations for the 2023 plan year. The taxable wage base is $160,200 for the 2023 tax year (up from $147,000 in 2022) for purposes of determining covered compensation.

Announcement 2022-24: This announcement lists the organizations that no longer qualify for 501(c)(3) and 170(c)(2) status.

Announcement 2022-25: This announcement notifies potential donors of a stipulated decision by the US Tax Court in declaratory judgment proceedings under Section 7428.

Announcement 2022-27: This announcement reminds state and local housing credit agencies of the deadline related to certain allocation of housing credit dollar amounts under Section 42.

December 19, 2022: The IRS and the US Department of the Treasury (Treasury) issued guidance related to the Sustainable Aviation Fuel (SAF) credit. Notice 2023-06 explains the requirements for the fuel to be eligible for the SAF credit, how to claim the credit and who must be registered. The SAF credit was introduced in the Inflation Reduction Act of 2022 (IRA) and applies to a qualified fuel mixture containing sustainable aviation fuel for certain uses or sales in the 2023 and 2024 calendar years.

December 19, 2022: The Treasury announced a timeline for providing additional information on key tax provisions for the IRA. Before the end of the year, the Treasury will provide: (1) FAQs on the tax credit for energy-efficient home improvement projects and residential energy property; (2) initial guidance on the corporate alternative minimum tax; and (3) initial guidance on the excise tax on stock buybacks. Beginning January 1, 2023, consumers and businesses will be able to access tax benefits from many of the IRA’s climate provisions.

December 20, 2022: The IRS issued Notice 2023-4, which provides the percentage increase for calculating the qualifying payment amounts for items and services furnished during 2023 with respect to Sections 9816 and 9817 of the Internal Revenue Code, Sections 716 and 717 of the Employee Retirement Income Security [...]

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Update on IRS Enforcement Efforts

by Kevin Spencer and McDermott Will & Emery | Nov 16, 2022 | IRS Audits, IRS Guidance, Tax Reform, Transfer Pricing Resource

We frequently post about the Internal Revenue Service’s (IRS) tax enforcement trends and announcements. Prior examples from this year include the release of a five-year strategic plan emphasizing enforcement, the plan to hire up to 200 additional attorneys to assist with litigation efforts, the implementation of the Large Partnership Compliance (LPC) Pilot Program, a focus on tax compliance of non-US citizens and residents, and the creation of a new Joint Strategic Emerging Issues Team to identify emerging “abusive transactions.” Over the past several weeks, the IRS has provided additional updates on its enforcement efforts and future plans, including the following:

The IRS is considering raising the economic substance doctrine more frequently in transfer pricing examinations—even those where taxpayers have transfer pricing documentation—and asserting penalties more often in transfer pricing cases. This follows the announcement last April that executive approval is no longer needed before asserting the codified economic substance doctrine under Internal Revenue Code Section 7701(o).

The IRS plans to grow the LPC program and envisions it functioning similar to corporate examinations conducted by the Large Business & International Division.

The IRS’s Criminal Investigation (CI) Division is highly focused on criminal digital asset cases and intends to make many of these cases public. This follows the recent release of the CI Division’s annual report.

The IRS intends to expend more resources on examinations of high-income/high-net-worth taxpayers.

The IRS has proposed to require the disclosure of more information regarding corporate taxpayers’ uncertain tax positions, including citations to contrary authorities, which, if finalized, will likely lead to more examinations and challenges to tax reporting positions.

Practice Point: Tax enforcement has been down over the past several years, including a slowdown in audit operations during the COVID-19 pandemic. With increased funding from the Inflation Reduction Act of 2022 and proposed restrictions on access to IRS Appeals for certain matters, we expect more examinations and tax disputes in the near future. Taxpayers and their advisors should prepare. Consider working with your tax controversy advisor to discuss your more vulnerable return positions to see how to better defend against the impending tax enforcement wave!

What You Need to Know About the Taxation of NFTs

by McDermott Will & Emery | Jan 18, 2022 | Tax Reform

Non-fungible tokens (NFTs) are today’s hottest digital assets. They are also completely ignored by the Internal Revenue Service—to date, at least—even in the agency’s pronouncement on the taxation of cryptocurrencies.

In this series of articles, we’ll start cracking the NFT code: what they are, how they are created, bought and sold, how they might be taxed by the IRS, and the use of NFTs for charitable contributions and fundraising purposes.

1. Introduction to NFTs – As today’s hottest digital assets, non-fungible tokens (NFTs) have taken the arts and investment worlds by storm. But what are they, exactly, and how are they to be treated for tax purposes? This article provides an overview of need-to-know information regarding these exciting—and potentially risky—assets. Read more.

2. Taxation of NFT Creators – NFTs offer artists, musicians, celebrities, influencers and other creators an opportunity to develop, market and control the future of many types of digital content that they produce. Less understood is how these assets will be categorized and taxed by the Internal Revenue Service. This article reviews how creators of NFTs will likely be treated by the IRS and what that means for them. Read more.

3. Taxation of the Purchase and Sale of NFTs – Given a lack of guidance on the tax treatment of non-fungible tokens (NFTs), taxpayers can be forgiven for experiencing a certain level of uncertainty with respect to how the Internal Revenue Service (IRS) will apply its tax rules to purchases and sales of these assets. IRS reasoning on other asset classes, however, sheds some light on this otherwise uncharted territory. This article reviews the various factors that are likely to play a role in determining the classification and treatment of NFT transactions for tax purposes. Read more.

4. NFTs and Charitable Fundraising: Navigating Tax Hurdles – As the creation of and transactions involving non-fungible tokens (NFTs) have increased dramatically, so has interest in using NFTs as donations to charitable organizations and for other charitable fundraising tools. Given the lack of guidance from the IRS on such gifts, donors and recipient charities face a number of tax uncertainties. This article examines the tax hurdles involved in using NFTs for charitable fundraising purposes and offers suggestions for compliance with recordkeeping and tax reporting requirements. Read more.

Andrea (Andie) Kramer is a recognized thought leader on tax related cryptocurrency matters. She was named the 2020 Go-To Thought Leader in Virtual Currency Tax by the National Law Review and a 2021 Readers’ Choice Top Author in cryptocurrency taxation by JD Supra for her article series on cryptocurrency tax.

Infrastructure Bill Provision Expands Cryptocurrency Reporting Requirements

by John T. Lutz, William R. Pomierski, Le Chen and McDermott Will & Emery | Aug 6, 2021 | Tax Reform

On August 1, 2021, the US Senate unveiled the draft text of the Infrastructure Investment and Jobs Act (Bill), a highly anticipated $1 trillion infrastructure package negotiated by the White House and a bipartisan group of senators. As discussed below, the Bill includes a provision (Section 80603) that, if enacted in its current form, would amend the Internal Revenue Code (Code) to extend certain reporting requirements for transactions involving digital assets, including cryptocurrencies such as Bitcoin and Ether and other forms of digital tokens. The provision, which would generally go into effect on January 1, 2023, is intended to address a “tax gap” resulting from the underreporting of cryptocurrency transactions.

BROKER REPORTING

Code Section 6045 generally imposes reporting requirements on “every person doing business as a broker” with respect to sales affected by the broker on behalf of its clients. Under current law, such reporting is currently limited to sales of corporate stock, interests in trusts and partnerships, debt obligations, certain commodities and various associated derivatives. Pursuant to regulations, such sales are reported by the broker on Form 1099-B and the information required to be reported includes identifying information about the taxpayer and the property sold, the sale date and gross proceeds of the sale—and only with respect to the sale of a “covered security,” the adjusted basis of the property sold and the character of the gain or loss on the sale (i.e., long- or short-term capital gain).

For purposes of 1099-B reporting, a “broker” is defined to include a “dealer, a barter exchange, and any other person who (for a consideration) regularly acts as a middleman with respect to property or services.” A typical example of a broker subject to 1099-B reporting is a brokerage firm that facilitates transactions for customers in stocks, bonds and/or commodities.

The Bill expands the definition of a broker to include “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” Unless otherwise provided by the US Department of the Treasury’s regulations, a “digital asset” means “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by [Treasury].” A cryptocurrency exchange would be considered a broker under this language.

The “basis” reporting under Section 6045 only applies to “covered securities.” Under current law, the term covered securities generally includes corporate stock shares, debt obligations, certain designated commodities (and derivatives thereof) and other financial instruments. The Bill would expand the definition of covered securities to include any “digital asset.” Accordingly, brokers subject to Section 6045 will be required to report the adjusted basis and the character of the gain or loss upon the sale of digital assets, including utility tokens, stablecoins and asset-backed tokens.

BROKER-TO-BROKER AND BROKER-TO-NON-BROKER TRANSFER REPORTING

Under current law, Code Section 6045A imposes additional reporting requirements that are generally applicable to the transfer of covered securities by one broker to another. Specifically, the transferor broker must [...]

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