reporting requirements Archives - TAX CONTROVERSY 360

Weekly IRS Roundup November 7 – November 11, 2022

by McDermott Will & Emery | Nov 14, 2022 | IRS Guidance, Tax Reform

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of November 7, 2022 – November 11, 2022.

November 7, 2022: The IRS released Internal Revenue Bulletin 2022-45, which highlights the following:

Proposed Regulations 100719-21: This guidance proposes increases for both the enrollment and renewal of enrollment user fees for enrolled actuaries from $250 to $680.

Revenue Procedure 2022-38: This revenue procedure establishes the annual inflation adjustments for more than 60 tax provisions.

Notice 2022-54: This notice provides guidance on the corporate bond monthly yield curve and corresponding spot segment rates and the 24-month average segment rates for October 2022. The notice also provides guidance as to interest rates on 30-year Treasury securities and 30-year Treasury weighted average rates.

Notice 2022-55: This notice provides the dollar limitations on benefits and contributions under qualified retirement plans.

Notice 2022-53: This notice announces that the US Department of the Treasury (Treasury) and the IRS intend to issue final regulations related to required minimum distributions under Section 401(a)(9) that will apply no earlier than the 2023 distribution calendar year. The notice also provides guidance related to certain Section 401(a)(9) provisions that apply for 2021 and 2022 and the related excise tax under Section 4974.

Proposed Regulation 121509-00: This document withdraws proposed regulations related to exclusion from gross income of previously taxed earnings and profits under Section 959, as well as related basis adjustments under Section 961.

Revenue Ruling 2022-20: This guidance provides the various prescribed rates for federal income tax purposes for November 2022.

Treasury Decision 9968: These final regulations amend the regulations concerning eligibility for the premium tax credit to provide that affordability of employer-sponsored minimum essential coverage for family members of an employee is determined based on the employee’s share of the cost of covering the employee and those family members—not the cost of covering only the employee—under Section 36B.

November 7, 2022: The IRS and the Treasury announced that they will now allow Section 403(b) retirement plans to use the same individually designed retirement plan determination letter program currently used by qualified retirement plans. Revenue Procedure 2022-40 outlines the additions and changes.

November 7, 2022: The IRS issued COVID Tax Tip 2022-170, which cautions employers to be aware of third parties advising them to claim the employee retention credit when they may not qualify.

November 7, 2022: The IRS requested comments on the reporting requirements for settlement funds, which are funds established or approved by a governmental authority to resolve or satisfy certain liabilities (such as those involving tort or breach of contract). Comments should be received by January 6, 2023, to be assured of consideration.

November [...]

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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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Biden Administration Proposals Will Greatly Enhance IRS’ Ability to Identify Cryptocurrency Transactions

by Julian André, Kevin Spencer and Katharine Suominen | May 26, 2021 | IRS Guidance, Tax Reform
The Biden Administration and the Internal Revenue Service (IRS) continue to focus heavily on cryptocurrency tax enforcement issues. On May 20, 2021, the US Department of the Treasury (Treasury) released the American Families Plan Tax Compliance Agenda, a 22-page report detailing tax compliance measures that are to be included as part of US President Joe Biden’s American Families Plan. The report sets forth a number of initiatives designed to “close the tax gap,” identify the underreporting of tax liabilities and detect tax evasion. These measures, which are part of an $80 billion proposal for the IRS, would significantly enhance the agencies’ ability to address the challenges involved with finding taxes that result from virtual currency transactions.

The Treasury’s report notes that “[c]ryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion.” To address this issue, the Biden Administration is proposing “additional resources for the IRS to address the growth of cryptoassets.”

Most notably, the Biden Administration is proposing enhanced reporting requirements for domestic and foreign financial accounts that specifically address cryptocurrency. Financial institutions, including “cryptoasset exchange accounts and payment service accounts that accept cryptocurrencies” would be required to submit third-party annual reports of all “gross inflows and outflows” from business and personal accounts to the IRS using a form similar to the IRS 1099-INT. Additionally, “businesses that receive cryptoassets with a fair market value of more than $10,000 would be reported on” in a manner similar to how cash transactions are reported on Currency Transaction Reports. These new reporting requirements would dramatically increase the IRS’ ability to identify and detect unreported cryptocurrency transactions.

The report also reemphasizes the need to devote additional funding to the IRS. The Biden Administration is seeking $80 billion in additional funding so that the Treasury and IRS can, among other things, hire “new specialized enforcement staff” and “revitalize[e] the IRS’s examination of large corporations, partnerships, and global high-wealth and high-income individuals.”

Additionally, the Biden Administration plans to overhaul the IRS’ IT systems and capabilities. These IT enhancements are designed to “help support a staff capable of deploying new analytical techniques” and “developing machine learning capabilities [that] will enable the IRS to leverage the information it collects to better identify tax returns for compliance review.” Given the inherent difficulties in identifying cryptocurrency users who have failed to comply with the internal revenue laws, increased data collection and analytics capabilities would be invaluable for the IRS.

The IRS has already been ramping up its cryptocurrency tax enforcement efforts by issuing John Doe summons to various cryptocurrency exchanges, working with industry experts and foreign law enforcement. If implemented, the American Families Plan Tax Compliance Agenda would provide the IRS with extensive new tools and resources for these ongoing enforcement activities.

Practice Point: If you have engaged in cryptocurrency transactions, now is the time to analyze whether you have any civil or criminal exposure and prepare for a government inquiry by gathering all of your transaction records. For [...]

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