The Internal Revenue Service today issued interim guidance for sponsors of 401(k) and similar retirement plans that provide, or wish to provide, matching contributions based on eligible student loan payments made by their participating employees.

Notice 2024-63 PDF, posted today on IRS.gov, implements section 110 of the SECURE 2.0 Act of 2022, which for the first time permits employers to provide matching contributions for employees based on their payments on student loans.

The 2022 legislation permits employers with a 401(k) plan, 403(b) plan, governmental 457(b) plan or SIMPLE IRA plan to provide matching contributions based on student loan payments, rather than based only on elective contributions to retirement plans, in plan years beginning after Dec. 31, 2023.

Using a question-and-answer format that includes several illustrative examples, the notice addresses a variety of plan-administration issues. Among other issues, the notice addresses:

• General student loan matching contribution eligibility rules (including dollar and timing limitations).
• What is required for an employee certification that student loan matching contribution requirements have been met.
• Reasonable student loan matching contribution procedures that a plan may adopt.
• Special nondiscrimination testing relief for 401(k) plans that include student loan matching contributions.

The notice applies for plan years beginning after Dec. 31, 2024. In the notice, the IRS said it plans to issue proposed regulations providing further guidance on section 110, but that plan sponsors may rely on the notice until the proposed regulations are issued.

The IRS welcomes public comments on this notice, which provides details on how to submit comments.

Source: IRS-2024-217, Aug. 19, 2024

A coalition representing the Internal Revenue Service, state tax agencies and the spectrum of the nation’s tax industry today announced a new joint effort to combat the growth of scams and schemes threatening taxpayers and tax systems.

The new combined effort follows a variety of increased scams and schemes that intensified during the past filing season that aimed to exploit vulnerable taxpayers while enriching fraudsters and promoters.

Convened at the request of IRS Commissioner Danny Werfel, the coalition of federal and state tax agencies along with software and financial companies as well as key national tax professional associations agreed to a three-pronged approach. They will work to expand outreach and education about emerging scams, develop new approaches to identify potentially fraudulent returns at the point of filing and create infrastructure improvements to protect taxpayers as well as federal, state and industry tax systems.

The new task force will be called the Coalition Against Scam and Scheme Threats (CASST).

“Across the spectrum of the tax system, we’ve seen a rising tide of scams and schemes that try to exploit taxpayers and find gaps in government and industry defenses,” Werfel said. “This new collaborative approach will allow the private and public sectors to throw our combined weight against this threat. We will do more to work closely together, share information faster, respond quickly to threats and quickly alert the public to new and emerging threats. Our goal is to have a mass effect on this expanding problem that’s spread on social media and through bad actors.”

The new CASST project has wide support across the nation’s tax community. In addition to the IRS, other participants include state tax agencies represented by the Federation of Tax Administrators as well as the leading software and financial industries working in the tax space and key national tax professional organizations. The Council for Electronic Revenue Communication Advancement, the National Association of Computerized Tax Processors and the American Coalition for Taxpayer Rights are among those that have signed on to support the initiative. In all, more than 60 different groups from the private sector have signed on to the initiative, either individually or as part of a group.

“The FTA membership is dedicated to protecting taxpayers from fraudulent attacks on the country’s tax ecosystem,” said Federation of Tax Administrators Executive Director Sharonne Bonardi. “We are committed to continuing our collaborative efforts by working with the IRS, industry and other stakeholders to implement strategies that allow for proactive detection, prevention and mitigation of scams and schemes deployed by bad actors intending to defraud tax agencies.”

The new coalition is an outgrowth of the Security Summit effort, and while the new collaborative effort will not replace the Summit, the scams coalition will be closely modeled on the Summit. The Security Summit was launched in 2015 by the same groups to stem the growth in tax-related identity theft. The combined effort improved information sharing between the groups, identified common approaches to combat tax-related identity theft, improved internal tax system defenses and conducted extensive public awareness campaigns for taxpayers and tax professionals. While tax-related identity theft remains a concern, the improved protections have protected millions of taxpayers and prevented billions of dollars of fraudulent payments.

For this new project targeting scams, the CASST task force has agreed to high-level principles. The purpose of the group will be to better protect taxpayers from falling prey to unscrupulous actors by leveraging multilateral relationships across the tax ecosystem to minimize the filing of fraudulent tax returns.

“CERCA is pleased to work with the IRS and the states to combat the proliferation of ‘scams and schemes’ that are victimizing millions of Americans,” said Shannon Bond, chair of the Council for Electronic Revenue Communication Advancement. CERCA represents companies in the tax software and preparation industries as well as financial service groups and others in the tax community. “Continuing our long partnership with the IRS, CERCA stands shoulder to shoulder with both the federal government and the states to reduce first-party fraud, which threatens the viability of tax systems and imperils vulnerable taxpayers.”

During the past tax season, there has been increased activity involving a variety of scams and schemes harming taxpayers, including the Fuel Tax Credit, household employment taxes and the Sick and Family Leave Credit. The IRS has seen hundreds of thousands of dubious claims come in where it appears taxpayers are claiming credits for which they are not eligible, leading to refunds being delayed and the need for taxpayers to show they have legitimate documentation to support these claims.

Numerous other scams and schemes continue to be seen circulating on social media and are highlighted through efforts including the annual IRS Dirty Dozen list and alerts from the Security Summit partners. The new approach will increase collaborative efforts to raise awareness and education about schemes, not just during tax season but throughout the year.

With the new scam and scheme initiatives, the IRS, states and the private sector will work to put in place new protections by filing season 2025. The combined effort is particularly important because the group has seen instances where scammers look for weak points in government systems and the private sector to exploit. The combined effort will improve defenses across both the private and public sector with a goal of making it more difficult for scammers to slip improper or false tax returns through the system.

The group will also work to make long-term structural changes to fundamentally improve the ability to identify and stop scams. This includes working to improve EFIN and PTIN validation and new steps to combat “ghost preparers,” who prepare tax returns for a fee and do not in any way sign a tax return or disclose their role on the tax return as the preparer. In many cases, these are inflated tax refunds that lead to millions in revenue loss and add risk for taxpayers who file potentially improper claims with only the individual’s name associated with the tax return.

Source: IRS-2024-215, Aug. 16, 2024

The Internal Revenue Service today reminded taxpayers of the ability to submit electronic requests for relief for certain late-filed international documents.

As part of a step toward full digitalization, the electronic option introduced August 2023, applies to the following filings:

1. Gain recognition agreements,
2. Late-filed dual consolidated losses, and
3. Partnership gain deferral contributions.

How the process works

Requests can be submitted via eFax at 855-582-4842. Guidance for making each request can be found on IRS.gov using the following links:

• Relief for gain recognition agreements
• Late filing relief for dual consolidated losses
• Relief for partnership gain deferral contributions

Benefits for taxpayers and tax administration

The ability for taxpayers to securely communicate with the IRS reduces their correspondence burden while supporting IRS tax administration work. It also helps provide immediate documentation delivery to the IRS.

For IRS employees, transitioning away from the manual mailing process reduces paper documentation and improves processing time, which benefits taxpayers including those living internationally.

Source: IRS-2024-206, Aug. 12, 2024

The Internal Revenue Service today posted an early draft of the updated Form 1099-DA, which is the form for brokers to report certain sale and exchange transactions of digital assets that take place beginning in calendar year 2025. Generally, these forms will be sent separately to taxpayers and the IRS in early 2026.

The new draft of Form 1099-DA, Digital Asset Proceeds From Broker Transactions PDF, reflects the final regulations for custodial broker reporting and includes the transitional relief described in Notice 2024-56, Notice 2024-57 and Revenue Procedure 2024-28. Interested parties can provide the IRS with comments about the draft at the forms and publications comments page on IRS.gov.

“This new form will provide more clarity for taxpayers and give them another tool to help them accurately report their digital assets transactions,” said IRS Commissioner Danny Werfel. “We know third-party reporting greatly improves compliance with the nation’s tax law. This step will also help us make sure digital assets are not used to hide taxable income, including in high-income categories, while providing taxpayers who play by the rules more information to accurately report their income.”

“Digital assets greatly increase the complexity of our tax system, and the IRS continues to work to make improvements in this area as part of our larger efforts to transform the agency,” Werfel added. “We will continue working this area to help ensure the tax laws are met while working to reduce burden wherever possible to help taxpayers in this challenging area.”

As part of the process that will lead to a final version of the form, the IRS posted the new draft of Form 1099-DA to IRS.gov along with the instructions for the recipients of the form. The IRS expects to post the draft instructions for filers soon. Once the draft filer instructions have been posted, a notice will be published in the Federal Register to allow for a 30-day comment period.

The IRS issued a news release at the end of June announcing the final regulations on the reporting requirements for custodial brokers regarding digital assets, while informing the public that the agency would soon release an updated form.

Source: IRS-2024-204, Aug. 9, 2024

In anticipation of National Whistleblower Appreciation Day on July 30, the Internal Revenue Service Whistleblower Office today recognized the important role whistleblowers play in supporting the nation’s tax administration.

Since issuing its first award in 2007 through June 2024, the IRS has paid over $1.2 billion in awards based on the successful collection of $7 billion from non-compliant taxpayers.

“The IRS appreciates the valuable contributions that thousands of whistleblowers have made to help bolster the fair and effective enforcement of our nation’s tax laws,” said IRS Whistleblower Office Director John Hinman. “Information from whistleblowers continues to be an incredibly effective aid to IRS compliance efforts, and we are committed to improving our whistleblower program by increasing our capacity to use high-value whistleblower information effectively, awarding whistleblowers fairly and as soon as possible, and keeping whistleblowers informed of their claim’s status and the basis for IRS decisions on claims.”

The IRS Whistleblower Office is strengthening collaboration with all whistleblower program stakeholders. The office also recently updated Form 211, Application for Award for Original Information PDF, and is currently working on a digital submission portal for whistleblower claims, which it plans to have online in 2025.

In Fiscal Year 2023, the IRS paid awards totaling $88.8 million based on whistleblower information attributable to tax and other amounts collected of $338 million. In Fiscal Year 2023, the Whistleblower Office established 16,932 award claims, an increase of 44% compared to the average of the prior four years.

The IRS values the assistance it’s received from whistleblowers and the whistleblower practitioner community. Whistleblower information that the IRS can act on is an important component of effective tax administration and contributes to identifying non-compliance and reducing the tax gap.

Actionable claims contain specific, timely and credible information. A whistleblower may qualify for an award when use of the whistleblower’s information results in proceeds collected. The awards paid to whistleblowers generally range between 15 and 30% of the proceeds collected and attributable to their information.

The IRS Whistleblower Office was established in 2007 to administer claims from whistleblowers that identify taxpayers who may not be complying with tax laws or other laws the IRS administers, enforces or investigates.

National Whistleblower Appreciation Day is recognized on July 30 because America’s first whistleblower law was passed by the Continental Congress on July 30, 1778. The first law related to whistleblowers on tax violations was enacted almost 90 years later in March 1867.

Source: IRS-2024-199, July 29, 2024

Week 3 of Protect Your Clients; Protect Yourself series focuses on security warning signs

In the third part of a special series, the Internal Revenue Service and the Security Summit partners today urged tax professionals to learn the signs of data theft so they can respond quickly to protect their business and their clients.

The IRS and the Security Summit partners continue to see a relentless string of attempts by identity thieves to target tax professionals in hopes of gaining valuable client tax information. With stronger fraud defenses put in place by the IRS and Security Summit partners, identity thieves have shifted their attention to tax pros to get more detailed information to help prepare bogus tax returns.

“We continue to see instances where tax professionals have had their systems compromised, and they didn’t realize it for week or months,” IRS Commissioner Danny Werfel said. “Identity thieves are creative, and they can find ways of quietly penetrating systems. There are important warning signs tax pros should watch out for that can help alert them more quickly to a security issue, and speed is critical to protect clients and their businesses from a security incident.”

The IRS, state tax agencies and the nation’s tax industry – working together as the Security Summit – reminded tax professionals that they should contact the IRS immediately when there’s an identity theft issue while also contacting cybersecurity experts and insurance companies to assist them with determining the cause and extent of the loss.

This is the third week of an eight-part Protect Your Clients; Protect Yourself summer series, part of an annual education effort by the Security Summit, a group that includes tax professionals, industry partners, state tax agencies and the IRS. The public-private partnership has worked since 2015 to protect the tax system against tax-related identity theft and fraud.

These security tips will be a key focus of the Nationwide Tax Forum, being held this summer in five cities throughout the U.S. In addition to the series of eight news releases, the tax professional security component will be featured at the forums, which are three-day continuing education events. The next forum begins next week in Orlando, Florida, and is already sold out, followed by the week of August 13 in Baltimore, August 20 in Dallas and September 10 in San Diego. The IRS reminds tax pros that registration deadlines are quickly approaching for the Baltimore and Dallas forums, as San Diego has also sold out.

Each year at the tax forums, the IRS hears from tax professionals attending the sessions who realize that they’re victims of a data theft or a security breach, but they hadn’t realized the warnings signs. Here are some things that can help.

Tax pros: Know the warning signs from clients, their systems

Tax pros should be on the lookout for these critical warning signs from their clients:

• Clients receive notice that an IRS Online Account was created without their consent or that:
  • Someone accessed their IRS Online Account without their knowledge.
  • The IRS disabled their Online Account, either their individual or business Online Account.
• Tax pro clients receive a tax transcript they didn’t request.
• Balance due or other notices from the IRS are received that are not correct based on the tax return filed.
• Clients reach out to the tax pro about calls or emails the tax pro didn’t make.
• Clients receive refunds without filing a tax return.

Tax professionals should also watch for these red flags when their business experiences these situations:

• Slow or unexpected computer or network responsiveness such as:
  • Software is slow or actions take longer to process than usual.
  • Computer cursor moves or changes numbers without touching the mouse or keyboard.
  • Unexpectedly being locked out of a network or computer.
• Client tax returns are being rejected because their Social Security number was already used on another return.
• IRS authentication letters (5071C, 6331C, 4883C, 5747C) are being received even though a tax return hasn’t been filed.
• Getting more e-file receipt acknowledgements than the tax pro actually filed.
• The IRS disabled the tax professional’s online account.
• Transcripts are being delivered to the tax pro’s Secure Object Repository (SOR) that they did not order.
• Notification from the IRS that the tax professional’s Centralized Authorized File (CAF) number has been compromised. If they suffer a data compromise, they should take proactive steps to protect their CAF number and consider requesting a new one to protect themself and their clients.
• Notification from the IRS regarding a client that they do not represent.

While these are only a few examples, tax pros should ensure they have the highest security possible and be ready to react quickly to protect themselves and their clients. To help tax pros, the Summit partners created the Written Information Security Plan PDF or WISP. The newly updated 29-page, easy-to-understand document was developed by and for tax and industry professionals to help keep client and business information safe and secure.

Tax pros should report data theft immediately

If a tax pro or their firm are the victim of data theft, they should:

• Report the incident to their local IRS stakeholder liaison. Speed is critical. IRS stakeholder liaisons will ensure all the appropriate IRS offices are alerted. If reported quickly, the IRS can take steps to block fraudulent returns in the clients’ names and will assist tax pros through the process.
• Visit the Federation of Tax Administrators to find state contact information. Tax professionals can share information with the appropriate state tax agency by visiting the special Report a Data Breach.
• Tax professionals should be proactive with clients who could have been impacted and suggest appropriate actions, such as obtaining an identity protection PIN or completing a Form 14039, Identity Theft Affidavit PDF, if applicable.

Find more information at Data theft information for tax professionals.

Additional resources

• Publication 5293, Data Security Resource Guide for Tax Professionals PDF, provides an overview and resources about how to avoid data theft.
• Tax professionals can also get help with security recommendations by reviewing IRS Publication 4557, Safeguarding Taxpayer Data PDF, and the IRS’ Identity theft information page for tax pros.
• Small Business Information Security: The Fundamentals PDF, by the National Institute of Standards and Technology.

Tax professionals should stay connected to the IRS through subscriptions to e-News for tax professionals and its social media sites.

Source: IRS-2024-193, July 23, 2024