September 2023 – Larson Accounting Group

28 de September de 2023

Generally, if you’re in a trade or business and receive more than $10,000 in cash in a single transaction or in related transactions, you must file Form 8300.

The Form 8300, Report of Cash Payments Over $10,000 in a Trade or Business, provides valuable information to the Internal Revenue Service and the Financial Crimes Enforcement Network (FinCEN) in their efforts to combat money laundering. Money is “laundered” to conceal illegal activity, including the crimes that generate the money itself, such as drug trafficking, tax evasion and terrorist financing.

Who Must File

A “person” who must file Form 8300 includes an individual, company, corporation, partnership, association, trust or estate.

You must file Form 8300 electronically with FinCEN, or in paper-form with the IRS, if any part of the transaction occurs within any of the 50 states, the District of Columbia or a U.S. possession or territory (American Samoa, The Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico and the U.S. Virgin Islands).

Note: See How to File. Electronic filing mandate starting January 1, 2024.

When to File

You must file Form 8300 within 15 days after the date the cash transaction occurred.

Besides filing Form 8300, you also need to provide a written statement to each party whose name you included on the Form 8300 by January 31 of the year following the reportable transaction. This statement must include the name, address, contact person and telephone number of your business and the aggregate amount of reportable cash. The statement must also indicate that you provided this information to the IRS.

Persons who file the required Form 8300 and do not provide a written statement to each person named on Form 8300 are subject to penalties. Penalty amounts are adjusted annually for inflation.

Keep in mind, when Forms 8300 filed due to suspicious activity that are filed under the $10,000 threshold and box 1b is checked off on the form, the statement is not to be provided to the individuals identified on the form. Forms filed under the dollar threshold are not required to be filed. Filing under the threshold is done on a voluntary basis. IRS highly encourages you to file suspicious activity when identified regardless of the dollar amount. Forms marked as suspicious are also treaded confidentially.

How to File

Effective January 1, 2024, you must electronically file (e-file) Forms 8300 if you’re required to e-file other information returns, such as Forms 1099 series and Forms W-2. You must e-file your Forms 8300 if you’re required to file at least 10 information returns of one or more type(s) other than Form 8300 during a calendar year.

For example, if you’re required to file five Forms W-2 and five Forms 1099-INT, then you’re required to file certain other information returns during that year electronically, including any Forms 8300. However, if you file less than 10 total information returns other than Forms 8300, you’re not required to file the information returns electronically and not required to file any Forms 8300 electronically. The number of Forms 8300 you file does not affect the electronic filing requirement.

Keep in mind, if you’re not required to e-file, you can still choose to do so.

Businesses that are not required to file their Forms 8300 electronically that choose to physically mail in their Forms 8300 to the IRS, will send their forms to:

Internal Revenue Service
Detroit Federal Building
P.O. Box 32621
Detroit, MI 48232

Waivers

You may file a request for a waiver from filing information returns electronically due to undue hardship. For more information, refer to Form 8508, Request for Waiver from Filing of Information ReturnsPDF. If the IRS grants you a waiver from electronically filing information returns, the waiver automatically applies to all Forms 8300 for the duration of the calendar year.

You must include the word ‘WAIVER’ on the center top of each Form 8300 (Page 1) when submitting the paper filed returns.

Note: Waivers for electronic filing are not required when business files less than 10 total information returns other than Forms 8300.

Exemptions

If using the technology required to e-file conflicts with your religious beliefs, you are automatically exempt from filing Form 8300 electronically. You must include the words “RELIGIOUS EXEMPTION” on the center top of each Form 8300 (Page 1) when submitting the paper filed returns.

Penalty for Paper Filing

If you are required to e-file but file by paper and you don’t have a waiver or religious exemption, you will be subject to a failure to file penalty.

Late Returns

You must identify late returns. You must file a late Form 8300 in the same way, either electronically or on paper, as a timely filed Form 8300. When filing a late Form 8300 electronically you must include the word “LATE” in the comments section of the return. When filing a late Form 8300 on paper you must write “LATE” on the center top of each Form 8300 (Page 1).

Note: Failure to file timely includes a failure to file in the required manner. If you are required to file electronically and failed to do so, Form 8300 would be considered late. Forms 8300 that are late are subject to penalty.

Recordkeeping

Remember, you must keep a copy of Form 8300 for five years. When e-filing, be sure to save a copy of the form before you finish submitting the return. Confirmation receipts don’t meet the recordkeeping requirement. You should associate the confirmation number with the saved copy.

Source: IRS-2023

by Larson Accounting

18 de September de 2023

The Internal Revenue Service continues to warn businesses to watch out for aggressive marketing by nefarious actors involving the Employee Retention Credit (ERC) and urged people to watch out for red flags that can signal trouble.

The credit, also called the Employee Retention Tax Credit or ERTC, is a legitimate pandemic-era tax credit but as time passes the credit has been increasingly the target of aggressive marketing to businesses that may not qualify for the credit.

Although promoters advertise that ERC submissions are “risk free,” there are actually huge risks facing businesses as the IRS increases its audit and criminal investigation work. Hundreds of criminal cases are being worked, and thousands of ERC claims have been referred for audit.

The IRS reminds anyone who improperly claims the ERC that they must pay it back, possibly with penalties and interest. A business or tax-exempt group could find itself in a much worse cash position if it has to pay back the credit than if the credit was never claimed in the first place. This underscores the importance of taxpayers taking precautionary steps and avoiding being pushed by a promoter, including instances where a promoter can collect contingency fees as much as 25%.

Properly claiming the ERC

There are very specific eligibility requirements for claiming the ERC. Employers can claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020, and Dec. 31, 2021. However, to be eligible, employers must have:

Sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel or group meetings because of COVID-19 during 2020 or the first three quarters of 2021,
Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021, or
Qualified as a recovery startup business for the third or fourth quarters of 2021.

Warning signs of aggressive ERC marketing

The IRS sees wildly aggressive suggestions from marketers urging businesses to submit the claim because there is nothing to lose. In reality, those improperly receiving the credit could have to repay the credit – along with substantial interest and penalties.

Warning signs to avoid include:

Unsolicited calls or advertisements mentioning an “easy application process.”
Statements that the promoter or company can determine ERC eligibility within minutes.
Large upfront fees to claim the credit.
Fees based on a percentage of the refund amount of Employee Retention Credit claimed. This is a similar warning sign for average taxpayers, who should always avoid a tax preparer basing their fee on the size of the refund.
Preparers seeking anonymity by refusing to sign the ERC return being filed by the business as well as supplying their identifying information and a tax identification number. Similar to “ghost preparers,” this limits the risk to just the taxpayer claiming the credit.
Aggressive claims from the promoter that the business receiving the solicitation qualifies before any discussion of the group’s tax situation. In reality, the Employee Retention Credit is a complex credit that requires careful review before applying.

Unscrupulous promoters may lie about eligibility requirements, including refusing to provide detailed documents supporting their computations of the ERC. In addition, those using these companies could be at risk of someone using the credit as a ploy to steal the taxpayer’s identity or take a cut of the taxpayer’s improperly claimed credit.

How the promoters lure victims

The IRS continues to see a variety of ways that promoters can lure businesses, tax-exempt groups and others into applying for the credit.

Aggressive marketing. This can be seen in countless places, including radio, television, social media, online as well as phone calls and text messages.
Direct mailing. Some ERC mills are sending out fake letters to taxpayers from the non-existent groups like the “Department of Employee Retention Credit.” These letters can be made to look like official IRS correspondence or an official government mailing with language urging immediate action. Some solicitations even make it look like it’s coming from the bank the business uses.
Leaving out key details. Third-party promoters of the ERC often don’t accurately explain eligibility requirements or how the credit is computed, and they do not share their workpapers with the businesses claiming the credit. They may make broad arguments suggesting that all employers are eligible without evaluating an employer’s individual circumstances.
- For example, only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021, but promoters fail to explain this limit.
- Also, the promoters may not inform taxpayers that they need to reduce wage deductions claimed on their business’ federal income tax return by the amount of the Employee Retention Credit. This causes a domino effect of tax problems for the business.
Paycheck Protection Program participation. In addition, many of these promoters don’t tell employers that they can’t claim the ERC on wages that were reported as payroll costs to obtain Paycheck Protection Program loan forgiveness.
Mistaken supply chain arguments. Contrary to advice given by unscrupulous preparers, IRS legal guidance in July makes clear that supply chain disruptions do not qualify an employer for the credit unless they are due to a government order. Employers that experienced supply chain disruptions qualify for ERC only if they had to suspend their business operations because their suppliers were unable to provide critical goods or materials due to a government order that caused the supplier to suspend its operations.

How businesses and others can protect themselves

The IRS reminds businesses, tax-exempt groups and others being approached by these promoters that there are simple steps that can be taken to protect themselves from making an improper Employee Retention Credit.

Work with a trusted tax professional. Eligible employers who need help claiming the credit should work with a trusted tax professional; the IRS urges people not to rely on the advice of those soliciting these credits. Promoters who are marketing this ultimately have a vested interest in making money; in many cases they are not looking out for the best interests of those applying.

Request a detailed worksheet explaining ERC eligibility and the computations used to determine the ERC amount.

Don’t apply unless you believe you are legitimately qualified for this credit. Details about the credit are available on IRS.gov, and again a trusted tax professional – not someone promoting the credit – can provide critical professional advice on the ERC.

Source: IRS-2023-170, Sept. 14, 2023

by Larson Accounting

11 de September de 2023

The Internal Revenue Service is reminding taxpayers who pay estimated taxes that the deadline to submit their third quarter payment is Sept. 15, 2023.

Taxpayers not subject to withholding may need to make quarterly estimated tax payments. Taxpayers such as gig workers, sole proprietors, retirees, partners and S corporation shareholders generally must make estimated tax payments if they expect to have a tax liability of $1,000 or more when they file their return.

A general rule of thumb is that taxpayers should make estimated tax payments if they expect:

To owe at least $1,000 in taxes for 2023 after subtracting their withholding and tax credits.
Their withholding and tax credits to be less than the smaller of:
- 90% of the tax to be shown on their 2023 tax return or
- 100% of the tax shown on their complete 12-month 2022 tax return.

More taxpayers will receive 1099-Ks for 2023

Taxpayers who were paid over $600 by payment apps and online marketplaces or received any amount by payment cards could receive a Form 1099-K, Payment Card and Third Party Network Transactions, starting January 2024, for payments received in 2023. This includes anyone with a side hustle, sole proprietors, and anyone selling goods and services online. It’s important to remember that taxpayers should report their income, unless it’s excluded by law, regardless of whether they receive a Form 1099-K or any other third-party reporting document. The 1099-K reporting threshold for third party reporting doesn’t change what counts as income or how tax is calculated. Find more information at Understanding Your Form 1099-K.

Figuring estimated tax

To figure estimated tax, taxpayers must calculate their expected Adjusted Gross Income (AGI), taxable income, taxes, deductions and credits for the year. To figure 2023’s estimated tax, it may be helpful to use income, deductions and credits from 2022 as a starting point.

Taxpayers can use the tools on IRS.gov to check if they are required to pay estimated taxes. The Tax Withholding Estimator, the IRS Interactive Tax Assistant and the worksheet in Form 1040-ES, Estimated Tax for Individuals all offer clear step-by-step instructions.

Avoid a penalty for underpayment

Taxpayers who underpay their taxes may have to pay a penalty regardless of whether they paid through withholding or through estimated tax payments. Late and skipped estimated tax payments can incur penalties even if a refund is due when a tax return is filed.

Taxpayers should use Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, to see if they owe a penalty. Taxpayers can also request a waiver of the penalty if they underpaid because of unusual circumstances and not willful neglect.

Special rules apply to some groups of taxpayers such as farmers, fishermen, casualty and disaster victims, those who recently became disabled, recent retirees and those who receive income unevenly during the year.

Paying the easy way

An electronic payment is the easiest, fastest and most secure way to make an estimated tax payment. The Payments page on IRS.gov provides complete tax payment information, how and when to pay, payment options and more.

Taxpayers can securely log into their IRS Online Account or use IRS Direct Pay to submit a payment from their checking or savings account.

Taxpayers can also pay using a debit card, credit card or digital wallet. Taxpayers should note that the payment processor, not the IRS, charges a fee for debit and credit card payments. Both Direct Pay and the pay by debit card, credit card or digital wallet options are available online at IRS.gov/payments and through the IRS2Go app.

Taxpayers can also use the Electronic Federal Tax Payment System (EFTPS) to make an estimated tax payment. Payment by check or money order made payable to the “United States Treasury” is also an option.

The IRS encourages taxpayers earning income not normally subject to withholding to consider making estimated tax payments throughout the year to stay current and avoid a surprise at tax time.

The fourth and final estimated tax payment for tax year 2023 is due on Jan. 16, 2024.

Source: IRS-2023-165, Sept. 6, 2023

by Larson Accounting

11 de September de 2023

Agency focus will shift attention to wealthy from working-class taxpayers; key changes coming to reduce burden on average taxpayers while using Artificial Intelligence and improved technology to identify sophisticated schemes to avoid taxes

WASHINGTON — Capitalizing on Inflation Reduction Act funding and following a top-to-bottom review of enforcement efforts, the Internal Revenue Service announced today the start of a sweeping, historic effort to restore fairness in tax compliance by shifting more attention onto high-income earners, partnerships, large corporations and promoters abusing the nation’s tax laws.

The effort, building off work following last August’s IRA funding, will center on adding more attention on wealthy, partnerships and other high earners that have seen sharp drops in audit rates for these taxpayer segments during the past decade. The changes will be driven with the help of improved technology as well as Artificial Intelligence that will help IRS compliance teams better detect tax cheating, identify emerging compliance threats and improve case selection tools to avoid burdening taxpayers with needless “no-change” audits.

As part of the effort, the IRS will also ensure audit rates do not increase for those earning less than $400,000 a year as well as adding new fairness safeguards for those claiming the Earned Income Tax Credit. The EITC was designed to help workers with modest incomes. Audit rates of those receiving the EITC remain at high levels in recent years while rates dropped precipitously for those with higher income, partnerships and others with more complex tax situations. The IRS will also be working to ensure unscrupulous tax preparers do not exploit people claiming these important tax credits.

“This new compliance push makes good on the promise of the Inflation Reduction Act to ensure the IRS holds our wealthiest filers accountable to pay the full amount of what they owe,” said IRS Commissioner Danny Werfel. “The years of underfunding that predated the Inflation Reduction Act led to the lowest audit rate of wealthy filers in our history. I am committed to reversing this trend, making sure that new funding will mean more effective compliance efforts on the wealthy, while middle- and low-income filers will continue to see no change in historically low pre-IRA audit rates for years to come.”

“The nation relies on the IRS to collect funding for every critical government mission — from keeping our skies safe, our food safe and our homeland safe. It’s critical that the agency addresses fundamental gaps in tax compliance that have grown during the last decade,” Werfel added. “There is a sea change taking place at the IRS in every aspect of our operations. Anchored by a deep respect for taxpayer rights, the IRS is deploying new resources towards cutting-edge technology to improve our visibility on where the wealthy shield their income and focus staff attention on the areas of greatest abuse. We will increase our compliance efforts on those posing the greatest risk to our nation’s tax system, whether it’s the wealthy looking to dodge paying their fair share or promoters aggressively peddling abusive schemes. These steps are critical for the future of the nation’s tax system.”

For the broader compliance work going on across the IRS, this will be an expansive effort with more details to be announced in the weeks and months ahead. Key elements of this new effort include:

Major expansion in high-income/high wealth and partnership compliance work

Prioritization of high-income cases. In the High Wealth, High Balance Due Taxpayer Field Initiative, the IRS will intensify work on taxpayers with total positive income above $1 million that have more than $250,000 in recognized tax debt. Building off earlier successes that collected $38 million from more than 175 high-income earners, the IRS will have dozens of Revenue Officers focusing on these high-end collection cases in FY 2024. The IRS is working to expand this effort, contacting about 1,600 taxpayers in this category that owe hundreds of millions of dollars in taxes.

Expansion of pilot focused on largest partnerships leveraging Artificial Intelligence (AI). The complex structures and tax issues present in large partnerships require a focused approach to best identify the highest risk issues and apply resources accordingly. In 2021, the IRS launched the first stage of its Large Partnership Compliance (LPC) program with examinations of some of the largest and most complex partnership returns in the filing population. The IRS is now expanding the LPC program to additional large partnerships. With the help of AI, the selection of these returns is the result of groundbreaking collaboration among experts in data science and tax enforcement, who have been working side-by-side to apply cutting-edge machine learning technology to identify potential compliance risk in the areas of partnership tax, general income tax and accounting, and international tax in a taxpayer segment that historically has been subject to limited examination coverage. By the end of the month, the IRS will open examinations of 75 of the largest partnerships in the U.S. that represent a cross section of industries including hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms and other industries. On average, these partnerships each have more than $10 billion in assets.

Greater focus on partnership issues through compliance letters. The IRS has identified ongoing discrepancies on balance sheets involving partnerships with over $10 million in assets, which is an indicator of potential non-compliance. Taxpayers filing partnership returns are showing discrepancies in the millions of dollars between end-of-year balances compared to the beginning balances the following year. The number of such discrepancies has been increasing over the years. Many of these taxpayers are not attaching required statements explaining the difference. This effort will focus on high-risk large partnerships to quickly address the balance sheet discrepancy. Prior to the IRA, the IRS did not have the resources needed to follow up and engage with all the large partnerships with such discrepancies. However, the IRS will soon have the resources and plan in place to ramp up this effort. It will begin in early October when the IRS will start mailing around 500 partnerships. Depending on the response, the IRS will add these to the audit stream for additional work.

Priority areas for targeted compliance work in FY 2024

The IRS has launched numerous compliance efforts to address serious issues being seen. Some of these, like abusive micro-captive insurance arrangements and syndicated conservation easement abuses, have received extensive public attention. But much more work continues behind the scenes on other issues.

Among some of the additional priority areas the IRS will be focused on that will touch the wealthy evaders include:

Expanded work on digital assets. The IRS continues to expand efforts involving digital assets, including work through the John Doe summons effort and last month’s release of proposed regulations of broker reporting. The IRS Virtual Currency Compliance Campaign will continue in the months ahead after an initial review showed the potential for a 75% non-compliance rate among taxpayers identified through record production from digital currency exchanges. The IRS projects more digital asset cases will be developed for further compliance work early in Fiscal Year 2024.

More scrutiny on FBAR violations. High-income taxpayers from all segments continue to utilize Foreign Bank accounts to avoid disclosure and related taxes. A U.S. person with a financial interest over a foreign financial account is required to file a Report of Foreign Bank and Financial Accounts (FBAR) if the aggregate value of all foreign financial accounts is more than $10,000 at any time. IRS analysis of multi-year filing patterns has identified hundreds of possible FBAR non-filers with account balances that average over $1.4 million. The IRS plans to audit the most egregious potential non-filer FBAR cases in Fiscal Year 2024.

Labor brokers. The IRS has seen instances where construction contractors are making Form 1099-MISC/1099-NEC payments to an apparent subcontractor, but the subcontractor is a “shell” company that has no legitimate business relationship with the contractor. Monies paid to shell companies are exchanged at Money Service Businesses or flowed through accounts in the name of the shell company and returned to the original contractor. The IRS will be expanding attention in this area with both civil audits and criminal investigations. The scheme has already been seen in Texas and Florida. Work in this area is critical to improve compliance, and it will also help level the playing field for contractors playing by the rules as well as ensuring proper employment tax withholding for vulnerable workers.

Helping working taxpayers through improving compliance selections; protecting taxpayers and businesses from aggressive scams and schemes

In addition to expanding compliance attention on high-income, partnerships and others, the IRS will be focused on ensuring audit fairness and protecting all taxpayers from a variety of scams and schemes. While IRS compliance work will be increasing on the wealthy, scammers and fraudsters frequently target average taxpayers with more modest incomes, so the IRS will be focused on raising consumer awareness on these issues.

“The IRS is on the side of taxpayers, and we will be working to protect hard-working people from scammers or fraudsters who try to use the tax system for their schemes, whether it’s promising people inflated EITC amounts or tricking people into tax-related identity theft,” Werfel said. “Protecting hard-working taxpayers is a critical component to ensuring the success of the nation’s tax system, and the IRS will be working throughout the fall and into the 2024 filing season to take steps to help people.”

Improved equity in audits. The IRS continues to focus on making improvements in audits involving Earned Income Tax Credits and will be implementing changes for the next filing season. More details will be available on this later in the fall.

Emerging scam issues. The IRS will continue its aggressive work warning consumers about emerging scams and schemes. Building off efforts like the Dirty Dozen, the IRS plans to warn taxpayers about quickly emerging scams. As the IRS has seen through the years, scammers frequently adjust or change their tactics to tag onto recent tax law changes or other events that can confuse taxpayers into trying to claim refunds worth thousands of dollars. This effort can touch on issues like sick leave and family leave as well as false fuel tax credit claims.

Protection against identity theft. The IRS will continue the ground-breaking efforts of the Security Summit initiative, a joint effort between the federal government, state tax agencies and the nation’s software and tax professional communities. Since 2015, the private-public sector coalition has worked together to build internal defenses and share information to protect against identity thieves trying to steal tax refunds. A key part of the Security Summit initiative has been focused on raising taxpayer and tax professional awareness on how to protect themselves and their tax data from identity theft. This ground-breaking effort will continue this fall with National Tax Security Awareness Week.

Source: IRS-2023-166, Sept. 8, 2023

by Larson Accounting

4 de September de 2023

The Internal Revenue Service reminded consumers considering an automobile purchase to be sure to understand several recent changes to the new Clean Vehicle Credit for qualified plug-in electric drive vehicles, including qualified manufacturers and tax rules.

The Inflation Reduction Act of 2022 (IRA) made several changes to the new Clean Vehicle Credit for qualified plug-in electric drive motor vehicles, including adding fuel cell vehicles. The IRA also added a new credit for previously owned and commercial clean vehicles.

Before taxpayers purchase a clean vehicle they should be sure that the vehicle was made by a qualified manufacturer. Taxpayers must also meet other requirements such as the modified adjusted gross income limits.

To be a qualified manufacturer, the manufacturer must enter into an approved agreement with the Internal Revenue Service and supply the IRS with valid vehicle identification numbers (VINs) that can later be matched at the time of filing to the VIN reported on the return.

When purchasing a new or used clean vehicle, purchasers should check if the make and model are eligible. In addition, for a new or used clean vehicle to be eligible for a Clean Vehicle Credit, the seller must provide the buyer with a seller report verifying that the vehicle purchased will qualify for the credit, which will include the make, model, and VIN.

Also, the clean vehicles tax credits are non-refundable, meaning that they can increase a refund or reduce the amount of tax owed, they cannot be used to create a tax refund.

The amount of tax owed will determine if the full amount or only a portion of the credit can be claimed.

For more information on these credits and other clean energy credits related to the Inflation Reduction Act, check Credits and Deductions Under the Inflation Reduction Act of 2022.

Source: IRS-2023-160, Sept. 1, 2023