IRS Imposes Moratorium on ERC

Roger and Annie discuss updates on the employee retention tax credit, including the IRS's new moratorium on processing claims, as well as new requirements for reporting beneficial owners coming in 2023 which have tight 30-day reporting deadlines. They also cover the IRS's changing audit focus to target more complex returns like partnerships and high net-worth individuals, along with the IRS actively hiring for these new audit priorities.

Sponsors
Padgett -  Contact Padgett or Email Jeff Phillips

Get NASBA Approved CPE or IRS Approved CE
Launch the course on EarmarkCPE to get free CPE/CE for listening to this episode.

Connect with the Hosts on LinkedIn
Roger Harris
Annie Schwab

Review
Leave a review on Apple Podcasts or Podchaser

Subscribe
Subscribe to the Federal Tax Updates podcast in your favorite podcast app!

This podcast is a production of the Earmark Media

The full transcript for this episode is available by clicking on the Transcript tab at the top of this page

All content from this podcast by SmallBizPros, Inc. DBA PADGETT BUSINESS SERVICES is intended for informational purposes only.

• (00:00) - Federal Tax Updates Ep 17
• (02:47) - Employee Retention Credit Refresher
• (04:40) - ERC Fraud Concerns
• (12:21) - ERC Moratorium
• (25:13) - Amending Returns for ERC
• (31:29) - Beneficial Owner Reporting
• (46:18) - E-file Mandate for Informational Returns
• (49:25) - IRS Hiring
• (54:12) - Wrap Up and Remember To Subscribe

Creators & Guests

Host

Annie Schwab, CPA

Franchisee Operations Manager at Padgett Business Services

Host

Roger Harris, EA

President at Padgett Business Services

What is Federal Tax Updates?

CPAs, Enrolled Agents, and Tax Preparers can keep up-to-date with the latest federal tax information while earning NASBA approved CPE credits and IRS approved CE credits by listening to the bi-weekly Federal Tax Updates podcast. The hosts Roger Harris and Annie Schwab have over 75 years of tax experience between them, which has been featured in various media outlets including Wall Street Journal, USA Today, The Morning Business Report, Bloomberg Business News, and Accounting Today.

Warning: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding!

Roger: Hello everybody. Welcome to another Federal Tax Updates podcast. And Annie, how are you today? I'm doing.

Annie: Great. We're getting really close to that final deadline, so there's something to look forward to on October 15th, and that's the deadline passed and.

Roger: Then it won't be long after that.

Annie: I know, I know.

Roger: The clock will start ticking [00:00:30] again. Well, we're going to talk about things we've talked about a lot, but there has been some updates on a couple of them, some significance and some things that, if you aren't aware of, you need to be as it relates to, again, the one we always seem to talk about, the employee retention credit and then the beneficial owner has had some updates. So yeah, Annie, let's start with the IRC since that's the one that's always on our TV and radios and the one we always talk about. [00:01:00] I can't imagine if you've listened to this podcast, you need a refresher, but why don't you kind of refresh everybody and talk about kind of where we started to get to where we are and then we'll talk about what's what's changed again?

Annie: Yeah, we are always talking about IRC. Roger And with that, like you said, there is some new developments, but for those who maybe are unfamiliar with what the IRC even stands for, Employee Retention credit, it started [00:01:30] in March of 2020, so we're three years plus, right? It was a credit that was meant to incentivize employers to keep their workers doing during the pandemic. And the law sort of changed from period to period. But essentially employers are eligible for this credit through the end of 2021. And so that's sort of where we stand today. As far as you know, it doesn't it doesn't run out of money. It's not like a grant or a credit. It's. [00:02:00] That's right. That's right. And there's depending on what period of time the employees were, there are different percentages and thresholds. And there's a supply chain qualifier that deals heavily on facts and circumstances, but there's different qualifiers. And this credit is claimed on the payroll tax return on the 941, those associated business returns. And then the individual returns would then also need to be amended. But what happened was this this came out with a rush. The goal [00:02:30] was to get money in the hands of taxpayers. The IRS was trying super hard to make it easy quick. But of course, during the pandemic, there were staffing shortages. We know about the IRS backlog. These were paper filed, these 941. So it took a long time for the IRS to get to the envelopes and issue the money. And there was guidance, pieces of guidance coming back. And tax practitioners were overworked. Small businesses were struggling to stay open. So it was just sort of like this pure chaos. Although the goal [00:03:00] of the plan was was really to help small business owners with so many moving parts, it's not a shock.

Annie: What we call the IRC mills sort of popped up and those are little groups of people who are doing a lot of advertising, a lot heavy marketing, promising money, some even very aggressive with their calls and emails and constantly contacting small business owners saying, Hey, you can get all this money, you can get this credit. All you got to do is file [00:03:30] the 941. Well, of course, when there's chaos and there's a lot of money being handed out, we see fraud. And that's sort of, unfortunately, where this went. So the fraudulent claims kind of ramped up the mills. We called them IRC mills, you know, they take a cut of the money. So if you were going to get a credit of 50,000, you may have to pay them 5000. So the taxpayer would then net 45. So there was a lot of [00:04:00] taxpayers who were, you know, the mills would take their cut and then maybe disappear or move on or not really follow through with what should have happened. And then the legitimate claims are taking a long time. So then taxpayers are getting frustrated and tax practitioners are getting frustrated because they're holding off on amending returns and trying to get their work done with clients like Where's my money? Where's my money? And there's no real tracking. You can't log in online and be like, Oh, I'm fifth in line here. I shouldn't be coming. So it just sort of, as you can imagine, this sort of [00:04:30] snowballing effect. And the fraud increased and the backlog increased and taxpayer frustration increased. And so now we are sort of sitting here again today.

Roger: Where we are today.

Annie: That's where we are today.

Roger: And I think you make a couple of points that we need to remember that. Go back to how we all felt and how we acted back at the end of 20 early 21 when we were in the middle of a pandemic, something I guess none of us [00:05:00] had ever experienced before. Right? Policymakers, the IRS, our industry were all trying to adapt and figure out what was what was going to happen tomorrow. And and a lot of this was very well intended and probably very necessary. But when you do something in a hurry, then you create opportunities. And when you hand out this kind of money, because this is lots of money when you're talking about potentially $26,000 in employee [00:05:30] over the two years, it adds up. It has led to all these commercials that we were seeing. And we'll talk in a minute about what changed. But we're still seeing to some extent and then what also changed from Congress's perspective. And and you again, you referenced this in the beginning, Congo Congress was worried about why is it taking so long to get this money out? You know, these businesses need it. They need it now. And yet, because it's a paper form going into a building where [00:06:00] people weren't working and paper was already there, it took a long period of time for for the IRS to begin making a dent in the processing of them. And then lo and behold, I guess about six months ago, Congress woke up and said, whoa, wait a minute, there's a lot of fraud here.

Roger: Absolutely. And while I think they're still worried about how fast it takes to get the money out to the legitimate businesses, now they're concerned about what could be an unprecedented amount [00:06:30] of fraud because of the amount of money. In fact, I'll make a plug for one of our other podcasts that's basically you won't hear us in this format because what was it, July? There was a hearing the House Ways and Means Committee put together on the fraud in the employee retention credit, and I was one of the witnesses, and they have turned that testimony into a podcast. So that was kind of the time that all of a sudden Congress [00:07:00] became worried about the amount of fraud. Now, the IRS has been worried about the amount of fraud for a while because they've been hearing from people like us and other people in the industry about some of the problems we were experiencing because of the mills. So things have changed, at least from the IRS perspective, as in a way to try to attack the problem. So one of the things that I think has led to the new attention [00:07:30] the IRS has paid to it and what happened in March or April of this year. Well they got a new commissioner.

Annie: That and but it was also a switch the new commissioner came in with. And actually paid attention and addressed it and addressed it very quickly. There were, what, 3 or 4 different forums at the IRS forums over the summer, 3 or 4 different meetings that went on there. I think you attended two of them. [00:08:00]

Roger: Yeah. For those of you who don't know, the IRS does something called the IRS tax forums. There's actually five of them around the country each year and they have a keynote address. And the commissioner, when his schedule allows, is the person delivering in person the keynote address. So he was not able to attend all five of the forums, but he did appear in Atlanta and San Diego. And in addition [00:08:30] to. Doing the keynote address? He asked. Because of his attention to the employee retention credit, he asked the staff at IRS to put him in a room with about, I think, San Diego. There was probably less than ten Atlanta, maybe there was 20 people who were attending the forums who dealt with the employee retention credit, and he wanted to hear directly from them [00:09:00] what were the problems they were experiencing. And and to the extent that they had a solution for some of them, he wanted to hear those. So he was very much interested in hearing from our perspective what we were seeing. And yes, I was able to be part of both of those meetings and got a chance to. To talk about the stuff we've been talking about on the podcast for the last few months.

Annie: But that was a crucial turning point because [00:09:30] hearing from small business owners, from tax practitioners for what's happening with the clients, the issues that the taxpayer has, the tax practitioner has, I mean, altogether, and then the amount of fraud and the amount of money, I mean, something had to be done. And and now we have it. Yeah.

Roger: And and I want to put a plug in. A lot of us don't know who don't care who the IRS commissioner is, but it does make a difference. Some commissioners are very engaged with [00:10:00] outside parties. Some are not. But this commissioner, I don't remember the exact date he was confirmed, but it was March or April. And we're sitting here now and September is wrapping up. And I have already had meetings with this commissioner more than probably any commissioner I've dealt with, you know, who served many terms. He he does want to get things done, but he wants to hear from outside people and he wants [00:10:30] to solve problems. And he's fortunate that he has money because, well, the Inflation Reduction Act has given him the flexibility to to have some money to do some things. And. And he's done some things related to the employee retention credit. So there was a big IRS announcement on September the 14th. So, Andy, why don't you summarize what that announcement was and then we'll talk a little about it in detail?

Annie: Yeah, sure. So late [00:11:00] afternoon on September 14th, the IRS came out with an immediate moratorium. So basically they stopped processing Ircc claims and at least through the end of the year. So they didn't say December 31st. They didn't say January 15th. All they said was at least through the end of the year. So this the goal was to stop the scammers, right? Stop processing, Maybe the mills will go away, the fraudulent claims will go away. At least that was the goal. [00:11:30] And they put out, you know, another checklist and additional FAQs and and more guidance. But what basically that means is if you did not have that Ircc claim postmarked by the 14th. You're on hold if you send one in now. Whether it be it could be a legitimate claim. It's basically just going to go sit in a warehouse until this moratorium is lifted. So shocking. Maybe I don't know. Maybe that's all they had that they could do. [00:12:00] I think some actually are very supportive. I know we are at pageant. We we we hope all of our offices. We've been saying this for two years. So hopefully all of the claims for our office owners are already in in process or been done. But technically, the 14th of September will be when the freeze begins. I think at that time I heard so I heard two different figures. I heard about 500,000 in backlog. So there are claims sitting there to be processed on the 14th. I read an [00:12:30] article that said 600,000. So I mean.

Roger: I know that's another 100,000 when you're talking. I mean, I don't think anybody sits there and counts the envelope. I know. I know. It's somewhere between 5 and 600,000 claims that were there prior to the 14th that will get processed.

Annie: During the moratorium.

Roger: Right.

Annie: So if it's there, if it was postmarked, then it will get processed. Now, it's probably going to be a little slower. There was like a 90 day ish mark of of turning [00:13:00] around these claims. It's probably going to be maybe even double that. I mean, who knows for sure. But they are looking at them very closely. They may ask for additional information. So the processing time might take a little bit longer. And like I said, any new claims that go in, it's going to be sitting in a warehouse. I honestly I think we were telling our office owners, you know, if you haven't sent in a claim, maybe sit tight. Let let let the dust settle a little bit. There could be changes to the application. There could. Who knows what's going to come of this moratorium, what they find. [00:13:30] So even if you have a client with a legitimate claim, maybe just sit tight on it for a little bit. I'm not saying till the end of the year, but, you know, let's just see how things go because the guidance is coming. They they've identified various areas that still need to be addressed. So like what if what if your return is sitting there, your claim is sitting there, and now you think, oh, maybe I don't qualify and you want to withdraw the claim, pull it back.

Annie: And if the money hasn't been paid [00:14:00] out, like is there a way to do that? How do you identify it? You know, who's looking through all the envelopes, trying to find the one that you want to pull back. So and then on the flip side, let's say you got your money. The IRS has already processed it. And now and now the client is going, wait a minute, I think I was fooled. You know, I went to a mill. I don't think I qualify. What do they do? How do they pay it back? They don't have all the money they paid the mill. They probably spent some, if not all of the credit if they've already received it. So these, you [00:14:30] know, the tax the taxpayers are sort of sitting there like, please tell me what I'm supposed to be doing. So there's a lot still to be answered. But for now, we just know they're slowing down. They're not processing any new ones. Post the 14th and guidance, additional guidance should be coming.

Roger: Yeah. What they're what they're going to do during this moratorium and we'll talk a little bit about the iffiness of the date in a minute. Yeah. Number one, they want to catch up, if they can, on that 5 or 600 that are there now. They had [00:15:00] already started before the moratorium was announced of taking claims that looked suspicious and and going back to the taxpayer before they paid it and said, hey, we need more information. Like if you remember, when you send in your 941 X, you don't tell anybody anything other than a number. Basically you no attachment. Here's a number. Send me money. Right? So the service had already started in terms of looking at certain claims and [00:15:30] doing whatever checks they could do and going to those people and asking for more information. So that was checking the 90 days and turning it into more like 180. So one of the things that they would they're considering during this moratorium and you alluded to it earlier and why we're advising people to wait a minute before they start sending returns into the warehouse is should they ask for more information on all claims once they lift the moratorium? So if you send in a claim now, before we [00:16:00] get final word, you may find out that that claim is not complete.

Roger: If they decide to ask for the reason you qualified the dates of a moratorium or who knows, Who knows. Right. So so I think the first thing that we are telling our offices is let's sit and wait a little while because, A, we want to know about that. B, you just mentioned if you want to withdraw the claim before the money is paid, how do you do that? Maybe more importantly, if you got the money, [00:16:30] well, you got some of it because the mill took some. It took some. Yeah. But you recognize that you probably were duped by the mill and you weren't eligible. The service is aware of those fees that were paid. And we don't know what it is or what they're going to call it, but they're looking in a way to allow you to pay that back with the understanding that you didn't get. Maybe your claim was for half a million, but you only got 400 of it. [00:17:00] So how do they treat that 100,000? So I think right now we're going to have to have a little patience.

Annie: That's what I think.

Roger: Too, the moratorium is, you know, it's not even 30 days old yet. No, no. I think you'll see something quickly on how to withdraw first. I don't know how you do that. I don't know how you go find an envelope with your 941. I know of a building with 600,000, but, hey, that's that's for them to figure out. Yeah. How to pay back, you know, And what that will be [00:17:30] will come let me a new thing that has kind of been popping up recently by some of the mills is a way to try to keep you interested, if you will is they're saying, well, you still need to come to us and get your claim in because the IRS could run out the clock with this moratorium, because for the 2020 year, the statute of limitations on 2020 claims ends April 15th. And I haven't looked at a calendar. If that's a week end, I'm sure it goes another day, but April 15th [00:18:00] of 2024. So if they keep this moratorium in place, there may not be a way for a legitimate claim to be submitted. The IRS, we had the opportunity to talk to the commissioner last week and we raised that point.

Roger: And he said he assures us that they will not do that, that they are really targeting close to the end of the year, if at all possible, so that if you have a valid claim, you will [00:18:30] have plenty of time to submit it under whatever rules or yeah, there could be additional. So again, don't let your clients be duped into rushing to a mill because they're trying to convince you. You better get it in now because they're just going to run the clock out with the moratorium. And if you wait, then you're not going to get your money. And I believe the commissioner and what he's saying that that's not their intent. They want to just stop everything, step back, [00:19:00] look at it, and we'll have plenty of time to to get legitimate claims in. Right. Nanny, what do you tell what do you tell somebody other than why would you wait that has a legitimate claim and feels like they're being punished because they can't submit it now. So, I mean, how would you tell a client or what would you tell someone that walked in and said, but this isn't fair. You know, I'm I'm entitled to it.

Annie: It is it is a difficult place to be. [00:19:30] But I think we've used this example before. It's not you know, when you go to the airport, you got to take off your shoes and go through your bags and all the screens and scanning and everything. It's not because of, you know, it's not to harm the the good people. It's to prevent the scammers or to prevent the fraudsters or to prevent the bad people from taking advantage. So one. Yes, yes. It's been around for two plus years. Probably [00:20:00] a little late to the game. But regardless, you you have a legitimate claim. The IRS is assured that you would be able to process it. You're just going to have to wait and and deal with the inconvenience. And that's sort of I mean, that's not what they want to hear, but that's kind of where we are. Yeah.

Roger: And you mentioned that, you know, going through security, I mean, there's so many places where those of us that, you know, do things right are inconvenienced by the [00:20:30] fact that some don't follow the rules. And so we all have to go through whatever the airport. A great example. I mean, we all go through security. Think about pre Covid or pre 911. Security was completely different. Totally. I don't know that there's any more terrorists than there were then, but we all now go through the painful exercise of getting in long lines, taking our shoes off, putting everything through a scanner. And it's the bad guys cause the good guys [00:21:00] problems. And that's where we are with this. Again, there will be time for you to get your claim in maybe a different way of submitting it than it was today may take a while, but you know what? You've already waited two some years.

Annie: Exactly. That's what you know, a little bit of patience. You will get it. You know, assuming you qualify, you will get it. Like I said, the money, there's not a limited amount of funds. The money's not going to run out. I don't think I agree with you. I don't think [00:21:30] that the commissioner's intention is to prevent anyone who has a legitimate claim from filing. I think we just have to be a little bit more patient and hopefully those York mills will be weeded out. Those that are. Not honest claims can either be withdrawn, you know, those can get out of the process of the 500,000 sooner than later, maybe move forward. I don't think they're going to be silent over the next little bit. I don't think we're going to wait until the end of December to find out what they're going to do. I [00:22:00] think we'll get updates, at least. I hope so.

Roger: Yeah, I think we'll get them. Now, think about when let's say they lift the moratorium on December 31st, guess what? We're into the middle of tax season that runs out the 15th. So you can begin working on the calculation of the claims. If someone comes to you today, you know, there's a coordination with PGP loans. There's what's the dates of the shutdown? There's, you know, there's all those issues. You can do [00:22:30] all the work today. The law of how you qualify is not.

Annie: Going to change. That's not going to change.

Roger: The calculation of the credit is not going to change. What might change is how you submit that information. So for those documentation.

Annie: What.

Roger: Documentation needs to go in. So for those of you that have clients coming to you, you don't have to wait till January 1st to do the work. I would tell people to go ahead and do the calculation, determine the credit, have your documents ready [00:23:00] so that as soon as the moratorium is lifted or lifted, you are be in a position to submit those documents because you're just not going to have time to do it. Yeah, don't.

Annie: Put yourself don't bind yourself to January or something when when you're ramping up for tax season.

Roger: Because there's the statute of limitations is going to end. So don't don't get trapped in tax season because you said Roger and Andy told you not to do anything until the first of the year. No, I'm telling [00:23:30] you, just don't not do the submission before then, but go ahead and do all the work, determine their eligibility, calculate the eligible wages, have everything ready. So once we get final guidance, you can jump forward. And let's talk because this wasn't part of the announcement because it didn't really change because it's the. Same thing. But talk a little bit about the issue of amending returns and which ones are amendable, [00:24:00] which ones aren't. And that because that hasn't changed. None of this. No, that hasn't changed.

Annie: And we have talked about this before. So, you know, you take the credit on the 941, generally the 941 X, because you're going back in time. So you're amending those and then the associated returns. So whatever period of time the qualifying wages were paid is the year that. So you would have to go back to 2020, 2021 to amend the business returns [00:24:30] for the credit to adjust the amount of deductible wages for the credit. And then if it's an S Corp or a partnership, the associated individuals, the partners or the shareholders also then get amended k-1s, which then means that they need to file an amended personal tax return. So it's not just a single return. You know, there's sort of this snowballing effect. Hundreds. Yes. And depending it could be both years, depending on the period in which they qualified and the wages were paid. The [00:25:00] problem is, if, say, someone comes to you as a tax practitioner and you do not think that they qualify, you don't think that their claim was legitimate. The mills are filing the 941. They're not going back and amending business and individual tax returns. You're going to get clients that come to you that went to a mill that you may or may not agree with. The conclusion, the calculation, the eligibility, all kinds of aspects of the claim. And in that case, the IRS has specifically [00:25:30] stated that tax practitioners should not go back and amend those returns because it's perpetuating the fraud. So it puts puts tax professionals in a really awkward spot. And the conversation with a client who maybe believes that they did qualify and now you're like, you don't qualify. I can't do your amended returns, but they want to do the amended returns. I mean, it becomes complicated. Yeah.

Roger: So and now we're waiting on how to pay it back, which means if you convince them that they should [00:26:00] pay it back, then you don't need to amend the returns, but you.

Annie: Can't tell them how.

Roger: Yeah, but we don't know how to do that yet. But it's. Now remember if you did the return, if you did the IRC credit or you believe the credit to be accurate.

Annie: Well then then.

Roger: Go ahead and amend the return. There's nothing stopping you. There's no there's no moratorium on amending returns except when you believe that the claim originally submitted was false.

Annie: Exactly. [00:26:30] Exactly.

Roger: The IRS has also said that for you to make that determination, you have to be knowledgeable of the IRC rules and if not, you shouldn't be engaged in the client.

Annie: Right, right. Right.

Roger: But so but again, nothing here prohibits you from amending tax returns. If you are confident that the IRC claim was correct. So again, the moratorium doesn't address that. That was actually something we've known. Gosh, what's that been about a year now?

Annie: Oh, [00:27:00] at least I feel like we've talked about it so much.

Roger: Nothing has changed in that this does not change anything other than you have maybe one more tool to remind people when you're explaining to them why you won't amend their return is for one reason. We're going to wait and see what the repayment policy is because it might help you encourage them to give it back, because at the end of the day, what they need to understand. Clients who [00:27:30] went to one of these mills got a claim that they shouldn't have a lot of money. Again, use my half million dollar example. They got a half million dollars if they get audited and it's determined that they shouldn't have received the half $1 million, they're going to owe it all back, plus penalties and interest unless they probably comply with whatever this repayment thing is that we don't know what it is yet. So you probably thought if you didn't do IRC claims [00:28:00] you weren't going to be impacted by the employee retention credit. But you know what? As long as you have small businesses who were out there claiming it, you're you're going to be dealing with it. So any last words on the employee retention credit? We're going to have to all keep an eye out what's going to happen between now and the end of the year.

Annie: I promise we will be talking about it again on another podcast. So follow and listen to us because we will let you know whatever happens. And when it happens, we will be sure to send it to you, let you know. So yeah. [00:28:30]

Roger: And we'll keep watching for announcements on how to withdraw the claim, how to pay the claim back. Those are something that I think will will here in the near future. And I think so too. The lifting of the moratorium and any changes to the application. Okay. Let's go to another topic that's we've talked about before and I guess it was even after the. Moratorium. We got some information on the beneficial owner information reporting that [00:29:00] is currently to begin on January 1st of this year. Again, Annie, give everybody a little history. I will, because this has been around because this is one a lot of people have no idea what we're talking about.

Annie: And it's been around since. It's been around for two years. Yeah.

Roger: The bill was the Transparency Act of 2020. I don't know when it was passed, but it started started talking about it in 2020.

Annie: Seriously? And what this is, this is run by FinCEN, so it's not the IRS, but [00:29:30] what the basic rule is that a beneficial owner, someone who is an individual directly or indirectly, that either owns or controls at least 25% of the company or has substantial control over reporting. Now, of course, they've got all these definitions for substantial control and ownership interest, and there's details of who this applies to. There's very little exceptions. In fact, the exceptions to having to file this report is for much [00:30:00] larger companies like the small businesses, the small, the smaller LLCs, those types of things are going to be subject to this. And like Roger said, it starts at the beginning of the year. And what that means is if you started your business prior to January, you do have a full year to fill out the report. That's for yeah, a full year, 2024. That's not really the scary part. It's the ones who were created after [00:30:30] January 1st. You have 30 days that 30 days to file a report that you've never even heard of or known that you needed to do to do. We don't even we don't have it yet. We don't even know what it looks like. We have ideas of what's going to be required on it. But there's going to be an online process. That's what we know.

Annie: You're going to have to submit the reports. You're going to have to within 30 days. If you were started, your business after January 1st, again, the full calendar year, if you were in business before January 1st. [00:31:00] But any changes, you only get 30 days to update the report for any changes, too. So the timing is kind of scary given the penalty. I mean, Fincen's penalties have always been a lot. The penalty is $500 per day, up to $10,000 and two years in prison. I don't think anybody's going to jail. That's that's not what I'm trying to say. But it is something that we have been watching, something that because of the amount of penalties and the lack of communication, it's just something [00:31:30] that so many small business owners have no idea is on the horizon. And it's coming in January. We don't have the form yet. However, I will say I know I will say that just let's see what's on the 18th, the 18th FinCEN did come out and publish what they are calling their guide small entity Compliance Guide. They put it out on the website, they put out some FAQs which are basically off of the the guide. It's out on [00:32:00] the website. The guide is actually pretty good. It's got a lot of flow charts and charts.

Roger: It's got some some of that was stuff they'd already put out before and they tried to take credit for it twice.

Annie: Well, they did. They did organize it a little bit better. They did update some FAQs, added some new FAQs. It's pretty easy on the eyes for something that's kind of complicated. There's almost like a glossary of terms that they use in there. Regardless, that is the latest information that we have, which is better than what we were waiting [00:32:30] on for for some time.

Roger: But but here's some of the scary parts of this. Number one, most people assume when you hear something like this that there's a small business exception. There's not. There's actually, as you mentioned it, a large business exception. Right. Right. Because any business that is formed through the state is covered. Well, I shouldn't say any 20 employees or less. I mean, again, the small they're going after the small ones. Yes. The guide listed some exemptions. [00:33:00] And one of them, just to give you a heads up, pay attention. It says accounting firms in the FAQs. But if you read what they're talking about, that ain't you and me.

Annie: That's not us.

Roger: We don't. So we're not exempt for ourselves. It's really the 30 day problem. So that's what I think, too. And the 30 days, you know, Annie just mentioned that for an existing business, you have all of 24 to to go ahead and do it. And if you [00:33:30] form a business, you have to do it within 30 days. However, if one of these existing businesses has a change, they fall under the 30 days as well. And I think what kind of turned me off of this, I was in Washington last week meeting on this is if you go to the FAQs that they put out last week. One of the things you have to submit as part of either the initial application, if it's an existing business or you're setting [00:34:00] up a business of one of these beneficial owners. And it's not just 25%, it can be substantial control, could be hiring and firing. There's all these kind of nebulous terms. But one of the things that you may have to submit for one of these beneficial owners is a copy of their driver's license. And. Okay, but. If they renew their driver's license. That starts the 30 day clock ticking.

Annie: Oh, my goodness. [00:34:30] I did not know that. I did not know that.

Roger: It's in question H dot two. Oh, that if you submitted their driver's license as part of their initial application and they renew their driver's license and a name, address or number, and I'm assuming every driver's license gets a new number, then you have to submit a new change to that form within 30 days. So as you are deciding whether [00:35:00] as a firm owner, you want to assist your clients in doing this, how many of you track renewal dates of your client's driver's licenses? Because I don't think we're going to know when little things like that take place. They're going to come to us to get their taxes done. We're going to realize their driver's license was flipped out some time back in June. It's been six months. And what do we do? So it [00:35:30] is not designed to work in the real world. And the only good news I can say is there is a lot of increased interest now in delaying this.

Annie: The Treasury came out and they're supposed to be proposing a rule which would delay it. Now, I don't know. The delay would be from January or is it the 30 day delay like there weren't clear on what part?

Roger: Yeah, we don't know. And even FinCEN said they don't have the money to enforce this or to implement [00:36:00] this. And all the accounting associations when you see something like a driver's license change, number one, will your insurance carrier cover you under your errors and omissions? If you fail to make a change? No. There's discussion about whether it's the practice of law when it's done, because they talk about I think it's called the entity agent or whoever sets up the company has to submit their name. So that's typically an attorney. So let me tell you, I.

Annie: Don't want to be on anybody's report, not me.

Roger: But [00:36:30] when if we don't get change to this 30 day period and things like a new driver's license can trigger it, we just don't have a relationship with our clients that puts that kind of information on our radar. So think about the systems you would have to set up. You would have to start monitoring every beneficial owner's driver's license renewal date. You would have to monitor activities like who? Who could go to the bank and borrow money and who's, you know, [00:37:00] things things hire or fire accustomed to to dealing with. And we'd have to know within 30 days. So how many of your clients do you see every 30 days? Because this could happen. So there's a real hesitancy, I hope, from our people to think, yeah, it's going line. You fill out one form, okay, big deal. You submit some driver's licenses. That's not the problem. It's the monitoring of it and the going forward that we have to think, are we [00:37:30] in a position to do that? Fincen has never issued anything that impacts this many people, so they're not very good at the IRS issued tax guidance all the time.

Annie: Yeah.

Roger: So they know how to communicate as best they can to millions of businesses and practitioners.

Annie: They don't have the funding. They're already so far behind. I mean, we've got like we're in the last quarter of the year and this is a massive, massive piece of, you know, legislation, so to say. And we don't have [00:38:00] we don't even know what we're doing yet. It's scary.

Roger: Well, and FinCEN may have kind of sunk their own boat when they came out with the example of the driver's license, because I know when I was in Washington last week and I mentioned that to people on the Hill, they looked at me like, What's stupid? I said, Yeah, that's what the Fox say.

Annie: I think so too.

Roger: So I'm hopeful that we'll get a delay and FinCEN will we actually ask when we were in Washington last week is for the smallest of small. [00:38:30] Can't you make this an annual reporting so that it can be part of their normal income tax process? Right. Right. Then we could we could conceivably work with that if you let it happen when they come to us part of the cycle. Because in some cases, that's the only time we see them. Right. But even if I saw them every month, nothing. I've done this for more years than I want to admit. And I've never had to worry about when their driver's license expired.

Annie: And that.

Annie: Seems really.

Roger: Silly. So I'm not going to I don't know how I'm going to [00:39:00] make my old brain set up a system that tells my clients, Please call me when you renew your drivers or.

Annie: If you lose it and have to go get another one.

Roger: It cost you $10,000 if you don't tell me when you go look at me like you've lost your mind, why do I care? So a lot happening. The FAQs. You know, there was some new stuff. Not a lot. They talked a lot about the documents you have to submit. And that's where the driver's license thing came up. But. But if any of you have the FAQs, I've got it marked here. I want to make sure I give you the right one. Go look [00:39:30] at question. I have to put my glasses on here. H h dot two and I'm going to read straight from it. Any change to a beneficial owner's name, address or unique identifying number previously provided to FinCEN? And then it says, If a beneficial owner obtained a new driver's license or some other identifying document that includes a changed name, address or identifying number, the [00:40:00] reporting company could also have to file an updated beneficial ownership information form with FinCEN, including an image of the new identifying document.

Annie: So within 30 days, Within 30 days.

Roger: So I just have to believe that something's going to change because the again, you mentioned it, the forms not even out and it's online. I know. And it's got the schematic of what it's going to ask for, but it's still even there.

Annie: You can't do it. Even if you tried to do it, you can't [00:40:30] even do it.

Roger: You've got they've got to educate all attorneys who do LLC and corporate formation entities, all small business owners, potentially all tax practitioners. And I'm going to challenge those of you that are listening to this Next time you're in a meeting with practitioners or small businesses, do a poll of how many people even know. I know it's probably less than 20% of the practitioners that have heard about it. And I'm going to say probably less than 2% of the businesses. So [00:41:00] if we don't extend it and figure it out, we're heading for a train wreck. But we've had train wrecks before.

Annie: We have. And I mean, I have to say, I've been anxiously awaiting some guidance and I was thankful for the guide and the FAQs. But now I just I want more. I want clarification. I want what are they going to do about it?

Roger: Well, I think, again, the one thing I would tell everyone, you should call your Arizona missions carrier. There you go. And make sure that if you decide to offer [00:41:30] this as a service, that it is a covered service. Because I don't know how you're going to monitor this. In a 30 day world. And so you're probably going to make a mistake if you don't know, have the systems to do it. Your insurance company won't cover you. Then don't do it.

Annie: Yeah, that's what I think.

Roger: Leave it to the attorneys and let them be the bad guys. And just make let your job be just [00:42:00] to make people aware of that. It's out there and it's serious and explain why you're not going to do it because it's going to put all the responsibility back on the client. I mean, there's just I don't care how hard you try, you're not going to know when people's driver's license expired because it may not even be an expiration. They may move. They may move from one state to another. Yeah. And the one you had didn't expire, but they had to get another one because they moved across the state line and had to get a new license. I mean, they divorced.

Annie: They went back to their maiden name or got married.

Roger: Yeah. I mean, there are so [00:42:30] many.

Annie: All of that.

Roger: You can change a driver's license.

Speaker3: Yeah.

Roger: Okay. So I guess those are the two big things.

Annie: Those are there's one just one more thing I want to mention on this podcast, and because it's also time sensitive. So we've said it before, but as a reminder, we do have that e file mandate for information returns starting at the beginning of the year as well. So remember, you used to be a 250 return threshold and now we are down to a ten return threshold [00:43:00] when you aggregate all the information returns so it can be W-2s and 1099, it's ten no matter what, how many of each one, basically. And so if you have not started thinking about what's going to happen in your firm, how are you going to address this? How are you going to meet this mandate? We're recommending to all of our offices. Don't try to pick and choose between clients. And are you at eight or are you at nine? And what if ADP did this one and Paychex did that one and now you're just doing one? That's [00:43:30] too cumbersome. Clearly, we are heading in the direction of E filing all of them. If we've gone from the 250 threshold to the ten, I strongly suggest just e file all your informational returns, figure out the how you're going to do that, how you're going to meet the requirement. There's plenty of know. There's track 1099 out there. You can do it on the IRS website. It is fairly cumbersome, but it's there and it's free on the IRS website. Yeah, but whatever works for you in your practice, just don't [00:44:00] let it go to the wayside. And then all of a sudden in January you're like, Ah, what am I doing?

Speaker3: So keep.

Annie: That in.

Speaker3: Mind.

Roger: If you were around when the filing of tax returns first started, there was some of the same pushback. And while my clients don't want X, Y, and Z, but how many of you now don't just e file everybody?

Speaker3: Yeah, I mean.

Roger: Eventually you got a mandate. That's what's coming here. So if this doesn't work, we'll get a mandate. So, yeah, you need to know about that. There were some other interesting news out of the IRS [00:44:30] as we kind of touch on some some bullet points here. And he talked a little bit about what the IRS has said about their examination process. They're going to be they're changing some focuses on.

Annie: Yes, they are. So with some of the funding and some of the focus and they're doing a lot more online with AI and stuff, their focus is going to be on partnerships. Large partnerships is going to be mainly the focus of the audits. They are moving away from the Eitc, which was a common [00:45:00] focus. Right. But wealthy individuals, large partnerships and corporations, those are those fancy hedge funds and that kind of stuff. Those are definitely on target. Whereas the Earned Income Tax Credit types of returns are getting less focus and leveraging artificial intelligence is supposed to make this easier for them to identify areas of abuse. So we'll see.

Roger: Yeah. And they're going to put a real focus. [00:45:30] In fact, they're putting a whole they call it a team. I think of people to audit high wealth partnerships. You know, the bigger you get with the multiple entities, the. A lot more income there. So they're trying to shift their resources now that they have some from going after the the lower income to the to the higher income people. And in light of that, something that I learned at my meeting last week, if all of this just says I'm fed [00:46:00] up with this, the IRS is hiring.

Speaker3: Oh, God.

Roger: They are looking for as they shift to a more. Difficult tax return.

Speaker3: Complexity.

Roger: Yeah, they are. And they've got some money. And so this is serious. I mean, I'm saying it in a joking manner, but it is serious. They are looking to hire a lot of what they would call mid-level employees. In other words, historically, to get to the point where you'd [00:46:30] audit a complex tax return, you started maybe opening mail, you know, in the mail and worked yourself up. They are looking for people with accounting and finance backgrounds. They will start at a salary of approximately $125,000 a year with benefits. That's probably $175,000 because they have some really good benefits.

Speaker3: They do the IRS. Yeah.

Roger: So they are if you know anybody or like I said, [00:47:00] you just had enough of this and you're ready to I don't know if that makes is it an easier job or a harder job. But they are looking to hire a lot of people in that mid range level. They're going to try to speed up the training of only what's necessary and try to get them on the street within interesting 60 to 90 days so they can. So it's not you know, it's 125,000 plus benefits and they tend to get raises every year. And, you know, you get the government holidays off and most of [00:47:30] it's working at home. So it is a. You know, it's interesting. They come to our meeting and they they talk to us about that. And yet some of the people they're trying to hire are the some of the people we're trying to hire.

Speaker3: Exactly. I know.

Roger: So but, you know, if you're looking for something, if you're you know, if you can put 20 years in, you'll be set with a good retirement if it's something you want to do. So it's a serious effort in terms of hiring these people. They they mentioned the other day they've finally [00:48:00] gotten back to the 90,000 employee.

Speaker3: Level.

Roger: For the first time.

Speaker3: And funding helped.

Roger: Yeah. So so if you like I said, if you between the IRC and the beneficial owner, you've had enough of this and you want to.

Speaker3: Change your.

Roger: Career. The IRS has the, you know, has the hiring sign out and pretty good benefits and and it's all over the country. It's not it's not just in one part of the country. So you would probably [00:48:30] not have to relocate. They'd need them everywhere.

Speaker3: So.

Roger: So that was something that interesting. That was, you know, maybe if I was much younger, it might have tempted me.

Speaker3: But.

Roger: I don't know. Yeah, it'd be interesting to see if you took the knowledge you've learned on one side inside, you know.

Speaker3: See what kind of.

Roger: How would you be more any? Would you be more lenient to people who were cheating or less lenient? Because would you think you'd fall for their sob stories?

Annie: No, probably not. I think I would probably be [00:49:00] I probably heard too many sob stories. I would probably be really, really strict. I don't know.

Speaker3: I don't know.

Roger: Then nobody wants you to apply for the job.

Speaker3: Yeah.

Annie: No, they probably don't want me.

Roger: Yeah, that's probably would make the IRS better at what they do, but it would probably not make them more popular.

Speaker3: Thank you, But yes.

Annie: I'll leave those positions open for some.

Speaker3: Others.

Roger: Yes, but it's out there. And, you know, and again, I expect to see with this new commissioner a lot more of things. He's very [00:49:30] big on the system, you know, being fair, that if you're going to pay your taxes, it's their job to make sure others pay their taxes. But at the same time, they have to be better at customer service. They have to be they have to be a lot better. So, you know, a new commissioner, I think he's you know, he's sincere in what he says. He he was actually acting commissioner for a short period of time earlier in his career when they were without a commissioner. He then left and went to other parts of government and now he's back. [00:50:00] So it's going to be interesting to follow him. As we said earlier, each commissioner puts their own stamp on the agency based on what they think is important to them. So could be interesting to follow. Commissioner Werfel, as Andy mentioned, we're very supportive of what he did on the.

Speaker3: Yeah.

Roger: He didn't have much choice. He was hoping that Congress might give him some tools, but they didn't. So he had to act with what had he had in his arsenal.

Speaker3: So. All right. What else, Roger?

Annie: That's all. [00:50:30] No, no, that's plenty. Enough for one podcast. Yeah.

Roger: Yeah. Hopefully we'll we'll have one of these that we won't talk about IRC or beneficial owner, but stuff's happening quickly and.

Speaker3: Until then.

Annie: We'll keep you.

Speaker3: Posted.

Roger: We'll keep you posted. We got another deadline to go and then it'll be time to prepare for for next tax season.

Speaker3: And year.

Annie: End planning and all kinds.

Speaker3: Of good thing.

Roger: If we see any chance for any year end you know right now as we record this, we don't [00:51:00] even know if the government's going to be open.

Speaker3: So if they.

Roger: Can't fund the government, how are they going to change any tax laws between now and the end of the year? But that's always a possibility. We'll keep an eye on that. And if there's something that looks like it might break, we'll try to give you a heads up. But right now, they may not even be working in another week or so if they can't figure out how to pay the bills. And that will change the IRS. There was an article today that they'll probably have to furlough some IRS people. So, you know, if if they shut the government down [00:51:30] and you're working with an agent or something on an issue or need some help from the IRS heading up to a deadline.

Annie: It's going to be tough.

Roger: Make me tough. All right. Have we done enough for today?

Annie: I think we're done for today.

Roger: All right. Well, as always, Andy, thanks for all you do and being here today and for all you that listen, thank you for listening. Tell tell other folks if you enjoy our podcast, tell other people about it. There's I think this is 17 episodes.

Annie: I was going to say [00:52:00] we're like 1516, actually. Yeah.

Roger: The rest of them are available on the earmark app for CPE. You can go get an hour of CPE for listening to us and if you have any suggestions about topics.

Speaker3: Then yeah, let us know.

Roger: Let us know.

Speaker3: All right, Andy, thank you.

Roger: Let's go back to work. We've got to get through one more deadline.

Annie: That's right. That's right. Thank you, everyone, for listening. We'll see you next time.

Roger: Thanks, everybody.