Getting Ready for the 2024 Tax Season

Roger and Annie discuss key steps tax practitioners should take before the new year, including renewing PTINs, reviewing engagement letters, having tax planning conversations with clients, and learning about new beneficial owner reporting rules.

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• (00:00) - Welcome to Federal Tax Updates
• (04:07) - Preparing for next tax season
• (06:48) - IRS updates
• (11:02) - ERC updates
• (22:04) - Withdrawing ERC claims
• (31:47) - Repaying ERC funds
• (41:44) - Beneficial ownership reporting
• (51:35) - Timing of beneficial ownership reporting

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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.

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.

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

Roger Harris, EA: [00:00:10] Hello again, everybody. It's Annie and Roger. We're back for another federal tax update podcast. And, Annie, how have you been doing?

Annie Schwab, CPA: [00:00:18] I'm doing good. It's getting to that time of year. Where past October 15th or 16th deadline. Whatever it pushing into pushing into year end stuff. And before you know it we'll be talking about tax season again. But but doing good. Yeah.

Roger Harris, EA: [00:00:32] Well yeah we just finished I guess wrapped up the end of the 2023 season and we're going to jump around, catch up. Some things that you may have missed while you were heads down and doing returns. And probably kind of unfortunate. We're going to talk about what to start getting ready for for the next tax season, which will be here before you know it, because they're kind of running into each other now. There's not that.

Annie Schwab, CPA: [00:01:02] Feeling. And there were so, so many extensions with all the disaster areas. So I feel bad. There's probably a lot of people who are still cranking out returns.

Roger Harris, EA: [00:01:11] Oh yeah? Yeah, yeah. Don't even think about that. Yeah. If you were in one of the disaster and there's a lot more of them, it seems like that I think 1213 potentially. And then you'll have to turn right around and start thinking about 23 returns and 24, which. Yeah, I don't know. It seemed like there used to be an end to tax seasons, but that doesn't seem to be the case. And said we're not so much, you know, yeah, we're going to touch on some year end stuff. There has been some new announcements from the IRS on guess what, the employee retention credit. And then we'll remind some other things. But but Andy, why don't you kick us off. You know, let's assume for sake of argument that most of us have just finished this tax season. What are some things that we need to start thinking about or planning to do? As we before you know it, we'll be heading into a new year and a new tax season.

Annie Schwab, CPA: [00:02:03] Yeah, let's do a little bit of housekeeping and then we'll hit on some of the the newer information coming out of by the IRS. So yeah, if it's end of tax season as we know it again if you are still cranking out returns, do remember that five day perfection period for individuals and ten day perfection period for C Corp. So that means if you file a tax return it gets rejected. You technically have the five day or the ten day to resubmit. And it will still be considered timely filed. So, you know, everybody wants to leave the office when they're pressed that last file, go take a couple of days off and a breather. And I know you deserve it, but just remember to have someone, if not yourself, check those e file acknowledgments. You definitely don't want to miss one of those. And then of course, we have past due returns. Everyone's got those clients who either have delinquent returns or need to go back and amend returns. So between now and the start of next tax season, that's a good time to sort of crank those out. You know, get get that client current, get paid for those services and get ready for the next tax season.

Roger Harris, EA: [00:03:12] And it's also a good time Andy talk a little bit about what those are client related things. And I guess one thing usually well not usually every year the IRS shuts down e-filing for a while. We haven't got the date they do of those yet. At least I haven't seen it. If it's been announced, I haven't seen it. There's going to be some of the time that, you know, even if you've got past due returns, you're not going to be able to sitting still.

Annie Schwab, CPA: [00:03:34] Yeah.

Roger Harris, EA: [00:03:34] So it's a good time to start doing some things in your office as well as you wrap up one year and head into the next. Talk a little bit about some things that you can do from a practice management standpoint, between now and the first of the year.

Annie Schwab, CPA: [00:03:50] Yeah. Roger, I always recommend, whether it be right after April 15th, deadline or fall, busy season, that you do a couple of things in your office to one, improve things that need to be improved and two, have enough time to implement any changes. So performing staff reviews, I think it's always beneficial for you to speak with your staff, hear their pain points, what worked? What didn't work? How can we help them make a better next tax season? And sometimes that means identifying where were the bottlenecks? Were you the bottleneck? That's always a question to ask. What is your staff concerns and of course your client concerns. So you could do something along the lines of a survey out to your clients. Again, if you have a larger office, perhaps a survey to the staff, and then always look at your technology. I feel like technology is changing so rapidly. If there's a something that you felt like you were missing or could have done better or more efficiently, consider looking into a type of technology that could maybe leverage that for you. So those are kind of the key points coming out of tax season. And then of course you start talking about pricing. So as you're looking at your client list, looking at your collections, making sure your are is review review your are sometimes you'll see where maybe you're pricing too low for certain clients. Maybe you need to look at your pricing structure before all of a sudden tax season is here again.

Roger Harris, EA: [00:05:16] Yeah, yeah. Like I said, every tax season is unique to itself. And and prices continue to go up. So you need to look at what you priced. I think your point about talking to staff is really important because some of the clients that might be your friends or you think are the easiest from the staff perspective, might be some of the biggest drains on your resources. And so it's good to get their opinion not based it solely on your interaction. Absolutely, absolutely. We also, and again, I know this seems hard if you just finished, but every year we have to renew our patterns that just opened.

Annie Schwab, CPA: [00:05:55] But it did get cheaper.

Roger Harris, EA: [00:05:57] Yes it did go down.

Annie Schwab, CPA: [00:05:58] It went down about, I don't know, 1012 bucks or something. It's only 1974 or 75.

Roger Harris, EA: [00:06:04] 75, 1975.

Annie Schwab, CPA: [00:06:06] 1975.

Roger Harris, EA: [00:06:07] And this is really interesting because I guess it I guess it was about a week ago. I'm trying to think I was in Washington when they announced that it was open, and they were very quick to point out that of the 1975, the IRS gets $11 of that and the 875 goes to the vendor who administers the program because they actually got sued, or I don't know if they got sued or somebody took them to whatever the court is, you take somebody over what you charge for a patent, and that's why it went down, is that there was too much fluff, if you will, in the price. So they were very quick to point out that the 1975, the IRS only got $11 of that so well.

Annie Schwab, CPA: [00:06:49] And it is very easy process, but it has to be done by the end of the year by December 31st. So while you think you still have two full months guess of the year, remember it's anyone who prepares or substantially helps prepare any federal tax return or claim for refund for compensation. So a lot of people in your office may qualify even if they're not what you're considering a tax preparer. Again, you're talking 20 bucks. You log in online maybe five minutes. Unless you're updating some of your information, you submit it. I think there's two check boxes and one of them is really important. One of them says that you certify that the tax preparer as a tax preparer, that you are aware that you need a written data security plan. So I think this is year three for that. If I recall correctly, I think that's been on the application for the third year now.

Roger Harris, EA: [00:07:45] Yeah, the service is really as they should. They're really taking data security seriously. And. And expect us to as well. You are going to have to check that box. Also, while you're there, go take a look at a couple of things. You can look and see what your CPE credit hours are under your P ten, and how many returns the IRS processed under your P ten to see if somebody got access to your P ten. So you're going to be there. You might as well look while you're in there and kind of look at and check your.

Annie Schwab, CPA: [00:08:19] Fn2 because your Ethan it won't be exact. So if you went in your software and it was 251 returns filed under that, Ethan, it's not going to be completely exact, but it will be close. And you should make sure that it's it's close.

Roger Harris, EA: [00:08:35] Yeah. Good point. I mean, we're not you don't need to go count and say I did 238 and this only says 235 and panic. But if you did 238 and it says you did 738, then you got something to worry about.

Annie Schwab, CPA: [00:08:49] That might be an issue.

Roger Harris, EA: [00:08:50] Yes. So yeah, while you're in there you got to go in. You got to do it by the end of the year. $19.75. Get in there, check your CPE, check your returns. And like you said, check the Eero, get get all that done. And then if you have any time left, any there's probably still time for some tax planning with your clients, you know, and some general things. Anything you would suggest as we're at the end of the year, anything particular. Because, you know, I guess. We haven't had significant legislation outside of the Inflation Reduction Act.

Annie Schwab, CPA: [00:09:26] Not compared, not compared to previous years. I mean, we've had the Secure act, the Inflation Reduction Act. Some of that starts in 2024. Most of it starts in 2024 and beyond. So for 2023, we're sort of still kind of in that limbo I would say of. Things not expiring yet or set to expire. I always think it's a good time of year to just touch base with your clients, especially if they're not monthly accounting clients and you only see them once a year. A simple phone call or email. Hey, how are things going? How's the year looking? Anything new? Because once December 31st passes, it's really hard to do much tax planning at all. I mean, maybe some choices regarding depreciation or or something like that, but it's not like you can really change a tax situation. So I always encourage you to talk about estimated tax payments and double check those W-2 withholdings. Make sure that they've paid in that they're not, you know, looking down to a bunch of penalties and associated for underpayment penalties if they're close to itemizing. We always say look at bundling deductions. We come close to the holiday year bonuses, employee gifts, holiday parties. How are you going to structure that? Making charitable donations, that's always one. We hear a lot about harvesting capital losses. So you know the typical things are still on the plate. So, you know, take a minute. Just reach out. Touch base. You know you got two months to go. It's better to at least throw it out there and see if anybody has something new. And this leads me because I always say it tax organizers, those organizers really help clients who maybe don't even know what they're supposed to be telling you, right? Identify things that could affect their tax returns. So if you're new to tax organizers, I strongly recommend them. If you've been using them again, the yes and no questions are really good. You know, training your clients to complete those is really, really important.

Roger Harris, EA: [00:11:29] Yeah. A couple of other points. We'll touch on this a little bit more later. It's a good time to review your engagement letter. If you've changed anything in the services that you're providing. Again, we'll come back to that later when we talk about something else. The only other thing this year, it kind of tweaked my brain when I saw something come out the other day. I mentioned the Inflation Reduction Act, probably the biggest thing there that's going to impact your normal taxpayers. If they went out and bought what they call a qualifying electric vehicle. So you might want to ask them if they did, because they may be what what I saw the other day was a way to basically give the credit to the dealer, to reduce the price, to reduce the price. Now, that presumes the dealer knows if you're eligible, which has something to do with your income. And I'm sure all the car salesmen out there are tax experts, right? They're just going to tell you, hey, you know, this is going to but you don't want the client to expect the credit when they may have signed it over to the dealer. So good point. Take a little time if if they say they bought an electric vehicle and they're proud of that and they're looking for the credit to make sure that A they didn't sign it over to the dealer. And if they did that they were actually eligible for it. Because like I said, most car dealers I've dealt with are not what I would call tax experts. So no.

Annie Schwab, CPA: [00:12:48] And a lot of people try to clear the lots at the end of the year. So I wouldn't be surprised if you got some year end deals on cars. So it wouldn't be uncommon to see somebody go out and buy a car at that time of year. Right?

Roger Harris, EA: [00:12:59] Well, it's also when we get to year end, this isn't necessarily income tax, but if you do any work for small businesses and they look to you for filing 1099 or w-2s, I know we've talked about this and remind everybody what the mandate is this year, because it's different than what it was a year ago.

Annie Schwab, CPA: [00:13:19] It is it has significantly decreased from 250 returns to ten, and that's ten per client regardless of the form type. So you could do, you know, five, ten, 90 nines and six w-2s and you're over the threshold. Right. So we're strongly recommending that our office owners consider using a third party to prepare these forms just because. Why cherry pick client a client trying to figure out are they at eight or are they at nine, or are they at ten? Who's over who's under. You know, is ADP filing it. And you're filing some because it doesn't matter who submits it. It's the count is under that business identification number. So you know take a look at that. There is the IRS has a system called Iris. Iris I'm not even sure what it stands. Oh yeah I do information return intake system. There you go.

Roger Harris, EA: [00:14:08] So the IRS never gotten that one.

Annie Schwab, CPA: [00:14:12] I had just typed it on another newsletter. I was writing it, so it popped in my mind. But yes, the IRS does have a free way to e-file. You do need that transmitter control code called the TC. I'm not going to lie, the IRS website is not the most user friendly, should I say, but it is a way to file meet the e-file mandate for free. Otherwise, you know, like I said, ADP, we like track 1099 there's plenty of. Providers out there. The most important thing is that you develop office procedures now so that come January, you're not scrambling to try to figure out what am I going to do? You know, what's the best process? You definitely don't want a client to fall through the cracks. So just kind of consider your your business practice for this and make sure that you've got it all ready for the start of the year.

Roger Harris, EA: [00:15:02] Yeah, a couple of points. The most important one is if we go back to remember when e-filing income tax returns first came, we all were hesitant about it and wondered why now we wouldn't do it any other way. So correct now that you're going to get into it as you said, Andy, do it for everybody. Don't try to figure out this one only has six, so I'm going to do it this way. But this one has more than ten. Go ahead and put in the policy that you're going to electronically file for everybody. If you're doing write up work for small businesses, look at the software. That's where this information is being generated where you're correct. And see they may have processes. I know we use Thomson Reuters and they've instituted a process where it works very much like e-filing a tax return. So it's gotten a little bit simpler in that product. So that's an alternative to the IRS or to track 1099 or something else. So take a few minutes, research your options, and then figure out what's best for you and just plan on that's the way we do it for everybody. You don't want to get into where I'm counting. 1099 W-2 calling ADP. How many w-2s are you? Fine. Just do it for everybody and then you won't make a mistake.

Annie Schwab, CPA: [00:16:17] And you can start now. Like for track 1099. If you're in, let's just say, you know your stuff's in QuickBooks or Xero or somewhere else, you can start moving the demographic data over. Now, you don't have to wait until January. So it's all there when it's time to go. So there, depending on what method you choose, there could be some steps that you can take now so that you save time later when you're probably a little bit more busy. So but it's important.

Roger Harris, EA: [00:16:42] Yeah. And it's also a good time. You mentioned pricing when it comes to tax returns. Now again this is I don't know. No. We charge our clients at the end of the year for this kinds of stuff. We did it before this. Now you have the perfect excuse for either beginning to charge or increasing what you charge, because you are going to have to file these electronically. And that's going to, you know, track 1099 is not free. You know, most of these packages, if you go to them are going to have a cost. That should be the cost of the client, the mandates on the client. You're providing a service to the client. So it's a good time to analyze the proper pricing structure for doing these sorts of things. Some people have five w-2s, some have 500, some people have to 1099, some have 200. So come up with a pricing structure. Again, you can blame it on the mandate because that's this is the first year. But take advantage of the mandate to examine your processes, your pricing and get your clients in line and make your life easier.

Annie Schwab, CPA: [00:17:52] I agree with you, Roger. It was at 250 and now it's down to ten. I think that's a signal that, you know, maybe next year or the year after, it's just going to be mandatory across the board. And I see it coming.

Roger Harris, EA: [00:18:03] Yeah. Whatever system you choose I would expect the payroll tax forms to be next. The 940 ones, those sorts of things, because the service is already talking about needing more people to do this. Well, they're going to talk for so long, then you're just going to do like they did here. So you have to. So try to find a solution that'll take care of all of it.

Annie Schwab, CPA: [00:18:26] And while you're at it, there's always a it's always a good time to have that discussion about, are you treating this this worker as an independent contractor or an employee. And is that the right classification for that worker? And there's on the IRS website, there's a chart that has different scenarios, you know, depending on control and dictating what they do and how they do it and when they work and all these different things. It's a great review. It hasn't been I mean, it hasn't updated and I don't know how long, but this is always a good time to talk to your clients. If maybe they have some of those workers that should be considered employees and they've been treating as independent contractors. Right.

Roger Harris, EA: [00:19:08] And one last tip. Again, this is something we talked to our offices about. If it's your responsibility to do 1099 in W-2s, wherever that data is currently being stored, I'm sure you can print out some sort of list with names, addresses, and Social Security numbers, or email it to your clients. Have them verify that before you do all these forms and send them out. And then you get 50 phone calls and my Social security number is wrong. My address is wrong. My name is wrong. It's much easier to get that ahead of. A game. Take care of that now so that when you complete the documents, you're comfortable that they're accurate. Because as I tell clients, it's easier to fix it before I send them all in. Because once they're in, now we're into.

Annie Schwab, CPA: [00:19:55] Amending.

Roger Harris, EA: [00:19:56] Amending, correcting, whatever. So take some time. Have your your clients at least validate that the information you have is accurate. Because if it comes up after that, you should charge them anyhow if you have to fix it. But you certainly shouldn't have a discussion if if you gave them the opportunity to fix it and then they didn't.

Annie Schwab, CPA: [00:20:18] Right? Right.

Roger Harris, EA: [00:20:20] Okay. Let's go. What the IRS has been talking about. So.

Annie Schwab, CPA: [00:20:25] Well, it wouldn't be a podcast if we didn't talk about the employee retention credits.

Roger Harris, EA: [00:20:29] That's right. So while we're back wrapping up the end of tax season, what what's happening with the employee retention credit. And it's not over. So this isn't the final word. No it's not. What we know so far.

Annie Schwab, CPA: [00:20:42] We we've spoken about sort of the IRC mills coming in and being aggressive. And small business owners filing claims that maybe were inaccurate, inaccurate and possibly not eligible. So we saw, I think it was the 14th of September, the IRS. Had breaking news. We're putting we have a moratorium. We're not processing any more. Sorry. We're not accepting any more IRCc claims. I think there was a backlog of maybe 600,000, if I recall at the time that still needed to be processed, but they were just the IRS was seeing so many fraudulent claims, they didn't feel like they were caught, they didn't know what to do and how to stop this. Like just, you know, the mills were just coming in faster than they could process or catch them. Or so they did place a moratorium, which is still in effect, and it will stay in effect through at least the end of the year. So right now the IRS is processing any returns that were dated. I think it's the 14th.

Roger Harris, EA: [00:21:45] September 13th was the date, right.

Annie Schwab, CPA: [00:21:47] So if you had you know, if it was dated postmarked, then they will continue to process. They're doing it at a very slow rate. And some people are saying they're barely processing. So if you have a client who has a claim sitting over there, it may take some time. The goal is to reduce the fraud, to stop, to stop the, the, the pain, I guess, associated with with these claims. And then was it just last week we got additional information about okay, well now what how how can you, you know, withdraw from it. So that's sort of where we stand as of today. Yeah. One 19th of October, I think they issued that when.

Roger Harris, EA: [00:22:28] They put in the moratorium, they made a couple of comments. They were stopping it, as Annie pointed out, to kind of try to get a handle on the amount of fraud that was in the system. I think. I think they'd hoped Congress might step in and end it, but they didn't. So they did what they could, which is a moratorium which we've been assured will be lifted the first of the year, somewhere around no exact date, around somewhere around the first of the year. All that valid claims will get processed either slowly, as you said in this moratorium, this timeframe, timeframe or once they remove it may change it, but they had to get a hold of it. But they said after that, after the moratorium was announced, that they would make two announcements in addition to that, one of which we'll talk about because it's been made, that is how to withdraw a claim. If you have a claim pending. And because of the fraud, you finally gone and talked to someone and been convinced that maybe you weren't supposed to get this.

Roger Harris, EA: [00:23:30] So we have some information on that. They also, which we haven't as we record this, at least we haven't heard what to do if you've already got the money and then you've talked to somebody and they've said, well, you shouldn't have gotten it. And oh, by the way, you probably gave a good chunk of that money to the mill, whoever prepared it. And but you want to give it back, you want to get right, if you will, with the IRS that as of the time Andy and I are recording, we do not have that guidance yet. We hope and expect to get it relatively soon, because a lot of people are going to sit back and kind of wait for that before they make a decision. But they did talk about the moratorium and the withdrawal. So let's talk a little bit about any. First of all, well, take a minute and kind of go back through the real challenge that we face. Remember, people may come to us to have their taxes done that we didn't do the employee retention credit.

Annie Schwab, CPA: [00:24:35] Right. They went to a mill or a third party who prepared the amended 941 for the credit. Right. Maybe they're coming to you now saying, okay, well, this is what I've got. We need to amend the associated business returns and the related individual returns. And so tax practitioners are kind of stuck because if they don't agree of the credit that they qualify for the credit, they're not supposed to amend the returns. Right.

Roger Harris, EA: [00:25:03] So you got to start by making some attempt to judge the accuracy or the validity of the claim. So somebody comes to you and says, hey, Annie, I went to this mill and I got $500,000 in employee retention credit. You can't just jump into amending those 20 or 21 returns. You have to, first of all, make some determination as to whether or not you believe that $500,000 claim was valid, because what was the term they used? If you amend the return and it's not, you'll.

Annie Schwab, CPA: [00:25:35] Perpetuate the fraud.

Roger Harris, EA: [00:25:37] As they prepare. You have perpetuated the fraud. So you have to make some determination and then it comes up again. If it's legitimate and you have no problem, then amend the returns. Amend the life is good. But if you have significant questions about it. Now we look at a we can't amend the returns. We don't know yet how to pay it back. So we're really faced with the one option that we do have, which we'll now talk about, which is how to withdraw a claim if it meets the rules for that. So talk a little bit about which claims, first of all can be withdrawn.

Annie Schwab, CPA: [00:26:17] Right. So it was a news release that came along with a fact sheet. Of course it was October 19th. So right when you were taking a breather after finishing tax season, you've got this new information. So this release applies to employers who may have used the claim with. You can use the claim withdrawal process if all of what I say applies. Right. So you made a claim on an adjusted employment tax return. Well that's the only place that you can. So if you sent in a 941 Ex or associated form, if that adjusted return only related to IRC, so you didn't make any other changes for any other calculations and you want to withdraw the entire amount. So you can't say, well, we just calculated it a little wrong. Or there was this change and that change. It's it's all or nothing. You can't take a portion, you can't ask for some and leave the other. And lastly, the IRS has not paid their claim or the IRS paid it, but the small business owner has not cashed it or deposited the refund check. So right now, those are the only small business owners that the current news release applies to. Like we said, we hope we get additional information. And they are saying that if a business willfully filed fraudulent claims, you know, withdrawing it is not going to prevent you from criminal investigation.

Roger Harris, EA: [00:27:43] Well, if it hasn't been paid.

Annie Schwab, CPA: [00:27:45] Yet like that.

Roger Harris, EA: [00:27:46] It might be you're better off to withdraw it than to leave it sitting there.

Annie Schwab, CPA: [00:27:49] Than to leave it.

Roger Harris, EA: [00:27:50] Before you get paid. But so again, key point you haven't received the money, or at least you haven't cashed the check. Correct. So someone comes to you and it meets that example or.

Annie Schwab, CPA: [00:28:07] Criteria.

Roger Harris, EA: [00:28:08] The criteria. So there's three scenarios. They haven't received the check yet. They have received the check. Or they're in the middle of being examined by an IRS person to determine under audit the accuracy. So walk through each of those. First of all, let's just assume that the form sitting somewhere in some building no check has been issued. How do I withdraw that claim?

Annie Schwab, CPA: [00:28:30] Right. So like you said, you have not received a refund. You have not been notified that you have, that you're currently under audit. If you would like to withdraw this claim again in full, you make a copy of the adjusted, the adjusted return and in the left margin on the first page you write withdrawn. So not a very complex, complicated way of doing this. Simply write in the left margin on the page one withdraw and then in the right margin on the page, you have the authorized person's name, signature, title, and date. You know, with their signature. They're asking you to please fax. Of course, they've also given there's a dedicated fax number. Yeah. Which is probably the fastest and easiest way. If for some reason you can't fax, there is an address associated that you can also mail. So I mean it's just a copy. Left side withdraw right side. Authorized persons with signature title name date. Da da da da. So you fax it on in. We have not heard how long it will take to process, or anything more than the steps that that you would take if for some reason. So here's scenario number two. Let's say you have not received a refund, but you have been notified that your claim is under audit. So there's two things. One, I mean, if you if you have someone already assigned to the case, there's an examiner, then you would communicate with that examiner, work with them to withdraw the request directly through them since they're already assigned to the case. If you have. Notify that you're under auto, but you don't have a specific examiner assigned to it. Then you respond to the notice with a withdrawal request using the instructions in whatever the the notice that comes and said if you disagree, this is how you respond. So that's scenario number two.

Roger Harris, EA: [00:30:21] And that's where it might get a little hairy. If the examiner is talking to you about fraud and you say, well, you know what, then let's just withdraw it. You know, that's where I think you might have a little problem if if you're already in exam fraud seems to be pretty prevalent. I'm not sure this is going to give you a get out of jail free card.

Annie Schwab, CPA: [00:30:43] No, but it's better than just walking.

Roger Harris, EA: [00:30:45] I tried, I tried, yeah, yeah, but they've been they've made it clear that fraud they're still going to treat fraud like fraud.

Annie Schwab, CPA: [00:30:54] Yeah. Fraud is fraud. And so then the third scenario is where you you receive the refund and but you have not cashed it or deposited it. So you're still hanging on to the money. And you'll you'll go through the same kind of process here. You'll make a copy of the amended return. You'll left margin gets withdraw. Right margin gets the signature, the name, the date, the title. But they're asking you not to fax it. They're asking you to write void on the check, and then put void in the endorsement section on the back of the check and include a note that says IRC withdrawal, basically saying I've decided to withdraw this. I don't qualify. Send copies of know, make your own copies and send copies. And there's a mailing address. I think it's in Cincinnati where they're where they're dedicating a group to, to to go through these. Right.

Roger Harris, EA: [00:31:49] Yeah. Obviously you have to mail that because you've got to return the check.

Annie Schwab, CPA: [00:31:52] The check.

Roger Harris, EA: [00:31:53] So here's what we know is going to happen. They didn't answer it. But I'm going to tell you what I think the answer is. So you you first of all you haven't received a check yet. You're convinced you shouldn't. So you fax in a 941 with withdrawal on it, and the next day in the mail you get the check. So obviously then you're.

Annie Schwab, CPA: [00:32:15] Following step number three.

Roger Harris, EA: [00:32:17] Then I think, you know what I would suggest again, they haven't addressed this though. You know it's going to happen to somebody. Of course. Of course I would go to the next as you said step three, but not just send in the form without some notice that you sent a withdrawal in prior to receiving the trek. Just so, in hopes that they put it together. But you know, that's going to happen as soon as it's.

Annie Schwab, CPA: [00:32:42] Going to be perfect.

Roger Harris, EA: [00:32:44] A week later, the checks going to show up because we don't know where it is in the processing now. Yeah, you're pretty safe if you just send it in a couple of months or a couple of weeks ago that it's not processed yet. But if it's been sitting there for months, it's entirely possible the checks coming and I would follow the second step three with a reference to you did step one.

Annie Schwab, CPA: [00:33:07] But it's it's you're right. It's going to get complicated. There's going to be scenarios that they didn't foresee. There's going to be, you know miscommunication. You know a fax didn't I never got the fax. You know all this all this stuff will come and it's going to take some time to kind of go through it. And Roger, when the moratorium first came out, we had a lot of people saying, well, I have a legitimate claim. You know, I'm not one that, you know, feels as though I went to a mill or I have a fraudulent claim or it's, you know, it's we have a legitimate claim. Why can't I send it in? And and it's not that you can't send it in. It's just that it's not nothing's going to happen with it, right? Right now it's going to go sit. I don't know, a warehouse, for lack of a better place. But if something were to come out that says, okay, all applications or amended returns postmarked after the 14th, let's say, of September, now you need to attach these three things. Now you need something notarized. Now you X, Y and z. Well then you've sent something. And now how are you going to retrieve it somewhere in a warehouse? And how do you correct it? So right now we're, we're telling or recommending our office owners, you know, if you have a client with a legitimate claim, the money's not going to run out. This is not a program that runs out of money. If you are legitimately qualified, you are due the I.R.S. claim credits. You'll get it. It might take longer than you than you like, but I would not send in additional claims now. Now you can work on them. This is, you know.

Roger Harris, EA: [00:34:49] Do all the time consuming work calculating the wages, converting p-p-p loans, whatever you have to do. You can even prepare the 941 forms, the amended forms.

Annie Schwab, CPA: [00:34:59] Just have it ready.

Roger Harris, EA: [00:34:59] Hold on to them until we see what you have to do. Once the moratorium is lifted.

Annie Schwab, CPA: [00:35:05] Yeah. And hopefully, you know, like Roger said, we're still waiting for information about, well, what if I have cash, the money? What if I have paid a third party? What if I've spent all the money? You know what? What's my time frame for repayment? How do I identify it as wanting to repay? So somewhere along the lines, when we get more information on that, I do think that we'll get information on okay. Claims that haven't been submitted yet. This is what you're looking at. How do you make it go faster? Maybe there's a better process. Maybe they want it by you know, I don't I don't know. But again the moratorium was the 14th of September. And then the first breaking news on what to do and how to withdraw was nearly a month later. So, you know, I do I do think we'll get something before the end of the year. But that's just yeah.

Roger Harris, EA: [00:35:52] It's a lot more complicated when you get into repayment, because what you're trying to do is create an incentive for people who were taken advantage of to make them come forward without condoning their behavior, if it was reckless or fraud. The reality is, I think that last the bucket we're waiting on has got more people in it than the withdrawal bucket.

Annie Schwab, CPA: [00:36:17] Yes, I.

Roger Harris, EA: [00:36:17] Agree, and I'm sort of afraid that the people, if we talk to them about withdrawal, are going to want to wait until they see what the repayment option is, just because you won't have all the could be more favorable. Yeah. I mean, it may be that, you know, I'm better off repaying it after I get it than to withdraw it. So I know there's a sense of urgency for the IRS to get this to us as soon as possible, because I do think, number one, it's going to impact, I believe, a lot more taxpayers than the withdrawal will. I do, too? And we as practitioners need all of the information to communicate to these people if we want them to make a decision. You know, we can determine whether you got the money or not. But if we say, well, here's how to withdraw it, and they say, well, what if I get it and have to pay it back? What's that look like? If we can't answer that unless they have just 100% assured that they made a mistake and they're just afraid of the IRS and they want out of it, they're probably going to want to wait until they see the repayment. That's just sadly, it's human nature. So yeah, hopefully that'll come soon. And I think once we get that, then I think we can get a better idea of when the moratorium is going to be lifted and what changes, if any, are going to be required for claims once the moratorium is lifted. Because this one's a lot more complicated. There is a from being in meetings, there is a sensitivity to the fact that big fees were paid. And if people want to get.

Annie Schwab, CPA: [00:37:54] Sometimes.

Roger Harris, EA: [00:37:55] Come forward.

Annie Schwab, CPA: [00:37:56] 10%, 20%.

Roger Harris, EA: [00:37:57] Yeah, I mean 20 I mean, I've heard some exorbitant things. So I think they want to be sensitive to that. But you know, they've got legal restrictions. I mean, a lot of these things have to go not just through the IRS but through Justice Department, and all the lawyers have to bless it. Then you have to think about it from what's the impact it has on the the world out there that's getting this. And but the reality is every day that passes from the day you got the money means you probably have less of it. I don't know too many of these people that just stuck the money around in a savings account. It's sitting there to give back.

Annie Schwab, CPA: [00:38:34] Right. And that's what that's what I was just about to say. I mean, if you if you take a step back, the whole purpose of the program was to, you know, get in there, help these small businesses keep their doors open, keep their people, you know, working and getting paid. I mean, the the goal of it was so it was it was done so fast, but it was done with good purpose and good meaning. And unfortunately, you know, there are some bad actors, we say, some bad actors out there and people got taken advantage of, or maybe the system got taken advantage of either way or both. But, you know, it's unfortunate that this is where we've landed when it was, you know, came from a good place. It came from. No, it was, it.

Roger Harris, EA: [00:39:20] Was, it was again, keep going. Go back to how you felt back when the pandemic was at its height. And I'm sure we all did things that we wish we could have done differently. And if we had to do them over, we'd do them differently. But yeah, unfortunately this was done in a hurry because we were all in a hurry to get money out to small businesses. The thing that scares me about the marketplace is because it took so long to get the money out. I'm sure businesses that had the ability, once they knew they were going to get, say, half $1 million in employee retention credit, went to the bank and got a loan to bridge that. And then as soon as the money came, they paid the loan off. So now they don't have the money anymore. So yeah.

Annie Schwab, CPA: [00:40:01] I mean I it's going to be tough. It's going to be hard for businesses. And then the repayment program can't be so tough that it puts them out of business, because it's like we were trying to give you money to keep you in business, and now we're taking it back from you, putting you out of business. It's just.

Roger Harris, EA: [00:40:19] But if you're not entitled to the money, you don't deserve it. You owe it back. And you owe penalties and interest. I expected a minimum. We're going to get penalties in interest breaks. I don't know what that means.

Annie Schwab, CPA: [00:40:32] I think so too.

Roger Harris, EA: [00:40:32] But I think there may be extended payment for some. You know, there may be terms. Who knows? But payment.

Annie Schwab, CPA: [00:40:39] Plans.

Roger Harris, EA: [00:40:40] None of it matters if you don't have the money to do it. And that's going to be the the harsh reality that we're going to have to deal with, though it won't be part of a plan, is we have someone who comes to the realization they shouldn't have got the money, it's too late to withdraw it, and they don't have the money to pay it back. Under whatever this plan is, what is the next option for those folks? And and it's it's a sad situation that when you allow people to step in and take advantage of people, that some people are going to get harmed and they're going to get harmed bad. So we're going to continue to monitor it. You know, we expect things to happen hopefully quickly. I know that we've expressed the desire of the service, that we need this as soon as possible because like I said, every day you step away from the check being sent. More than likely some of that money is gone because it's gone somewhere. Yeah, but let's talk about one other thing that is scheduled to happen again. And none of this is stuff we haven't talked about before. I know, but it's just.

Annie Schwab, CPA: [00:41:45] Getting closer and closer and.

Roger Harris, EA: [00:41:46] Closer. And we have and this is really not an IRS issue, but it is a small business issue. So if you have small businesses as clients and this is as we've said before, the one thing that applies to small business, there's not a small business exemption. It's actually targeted a small business. And that's the beneficial owner interest reporting requirement that is supposed to start January 1st one. So and remind everybody IRS what that is. And again this is not the IRS. This has nothing to do with the IRS.

Speaker3: [00:42:20] This is.

Annie Schwab, CPA: [00:42:21] Fincen. So think FBR FinCEN form 114. This is just another extension of of them trying to prevent fraudulent investments and.

Roger Harris, EA: [00:42:35] Money laundering.

Annie Schwab, CPA: [00:42:36] Laundering, money laundering, etcetera. And Roger's right it while it's been set to start in January of 2024 for quite some time now, we still do not have complete guidance. We don't even have a completed draft of the form. We know what some of the items are on the form, but we haven't actually seen the draft of the form. Again, this is something that's going to affect nearly all small business owners. It's something that needs to be done on the FinCEN website. The website is now up the actually they have revised it and added to it. There's a compliance guide as well as some FAQs out there. But what it tells, what it's asking for business owners to do is to report those who have beneficial ownership decision making, think decision making. It can be percentage of ownership, majority ownership type thing, and you're supposed to put the information for that owner electronically into a system. But the tricky part in the FinCEN database, the tricky part is for for businesses who have are already in business right now. Prior to January 1st, you have a whole year to complete this form.

Roger Harris, EA: [00:43:53] You can do that any time in 2024.

Annie Schwab, CPA: [00:43:55] That's right. If you start a business on or after January 1st, the current timeframe is only 30 days. 30 days is really fast for something that's brand new. Most small businesses have not even heard of it. We haven't seen the form. The information required is something that you're not going to have in your back pocket or in your your client file. The penalties associated in general with FinCEN forms and includes this are steep. It's up to $10,000, up to $10,000 per claim and time in jail. Do I actually think that that's that's not the point. The point is that we're getting close to a date that requires action and clear guidance is not ready yet.

Speaker3: [00:44:43] And there's some.

Roger Harris, EA: [00:44:45] Talk on Capitol Hill. They recognize that most small businesses, and I think you were in a session where there was a question asked about how many people were aware of this. These are tax practitioners. What percentage of the audience even knew about this?

Annie Schwab, CPA: [00:45:03] Five. Maybe ten. Half of them are probably raising their hand because they didn't want to. Not.

Roger Harris, EA: [00:45:10] Yeah, they didn't want to look stupid. They didn't want.

Annie Schwab, CPA: [00:45:12] To look like they didn't know what they were, what they were doing. But no, unfortunately it's something that's been under the radar, something that is just has not been communicated very well. There's a knowledge gap, so to say. And while I mentioned that 30 day period, even though if you were in business before January 1st, so let's say you have the full year to make that initial report, there's a little rule in there that says if anything changes, if, let's say, an owner, a person listed in a beneficial owner moves, gets a new driver's license, changes their name, gets married. All of that has to be updated within 30 days. Right? So now the the logic behind that is starting to get skewed because you'd have to know stuff in real time that you're never going to know. Right? So yeah.

Roger Harris, EA: [00:46:04] We just don't have the kind of working relationship to track these things. So the couple of cautions here. Number one, we're hoping Congress gives us some time given the lack of awareness. But Congress can barely function much less. We do have a new speaker. There's some discussion of some year end tax bills. Now that we have a speaker, this could get tucked in there with a delay, but let's assume it doesn't. The question is, what role should we play, if any.

Annie Schwab, CPA: [00:46:35] If any? Because I'm not sure I want a part of it.

Roger Harris, EA: [00:46:37] Yeah, certainly. If you are the kind, if you're as part of your practice has been to facilitate people in starting an LLC. First of all, this rule applies to any business that is set up through their state. So if you form an LLC or you form an S-corp or something like that. So if you set your company up in your state, you are covered by this. There are some exceptions, but let's just keep it simple and say you're covered. A lot of practitioners, I know I never did it, never wanted to do it, would help them set up those LLCs. Well, that puts the clock on for 30 days for you to file this form. And because you did that, you are going to be part of the disclosure. And so you you'd be responsible for some liability. And if that client is not your client a year from now and they bring in a new owner and you're not engaged with them, you're still on the form. So tell us, how do you get off the form if you get on it in the first place, will your insurance cover this kind of activity? Does your.

Roger Harris, EA: [00:47:45] I think you mentioned the. Engagement letters early. Do you even reference this in your engagement letter?

Annie Schwab, CPA: [00:47:50] Right.

Roger Harris, EA: [00:47:51] So it's a real challenge that the people who are most likely to be the ones the small business owner would turn to, which is us. I'm not sure we want to do it, because I don't think we have the processes and procedures in place to know in real time when some of these things happen and that 30 day clock has started ticking. Whether you're a new business or an existing business who had a change?

Annie Schwab, CPA: [00:48:19] Yeah. And the ramifications and just the logistics of making updates and changes and getting yourself off of it. And again, you know, insurance has a really good point. I didn't even haven't even thought about that. But, you know, it's a shame that it takes all the way up until, I mean, we're like two months out and we still don't have clear guidance. You know, it's it puts us it puts small. Small business owners in a really bad place. And talking to your client, only, you know, I can go out there and I can say, this is coming. This is coming. And then they they say, okay, well, help me, help me do it. Make sure I'm doing it. And then we're saying we don't have all the information, even help you yet.

Roger Harris, EA: [00:48:59] Well, I'm not going to do it, because if.

Roger Harris, EA: [00:49:00] I do it wrong, I'm going to get fined.

Annie Schwab, CPA: [00:49:03] Yeah.

Roger Harris, EA: [00:49:03] So I'm not doing it. Here's what I'm telling people that ask me, number one, get out of the set up of new companies. Yeah.

Annie Schwab, CPA: [00:49:10] Leave that to attorneys.

Roger Harris, EA: [00:49:11] Let the attorneys deal with that so you don't have to worry about the startups. And given we have all of 24, don't get in a hurry with the clients that you have, tell them about it. Tell them what's coming.

Annie Schwab, CPA: [00:49:24] Talk to them. Yeah.

Roger Harris, EA: [00:49:25] Talk to them about it. But let's ride as much of 24 out as we can in hopes that we get postponement delays, whatever the case may be. But if I don't file everybody's until December 31st of 2024, I'm still timely. But if I file that form January 1st of 2024, then I got a for the rest of that year for the 30 day change. So we're telling our folks, get out of the formation business. You shouldn't have been there probably in the first place. And then talk to your clients about it. But wait into 2024. As long as you we maybe we'll be having this podcast this year in time next year saying, now's the time you have to do this.

Annie Schwab, CPA: [00:50:09] Well, there's no benefit in doing it early.

Roger Harris, EA: [00:50:11] No, no, not.

Annie Schwab, CPA: [00:50:12] So you don't get a discount. You don't win an award. There's you actually.

Roger Harris, EA: [00:50:16] Make it worse on yourself.

Annie Schwab, CPA: [00:50:17] Right? Because now you're your clock starts ticking. So I'm with you, Roger. I think that's a great, great recommendation. You know, come June, July or something and everything's clear cut and we know exactly what we're doing and we know how to make the change. And you know all of the.

Speaker3: [00:50:35] Above whether our insurance will pay.

Roger Harris, EA: [00:50:37] For it. We've got time to look at our engagement letter. We've got to figure out how much to charge for this. Right.

Annie Schwab, CPA: [00:50:41] Because we have enough to do right now. Yeah.

Speaker3: [00:50:43] We can we can hold off on this one.

Roger Harris, EA: [00:50:45] First of all, you should charge for it because it's a service.

Speaker3: [00:50:48] Absolutely.

Roger Harris, EA: [00:50:48] But don't base it on how long it takes you to go into the FinCEN website and type in the names. You're accepting a liability when you take on that responsibility, that again, if they get a new driver's license, they relocate, they bring in a new partner, somebody else takes over responsibilities that qualify. That's liability that you have to be paid to assume. So you need to to come up with a fairly I'll call it aggressive pricing structure because this is this is not a cheap mistake.

Annie Schwab, CPA: [00:51:21] No. And if you're listening to us right now and you're thinking, you know, I've heard about this, but now I'm just confused and do this, don't do that. The website does have quite a bit of information. The compliance guide has visuals and flowcharts and a whole set of glossary of terms and and what what these things mean. And then there's a Q&A section that's more of like a quick cheat sheet. Just take a second, read through it, maybe talk to some of your clients about it. You want to make sure that they know that you are aware of it and that you're telling them. But taking quick action. Like Roger said, I just don't think.

Speaker3: [00:52:00] Take advantage.

Roger Harris, EA: [00:52:01] Of the time that we're given. And also, and please don't think that we've covered everything in this little discussion. We have some earlier podcasts where we dug a little deeper into it. There's been some some guidance. Depending on the date of the podcast, there may have been some changes. But yes, it's a simple form to fill out the first time. It's not the first time, it's the problem. It's yeah, it's the updating of it when things change because they're just not.

Annie Schwab, CPA: [00:52:28] Almost real time.

Speaker3: [00:52:29] Yeah. And they're just not real time.

Roger Harris, EA: [00:52:31] We know about it. I mean, even if we engage with our clients every month, do you really worry about their driver's license renewal date or. And someone told me that the system, if you put a form in with a date, that the system will alert you to when the expiration.

Speaker3: [00:52:49] Your expiration date.

Roger Harris, EA: [00:52:50] But to your point, if they get married or moved, the system isn't going to know that. So it can alert you to everything. So it's I understand the reasoning behind it. There's a lot of money laundering done through small businesses and the IRS, not the IRS. Fincen is trying to get information, but we don't have a lot of experience in FinCEN. Doesn't seem to be as user friendly as the IRS, which is hard to say.

Annie Schwab, CPA: [00:53:15] No. I was actually impressed with the compliance guide in the FAQs because yeah, they're trying. In the past, what I've done have I? You know, what I've done with FinCEN has been pretty not user friendly, let's say. Yeah, just kind of dated slow. But they've.

Roger Harris, EA: [00:53:30] Never tried to have never been forced to have to implement something that impacted this many people, this.

Annie Schwab, CPA: [00:53:36] Many people.

Speaker3: [00:53:37] And.

Roger Harris, EA: [00:53:37] Just the education process, the implementation process, the monitoring process, all those things are are. Something that I think they haven't had to deal with before. So hopefully Congress will step in, give us a delay understanding what the goal is, what they're trying to prevent, and but find a workable solution that because I'm afraid small businesses could find themselves just out in the cold and having to fend for themselves, because we're not going to do it because we're not going to accept the liability. I've heard some attorneys aren't even willing to do it. So.

Annie Schwab, CPA: [00:54:12] Well, I have seen a lot more news coverage, articles, written discussions. I've gone to several conferences in the last couple of months. There is a lot more talk about it because it's getting so close. But I still feel like, you know, five, 10% of this large group I was sitting in still was not aware of what this was. Yeah. So, I mean, it's getting traction, but it's just not.

Speaker3: [00:54:38] Well, it's there's they're.

Roger Harris, EA: [00:54:40] Nowhere near it's not as well known as it needs to be for something like this.

Speaker3: [00:54:45] But exactly. It's getting better. Exactly.

Roger Harris, EA: [00:54:47] So there you thought tax season was over and there was nothing to worry about.

Speaker3: [00:54:51] Well that's right.

Roger Harris, EA: [00:54:53] Sadly. Well, sadly in the sense that it's more for us to do. But you know, it's kind of what keeps us in business is that people turn to us for this and they expect us to have solutions. And for the most part, we can we can solve them. This one's a little challenging because of a lot of unknown questions still to be answered, but.

Annie Schwab, CPA: [00:55:12] We'll keep coming back and telling you what we know.

Speaker3: [00:55:14] Yeah, we'll be back with.

Annie Schwab, CPA: [00:55:15] Some more on year end planning. Tax season kickoffs probably. And of course, we'll continue to keep you updated on anything that comes from as it relates to IRC or beneficial owner information reporting. There's always something for us to talk about.

Speaker3: [00:55:30] Roger. And we've got.

Roger Harris, EA: [00:55:31] Some guests that are going to join us.

Speaker3: [00:55:33] Some oh yeah.

Roger Harris, EA: [00:55:34] Some practitioners who will share their experiences to some people in the legal community who have looked at some of these problems from a different perspective than we do. So we'll try to bring some some extra people. We might even bring somebody from the IRS in here. So you never.

Speaker3: [00:55:49] Know. That'd be cool.

Roger Harris, EA: [00:55:50] But we hope you enjoyed today's podcast. Hope you found it beneficial. Hope you will tell others about this podcast.

Speaker3: [00:56:00] And yeah.

Roger Harris, EA: [00:56:01] Any any last words?

Annie Schwab, CPA: [00:56:03] No, just hang in there. I know it feels like you should be given a reprieve for several weeks, but, you know, stay productive, take some time for yourself, but stay productive and we'll be back.

Roger Harris, EA: [00:56:16] We'll be back with another federal tax update podcast soon. Thank you, Annie, for as always, for for your wise advice. And thank you for listening. And we look forward to connecting again soon on another federal tax update podcast. Bye everyone.

Speaker3: [00:56:33] Thanks.