What the martian can teach salesFinal regs. issued for clean energy credit transfers Source: Journal Of Accountancy News Published on 2024-04-25What the martian can teach sales

The IRS set out rules and definitions for the transfer of various clean energy tax credits in final regulations (T.D. 9993) issued Thursday under Sec. 6418. The final regulations include specific rules for partnerships and S corporations as eligible taxpayers and transferee taxpayers.

The Inflation Reduction Act of 2022, P.L. 117-169, enacted Sec. 6417, which allows eligible taxpayers to elect to treat certain energy credits as tax payments, and Sec. 6418, which allows eligible taxpayers to transfer those credits to another taxpayer.

For tax years beginning after Dec. 31, 2022, eligible taxpayers can choose to transfer all or a portion of eligible credits to unrelated taxpayers for cash. The unrelated taxpayers can then claim the transferred credits on their tax returns. The cash payments are not included in the eligible taxpayers’ gross income and are not deductible by the unrelated taxpayers. 

The final regulations also describe special rules related to excessive credit transfers and recapture events. Those include rules for determining whether an event has occurred, the effect of the resulting tax impact, and the person responsible for that tax effect.

The energy credits eligible for transfer are the:

  • Sec. 30C alternative fuel refueling property credit;
  • Sec. 45(a) renewable electricity production credit;
  • Sec. 45Q carbon oxide sequestration credit;
  • Sec. 45U zero-emission nuclear power production credit;
  • Sec. 45V clean hydrogen production credit;
  • Sec. 45X credit for advanced manufacturing production;
  • Sec. 45Y clean electricity production credit;
  • Sec. 45Z clean fuel production credit;
  • Sec. 48 energy credit;
  • Sec. 48C qualifying advanced energy project credit; and
  • Sec. 48E clean electricity investment credit.

The final regulations require taxpayers to use a prefiling registration process through an electronic portal in order to transfer a credit. The prefiling registration process must be completed, and a registration number received, for a taxpayer to be eligible to transfer credits. 

The IRS also updated its frequently asked questions webpage based on the final regulations.

The final regulations are effective 60 days after their publication in the Federal Register and apply to tax years ending on or after their publication date. However, taxpayers may choose to apply the transfer rules to tax years ending before that date, as long as they apply the rules in their entirety and consistently.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.

Draft of Form 1099-DA for reporting digital asset transactions released Source: Journal Of Accountancy News Published on 2024-04-23

The IRS, in its release of the draft of the Form 1099-DA for brokers to report digital asset transactions, includes the broad definition of “broker” used in proposed regulations that drew industry ire when issued in 2023.

But that broad definition is not necessarily a cause for concern, said Miles Fuller, senior director of government solutions at TaxBit, a cryptocurrency tax software company, and a former attorney at the IRS. The draft version reflects the language of the proposed regulations, he said.

“They’re just making a form that aligns to what they described (in the proposed regulations),” he said. “They aren’t trying to announce some policy shift in the form.”

The final version of Form 1099-DA, Digital Asset Proceeds From Broker Transactions, will be used to report gross proceeds of digital asset sales and exchanges. The draft version, released Friday, requires brokers to check a box saying whether they are a kiosk operator, a digital asset payment processor, a hosted wallet provider, an unhosted wallet provider, or other.

In the preamble to the proposed regulations (REG-122793-19), posted in the Federal Register in August, the IRS and Treasury explained that the proposed regulations extend information-reporting rules under Sec. 6045 to include brokers who act as agents, principals, or digital asset middlemen to sell digital assets for others. The regulations cover sales or exchanges of digital assets for cash, broker services, and property of a type that is subject to reporting by the brokers. The proposed regulations also extend the reporting rules to brokers who effect, on behalf of customers, payments of digital assets associated with payment card and third-party network transactions subject to reporting under Sec. 6050W.

The proposed regulations also clarified that the definition of broker for purposes of Sec. 6045 includes digital asset trading platforms, digital asset payment processors, certain digital asset hosted wallet providers, and persons who regularly offer to redeem digital assets that were created or issued by that person.

At a public hearing in November 2023, crypto industry advocates said the definition of broker stretched the statutory definition “beyond the breaking point” and adds to security and privacy concerns.

The draft form mainly means one thing — that the process is still moving, Fuller said. “The fact that a (draft) form is out now means we are closer to getting final regulations than we thought last week,” he said. “I don’t know that the form has any indication of what’s going to be in the final regs.”

The same thinking applies to the box on the draft form for wallet addresses, which was another big concern for the crypto industry, he said. If that box was not on the form, then people would think that the IRS was not going to require wallet addresses, he said.

The crypto reporting regulations came in response to amendments to Sec. 6045 made by the Infrastructure Investment and Jobs Act, P.L. 117-58, which was signed into law in November 2021. The IRS originally estimated that the regulations would affect 13 million to 16 million owners, a figure that the Service acknowledged could be low, along with up to 9,500 brokers. However, an IRS official said last year that the Service estimated it would receive 8 billion Form 1099-DA information returns.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.

IRS has mixed results from ‘ghost employer’ enforcement efforts Source: Journal Of Accountancy News Published on 2024-04-22

The IRS’s first attempts to rein in abuse by “ghost employers” — those who pay their workers but do not pay employment tax and federal payroll income tax withholding — had some success, and the Service should ramp up its pursuit, the Treasury Inspector General for Tax Administration (TIGTA) said in a recent report. TIGTA says the IRS has difficulty spotting ghost employers because it will have no record of them if they never file returns.

“Ghost Employers present a significant vulnerability to tax administration, as their scheme cannot be detected by existing IRS enforcement streams,” TIGTA said in its report, Criminal Investigation Had Success With Ghost Employers, While Civil Enforcement Efforts Can Be Improved (TIGTA Rep’t No. 2024-300-019 (April 12, 2024)). “Accordingly, it is important for the IRS to assess the risk that Ghost Employers pose to tax administration.”

While employment tax fraud takes several forms, including paying workers in cash to avoid a paper trail of payments, the most egregious ghost employers withhold taxes from employees but do not file employment tax returns and do not make federal tax deposits, the report said.

These unpaid taxes potentially have a big impact on the tax gap, the difference between taxes owed and taxes paid. Taxes paid by employers accounted for about 65% of total tax receipts in 2022, so when they “ghost” employees and Treasury, their actions can have a big impact on the federal government’s bottom line, the report said. Of the total 2022 tax receipts of $4.9 trillion, employment taxes and federal payroll income tax withholding were $3.18 trillion, the report said.

The IRS’s first coordinated and systemic approach to tracking down ghost employers started in November 2017 when the IRS Criminal Investigation (CI) unit began trying to match Forms W-2, Wage and Tax Statement, attached to Forms 1040, U.S. Individual Income Tax Return, with the IRS’s payroll tax Forms 941 database to verify whether the corresponding payroll taxes had been filed and paid.

The outcome: 33 people were prosecuted for employment tax fraud, resulting in about $43.6 million in total restitution. Another 136 cases remained active as of May 2023, the report said, pointing out that “the workload and labor time needed to develop these cases are significant.”

The IRS’s civil enforcement effort, which it calls the Ghost Employer Project, was less successful, TIGTA said. As part of its audit, TIGTA requested a status update on 280 cases that had been selected randomly to be reviewed by the Small Business/Self-Employed Division field collection and examination functions.

TIGTA received a spreadsheet that had limited information pertaining to only 178 cases and confirmed that this was the only supporting documentation available.

“Based on our review of the project, we found only seven cases involving potential ghost employers,” the report said. “While several cases are still being worked, including eight by CI, we believe that the Ghost Employer Project resulted in limited success in identifying significant noncompliance activity by ghost employers.”

The Ghost Employer Project faced problems caused by the COVID-19 pandemic and ended in May 2022, even though many cases were still being worked, TIGTA said. It urged the IRS to continue to pursue civil penalties against ghost employers.

“One of the key indicators of fraud that the courts focus on is the failure to file returns,” TIGTA wrote. “For ghost employer cases, the consistent development and proper application of civil fraud penalties will help reduce this activity by imposing tangible economic consequences on taxpayers that engage in those transactions.”

TIGTA made four recommendations: refinements to filters to improve the identification of ghost employers; improved tracking of enforcement actions; addressing recommendations from the Ghost Employer Project team; and reminding collection employees to refer ghost employer cases to examination for potential assessment of civil fraud penalties.

The IRS agreed with all four recommendations.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.