“In the next 90 days, we’re going to see an election that could reshape tax policy, the potential expiration of major tax provisions, and the deadline for a new reporting requirement that affects millions of businesses. Welcome to the world of tax law in 2024, where the only constant is change.”
These words from host Roger Harris, EA, in a recent Federal Tax Updates podcast capture the challenges facing tax professionals today. Roger and co-host Annie Schwab, CPA, cover the latest developments.
In Roger and Annie’s view, tax professionals need to take a three-pronged approach to serving clients in this environment: continuous learning to stay ahead of changes, robust client communication to manage expectations and provide clarity, and adaptive planning to prepare for various scenarios.
The Uncertain Future of Tax Legislation
The tax world is bracing for a seismic shift as the Tax Cuts and Jobs Act (TCJA) provisions expire at the end of 2025. This looming deadline creates a buzz of activity in Washington, with Democrats and Republicans gearing up for negotiations.
Annie notes, “We’ve got both the Republicans and the Democrats getting ready for this. With so many Tax Cuts and Jobs Act provisions set to expire at the end of the year, there’s going to be a lot of negotiations.”
But Roger notes tax professionals shouldn’t hold their breaths. “Nothing is realistically going to happen that doesn’t have to happen from a calendar standpoint, because right now the election’s been thrown up in the air. You’re going to hear a lot of things talked about in a campaign, but that doesn’t always translate into real action.”
For tax professionals, this uncertainty underscores the importance of the first two prongs of our strategy: continuous learning and robust client communication. Staying informed about these developments is crucial, but equally important is translating this information into clear, actionable guidance for clients.
One key area of focus in these negotiations is the child tax credit. As Roger explains, “Even today, there was another bill that attempted to expand the child tax credit again. So what you’re seeing is that clearly, one part of anything that happens is going to be to expand that child tax credit because that gets support on both sides of the aisle.”
Annie points out the potential for a divided government, which could make it harder to pass new legislation or extend existing provisions.
This is where the third prong of our strategy comes into play: adaptive planning. Tax professionals must develop flexible strategies that can adapt to various potential outcomes. This might involve:
- Scenario planning with clients, outlining how different legislative outcomes could impact their tax situation.
- Identifying opportunities for clients to take advantage of current provisions before they potentially expire.
- Developing contingency plans for various potential changes to the tax code.
Tax professionals can provide guidance in uncertain times by staying ahead of these changes and helping clients prepare for various scenarios. This proactive approach helps clients navigate potential changes and positions the tax professional as a trusted advisor in an ever-changing landscape.
Mastering Evolving Compliance Requirements: The ERC Case Study
The Employee Retention Credit (ERC) program is a perfect case study for the rapidly evolving nature of tax compliance requirements. Recent updates to this program highlight the need for tax professionals to stay vigilant and adaptable, especially when advising small businesses.
As Roger explains, “The IRS reopened the voluntary disclosure program for 2021 ERC claims until April 15, 2025.” This program allows businesses to pay back 85% of the claim amount instead of the full 100%, allowing those who may have claimed the credit erroneously to rectify their situation.
The IRS has also taken a more proactive approach in processing claims. Annie notes, “They’ve identified 50,000 valid ERC claims and they’re starting to process the payments. They’re low-risk claims.” Conversely, the IRS is sending letters to approximately 28,000 taxpayers denying improper claims. Then there are all of the claims that fall somewhere in the middle, and they’ll need more time for investigation.
This is another opportunity to bring our three-pronged strategy into focus:
- Continuous learning. Stay current on ERC updates, IRS announcements, and changes in claim processing procedures.
- Proactive client communication. Clearly explain the implications of these changes to clients. For example, discuss the voluntary disclosure program and help clients assess whether they should consider participating.
- Adaptive planning. Develop strategies to help clients navigate potential financial impacts. This might involve creating contingency plans for businesses needing to repay ERC funds or adjusting financial projections for those awaiting claim processing.
Preparing for New Reporting Requirements: The BOI Challenge
The Beneficial Ownership Information (BOI) reporting requirement, part of the Corporate Transparency Act, is another new compliance challenge for small businesses. This requirement, which is not an IRS initiative but falls under the purview of the Financial Crimes Enforcement Network (FinCEN), caught many business owners off guard.
Roger highlights the scale of this challenge: “The way the law is written, if it goes into enforcement, there’s roughly 32 million businesses, nonprofits, homeowners associations, and other entities registered with the states that would have to file this form. Only about 2 million have actually done it.”
This low compliance rate signals a lack of awareness among small business owners about this new requirement. It also presents a critical opportunity for tax professionals to provide value through education and guidance.
BOI reporting is complex. Determining who qualifies as a beneficial owner can be challenging, especially in complex business structures. For example, Annie notes, “Even if you don’t own a percentage of the company, but you have, let’s say, rights over signing on a bank account, you’re actually considered a beneficial owner.” This level of nuance can be overwhelming for small business owners to navigate independently.
What’s more, the potential penalties for non-compliance are severe, including fines of up to $10,000 and potential jail time. This high-stakes situation also calls for our three-pronged strategy:
- Continuous learning. Stay informed about FinCEN’s latest BOI requirements and any changes or clarifications. This might involve attending FinCEN’s business community outreach programs or monitoring their website for updates.
- Proactive client communication. Educate clients about the BOI requirement, its implications, and the steps they must take to comply. This could include creating a BOI compliance checklist or hosting informational webinars.
- Adaptive planning. Help clients develop processes to track beneficial ownership information and comply with ongoing reporting requirements. This might involve creating templates for clients to easily update their beneficial ownership information or setting up regular check-ins to ensure ongoing compliance.
However, tax professionals must also be aware of the potential risks in assisting with BOI reporting. As Roger points out, “Many professional liability insurance companies won’t cover you doing it.” Tax professionals need to clearly define the scope of their services and seek legal counsel to understand their liability in assisting with BOI compliance.
Conclusion: Embracing Change in the Tax Landscape
As we’ve explored, the world of tax law and compliance is constantly in flux. Tax professionals face many challenges from the uncertain future of the Tax Cuts and Jobs Act provisions to evolving Employee Retention Credit rules and the introduction of new reporting requirements like Beneficial Ownership Information.
We encourage you to listen to the entire Federal Tax Updates podcast episode to gain more insights on navigating this ever-changing tax landscape. You’ll hear detailed discussions on these topics and gain valuable perspectives from industry experts. Don’t miss this opportunity to stay ahead of the curve and enhance your ability to serve your clients.