Reining in the ERC, and other major developments at the IRS

September 4, 2024 6:00 AM

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Since the introduction of the Inflation Reduction Act more than two years ago, the Internal Revenue Service has been hard at work putting the increased funding towards a range of initiatives, including improving services like its Business Tax Account and other programs. As the pace of new guidance and regulations increases, tax professionals are keeping a close watch on what's coming next.

Legislation like the IRA has combined with growing consumer interest in digital assets, pandemic relief measures and other market factors into a force driving the IRS to issue fresh guidance. This regulatory clarity helped erase some of the uncertainty regarding increased compliance burdens.

Tom O'Saben, director of tax content & government relations at the National Association of Tax Professionals, said the IRS's quickened pace this year has highlighted the importance of staying current with filing standards.

"Clients rely on tax professionals to navigate complex, ever-changing tax laws," O'Saben said. "Staying updated with IRS guidance is essential for ensuring that tax returns are accurate and compliant with the latest regulations. Tax professionals must know new rules, interpretations and deadlines to avoid errors and penalties."

The upcoming presidential election has brought its fair share of challenges as well.

Practitioners have been looking for ways to gauge what each administration could yield for the tax landscape, and are closely scrutinizing the past efforts of both Kamala Harris and Donald Trump to see how they've addressed issues in the past. This lens extends to both candidates' running mates as well.

With the Tax Cuts and Jobs Act, taxes on tips, clean-energy tax credits and more all hanging in the balance, the future is still uncertain.

"Based on what I have heard [and] read about 'Project 2025,' a new administration would want to replace experienced government personnel with people whose primary responsibility would be to the chief executive, regardless of their background, training and experience," said Neil Fishman, former president of the National Conference of CPA Practitioners and owner of Fishman Associates CPAs.

Others, like Stephen Mankowski, owner of the Pennsylvania-based accounting firm Mankowski Associates CPA, and current co-chair of the National Tax Policy Committee at NCCPAP, feel that the fate of the IRS' path forward rests not with the White House but with Congress.

"Regardless of the administration, we can only hope that Congress ensures adequate funding for the IRS to modernize their systems and continue to enhance the overall taxpayer experience. … It is with these changes where the IRS can have the biggest impact on taxpayers and tax professionals," Mankowski said.

Read on to find out more about the latest guidance and procedure changes out of the IRS and what they mean for the industry at large.

IRS enhances Business Tax Accounts

The IRS is expanding its Business Tax Account services for eligible taxpayers to facilitate online payments and support Spanish translations of the accounts.

BTA was launched last fall by the IRS as part of a broader service improvement campaign funded by the Inflation Reduction Act. In addition to making payments, experts with the agency say that business taxpayers will be able to view their tax history and relevant notices, add powers of attorney, and interact further with the IRS once the BTA is in its final stages.

Filers able to activate and use the BTA service range from sole proprietors with an IRS-issued EIN and an individual partner or individual shareholder with both an Social Security number or ITIN and a K-1 on file (for partners, from 2012-2023; for shareholders, from 2006-2023).

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IRS adds payments, Spanish to Business Tax Account

Application period for CAP to open soon

Prudential regulators with the IRS are scheduled to open the application period for its Compliance Assurance Process program in September.

Starting Sept. 9 to Oct. 31, corporate taxpayers seeking to resolve issues with the IRS can apply to the CAP program, but must have assets of $10 million or more, not be currently under investigation by other federal entities that impede the agency's access to up-to-date tax records and meet other eligibility requirements.

Publicly traded and private entities in the U.S. can apply, but must respectively file different forms such as 10-Ks, 10-Qs and audited financial statements.

The CAP program, according to the agency, began as a pilot program under the IRS's Large Business and International division in 2005 and became a permanent fixture in 2011. The program was recalibrated in August 2018, and has continued to evolve since then with new eligibility requirements and features.

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Applications start soon for IRS's Compliance Assurance Process

New guidance on matching contributions for student loan payments

Employers can now match employee contributions to retirement accounts based on their student loan payments, according to new guidance from the IRS.

Under Section 110 of the SECURE 2.0 Act of 2022, employers that offer 401(k), 403(b), 457(b) or SIMPLE IRA plans have the ability to create a matching contribution scale based on payments to student loan providers, rather than a flat percentage dependent on contributions to the retirement accounts themselves.

The notice issued by the IRS applies to plan years that begin after Dec. 31, 2024, but plan sponsors "may rely on a good faith, reasonable interpretation of Section 110 of the SECURE 2.0 Act," according to the language in the notice.

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Guidance issued on matching contributions for student loan payments

How the IRS is working to fix a $1B ERC claim disparity

The IRS is gearing up to mail roughly 30,000 letters as part of a campaign addressing more than $1 billion in incorrect Employee Retention Credit claims.

Announced in August, the agency is capitalizing on the reopening of its voluntary disclosure program by encouraging errant claimants to come forward for corrections at a 15% discount and without accrued penalties or interest. The program will run until Nov. 22 and is only for those that received ERC payments during tax periods in 2021.

"The push by promoters flooded the IRS with questionable ERC claims, which clogged our systems and slowed work," IRS Commissioner Danny Werfel said in a press release. "We recognize well-meaning businesses are caught up in this, and we are taking important steps to help them. This includes reopening the voluntary disclosure program as well as getting more payments out to qualifying businesses."

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IRS reopens voluntary disclosure to fix $1B in ERC claims

IRS pens new data security plan for tax pros

Following increased hacking attempts across the financial services landscape, the IRS collaborated with Security Summit partners to build a revised 28-page Written Information Security Plan for addressing cybersecurity vulnerabilities across the industry.

The updated WISP is designed for tax professionals at various levels, but emphasizes smaller practices that tend to be the most vulnerable for data breaches. As well as new additions like establishing best practices for multifactor authentication, the guide provides a rudimentary framework for those seeking to draft their own WISP.

"It's more important than ever for tax pros to protect their data, passwords and other information," said Kimberly Rogers, director of the IRS Return Preparer Office and co-chair of the Summit's Tax Pro Working Group, in a statement. "The updated Written Information Security Plan is a result of months of work by tax professionals across the country."

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IRS updates information security plan for tax pros