Thanks, IRS, for Another 1099-K Threshold Delay

TXCPA has kept members informed of the Form 1099-K threshold change from the American Rescue Plan Act of 2021. The $600 reporting threshold for third-party payment services was postponed late last year and again last week. Thank you, IRS.


In Notice 2023-74, the IRS pushed back the $600 reporting mandate. As a result, reporting by third-party payment services on a Form 1099-K is not required unless the taxpayer receives over $20,000 with more than 200 transactions in 2023.


The tax professional community is relieved. However, most taxpayers are unaware of the 1099-K storm that was averted.


Although the relief was granted around the Thanksgiving holiday, this decision was self-serving. The IRS just is not ready to receive 44 million 1099-Ks in the coming months.


The agency will treat 2023 as an additional transition year with a phase-in threshold increase to $5,000 for tax year 2024 while inviting feedback. 

TIGTA’s Response to IRS’ 85% Level of Service Rate: Not So Fast

The tax professional community has been both confused and encouraged to see that, in numerous reports, the IRS announced meeting the Secretary of Treasury’s goal of better service to taxpayers. In its Filing Season 2023 Report Card (April 17, 2023), the IRS showed a vast improvement in customer service during the 2023 filing season:


  • Average 85% level of service (LOS), callers able to speak to a telephone assistor,
  • Average call wait time of five minutes or less, and
  • Average 95% call-back availability.


A recent report from the Treasury Inspector General for Tax Administration (TIGTA) shows that these IRS numbers are misleading.


TIGTA’s report indicates that the IRS call data is “only based upon 35 telephone lines” used to calculate its LOS performance metrics. The IRS has 102 taxpayer-facing phone lines.


TIGTA made test calls between March 10 through March 14, 2023, to evaluate the 102 telephone lines. The results were markedly different. TIGTA saw a much lower LOS, 30-minute hold times and around 50% call backs.


The IRS’ reply to TIGTA was that the 35 phone lines used in the estimate are funded by the Taxpayer Services appropriation while other phone lines are funded from other appropriations and not included in the batch.  


This week, the IRS reported its expectation of another 85% LOS average for the 2024 filing season. Unfortunately, a reliance on this measure causes the weaknesses in the overall taxpayer experience to go unaddressed.


Actions Are Needed to Improve the Quality of Customer Service in Telephone Operations (


IRS achieves key Paperless Processing Initiative goal, outlines improvements for filing season 2024 | Internal Revenue Service

Grammarly—Artificial Intelligence to Improve Your Writing

William Stromsem, J.D., CPA, George Washington University School of Business


We all take pride in our written communications to clients and others. But if you reviewed this first sentence using Grammarly, you might find that it needs improvement. 


  • Drop the “all”—unless you say “you all” or “y’all” in your client communications. “All” is assumed unless you want to add words to limit the meaning of “we.”
  • We do not really “take pride”—that’s known as a false verb. (By the way, we do not really “take depreciation” either, but this false use of a verb has crept into our vernacular and is fairly accepted.)
  • We do not communicate to clients and others; we communicate with them—unless you want to give the impression that only a one-way communication is intended. 
  • We can shorten “clients and others” because if we are including others, there is no limit to the people we are communicating with, so clients are already included. 


The final sentence could be rewritten in several ways, but Grammarly will suggest for you—possibly, “We are proud of our writing.” 


If you followed the comments in the preceding paragraph, you can see that effective business writing is complex, requiring a knowledge of grammar and writing style. Writing style should be trim, appreciating the time of the reader and communicating efficiently. You might want to frame a quote for your office wall from Antoine de Saint-Exupéry, Perfection is achieved, not when there is nothing more to add, but when there is nothing left to take away.”


You might already know grammar rules if you had paid more attention back in high school English class (whoops, another false verb), but accounting students rarely have a writing course after that. Or you may have become a better writer from past experience. (“Past” is redundant—what other type of experience can we have?) But for those who do not write confidently, TXCPA has several CPE webcasts on writing and communications skills. AICPA offers a couple effective business writing courses, as well. And a great new way to strengthen your writing is with the inexpensive artificial intelligence tool, Grammarly.


Grammarly is more than a spell-guard or grammar-guard. It reviews spelling, grammar and punctuation, but it also suggests improvements for clarity and writing efficiency. It can use artificial intelligence to add related substantive points to your writing. Grammarly can be used as you write or when you have a finished draft, and it suggests possible replacement language that you can accept or dismiss. You can set the tone and style for the communication. You can set the level of formality from casual to formal and the tone to be personable, confident, direct, empathetic, engaging or witty. Grammarly is a great, non-judgmental editor that never gets tired as it reviews each sentence without glazing over. Grammarly will evaluate your draft for correctness, clarity and conciseness, and level of engagement with vocabulary and variety. As you continue to use Grammarly, you will become a more confident writer.     


You can try Grammarly for free but will likely want to migrate to the Premium or Business versions that are inexpensive in relation to the benefit to you and your firm. More information and a free trial are available here.


Many of you probably write better than me, but please do not send me edits—I’ve tried to write an informative article that is written real good. (Final sentence not reviewed by Grammarly.)  

TXCPA Committee Calls on FinCEN to Delay BOI Filing Deadline for All Entities by One Year

The TXCPA Federal Tax Policy Committee, chaired by David Colmenero, J.D., LL.M., CPA-Dallas, responded yesterday to the FinCEN Notice of Proposed Rulemaking regarding the Beneficial Ownership Information (BOI) reporting that is scheduled to begin Jan. 1, 2024. FinCEN’s proposal temporarily extends from 30 days to 90 days the filing deadline for certain reporting companies to file initial BOI reports.

TXCPA’s Federal Tax Policy Committee suggests that the filing deadline for all existing entities be delayed one year until 2025, the 90-day deadline for new entities be made permanent and the period for reporting subsequent events be extended to at least 90 days, as well.

The BOI reporting, which is currently scheduled to begin Jan. 1, 2024, will require an estimated 32 million existing small businesses to disclose their beneficial owners to FinCEN, with five to six million new business entities required to disclose annually going forward.

Read comments letter here.

Foreign Gift and Inheritance Trap

Janet C. Hagy, CPA-Austin


Knowing that gifts and inheritances are tax-free, many clients fail to advise their CPAs about such receipts. Be sure to include a question about gifts and inheritances from foreign sources in the annual client questionnaire or due diligence checklist. 


Generally, U.S. persons receiving total 2023 gifts or inheritances from foreign individuals in excess of $100,000 or from foreign corporations or partnerships in excess of $18,567 must file Form 3520 by the due date of taxpayer’s return. The penalty for failure to file Form 3520 to report such gifts and inheritances is 5% of the unreported value for each month that passes with a maximum penalty of 25%.


The rules for distributions from foreign trusts are different and complex. Form 3520-A must be filed or extended by the 15th day of the third month after the end of the trust’s tax year.


Reminder to U.S. Owners of a Foreign Trust | Internal Revenue Service (

Helping a Client Who Fell for an ERC Scam

William Stromsem, CPA, J.D., George Washington University School of Business


Because of a flood of new and potentially dubious claims for the pandemic relief Employee Retention Credit (ERC), on Sept. 14, the IRS announced a moratorium through the end of the year on processing new claims. It has also stepped-up enforcement activities in this area. 


Scam Promoter Tactics


Your client may have been seduced by a promoter in a direct mailing, telephone solicitation or other advertising. These can be persuasive, and the IRS has identified warning signs of aggressive marketing tactics used, including claims of special expertise, an “easy application process,” and quick and generous refunds. The promotion may tell the taxpayer that he or she has nothing to lose by claiming the credit. All these claims are at least exaggerated if not entirely false.      


IRS Responding Aggressively


The IRS has added phony ERC claims to its "Dirty Dozen" list of tax scams and has stepped up audits and enforcement activities. On July 25, IRS Commissioner Werfel said the agency is increasing scrutiny on dubious submissions, intensifying compliance work and adding procedures to deal with promoter fraud schemes. See details in IR-2023-135.


Helping Your Client


ERC promoters may have told clients that they have nothing to lose by claiming the credit, but that is not true. If the claim is not legitimate, the client will have to repay the credit amount with interest, and the IRS may assess penalties that can be severe, particularly if the claimed amounts are significant and the client was negligent or even complicit in the false claim. In some cases, the promoter may not have signed the return with the false claim, leaving only the taxpayer responsible for the issue.


Your client may be embarrassed to admit to falling for the scam and for using another person for tax services. The first you may learn of the issue is when the taxpayer approaches you after receiving a letter from the IRS that it is looking at the ERC claim. You may need a little sympathy for the client as a victim who needs your help. When your client receives an IRS letter, a fast and effective response may help minimize exposure to penalties. If a review of whatever has been submitted creates a potential problem for your client, in October, the IRS provided a Fact Sheet on how businesses can withdraw an ERC claim. Withdrawing the application could help portray your client as a misled victim and help avoid some penalties for more egregious conduct.        


You may have clients who have fallen for an ERC scam but have not yet received letters and reached out to you. Again, prompt and effective actions may help avoid penalties, so consider proactively addressing the issue in client newsletters or other communication to advise them to consult with you about any claims that they have filed or that they are considering filing. The IRS is advising clients to do just that—to seek help from a trusted tax professional and not to go back to the original promoter.


If your client is legitimately entitled to the ERC, you can offer to prepare the claim forms. However, with the IRS sensitivity to abuses and likelihood that the claim will be reviewed, some extra due diligence by you might be wise. Your client should understand that you are preparing a quality product for a fair fee, and that this is different from the boilerplate, one-size-fits-all applications and percentage of refund contingent fees that are offered by ERC mills. But with your services, hopefully the client will be able to sleep better at night.  


‘As if they were never filed’: IRS outlines steps to withdraw ERC claims - Journal of Accountancy

Tax Practitioner Responsibilities in Planning for His or Her Death or Disability

William Stromsem, CPA, J.D., George Washington University School of Business


In your firm planning for death or incapacitation of an owner, owners will want their families to receive the benefits of their life’s work and will want the firm that they built to continue without a major disruption. Part of a firm’s smooth continuity is in serving clients and in fulfilling professional responsibilities to the tax system. This article deals briefly with succession planning and then covers some best practices under Circular 230 to serve clients in a professionally responsible manner.       


Succession Plans


When was the last time you reviewed your firm’s plans in case of an owner’s disability or death? No one likes to dwell on these events, and we all like to think that we will enjoy many years of retirement before becoming incapacitated or dying. However, it has probably been years since you updated the governing agreements for your firm or since you updated your estate plan. Your business is one of your most valuable assets and one of the great accomplishments of your life, and you want to be sure that your family will receive what you have earned and that your firm can continue serving clients as smoothly as possible without you. Benjamin Franklin, who is often quoted about the certainty of death and taxes, also said that “By failing to prepare, you are preparing to fail.”


Hopefully, your firm has a well-drafted formal succession plan that covers disability, death, divorce, retirement, sale of an interest and other possible contingencies. If not, you need one, and if so, you might want to update it for any changed circumstances. For example, if your firm used a fixed rate for capitalizing income to determine the value of your share, that rate may be out of date with today’s expected return on investments. Or members of the firm may have become divided on an important issue so that the death of a partner might shift the balance of power to affect governance of the partnership going forward. Firm succession planning can be stressful, but it is likely fairer and less difficult than just crossing your fingers and hoping that there will not be any problems.   


If you are a sole practitioner, you don’t have co-owners to work with and generally will deal with succession in your estate plans rather than having a formal succession plan. However, you might want to set up directions in advance or discuss matters with family members to help them settle your business affairs. You could advise on who might (or might not) be a good purchaser of the practice, who might provide legal assistance, how to avoid the unauthorized disclosure of client information by your executor and other matters.


If there is enough advance warning, you might arrange another CPA to wind up your practice when you are unable to proceed. If you employ family members in the firm, there may be conflicting expectations as to who will be in charge when you are gone, and you may want to communicate with family members in advance or leave a letter explaining the disposition of your firm. (Note that a succession plan is an ethical requirement for sole-practitioner attorneys and is required or recommended in many states.)


For LLCs and LLPs, you should review organizational documents with your co-owners and make sure that they still reflect everyone’s intentions. You might have a simulated exercise to see what would happen in various scenarios; e.g., death of an individual owner, simultaneous death of two owners, or a broader disruptive event such as a natural disaster, war or pandemic. After your review, if the documents do not need much adjustment, you can ask an attorney to just update them. If there are disputes as to how things should be handled, an attorney might be brought in to help avoid possible deadlocks by suggesting alternate approaches. The agreement might also provide a way to resolve issues that are not envisioned in your plans and that mechanism could be anything from formal arbitration to a coin toss.   


There are also many details that might be taken care of outside the succession plan to assure a smooth transition. A simple document listing information that your firm will need when you are no longer available should be kept secure until needed and provisions should be made for this to be available to any successor. This document might help avoid the need for the firm to gather a week after a partner’s death to hold a séance to ask for usernames and passwords. 


Professional Responsibilities to Your Clients and the IRS


IRS Circular 230 does not provide standards for a practitioner in planning for the death or incapacitation, but Section 10.33 encourages general best practices, and on June 27, the IRS Office of Professional Responsibilities provided some relevant best practices in Bulletin 2023-05 that may help protect our firms, our clients and our families.


In addition to a succession plan, such as described above, the Director of Practice suggests a variety of best practices:


  • Regular client communications will help make an easier transition, and an engagement letter or other communication might address potential transition issues to help prepare everyone.   
  • Engagement letters should address the disposition of client records at the end of the engagement, including the firm’s policy for destroying or returning client records and any purposes for which the records might be retained by the firm. Section 10.28 of Circular 230 requires that client records be returned on request and any successor practitioner would have a similar obligation.
  • Data security and privacy plans will help prevent the unauthorized disclosure of any client tax information that is retained by the firm. (See two IRS publications IRS Pub 4557 Safeguarding Taxpayer Data and IRS Pub 5293 Protect Your Clients; Protect Yourself, Data Security Resource Guide for Tax Professionals.
  • Procedures should be established for transferring a client’s information within the firm or to another firm, and the client should be involved in any decisions. Succession, data security and privacy plans might be communicated in general terms with the client as needed.
  • Procedures should be in place to notify a client of a death or incapacity of the practitioner.
  • Client files should be kept up to date with contact information and any pending matters, including important upcoming deadlines if the taxpayer is involved in a controversy with the IRS.
  • Your engagement letter might include the possible need to authorize alternate practitioners to receive tax information and represent the client, with Forms 2848 and 8821 promptly executed when needed.
  • Client files should be encrypted with passwords and provisions should be made to assure that the passwords are available to a successor.
  • Review your succession plans with family members so they are prepared.    
  • A sole practitioner’s plans might consider publication of the closing of the office and the need for clients to seek new representation and request all client materials retained by the firm.
  • Keep copies of files for the deceased practitioner’s estate, as necessary, in connection with potential claims against the practitioner and to help determine the rights to fees and reimbursable expenses.
  • Notify the IRS Return Preparer Office that a practitioner is deceased or became incapacitated so that they can change the PTIN status to deceased or inactive.
  • Notify the IRS CAF Unit to close the deceased practitioner’s CAF number and remove the authorization from all active files.
  • Notify the IRS to close out a sole practitioner’s Employer Identification Number (EIN).
  • The deceased practitioner's firm, the assisting or successor practitioner and the executor or administrator should safeguard any taxpayer information they receive from, or in connection with, the incapacitated or deceased practitioner's practice.


These items are just examples of best practices and more broadly, Circular 230 encourages tax advisors “to provide clients with the highest quality representation concerning federal tax issues by adhering to best practices in providing advice and in preparing or assisting in the preparation of a submission to the IRS.” Best practices may vary from firm to firm and client to client, but practitioners should adapt to try to provide a smooth transition to help clients, firms and families, and to fulfill their professional responsibilities.     


We all like to think that we will live on indefinitely, but you might be writing a blog about firm succession planning and in the middle of an important concluding sentence, you … .  

TXCPA Committee Urges Clarification on SECURE Act Distributions from Inherited IRAs

This week, TXCPA’s Federal Tax Policy Committee asked Senate Finance and House Ways and Means leadership to clarify legislative intent to the IRS on the SECURE Act provision requiring certain IRAs to be fully distributed by the end of the 10th year following the account owner’s death. The committee feels strongly that the IRS has overstepped its authority by requiring annual distributions, an interpretation that is detrimental to taxpayers. Additionally, given the lack of guidance, taxpayers who follow the statutory language and fully distribute inherited IRAs by the end of the 10th year should not be penalized until this matter is resolved.  

Read the letter.

New Notice on Treatment of Section 174 Expenditures

Tom Ochsenschlager, CPA, J.D.


The Tax Cuts and Jobs Act (TCJA) repealed the ability to expense “specified research and experimental” (SRE) expenditures for tax years ending after Sept. 8, 2023. Generally, the TCJA will now require that the SRE expenditures be capitalized and amortized rather than currently deducted.


The IRS recently issued Notice 2023-63 detailing how the IRS will implement this new requirement. Keep in mind that Notice 2023-63 is not a fix to the current law Section 174 amortization treatment.


Amortization Period


The Notice specifies that the amortization period for domestic SRE expenditures is 60 months and 180 months for foreign SRE expenditures.


SRE Expenditures


Any expenditure for the development or improvement of a product or component of a product including labor cost, materials, depreciation of equipment used in development or improvement, overhead and travel expenses, and any cost incurred to secure a patent for the product and overhead expenses.


  • Labor costs include virtually all compensation related to employees or owners in proportion to their work on the project, including payroll taxes, pension costs and sick or vacation pay.
  • Overhead expenses allocated to the SRE expenditures include a proportion of rent, utilities, insurance, taxes, repairs and maintenance, and security cost. An appropriate approach to allocate these expenditures might be based on the proportion of the square footage used for development of the SRE.


Excluded from the list of expenditures that must be capitalized are expenditures that only indirectly affect the development of the SRE, such as human resources, interest expense or training employees how to use the new development. 


Also excluded are any costs (including those listed above) where the development of the SRE is for an unrelated party and the developing entity does not have title to the product and does not have the right to use the developed property. In such a case, the taxpayer developing the SRE can expense the development costs. 


If the SRE is Sold or the Developer No Longer Exist


If the SRE product is sold or the product is no longer used, the entity that developed the product must continue to amortize the expenditures incurred in the development of the product.


Where the developing entity no longer exists, the developing entity can deduct the remaining SRE expenditures in its final year. However, if the developing entity ceases to exist due to a transaction where its ownership or assets are acquired in a transaction described in IRC Section 381, then the acquiring entity is required to continue the amortization of the development costs.


Notice 2023-63: Guidance on Application of Section 174 - KPMG United States

IRS Notice Provides Guidance on Section 174 Capitalization: PwC

Supreme Court to Decide Whether Unrealized Income Can Be Taxed

William Stromsem, CPA, J.D., George Washington University School of Business


In December, the Supreme Court will hear a Ninth Circuit case that held in favor of the government when it taxed income before a realization event, specifically the “transition tax” on unrepatriated accumulated earnings. In Moore v. United States, the Moores were minority shareholders in a controlled foreign corporation (CFC) that realized income but reinvested earnings in the foreign country. The government has agreed that the Moores never received a dividend or other corporate distribution. 


IRC Section 965 generally requires U.S. shareholders to pay a one-time transition tax on the accumulated foreign earnings of a CFC – earnings that had not been repatriated to a U.S. taxpayer in the form of a dividend or other taxable distribution. This was part of the anti-deferral regime enacted by the Tax Cuts and Jobs Act of 2017 to encourage repatriation of earnings to the U.S. to build capital and create jobs here instead of in foreign countries where the earnings were taxed at a possibly low rate in the source country.


The Constitutional problem comes from prior Supreme Court cases defining income. In Eisner v. Macomber, 252 U.S. 189 (1920), the Court held that a shareholder who had not received cash or other property had not received income that could be taxed under the Sixteenth Amendment. Since then, court cases have consistently held that for income to be taxed, there had to be a realization event. However, the Ninth Circuit said that "realization of income is not a constitutional requirement." 


This sets the stage for a variety of other possible efforts to tax income of high-net-worth individuals, such as proposals for a “wealth tax” on net worth or a “mark-to-market” tax on appreciated assets. Also, the new 15% corporate minimum tax on book income of large corporations may not have a realization event for tax purposes.