In this joint episode, Neil Amato, host of the JOA podcast and Melanie Lauridsen, VP of Tax Policy and Advocacy for the AICPA discuss recent updates on three key tax topics: the Employee Retention Credit (ERC), Beneficial Ownership Information (BOI) reporting, and a member survey about IRS performance during tax season. Melanie highlights the IRS’s recent actions and proposed regulations regarding ERC, the implications of BOI reporting requirements, and the mixed feedback from AICPA members on IRS service improvements.

 

AICPA resources

AICPA Employee retention credit guidance and resources — Access resources providing the latest updates on the employee retention credit (ERC).

Beneficial ownership information (BOI) reporting resource center — Access resources to learn about the beneficial ownership information reporting requirement under FinCEN’s Corporate Transparency Act (CTA).

Transcript

Neil Amato: Welcome back to the Journal of Accountancy podcast. This is Neil Amato with the JofA. I'm joined again by Melanie Lauridsen, Vice President–Tax Policy & Advocacy for the AICPA. This is a special collaboration episode between the JofA podcast and the Tax Section Odyssey podcast.

Again, welcome back. Melanie Lauridsen is our guest. She is a repeat guest. Melanie, today, as we record, it's early July, and we're going to focus in particular on three topics: The employee retention credit or ERC, beneficial ownership information reporting or BOI reporting, and then a member survey about IRS performance in tax season.

It sounds like there have been more than a few updates recently on those topics. Let's dive in. ERC first: What's the latest from the IRS and what does that mean for our members?

Melanie Lauridsen: Neil, thanks for having me back and yeah, there definitely have been some updates. As you know, the IRS did make an announcement around ERC and there are a couple of main points that they wanted to bring out.

The first one is that the IRS made a call to action for Congress specifically asking to retroactively stop processing ERC claims.

Also, the second piece of it is for Congress to extend the statute of limitations, but very narrowly defined, and it really is only for IRS assessments. In other words, if a taxpayer wants to make an amendment on their own free will, the statute of limitations will not be extended to that. But if the IRS notices something, says something, or is talking with you, and they recognize there needs to be an adjustment, then you can move forward and make that amendment.

This has some implications, obviously, for our members, specifically the retroactive aspect of it. Now, they worded it differently because there's the Wyden-Smith bill, which we've talked about where that is retroactively stopping making valid ERC claims.

In this case, it is that the IRS has no longer to process claims. It still has that same effect with members and does bring a little bit of nervousness to people. What that really means is that our members really need to have conversations with their clients if they have a valid ERC claim that hasn't been filed.

[In] those conversations, people need to make it clear to the client that, yes, we can do the work, but there could be either the retroactively where the IRS stops processing claims, or there could be a bill that says that no longer, since a certain date, they don't have to accept claims. There's a little bit of risk associated with that. I think in the last time we spoke, we spoke about how there's an unknown around that date and therefore there's uncertainty around it, and clients need to be aware of the risks associated with that.

The other important aspect of this announcement is where the IRS indicated that they have bucketed all these claims into three groups. There's the low-risk, medium-risk, and high-risk.

The high-risk is where there are clear signs of error within the claim. Now, couple of things I need to make sure people understand. We don't know the criteria that the IRS is using to categorize people. They are not making that public. The other thing, too, is you cannot call the IRS and ask what bucket you're in. You just won't know. They can't help you on that front.

What that means is if you're low-risk, the IRS is trying to process that claim as quickly as they can so that people can get the refunds back. If you're a high risk, they're trying to process that claim also as fast as they can to be able to deny those claims. Now, if you're medium-risk, that's the bucket where you're stuck and it will be a while before they actually look at those claims.

Amato: That medium-risk bucket, do you recall: What's the approximate percentage that maybe that has?

Lauridsen: I know that the IRS in their announcement gave a broader range of it, but in a conversation with IRS executives, I was told 57%.

Amato: Good to know.

Lauridsen: That's a big number.

Amato: It is a big number. A lot of people still in limbo. And maybe lost in the shuffle: Can claims still be submitted during this period?

Lauridsen: I get that question quite a bit, and there's a little bit of confusion around it. Some people think that claims, you can't file them. If you have a legitimate claim, you can still file it. The problem is centered around is the IRS going to process it or will it not be considered a valid claim? It goes back to those conversations that our members need to have with clients because we really just don't know what will happen with the claims.

Amato: Does it surprise you the number that were labeled high-risk?

Lauridsen: Not based on feedback that we've seen from our members and other external stakeholders. We do know that there were ERC mills out there promoting the claims and they would tell people "you absolutely qualify," when they absolutely didn't.

We also know of some of our members where they flat out told the client "you don't qualify," but the ERC mills were telling them, "you do." Then they went off to the side to go get that claim because it was a lot of money for some of these people, and money was talking.

Amato: Now, I guess also related to the ERC, on July 1 the IRS published some proposed regulations, so it's hot off the presses for us. What can you tell me about these proposed regs.?

Lauridsen: The IRS did drop proposed regulations. These proposed regulations, they provide that the IRS will assess an underpayment of tax on any overpayment interest paid to the taxpayer on an erroneous ERC fund. In other words, not only would you need to pay back the overpayment of the interest portion that you received of a claim, but you would then also have interest penalties on top of it.

One thing to note with the proposed regs. is it recognizes that the current regulations don't address the recapture of interest paid. They also note that the proposed regulations are to apply only to interest paid after the issuance of the proposed regulations, so not before. It's still very unclear as to the payments – what about the payments are already went out with or without the interest, and whether the IRS will attempt to recapture that interest? There's just still a lot of confusion around it. As we get more clarity, we will also provide that to our members.

Amato: We will post some pertinent resources and also recent JofA coverage of this news and other news we mentioned. Melanie, I mentioned JofA resources, are there other resources that you'd like to recommend that maybe I'm not aware of?

Lauridsen: Absolutely, Neil. The Tax Section Odyssey podcast will be doing a deeper dive around the questions that our members and their clients may have, and that should be posted around the same time as this podcast. (Editor's note: The episode Lauridsen mentioned is scheduled to publish the third week in July).

Amato: Excellent. Now let's talk a little bit about BOI, beneficial ownership information, that reporting requirement. What's new on the BOI front?

Lauridsen: There's quite a few different little updates here. But most recently [the] Maryland attorney general did actually provide and release an opinion on whether assistance by a CPA, with the beneficial ownership information reporting requirement of the Corporate Transparency Act, would constitute the unauthorized practice of law [UPL].

The Maryland attorney general made it very clear that the determination of UPL is fact-specific and that the opinion is only a guideline because, again, they have to take a look at each and every single case.

Making clients aware of the BOI