The Newport Beach Tax Attorney Blog

Infrastructure Bill Impacts Cryptocurrency Reporting Laws

On Friday November 5, 2021, Congress passed the Infrastructure Investment and Jobs Act, which interestingly includes new reporting requirements on brokers of cryptocurrency, specifically persons responsible for regularly providing service effectuating transfers of any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology.

Currently, cryptocurrency reporting generally is only required in the context of reporting requirements applicable to capital property (which may not be required for transactions under $600), or where the currency is used as compensation to employees or independent contractors. The bill requires reporting of any other transactions where the current rules do not apply.

The provision is included due to the concern that large amounts of cryptocurrency transactions are not being reported as taxable income, and the taxation of that income helps to offset the total cost of the bill. Additionally, the penalties imposed on taxpayers for failure to file information returns are extended to apply to this new requirement, helping to raise more revenue.

Another provision expands a section of the U.S. tax code called 6050I to include digital assets. Section 6050I requires that people who receive more than $10,000 in cash and equivalents file a report with the IRS. The report includes details about who paid them, including names and Social Security numbers. Any failure to report details about those sending payments is considered a felony offense.

The infrastructure bill provision would require similar from businesses and exchanges when they receive more than $10,000 in cryptocurrency.

Almost immediately upon the release of the legislative text, lawmakers and industry experts expressed concerns about the provision, claiming that the text of the bill is too broad, and could potentially extend the reporting requirements to cryptocurrency “miners” (people who generate new cryptocurrency by verifying complex chained transactions). Nevertheless, the amount of revenue generated by the provision made it essential to include in the bill, and amendments have been included to narrow the focus of the provision.

The reporting requirements do not take effect until a few years.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

IRS Updates Countries which the U.S. Exchanges Tax Information

Rev. Proc. 2021-32, I.R.B. 2021-42, September 28, 2021

The IRS has supplemented the list of countries with which the U.S. has an agreement relating to the exchange of tax information. Chile has been added to the list. The Dominican Republic and Singapore have been added in Section 4 of this revenue procedure to the list of jurisdictions with which the Treasury and IRS have determined that it is appropriate to have an automatic exchange relationship. Under these agreements the U.S. consents to provide, as well as receive, information and appoints the Treasury Secretary or his delegate as the competent authority. The regulations under Code Sec. 6049 require the reporting of certain deposit interest paid to nonresident alien individuals on or after January 1, 2013. With respect to Chile, this revenue procedure is effective for interest paid on or after January 1, 2022. Rev. Proc. 2020-15, I.R.B. 2020-23, 905, is superseded. For a complete list of countries click here.

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Wilson Tax Law is an Orange County tax attorney firm with offices in Newport Beach (near Irvine) and Yorba Linda (near Tustin). We specialize in federal and state tax audits, international compliance, FBAR, foreign property and offshore bank account disclosures, and criminal tax, including appeals, trials, and collection. Firm Founder Joseph Wilson is a former IRS Attorney, Federal Tax Prosecutor, and State of California tax attorney with the Franchise Tax Board.

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IRS Announces Issuing Refunds for Compensation Overpayments

On July 13, 2021, the IRS announced it would issue another round of refunds this week to nearly 4 million taxpayers who overpaid their taxes on unemployment compensation received last year. The refund average is $1,265, which means some will receive more and some will receive less. Refunds by direct deposit will begin July 14 and refunds by paper check will begin July 16. The Service previously issued refunds for unemployment compensation exclusion in May and June. It would continue to issue refunds throughout the summer.

The American Rescue Plan Act of 2021 (ARP) excluded up to $10,200 in 2020 unemployment compensation from taxable income calculations. The exclusion applied to individuals and married couples whose modified adjusted gross income was less than $150,000. Most taxpayers need not take any action and there is no need to call the IRS. However, if, as a result of the excluded unemployment compensation, taxpayers are now eligible for deductions or credits not claimed on the original return, they should file a Form 1040-X, Amended U.S. Individual Income Tax Return.

Click here to read the full announcement.

IRS Coronavirus Economic Relief for Transportation Services News

2021ARD 129-1

Internal Revenue Service: Frequently asked questions: Coronavirus Economic Relief for Transportation Services (CERTS)

Coronavirus Economic Relief for Transportation Services (CERTS) Frequently Asked Questions

The Coronavirus Economic Relief for Transportation Services (CERTS) Act, Division N, Title IV, Subtitle B of the Consolidated Appropriations Act of 2021, authorizes the Department of the Treasury to provide grants to eligible motorcoach companies, school bus companies, passenger vessel companies, and pilotage companies (Recipients) that have experienced annual revenue losses of 25% or more as a result of COVID-19. Recipients must generally prioritize the use the grants for payroll costs, though grants may be used for certain operating expenses (including the acquisition of services and equipment needed to protect workers and customers from COVID-19) and the repayment of debt accrued to maintain payroll. Funds not used for eligible activities within one year of receipt of the grant must be returned to the Treasury Department.

Additional non-Federal income tax information on the CERTS Act grant program can be found at the Coronavirus Economic Relief for Transportation Services (CERTS) Program webpage.

Q1. Is the receipt of a CERTS Act grant taxable to the Recipient under the Internal Revenue Code (Code)? (added July 6, 2021)

Yes. The receipt of a CERTS Act grant is not excluded from the Recipient's gross income under the Code and therefore is taxable.

Q2. When a Recipient uses the funds received from the CERTS Act grant program for eligible activities, such as for certain payroll costs and for the acquisition of services and equipment needed to protect workers and customers from COVID-19, are all of those expenses deductible under the Code? (added July 6, 2021)

Yes, to the extent the costs are otherwise deductible under the Code. The Code generally permits the payment of wages, salaries, and benefits to employees and other amounts paid to carry on a trade or business to be deducted as ordinary and necessary business expenses.

[ REPUBLISHED FROM IRS]

FTB Provides Additional Tax Guidance PPP Loan Forgiveness

On June 2, 2021, the California Franchise Tax Board (FTB) issued much anticipated guidance concerning loan forgiveness related to the Paycheck Protection Program (PPP). Originally, California enacted legislation to tax the PPP loan forgiveness by not allowing businesses to deduct necessary and ordinary operating expenses (including payroll) paid using emergency PPP funds. California based its legislation on an IRS ruling that held the same. The federal government subsequently enacted legislation reversing the IRS from taking this position based on certain income requirements. Uncertainty arose whether California would reverse course and conform with the federal government. California delayed doing so right away due to concerns it had related to jeopardizing billions of dollars in federal stimulus aid it had received. The federal stimulus funds California received had strings attached. To receive the stimulus funds California had to agree not to lower any any taxes. Allowing businesses to deduct legitimate business expenses lowers the taxes it owes. Of course this is the right result. Moreover, legislation to not allow the deduction of legitimate business expenses increases taxes. After many months of uncertainty, public unrest and debate, California worked it out and enacted legislation to conform with the IRS. On April 29, 2021, AB 80 was enacted which allowed more income exclusion (from second draw PPP loans and EIDL advance grants) and allowed the deduction of expenses, basis adjustments, and tax attribution adjustments for qualifying taxpayers, for tax years beginning on or after January 1, 2019.

The FTB guidance confirms:

The FTB will follow the SBA guidance regarding how to determine whether the 25% gross receipts threshold is met. This means taxpayers may compare any calendar quarter in 2020 to the comparable calendar quarter in 2019 (or total 2020 gross receipts to total 2019 gross receipts);

Taxpayers do not have to provide documentation or certification if they meet the 25% gross receipts threshold, they may simply deduct all expenses paid with PPP forgiven loan amounts;

Multistate taxpayers should use total gross receipts (not just California-source gross receipts) to determine whether the 25% gross receipts threshold is met; and

For taxpayers who do not meet the 25% gross receipts threshold, the disallowance of deductions must be reported on the tax return for the taxable year in which they reasonably expect the PPP loan will be forgiven. This would mean deductions must be reduced on the 2020 return if in 2020 the taxpayer reasonably expected that the PPP loan would be forgiven in 2021.

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense. Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board. Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.

For further information, or to arrange a consultation, please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

The FTB’s updated webpage regarding PPP loan forgiveness is at:

www.ftb.ca.gov/about-ftb/newsroom/covid-19/paycheck-protection-program-loan-forgiveness.html

The FAQs for Paycheck Protection Program is available at:

www.ftb.ca.gov/about-ftb/newsroom/covid-19/faqs-for-paycheck-protection-program.html