Federal Tax News for Business

Be on the lookout for tax season scams!

With the beginning of the tax season rolling up fast, the IRS urges businesses to guard against cyberattacks. Scam artists are ramping up efforts to steal private data. The information they seek includes credit card details, business identity and employee data, which they may use to file fraudulent tax returns.

One frequent method thieves use is a W-2 scam, aimed at getting company leaders to divulge sensitive data. Businesses should use tools to protect their data, such as those provided by the Federal Trade Commission found here. Businesses can also report potential identity theft by filing a Business Identity Theft Affidavit with the IRS here.

New Form 1099-K reporting delayed

The IRS has announced a delay in releasing the $600 Form 1099-K reporting threshold for third-party settlement organizations. Calendar year 2023 will now be considered a transition year and third parties (including payment apps and online marketplaces) won't be required to report transactions unless a taxpayer receives more than $20,000 and has more than 200 transactions in 2023. In addition to delaying the release of the new form until 2024, the IRS said it plans to boost the reporting threshold to $5,000. It decided on the delay after an outcry from taxpayers, tax advisors and payment processors complaining that releasing the new form in 2023 would lead to confusion and disruption.

New rules for employee participation in 401(k) plans

New IRS proposed reliance regulations clarify when employers must allow long-term, part-time (LTPT) employees to participate in their 401(k) plans. The SECURE and SECURE 2.0 Acts changed the length of service needed before LTPT workers can participate.

Starting in 2025, they become eligible to contribute to their employer's retirement plans after working 500 hours during two consecutive 12-month periods. The proposed regs confirm that employers don't have to make contributions for these employees. But if they do, and contributions are subject to a vesting schedule, LTPT workers must receive one year of service credit for every 12-month period during which they worked at least 500 hours.

Don't fail to report cash transactions

Businesses must report transactions of $10,000 in cash or cash equivalents to the IRS using Form 8300. The purpose is to combat tax evasion, money laundering and more. A business that deliberately arranges transactions to bypass this threshold may be charged with illegally avoiding bank reporting requirements, also called "structuring." In one case, a businesswoman used an elaborate tracking system involving multiple business and personal bank accounts to escape IRS scrutiny. The U.S. Tax Court found her guilty of structuring, resulting in a tax loss of $472,167. In Jan. 2024, she faces sentencing of possible jail time and monetary penalties. For more details click here.

Controversy surrounds Employee Retention Credit

It's no secret that the IRS is aggressively seeking to disallow dubious claims for the Employee Retention Credit (ERC). That's why back in Sept. the acceptance of new claims was halted, at least through the end of 2023. Since then, IRS Commissioner Danny Werfel said the agency is continuing to develop processes to help taxpayers that may have fallen for deceptive marketing that led them to improperly receive ERTCs.

Specifically, the IRS is working out how taxpayers that improperly received ERTCs can come forward preemptively before the IRS takes collection action against them. Also, Werfel stated the IRS is developing "settlement terms for paying back [ERTCs] in a way we hope works out for those companies economically."

In early December, the IRS announced it would soon send out more than 20,000 letters to taxpayers whose claims have been disallowed. Key reasons for disallowance include that the business didn't exist or didn't have paid employees during the relevant time period. Taxpayers still have until at least the end of 2023 "to avoid future action" by voluntarily withdrawing a pending ERC claim, the IRS noted. Those who have received improper payments but haven't cashed the checks can simply return them. Click here to learn more.

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