This year’s Tax Reporting & Withholding Conference hosted by The Tax Reporting Group brought together tax professionals, compliance experts, and industry leaders to discuss the latest and greatest in tax information reporting. Read below as we summarize some key takeaways and reminders from the conference.
Takeaway 1: IRS Integrity Tool
(Latest and Greatest in IRS Reporting for 2023 | Debbie Pflieger, EY)
The IRS recently launched an online tool called Fairfax to help with Form 1042-S validation. The tool contains 184 logic checks, which are categorized as errors or cautions. Although the FIRE file can still be submitted without using the Fairfax tool, errors in the FIRE file may prevent the IRS from processing it. It is important to note that the IRS can still raise any issue on audit, regardless of whether it was checked by the Fairfax tool or not. Moreover, the IRS has no way to verify the data entered into the Fairfax tool and cannot guarantee that using the tool will satisfy reasonable cause for incorrect reporting penalties. Additionally, submitting to the Fairfax tool may raise disclosure issues of personal identifiable information, unless the information is carefully masked.
Takeaway 2: Electronic Filing
(Latest and Greatest in IRS Reporting for 2023 | Debbie Pflieger, EY)
There are new electronic form filing requirements that will apply to returns that are to be filed for calendar year 2024. Both Forms 1099 and 1042-S must be filed electronically if the filer is required to file at least 10 forms in the aggregate. In addition, Forms 945 and 1042 must also be filed electronically if the filer is required to file at least 10 forms, including information returns. It is important to note that corrected returns must be filed in the same manner as the original form was filed. The electronic filing requirements are part of the IRS’s modernization efforts aimed at improving the efficiency and accuracy of tax reporting.
Takeaway 3: Digital Assets Tax Reporting
(Broker Information Reporting | Stevie D. Conlon, Wolters Kluwer, Patti Neil, Apex Silver, Anna Vayser, Wolters Kluwer)
Digital assets are subject to both gross proceeds and cost basis reporting. Digital assets are defined as “any digital representation of value which is recorded on cryptographically secured distributed ledgers or any similar technology as specified by the Secretary.” The definition of a broker was modified, adding to the existing definition the following: “any person who (for consideration) is responsible for regularly providing any service effectuating transfer of digital assets on behalf of another person”.
Gross reporting begins in 2024, for all digital asset sales that were made in 2023. Digital assets became covered securities on January 1, 2023, if they were acquired on or after the relevant “applicable date” of January 1, 2023; however, this effective date is delayed per Announcement 2023-2. Under 2023-2, implementation is delayed pending the issuance of final regulations.
Takeaway 4: Hot Topics Discussion with the IRS
(NRA and FATCA Hot Topics Discussion with the IRS | John Sweeney, IRS ACCI, Laurie Hatten-Boyd, KPMG, Jonathan Jackal, EY, Chip K. Collins, UBS)
The IRS touched on several key points during this session, including:
- Form W-8EXP: An updated Form W-8EXP is expected to be released in draft relatively soon with updates for FIRPTA withholding (Section 1445).
- Revised Qualified Intermediary (QI) Agreement – IRS released a new QI Agreement, effective January 1, 2023. QIs should have renewed their status by May 1, 2023, in the new QI portal, QI Application and Account Management System (QAAMS). Any QI who has missed this deadline should contact the IRS QI Team as soon as possible.
- 871(m) – Transition relief was originally set to expire on January 1, 2023, but has been extended through December 31, 2024.
- 2023 Form 1042-S – There were many updates made to the 2023 Form 1042-S and instructions, including code additions and deletions, and 1446 changes.
- Global Intermediary Identification Numbers (GIINs) – Where a GIIN no longer appears on the IRS FATCA FFI List, 90-day change in circumstance should be applied to update an entity to a Nonparticipating FFI and perform FATCA withholding. The 90-day change in circumstance logic can be applied as part of your annual GIIN review/validation process.
Takeaway 5: Technology Best Practices
(Best Practices Associated With a Tax Operations Target Operating Model | Jessica Metts, Comply Exchange, William Sheridan, S&P Global, Tomer Siegal, Thomson Reuters)
As businesses continue to expand globally, tax compliance becomes increasingly complex. Organizations must navigate varying tax regimes, regulations, and filing requirements, which necessitates the use of technology best practices to improve accuracy and reduce the risk of costly errors. Here is a high level look at some best practices when it comes to automating your information reporting and withholding lifecycle:
Section 1 – Data Collection
“Garbage in, garbage out”, so the saying goes. The accuracy of tax filings is only as good as the data collected. Automating data inputs where possible can help minimize human error and improve data accuracy.
Section 2 – Data Maintenance
Maintaining robust systems to collect and validate data from various sources is essential to ensure data accuracy. Utilizing a centralized data warehouse or data staging platform can simplify the data collection process.
Section 3 – Reporting
Utilizing reporting applications specializing in specific types of filings/tax regimes can improve the accuracy of the filing process and avoid costly penalties. Always file for extensions; it is a best practice to ensure enough time is available to complete the filings accurately.
Section 4 – Policy and Procedure Manuals
Standardized processes and procedures can help ensure consistency across the organization. Periodic reviews and updates of Policy and Procedure Manuals should ensure they continue to align with business and regulatory requirements. Ongoing, frequent communication of the importance of compliance, changes in regulation and policies, and highlighting successes and failures associated with compliance is essential.
Section 5 – Training
Providing continuous ongoing training can help ensure that the latest regulatory changes and compliance requirements are understood. Trainings should be regularly updated as tax regulations continue to change and evolve.
Conclusion & Special Thanks
In conclusion, the 2023 Tax Reporting & Withholding Conference brought together tax professionals, compliance experts, and industry leaders to discuss the latest tax reporting and withholding developments. We hope that these key insights and takeaways, together with emphasizing the importance of technology for managing tax compliance, are useful for you.
We would like to thank all of the speakers for their engaging sessions at this years conference.