We look forward to seeing you in September!  Please enjoy this week's e-briefing!

Treasury, IRS Issue Proposed Regulations on Reporting by Brokers for Sales or Exchanges of Digital Assets

New steps designed to end confusion, help taxpayers, aid high-income compliance work

The U.S. Treasury Department and IRS today issued proposed regulations that would require brokers to report sales and exchanges of digital assets by customers.

The proposed regulations cover a range of digital asset issues where there have been questions, including defining brokers and requiring proceeds to be reported to the IRS on new Form 1099-DA.

Indiana Department of Revenue team members at 2023 MSATA Conference. 

"Taxpayer" or "Customer," That is the Question

Tax agencies taking closer look at how they refer to those they serve

An important topic that garnered a notable amount of discussion at the Midwestern States Association of Tax Administrators (MSATA) Conference, held earlier this month in Madison, Wisconsin, was that of how tax administrators refer to those they serve.

Are they taxpayers or customers? 

Participants at the 2023 MSATA Conference

Like many of its tax administration peers, this is an issue that the Indiana DOR has discussed for some time. Prompted by the MSATA discussions, they were kind enough to share their approach to this often tough-to-navigate naming issue.

Indiana DOR: Referring to Taxpayers as Customers

The Indiana DOR team serves a large volume of diverse taxpayers, organizations, agencies, and tax industry professionals. While it is accurate to say taxpayers don't qualify as customers according to its most common definition and usage, our recognition of all that we serve as "customers" is a powerful mindset, attitude, and spirit. It has fundamentally changed the way we see and treat those we serve and has been the genesis of significant organizational and service delivery quality improvements.

We integrate the recognizing and treatment of all that we serve as "customers" in everything we do - training, goal setting, performance measurement, recognition, and service success metrics. It is one of DOR's core values and at the foundation of our aspirational vision.

It has been an impactful mindset change for DOR and one that is being adopted across state government agencies and in many states. It is in no way meant to be controversial or disrespectful - in fact, quite the opposite. It is meant as a sincere term of respect for everyone we passionately serve with care, empathy, and a customer service spirit.

Identity Theft Resource Center Releases 2023 Consumer Impact Report

Number of identity theft victims who considered suicide doubled since 2020

The Identity Theft Resource Center released its 2023 Consumer Impact Report this week. The report contains survey findings of identity theft victims who contacted the ITRC, gauging how and to what extent these identity crimes and compromises affected them.

The report's purpose is to draw attention to the full spectrum of emotional, physical, and practical effects on the day-to-day lives of identity theft victims, including lost opportunities. 

ITRC victims typically have complex issues of the normal processes for reporting and recovering from identity theft, and they are met with some kind of roadblock.  

A key finding reported more repeat victims than new ones this year. Forty-one percent of ITRC victims reported being victimized more than once. ITRC has watched this trend for a couple of years now, and there are a number of factors that go into this trend, to include: 

Emotional Impacts

Relationship impacts

Physical health impacts

One victim quoted in the report said:  

"It has devastated my family. I have zero funds to even meet a friend for coffee or a drink. Therefore, I remain totally isolated and mentally not good due to feeling the scammers took my life. I buy minimal food, so I go without good nutrition. I have been unable to find employment since I have zero money to buy the appropriate clothes needed." 

Statistics

Financial losses for ITRC victims reported losses ranging from under $500 to more than $10,000.  Twenty-nine percent of ITRC victims reported losses of $10,0000 or more, including losses in excess of $100,000.   

Despite the fact freezing your credit is very effective at preventing fraud, only 31% of the ITRC victims and 22% of general consumers reported they had a freeze in place.   

Password habits using the same password across multiple accounts was at 56% for ITRC victims and 59% for general consumers.  Fifty-three percent of victims began using a different password after they were victimized.  

Multi-factor authentication was used by 59% of the ITRC victims who responded to the survey.   

The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). This means that individuals and households that reside or have a business in these counties qualify for tax relief.

The current list of eligible localities is always available on the disaster relief page on IRS.gov.  

Filing and Payment Relief

The tax relief postpones various tax filing and payment deadlines that occurred from Aug. 8, 2023, through Feb. 15, 2024 (postponement period). As a result, affected individuals and businesses will have until Feb. 15, 2024, to file returns and pay any taxes originally due during this period.  

This means, for example, that the Feb. 15, 2024, deadline will now apply to: 

In addition, penalties for the failure to make payroll and excise tax deposits due on or after August 8, 2023, and before September 7, 2023, will be abated as long as the deposits are made by Sept. 7, 2023. 

The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for relief during the postponement period.   

SC DOR Guide Helps Students Learn About State Taxes 

Guide reinforces students' math skills as they solve real-world tax problems

“We are proud to present the new Teacher's Guide for Individual Income Tax," said SCDOR Director Hartley Powell. “This wonderful resource for teachers helps to educate today's students in learning the basics of South Carolina's Individual Income Tax so they better understand their tax responsibilities." 

 A free resource for South Carolina educators, the Teacher's Guide includes lesson plans, links to relevant SCDOR-produced videos on YouTube, exercises, and quizzes, with answers and notes for the teachers. 

The Teacher's Guide is aimed at middle and high school students and can be customized to specific grade levels and class curricula. It also includes lists of state education standards that may be met using the lessons and exercises. Teachers who use the guide in their classroom are encouraged to complete the survey listed in the Note to Teachers portion of the guide, to help the SCDOR refine the resource for future years. 

For more information, and to receive a copy of the Teacher's Guide to SC Individual Income Tax, email TaxpayerEd@dor.sc.gov. 

Register Now for the NESTOA Conference

Join us September 10–13 in Wilmington, Delaware

The Northeastern States Tax Officials Association (NESTOA) and FTA invite you to join us for the NESTOA 2023 Annual Conference. This year's event will be held at the Hotel Du Pont in Wilmington, Delaware. Full details and registration available on the NESTOA Annual Conference page.  

Motor Fuels Section Annual Conference Registration Open

Join us in Orlando, Florida September 17–20

The 2023 FTA Motor Fuels Annual Conference of the FTA Motor Fuels Section will be held at Rosen Plaza in Orlando, Florida on September 17–20, 2023. The meeting consists of general session topics of interest to state motor fuel tax administrators and industry. 

This is a forum for states to share their best practices and to hear about the latest and greatest in improved processes, compliance innovations, ideas, and networking.  

Revenue Estimation and Tax Research Conference

Join us September 30–October 4 in Salt Lake City, Utah

If you are a revenue estimator, forecaster, tax analysis, or just interested to tax policy topics, register now for the Annual FTA Revenue Estimation and Tax Research Conference in Salt Lake City at the Sheraton Hotel - Downtown from September 30 through October 4.  Full details, including registration, are available on the Revenue Estimation and Tax Research Conference page.    

Appeals Court Affirms Denial of Deferred Compensation Deduction Tied to Pro Basketball Team Purchase

Case stems from a taxpayer selling ownership interest in NBA's Memphis Grizzlies

The U.S. Court of Appeals for the Seventh Circuit affirmed a Tax Court decision holding that a partnership that sold a professional basketball team could not claim a deduction in 2012 for the amount it was deemed to have paid to the buyer for assuming deferred compensation liabilities.

The court found that section 404(a)(5) of the Internal Revenue Code (IRC) precluded the partnership from claiming the deduction before the employees were paid. 

The facts show the taxpayer sold its ownership interest in the NBA’s Memphis Grizzlies in October 2012. At the time of the sale, it owed $12.6 million in deferred compensation to two players for their performances in the 2009, 2010, and 2011 seasons. The team’s buyer, Memphis Basketball LLC, assumed the deferred compensation liability from the taxpayer as part of the sale, but the players didn’t receive the compensation in 2012.

The taxpayer claimed a deduction in its partnership return for the 2012 tax year, which represented the present value of the $12.6 million deferred compensation liability assumed by Memphis Basketball. The taxpayer did not dispute that it had not paid the deferred compensation either into a qualified plan or to the players before, or along with, its sale of the Grizzlies, but argued it was entitled to take a deduction in the year of the sale because of the buyer’s assumption of the deferred compensation liability. 

The Seventh Circuit rejected the taxpayer’s argument that the deduction was for the payment “from one company to another company for the second company to assume the first company’s liability,” not for a payment of deferred compensation. The court said it was undisputed that if the sale of the team had never happened, section 404(a)(5) would have prevented the taxpayer from claiming the deduction in 2012 because no payments had been made to a qualified plan or to the two players. The court said the taxpayer’s sale of the team in October 2012 did not change that. 

The taxpayer also argued that a broader rule, reg. section 1.461-4(d)(5)(i) should apply under which the taxpayer claimed the deferred compensation liability assumed by the buyer was an ordinary business expense deductible at the time of the sale in 2012. The court rejected that argument, noting that interpretation of IRC requires that specific provisions prevail over general ones. The court said that the liability assumed by the team’s buyer was “a liability for deferred compensation based on services already rendered by two players in prior seasons,” and concluded that the specific rule applicable to that type of liability resolved the matter against the taxpayer. 

This article first appeared in FTA’s State Tax Highlights newsletter. Email joe.starr@taxadmin.org to subscribe.  

IRS Releases Guidance on Elective Payments, Transfers of Certain Credits Under IRA

Guidance also includes rules for eligible taxpayers to transfer certain credits to unrelated parties

The IRS issued proposed regulations and frequently asked questions about rules for applicable entities that earn certain clean energy credits and choose to make an elective payment election. It also included rules for eligible taxpayers that elect to transfer certain credits to unrelated parties. Applicable entities generally include  :

For tax years beginning after Dec. 31, 2022, applicable entities can choose to make an elective payment election, which will treat certain credits as a payment against their federal income tax liabilities rather than as a nonrefundable credit. This payment will first offset any tax liability of the entity and any excess will be refundable. 

Temporary regulations that relate to a mandatory IRS pre-filing registration process, which will be through an electronic portal, were also issued. the pre-filing registration process must be completed, and a registration number received, prior to making an elective payment election or an election to transfer eligible credits. 

Applicable entities need their own Employee Identification Number (EIN) or Tax Identification Number (TIN) to complete the pre-filing registration process. Applicable entities that don’t otherwise have a filing requirement cannot use borrow the EIN of a related entity. 

For more information on elective payments and transferability, refer to Publication 5817-F, Elective Pay for Indian Tribal Governments (PDF) and visit the Indian Tribal Government homepage, Elective Pay and Transferability and Elective Pay and Transferability Frequently Asked Questions at IRS.gov.  

New E-file regulations for businesses

The Department of the Treasury and the Internal Revenue Service issued regulations amending the rules for electronically filing returns and other documents. Released in February, these regulations will require certain filers to e-file beginning in 2024.The final regulations reduce the 250-return threshold enacted in prior regulations to generally require electronic filing by filers of 10 or more returns in a calendar year. 

The final regulations also create several new regulations to require e-filing of certain returns and other documents not previously required to be e-filed and require filers to aggregate almost all information return types covered by the regulation to determine whether a filer meets the 10-return threshold. 

The IRS created a new, free online portal, known as the Information Returns Intake System (IRIS), to help businesses file Form 1099 series information returns electronically. This free electronic filing service is secure, accurate and requires no special software, visit  E-file Forms 1099 With IRIS for more details.  

For more information on new e-file regulations, visit IRS and Treasury issue final regulations on e-file for businesses at IRS.gov. 

Office of Professional Responsibility Publishes Disciplinary Sanctions

Published sanctions include censure, suspension, disbarment from practice before IRS

The Office of Professional Responsibility (OPR) publishes all disciplinary actions in the Internal Revenue Bulletin (IRB). Published sanctions include censure, suspension, or disbarment from practice before the IRS. The below listed individuals have recently been disciplined by OPR and are published in the IRB Number 2023-34, date August 21, 2023, on pages 568-570. 

City & State

Name

Professional Designation

Effective Dates

Alabama

–

Sumner, Elizabeth,
(see Mississippi)

–

–

Arizona

Goodyear

Plimley, Rise H.

Enrolled Agent

Indefinite from May 30, 2023

California

Larkspur

Blecka, John C.

CPA

Reinstated to practice before the IRS, effective 4/19/2023

Colorado

Erie

Devaney, Cathleen A.

CPA

Indefinite from May 30, 2023

Illinois

Kingston

Jensen, Cynthia (Cyndi)

CPA

Indefinite from May 30, 2023

Louisiana

Baton Rouge

Triche, Wayne A.

CPA

Indefinite from June 6, 2023

Maryland

Baltimore

Dailey, Mitzi E.

Attorney

Indefinite from May 3, 2023

Massachusetts

Wrentham

Hubbell, Scott C.

Attorney

Indefinite from May 30, 2023

Mississippi

Meridian

Sumner, Elizabeth R.

CPA

Indefinite from June 27, 2023

New Hampshire

Manchester

Dunn, David C.

Attorney

Indefinite from June 21, 2023

North Carolina

Charlotte

Caviness, Elizabeth J. 

Attorney

Indefinite from June 21, 2023

Charlotte

James, Andre (see Virginia)

–

–

Lexington

Rives, II, Leon L.

CPA

Indefinite from June 27, 2023

Virginia

Fairfax

James, Andre

CPA

Indefinite from April 17, 2023

Washington

Bellevue

Shimizu, Steven G.

CPA

Indefinite from May 30, 2023

View a complete list of all OPR IRB's visit the Disciplinary Sanctions - IRB 

Chief Economist

State of California Franchise Tax Board

Director of Economic Research and Tax Policy

Federation of Tax Administrators

Open until September 15, 2023

Director of Excise and Miscellaneous Tax Programs

Federation of Tax Administrators

Open until September 15, 2023

Executive Director – Chief Economist

Washington State

FTA has announced a number of dates for its 2023 conferences and symposia.  Be sure to mark your calendars!  Registration information is available for many of the conferences.  Please visit the FTA website for the full calendar.

Revenue Estimation and Tax Research Conference
September 30–October 4
Salt Lake City, UT

Compliance Conference
December 3–6
Tucson, AZ

Tobacco August Uniformity
August 18 and 19
Tucson, AZ

Tobacco Tax Annual Meeting
August 20–23
Tucson, AZ

Motor Fuel September Uniformity
September 15 and 16
Orlando, FL

Motor Fuel Annual Meeting
September 17–20
Orlando, FL

NESTOA Annual Meeting
September 10–13
Wilmington, DE

WSATA Annual Meeting
October 8–11
Reno, NV