Basis of Digital Assets Sold Cost Flow Assumptions - IRS Releases Temporary Specific Identification Relief for 2025

To close out 2024, the IRS released Revenue Procedure 2025-7 providing temporary relief provisions for allowing taxpayers to specifically identify specific blocks of digital assets sold from a brokerage account in 2025. This relief is in addition to special rules adopted earlier this year in Revenue Procedure 2024-28 for allocating unallocated basis as taxpayers transition to the provisions of Reg. §1.1012-1(j).

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Fifth Circuit Merits Panel Stay on Injunction Against Enforcement of the CTA Vacated After Case Transferred to Merits Panel, BOI Enforcement Back on Hold

On December 26, 2024, an order was issued vacating a previous stay that had been granted regarding the enforcement of the Corporate Transparency Act (CTA) and its corresponding Reporting Rule. The stay had been granted by a motions panel of the Fifth Circuit Court of Appeals on December 23, 2024, but was vacated by the merits panel of the same court. The order vacating the stay was made to “preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments”

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Request for an En Banc Rehearing on Stay of Injunction in BOI Case Filed

The plaintiffs in Texas Top Cop Shop, Inc., et al. v. Merrick Garland, Attorney General of the United States, et al. are requesting an en banc rehearing based on several arguments related to the panel decision to grant a stay of the district court’s preliminary injunction. The plaintiffs contend that the panel decision conflicts with Supreme Court precedent, improperly weighed the equities, and failed to consider key aspects of the case.

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Plaintiffs in Texas Top Cop Shop, Inc. BOI Case File a Petition for an En Banc Rehearing on the Injunction Ruling

As reported by Reuters yesterday, the plaintiffs in the Texas Top Cop Shop, Inc. case are filing a petition for an en banc rehearing of the matter by the entire Fifth Circuit. They are asking for a decision by January 6, 2025.

Plaintiffs-Appellees’ Emergency Petition for Rehearing En Banc - Texas Top Cop Shop, Inc.

Tax Court Again Finds That a Functional Test Must be Applied to State Law Limited Partners for the Exclusion from Self-Employment Income Under IRC §1402(a)(13)

The Tax Court’s decision in Denham Capital Management LP v. Commissioner, TC Memo 2024-114 addresses whether a state law limited partner’s distributive share of partnership income is subject to self-employment tax. The court concluded that the partners were not “limited partners, as such” under section 1402(a)(13), and their distributive shares were included in the partnership’s net earnings from self-employment (NESE). This conclusion is consistent with the court’s prior ruling in Soroban Capital Partners LP v. Commissioner, 161 T.C. 310 (2023), which held that a partner’s status as a limited partner for purposes of the limited partner exception is determined by a functional analysis of their roles and responsibilities, not solely on their state law designation

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FinCEN Grants Additional Extension of Time to File BOI Reports for Certain Entities Following Fifth Circuit Ruling

Following the Fifth Circuit’s stay of the injunction against the Corporate Transparency Act (CTA), FinCEN extended the reporting deadlines for beneficial ownership information. These extensions were implemented because the Department of the Treasury recognized that companies might need additional time to comply due to the period when the preliminary injunction was in effect.

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Injunction Against Enforcement of the Corporate Transparency Act Lifted, January 1, 2025 Initial Filing Deadline for Most Effected Entities Back in Place

The Fifth Circuit Court of Appeals on December 23, 2024 issued an order[^1] staying the nationwide injunction issued by the US District Court for the Eastern District of Texas blocking enforcement of the Corporate Transparency. Thus, entities in existence on January 1, 2024 will be required to have filed their BOI report by January 1, 2024 unless they qualify for an exemption.

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Ninth Circuit Affirms Tax Court, Ruling that All Events Test Was Not Met

The Ninth Circuit Court of Appeals, in a split decision, upheld[^1] the Tax Court’s holding in the case of The Morning Star Packing Co. LP et al. v. Commissioner, TC Memo 2020-142 that the all events test had not been met by a taxpayer with respect to costs to restore, rebuild, recondition, and retest their manufacturing facilities recorded at the end of the taxpayers’ tomato products packaging season.

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IRS Proposes Changes to Circular 230

The IRS has issued proposed regulations[1] that would revise Circular 230, removing provisions found at sections 10.3 through 10.6 of the current Circular 230 that related to the regulation of registered return preparers, clarify that practice before the IRS includes “preparation and submission of tax returns in connection with representing a client in a matter before the IRS,” eliminate Section 10.27 of the current Circular 230 that bars the acceptance of contingent fees (but now making accepting such fees disreputable conduct in certain situations), expand the definition of competency to include requiring that a federally authorized tax practitioner (FATP) must maintain certain minimum qualifications of technological competency related to tax practice as well as make additional changes.

Unless otherwise provided for in the proposed regulations, these regulations would become effective 30 days after being published in final form in the Federal Register.[2]

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Tax Court Requires Adjustment of Basis of a Partnership Interest to Include Consideration of Deductions Claimed in Prior Years Closed to Adjustment That Were in Excess of Basis

In the matter of Surk LLC v. Commissioner,[1] the Tax Court was presented with the question of basis computations related to an interest in a partnership. In a tax year that is now closed for assessment, the taxpayer mistakenly deducted losses that exceeded the limitation set forth in Internal Revenue Code Section 704(d). The central issue is whether the taxpayer should reduce its basis in subsequent years by the amount of those disallowed losses or should compute the basis by treating those losses as if they were never deducted.

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Taxpayer Advocate Publishes Blog Page Outlining Options for Taxpayers Who Received Notice of Disallowance on ERC Claims

On August 21, 2024, the National Taxpayer Advocate issued a statement on the Employee Retention Credit in the form of a blog post.[1] This statement aimed to provide taxpayers with comprehensive information regarding the subsequent procedures for those who have recently received a Notice of Disallowance for their Employee Retention Credit (ERC) claim. Additionally, the statement addressed perceived issues within the process currently and prospectively employed by the Internal Revenue Service (IRS) for these claims.

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New Jersey Committee on Unauthorized Practice of Law Issues Guidance Applicable to CPAs and EAs Who Prepare and File FinCEN Beneficial Ownership Information Reports

There has been extensive discussion about the risk CPAs face when assisting clients with filing Beneficial Ownership Interest (BOI) Reports under the Corporate Transparency Act (CTA), particularly concerning unauthorized practice of law provisions in various states. However, there has been little guidance from enforcement entities on what actions are permissible for CPAs and EAs in this area. This week, the New Jersey Supreme Court’s Committee on the Unauthorized Practice of Law issued a letter to the New Jersey Society of CPAs, providing some much-needed guidance.

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RS Reminds Cannabis Businesses That IRC §280E Continues to Apply as Marijuana Remains a Schedule I Drug for Now.

The IRS has released IR-2024-2024-177[1] reminding taxpayers that marijuana remains a Schedule I substance for now, and that IRC §280E continues to apply until such time as the drug is removed from that schedule when and if the Justice Department finalizes the proposed rule. The news release states that:

Until a final federal rule is published, the Internal Revenue Service today reminded taxpayers that marijuana remains a Schedule I controlled substance and is subject to the limitations of Internal Revenue Code.[2]

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US Supreme Court Holds That Liability to Redeem Decedent's Shares Does Not Offset Life Insurance Proceeds When Valuing the Corporation for Estate Tax Purposes

In the case of Connelly v. United States, US Supreme Court, Docket 23-146, June 6, 2024[1], the U.S. Supreme Court resolved inconsistent holdings in lower courts.  In a unanimous opinion, the Court, authored by Justice Thomas, found that although life insurance proceeds received by the corporation that were intended to be used to redeem a deceased majority shareholder had to be included in valuing the corporation as of the date the shareholder died, the estate could not use the obligation to redeem those shares to reduce the value of the corporation when valuing the interest.

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IRS Extends Certain Relief from Required Distribution Penalties for Inherited IRA and Retirement Accounts to Cover 2024, But Indicates the Penalties are Expected to Apply for 2025

Consistent with its stance from 2021 to 2023, the Internal Revenue Service (IRS) has announced, via Notice 2024-35[1], that penalties will not be imposed on taxpayers who fail to take the required minimum distributions (RMDs) from most individual retirement accounts (IRAs) and defined contribution plans inherited from decedents who passed away post-2019.

The Proposed Regulations released in 2022, addressing the amended RMD regulations for IRAs and defined contribution plans as instituted by the SECURE Act, stipulated that taxpayers inheriting an IRA or defined contribution account from an individual who passed away after 2019, and who had reached their required beginning date for distributions, were mandated to receive distributions based on the life expectancy of the designated beneficiary. This was to occur each year for the nine years following the decedent's death, with the total remaining balance to be distributed by the end of the tenth year.

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House Ways & Means Committee Advances Proposed Compromise Extenders Bill

On January 19, 2024, the House of Representatives’ Ways and Means Committee advanced HR 7024, titled “Tax Relief for American Families and Workers Act of 2024,” with a decisive vote of 40-3. This bill represents a consensus reached earlier in the week between Chairman Smith of the Ways and Means Committee and Chairman Wyden of the Senate Finance Committee.

In an article by Cady Stanton and Doug Sword, published on the Tax Notes Today website on January 19, 2024, under the title “W&M Advances Tax Deal; May Vote in Late January or Early February (subscription required),” the authors suggest that the bill could potentially be presented on the House floor as early as the week of January 29.

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IRS Provides Partial Guidance on Pension-Linked Emergency Savings Accounts

The SECURE 2.0 Act of 2022 introduced the option for sponsors of §401(k), §403(b), or government §457(b) defined contribution plans to incorporate a Pension-Linked Emergency Savings Account (PLESA) feature. Notice 2024-22 from the IRS delivers preliminary guidance concerning the anti-abuse rules applicable to these plans.

In IRS News Release IR-2024-11, released at the same time as the Notice, the IRS provides a brief summary of the reasons for the notice:

Guidance on reasonable measures employers who offer PLESAs can take to discourage potential manipulation of the PLESA matching contribution rules can be found in Notice 2024-22, posted today on IRS.gov. The notice also requests public comment and explains how to submit comments.

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IRS Updates Electronic Filing Exemption Guidance Following Release of Revised Regulations in 2023

In 2019, the Taxpayer First Act (TFA) amended IRC §6011(e), granting the IRS authority to mandate electronic filing requirements for non-individual taxpayers filing a lower number of information returns than previously triggered mandatory electronic filing. Notice 2024-18 offers guidance on the specific circumstances under which taxpayers may secure a waiver from these electronic filing requirements, simultaneously rendering Notice 2010-13 obsolete and modifying guidance provided in Notice 2023-60.

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Partnerships Granted Limited Relief on Providing Part IV Information on Form 8308 to Partners for 2023 Tax Year

In Notice 2024-19, the IRS has offered relief to partnerships mandated to disclose extra information on Form 8308. This pertains to the sales or exchanges of partnership interests under the “hot asset” provisions of IRC §751(a).

The Notice begins:

This notice provides relief from penalties under § 6722 of the Internal Revenue Code1 for failures to furnish correct payee statements solely for failure of a partnership with unrealized receivables or inventory items described in § 751(a) (§ 751 property) to furnish Part IV of Form 8308, Report of a Sale or Exchange of Certain Partnership Interests, to the transferor and transferee in a § 751(a) exchange (described in section II of this notice) that occurred in calendar year 2023 by the due date specified in § 1.6050K-1(c)(1). This relief applies only if the partnership furnishes to the transferor and transferee by the due dates specified in section III of this notice (1) a correct copy of Parts I, II, and III of Form 8308, or a statement that includes the same information, and (2) a correct copy of the complete Form 8308, including Part IV, or a statement that includes the same information and any additional information required under § 1.6050K-1(c).

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