FinCEN has released updated FAQs regarding the beneficial ownership information (BOI) reporting requirements. While many of these new and updated FAQs do not provide any real new insights or only apply to a limited number of businesses, the following two welcome clarifications are included:

• Homeowners associations (HOAs) may or may not be reporting companies for BOI reporting purposes. HOAs are only reporting companies if they are created by filing a document with the Secretary of State or similar office. HOAs designated as an IRC §501(c)(4) social welfare organization are exempt from the reporting requirements, whereas HOAs not designated as an IRC §501(c)(4) social welfare organization must file a BOI report, unless otherwise exempt; and
• An organization created in 2024 that that is exempt from the BOI reporting requirements but loses its exemption prior to January 1, 2025, has until the later of the following dates to file its BOI report:
  • January 1, 2025; or
  • 30 calendar days from the date it loses its exemption.

Unfortunately, FinCEN did not answer one of the most commonly asked questions: “Is an entity created prior to 2024 that dissolves prior to January 1, 2025, required to file a report by January 1, 2025?” Spidell believes the answer is no, but we’ve been waiting for definitive guidance from FinCEN on this issue.

The updated FAQs are available at:

www.fincen.gov/boi-faqs

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The IRS has issued Notice 2024-35, announcing that they intend to issue final regulations related to the SECURE Act’s inherited retirement account rules and that RMDs for certain inherited retirement accounts must begin in 2025.

A major point of contention contained in the proposed regulations that were issued on February 24, 2022, relates to the RMD rules for designated beneficiaries. These beneficiaries are subject to a 10-year distribution rule for retirement accounts inherited from taxpayers who died after December 31, 2019.

Under the proposed regulations, if the decedent had begun taking RMDs, then designated beneficiaries are subject to an RMD requirement during the 10-year distribution period rather than taking the total distribution by the tenth year. Due to confusion resulting from this proposed change, the IRS has delayed its implementation over the last two years. Now, Notice 2024-35 delays the implementation of this provision one more year and provides that the IRS’s final regulations will require designated beneficiaries to begin taking RMDs in 2025.

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In response to our inquiry regarding a possible postponement, the FTB issued the following statement:

“FTB is tracking official announcements from the IRS on any income tax relief for presidentially declared disasters in California. Aside from the tax relief announcement for San Diego County issued on February 27, 2024, we have not seen any additional official announcements from the IRS for the state of California.

It is important to note, the Governor’s request for federal assistance for these nine counties was for Public Assistance only. Typically, the IRS does not extend the due date for public assistance only.

San Diego County is the only county that has an extension to June 17.

April 15 remains and will remain the due date for these nine counties for California income tax purposes.”

Should the IRS issue any postponement announcement we will send another Flash E-mail.

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On Saturday, April 13, 2024, President Biden issued a major disaster declaration for specified California counties. The declaration “authorizes federal funding for state, tribal, and eligible local governments and certain nonprofits.” However, it does not contain business and individual relief. It is unclear at this point whether this declaration will result in the IRS and FTB granting tax filing and payment postponement relief.

We have reached out to and are awaiting additional guidance from the IRS. We anticipate that should the IRS provide postponement relief, the FTB will as well.  At this late stage we advise taxpayers to be ready to file and make payments today. However, we will update you as soon as we have additional information.

The counties in which federal governmental assistance has been approved are:

• Butte;
• Glenn;
• Los Angeles;
• Monterey;
• San Luis Obispo;
• Santa Barbara;
• Santa Cruz;
• Sutter; and
• Ventura.

The President’s declaration is available at:

www.whitehouse.gov/briefing-room/presidential-actions/2024/04/13/president-joseph-r-biden-jr-approves-california-disaster-declaration-7/

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The FTB is sending Middle Class Tax Refund (MCTR) debit card recipients who have not activated their cards an activation reminder letter that includes instructions on how taxpayers can activate their debit cards. These letters have generated questions about whether they are fraudulent.

If your client received a letter from the FTB that states “Activate your Middle Class Tax Refund Card now,” and directs them to call (800) 240-0223 or visit https://mctrpayment.com/, the letter is legitimate.

The MCTR program distributed over 16.8 million payments to provide relief to Californians beginning in 2022. However, the FTB has noted that there are many MCTR debit card recipients who have not yet activated their MCTR cards or who have not used their MCTR funds. The cards were mailed by Money Network between October 2022 and October 2023.

Funds are available for a limited time and must be used before the program expires on April 30, 2026.

Sign up for Spidell’s 2024 Post-Tax Season Update and Review and review tax season issues and problems while they’re still on your mind. Click here for details.

The Middle-Class Tax Refund (MCTR) program distributed over 16.8 million payments to provide relief to Californians beginning in 2022. However, the FTB has noted that there are some MCTR debit card recipients who have not yet activated their MCTR cards or who have not used their MCTR funds.

MCTR debit card recipients who have not activated their cards will receive an activation reminder letter that includes instructions to activate their debit card. Funds are available for a limited time and must be used before the program expires on April 30, 2026.

To activate a MCTR debit card, call:

(800) 240-0223

Once a debit card is activated, funds can be withdrawn for free at in-network ATMs or transferred directly to a personal bank account.

If a MCTR debit card is lost, call the number listed above.

For more information about MCTR debit cards, including in-network ATM locations, go to:

https://mctrpayment.com/

The EDD has announced that employers in Alameda, Butte, Glenn, Lake, Mendocino, Monterey, Sacramento, San Francisco, Santa Cruz, Sonoma, and Sutter counties directly affected by the winter storms may request up to a two-month extension of time from the EDD to file their state payroll reports and/or deposit payroll taxes without penalty or interest. (UIC §1111.5) 

A written request for extension must be received within two months from the original delinquent date of the payment or return.  

For more information, go to: 

https://edd.ca.gov/en/payroll_taxes/emergency_and_disaster_assistance_for_employers

The chair of the California Senate’s Revenue and Taxation Committee, Senator Steve Glazer, has introduced California SB 1501, which would allow entities to qualify to make the passthrough entity tax election even if they do not satisfy the June 15 prepayment requirement.

If enacted, SB 1501 would, retroactive to taxable years beginning on or after January 1, 2024, authorize a qualified passthrough entity (partnership, S corporation, or LLC taxed as a partnership or S corporation) to make a passthrough entity tax election without making the requisite June 15 prepayment, but only if the taxpayer pays a penalty equal to 5% of the elective tax due plus interest. The penalty would have to be paid by the due date of the original return without regard to any extensions.

This bill, if enacted, would provide welcome relief to many taxpayers who may have inadvertently failed to satisfy the June 15 prepayment requirement.

Taxpayers and tax professionals who would like to see this bill passed should contact their legislators.

The text of the bill is available at:

https://go.spidell.com/e/837113/-xhtml-bill-id-202320240SB1501/5wz2gv/1964523670/h/gPH614v58jb5H0l_sigoyfmIUDN5GtyGs2Bua0a0ANk

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A federal district court judge dismissed the California Trucking Association’s case against the application of AB 5 and the ABC worker classification test to the trucking industry. (California Trucking Association v. Bonta (March 15, 2024) U.S. Dist. Ct., Southern Dist. of Calif., Case No. 3:18-cv-02458-BEN-DEB) This means that interstate truckers are subject to the ABC test and will likely be treated as employees of motor carrier companies rather than independent contractors unless one of the exemptions from the ABC test applies, such as the business-to-business exemption.

In his decision, the judge noted, “Remedying complexities and perceived deficiencies in AB 5 are the kind of work better left to the soap box and the ballot box than to the jury box.”

The court’s decision is available at:

www.caltax.com/files/2024/ctavbonta.pdf

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A U.S. District Court has ruled that FinCEN’s beneficial ownership reporting mandate enacted as part of Corporate Transparency Act (Public Law 116-283) constituted Congressional overreach and therefore is unconstitutional and cannot be enforced against the plaintiffs who brought the case.  (National Small Business United v. Yellen (March 1, 2024) U.S. Dist. Ct., North. Dist. Of Ala., Case No. 5:22-cv-1448-LCB)

The plaintiffs are Isaac Wilkes, a small business owner, and National Small Business United, a trade organization representing 65,000 members, including Isaac Wilkes.

In a press release issued on March 4, 2024, FinCEN stated that in compliance with the court’s order, it will not enforce the beneficial ownership reporting requirements against the plaintiffs, indicating that all other reporting companies are still subject to the reporting mandate.

This means that unless a business is a member of the National Small Business United, it must still comply with the reporting mandate. For additional information concerning the reporting requirements, see our January 2, 2024, flash e-mail “FinCEN releases beneficial ownership information report.”

The court’s decision is available at: www.govinfo.gov/content/pkg/USCOURTS-alnd-5_22-cv-01448/pdf/USCOURTS-alnd-5_22-cv-01448-0.pdf

FinCEN’s news release is available at: https://go.spidell.com/e/837113/-yellen-no-522-cv-01448-nd-ala/5wvy7m/1935380943/h/NC4nZZMHByG8zh08nKAu9O8G6vPoZEoBnMRBDpYo3Oc

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UPDATE: The Franchise Tax Board has confirmed that California will conform to the IRS’s storm-related disaster postponement announcement for San Diego County taxpayers, IR-2024-51. (FTB News Release (February 27, 2024)) The FTB’s announcement noted that the postponement includes passthrough entity elective tax payments due on March 15, 2024.

For any given Emergency Measure or Major Disaster Declaration that triggers IRS tax relief or filing/payment postponement in California, the state will evaluate each filing or payment postponement in response to a declaration or emergency on a case-by-case basis. (R&TC §18572)

Due to severe storms, the IRS announced today that individual and business taxpayers located in San Diego County are granted automatic filing relief until June 17, 2024. (IR-2024-51) The June 17 filing postponement matches similar relief provided to taxpayers in other parts of the country suffering from severe storms, such as those for parts of Connecticut, Maine, Michigan, Rhode Island, and West Virginia.

Today’s announcement only covers San Diego county. Currently, no other counties in California are eligible for the filing postponement.

This postponement means that the June 17, 2024, deadline applies to:

• Individual income tax returns and payments normally due on April 15, 2024;
• 2023 contributions to IRAs and health savings accounts for eligible taxpayers;
• 2024 estimated tax payments normally due on April 15, 2024;
• Quarterly payroll and excise tax returns normally due on January 31 and April 30, 2024;
• Calendar-year partnership and S corporation returns normally due on March 15, 2024;
• Calendar-year corporation and fiduciary returns and payments normally due on April 15, 2024; and
• Calendar-year tax-exempt organization returns normally due on May 15, 2024.

Also, penalties for failing to make payroll and excise tax deposits due on or after January 21, 2024, and before February 5, 2024, will be abated as long as the deposits were made by February 5, 2024.

Taxpayers in San Diego county who need filing extensions beyond June 17, 2024, must file extensions by the June 17 deadline.

The full announcement is available at:

www.irs.gov/newsroom/irs-san-diego-area-taxpayers-impacted-by-severe-storms-flooding-qualify-for-tax-relief-various-deadlines-postponed-to-june-17

The Franchise Tax Board has historically conformed to federal filing relief, but the relief is not automatic. We will provide an updated Flash E-mail if and when the FTB provides a conformity announcement.

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On Wednesday, February 14, 2024, the House failed to pass H.R. 7160, the SALT Marriage Penalty Elimination Act. This is the bill that would have doubled the SALT deduction for married taxpayers filing jointly with adjusted gross income of less than $500,000 for the 2023 tax year only. This means that provision will not be enacted.

This vote does not affect the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024). We are still waiting for a vote on that pending bill. For more information on the provisions in that bill, see our February 1, 2024, Flash E-mail (“Tax deal moves to Senate” available at: www.caltax.com/news/flash-email/2024-05-tax-deal-bill-moves-to-senate/). We will keep you updated on the latest developments with this legislation as it moves through the Senate.

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H.R. 7160, the SALT Marriage Penalty Elimination Act, was passed out of the House Rules Committee today. If enacted, the bill would increase the current $10,000 state and local tax (SALT) itemized deduction limitation to $20,000 for married taxpayers filing jointly if their adjusted gross income is less than $500,000.

• The increase would apply only to the 2023 tax year; and
• The $500,000 AGI threshold would be a cliff, meaning that MFJ taxpayers with $500,000 or more of AGI would still be limited to the $10,000 deduction.

The text of H.R. 7160 is available at:

https://go.spidell.com/e/837113/0Penalty20Elimination20Act-pdf/5wpg9l/1890147251/h/uovL5VJduQ5ggZaDlhAvrJ_rDd5nhIctPpo1hIyIak4

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On January 31, 2024, the U.S. House approved the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024). As we previously reported, this bill would, among other things:

• Increase the Child Tax Credit;
• Retroactively reinstate current expensing for domestic qualified research expenses, 100% bonus depreciation, and the larger business interest expense deduction; and
• Significantly increase Employee Retention Credit (ERC) penalties and impose a January 31, 2024, cutoff date for new ERC claims.

For more information, see Spidell’s January 22, 2024, Flash E-mail (“Text released for proposed federal tax deal bill” available at: www.caltax.com/news/flash-email/2024-03-text-released-for-proposed-federal-tax-deal-bill).

H.R. 7024 will now be taken up in the Senate. It is unclear when the Senate will act on this bill, but we will keep you posted as news develops.

The text of H.R. 7024 is available at:

www.congress.gov/bill/118th-congress/house-bill/7024

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The FTB announced today that there have been delays in processing 2022 business entity tax returns due to systemic issues resulting from programming changes made to accommodate the winter storm disaster extensions. (FTB Tax News, February 2024) This delay is in addition to the stated eight-month time frame for processing business tax refunds.

We have heard from numerous practitioners that the delay is especially impacting LLC refunds claimed on 2022 Form 568, LLC Return of Income, even those that were filed by the original March 15, 2023, deadline.

The FTB anticipates that these returns will now be processed within 30–45 days.

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On January 26, the FTB posted an updated list of its Top 500 Tax Delinquencies, which it is required by law to post twice each year. The list includes the 500 largest personal and corporate tax delinquencies in excess of $100,000. The newest Top 500 Delinquent Taxpayers list includes individuals and businesses; the individual debtors collectively owe the state $246 million, and the businesses collectively owe the state $38.5 million.  

Taxpayers on the list face the following consequences: 

• Some of the taxpayer’s professional or occupational license may be suspended; 
• The taxpayer’s driver license may be suspended; 
• State agencies will not enter into contracts with the taxpayer to acquire goods or services; and 
• The taxpayer’s name, address, and tax debt will be publicly available. 

The lists are available at: 

www.ftb.ca.gov/about-ftb/newsroom/top-500-past-due-balances/index.html

The U.S. House of Representatives has released revised text of the Tax Relief for American Families and Worker’s Act of 2024 (TRAFWA). We previously reported that Congressional tax leaders agreed to a deal for this bill and highlighted some of the agreed-upon provisions. (See Spidell’s Flash E-mail (January 16, 2024) “Congressional tax leaders agree to deal” Available at: www.caltax.com/news/flash-email/2024-02-congressional-tax-leaders-agree-to-deal/)

The text of the bill, in its current state, does not contain any provisions that change our previous reporting, with the exception of foreign research expenses. It does contain some additional noteworthy details, listed below. The bill can, and will likely, still undergo changes between now and final passage. Also note that the expiration of many of these provisions at the end of 2025 coincides with the expiration of many TCJA provisions, which means these will all be renegotiated again in two years’ time.

Note the following:

• The Child Tax Credit of $2,000 per child would be increased annually for inflation for the 2024 and 2025 taxable years (TRAFWA §103);
• When calculating the Child Tax Credit for taxable years 2024 and 2025, taxpayers can elect to use their earned income from the prior taxable year if that helps increase their Child Tax Credit (TRAFWA §104);
• The required five-year amortization under IRC §174 for domestic research expenses is delayed until 2026 and taxpayers would be able to treat these expenses similarly to how they treated these expenses under prior law under a new IRC §174A, retroactive to the 2022 taxable year. Taxpayers who amortized these domestic research expenses in 2022 would be able to apply a modified cut-off change of accounting method in 2023, thereby foregoing the need to file an amended 2022 return. (TRAFWA §201) The delay does not apply to foreign research, which means that foreign research expenses incurred after 2021 would continue to be amortized over 15 years;
• The 100% bonus depreciation rate would be extended retroactively to the beginning of 2023 through 2025, then would drop to 20% for 2026 before expiring on December 31, 2026 (TRAFWA §202);
• Available disaster relief is expanded by:
  • Extending the personal casualty disaster loss provisions to apply to federally declared disasters during the period from January 1, 2020, through 60 days after enactment of the TRAFWA (TRAFWA §402); and
  • Qualified wildfire settlements received by individuals for compensation for losses, expenses, or damages would be excludable from income, but only to the extent these items were not covered by insurance or otherwise. The exclusion would apply to settlements received during the 2020 through 2025 tax year for any post-2014 federally declared disaster. (TRAFWA §403)

Taxpayers may want to consider putting their returns on extension until we see whether this bill is likely to pass.

The text of the bill is available at:

https://go.spidell.com/e/837113/-2024-01-AINS-to-H-R–7024-pdf/5wmgfh/1872520307/h/b4t-988t9r0ma0rLbHzaDBFvZEYIizDfAaDHSi5mz00

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Today congressional tax leaders announced that they have reached a deal that includes, among other items, long-awaited business tax relief, expansion of the refundable portion of the Child Tax Credit, and expanded disaster relief. While this bipartisan agreement is a big step forward, there is still no actual bill, nor any guarantee that these provisions will actually be enacted in a highly divided Congress.

Highlights of the agreement include:

• Increasing the maximum refundable Child Tax Credit from $1,600 to $1,800 in 2023, $1,900 in 2024, and $2,000 in 2025, as well as revising the refundable portion of the credit to be calculated on a per-child basis;
• Retroactively deferring until 2026:
  • The reduction in the 100% bonus depreciation deduction to 80% (originally scheduled to go into effect for property placed in service in 2023);
  • The implementation of the IRC §174 research expense five- or 15-year amortization mandate until the 2026 tax year. (Mandatory amortization went into effect in 2022. Therefore, if this provision is enacted, it may require taxpayers to file amended tax returns.); and
  • The removal of depreciation, amortization, or depletion deductions in the calculation of the business interest expense adjusted taxable income limitation (again, this provision originally went into effect beginning with 2022 tax year and may require amended tax returns);
• Increasing the maximum amount of the IRC §179 current expense deduction to $1.29 million and the investment limitation cap to $3.22 million for property placed in service in 2024, providing inflation adjustments for post-2023 tax years;
• Barring new Employee Retention Credit (ERC) claims after January 31, 2024, and enacting substantial penalties that may be imposed against ERC promoters equal to the greater of:
  • $200,000 ($10,000 in the case of a natural person); or
  • 75% of the gross income derived from the ERC promoter from providing aid, assistance, or advice with respect to a return or claim for ERC refund or a document relating to the return or claim;
• Extending the current five-year statute of limitations for certain ERC claims to six years;
• Retroactively excluding qualified wildfire relief payments from gross income for payments received by individuals during the 2020 through 2025 tax years, allowing disaster-related personal casualty loss provisions for victims of post-2019 disasters, and treating disaster relief payments to victims of the East Palestine, Ohio, train derailment as qualified disaster relief payments for purposes of IRC §139(b);
• Increasing the reporting threshold for filing Form 1099-NEC and 1099-MISC from $600 to $1,000, applicable to payments made after 2023, and providing for inflation adjustments beginning in 2024; and
• Enacting various provisions to prevent double-taxation on U.S.–Taiwan cross-border investments.

www.finance.senate.gov/imo/media/doc/the_tax_relief_for_american_families_and_workers_act_of_2024_technical_summary.pdf

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Starting January 2, 2024, exempt organizations can submit an electronic funds withdrawal (EFW) request for certain payment types using tax preparation software. (FTB Tax News (January 2024)) These payment requests will be accepted as “stand-alone,” and can be submitted separately from the e-filed return which can be filed at a later date.

The following new payment types are available for exempt organizations:

• Quarterly estimate payments; and
• Extension payments.

Corporations, partnerships, limited liability companies, and exempt organizations can still submit EFW requests for return and estimate payments with the e-filed return using tax preparation software.

The following stand-alone EFW payment types are currently available:

• Individuals:
  • Quarterly estimate payments
  • Extension payments
• Fiduciaries:
  • Quarterly estimate payments
  • Extension payments
• Business entities (corporations, LLCs, and partnerships):
  • Quarterly estimate payments
  • Extension payments
  • Annual tax payments
  • Estimated fees
  • Passthrough entity elective taxes

Effective January 1, 2024, the new beneficial ownership reporting requirements kick in for newly formed or registered entities. FinCEN has finally released the new reporting forms, and business entities are now able to complete and submit the FinCEN beneficial ownership report.

This new mandate requires all new, non-exempt entities to complete the report within 90 days after receiving actual or public notice from the Secretary of State’s Office (or similar office) that its creation or registration is effective. Entities in existence prior to January 1, 2024, have until January 1, 2025, to submit the report, but they can do so anytime between now and January 1, 2025.

The reports are available at:

http://boiefiling.fincen.gov/fileboir

FinCEN has also provided detailed instructions on how to complete the form. The instructions are available at:

http://boiefiling.fincen.gov/help

For more information on which entities are required to register, and the substantial penalties for failing to register, attend an upcoming Spidell update webinar or seminar.

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The FTB has completed sending the vast majority of Middle Class Tax Refund (MCTR) payments. In 2022, the FTB announced that they would be sending Forms 1099-MISC for payments of $600 or more; however, for a payment received in 2023, the FTB will not issue Form 1099-MISC for this income. (FTB Tax News (January 2024)) 

The FTB previously stated that taxpayers receiving a MCTR payment would receive a 1099-MISC in January 2024.  

The IRS will not challenge the taxability of these payments and the payments are not required to be reported as income. (IR-2023-23) 

On December 22, 2023, the IRS announced a new online registration tool for eligible taxpayers who want to monetize their energy credits. (IR-2023-249) Registration is required before any qualifying business, tax-exempt organization, or government or tribal entity can monetize their energy credits under the Inflation Reduction Act and the Creating Helpful Incentives to Produce Semiconductors Act.

Once an entity registers through the IRS’s registration tool, which can be found at the link below, the taxpayer must receive a registration number from the IRS before monetizing their energy credits. The IRS recommends registering at least 120 days prior to filing the entity’s income tax returns for the year it intends to elect to monetize its credits so that the IRS has plenty of time to review the registration process on its end.

Monetizing energy credits involves either selling the credits or electing to treat the credits as tax payments (the latter is generally limited to nonprofits and governmental agencies). Additionally, credit monetization is only available for taxable years beginning after December 31, 2022.

The registration website is at:

www.irs.gov/credits-deductions/register-for-elective-payment-or-transfer-of-credits

The IRS news release is available at:

www.irs.gov/newsroom/irs-opens-free-ira-and-chips-pre-filing-registration-tool-for-organizations-to-register-to-monetize-clean-energy-credits

 Sign up for Spidell’s 2023/24 Federal and California Tax Update for details regarding monetizing energy credits and for registration tips from tax professionals who have already gone through the registration process. Click here to register.

The IRS has announced a new Employee Retention Credit (ERC) Voluntary Disclosure Program, under which eligible taxpayers can repay only 80% of the gross amount of credit erroneously claimed, while retaining the remaining 20%. (IRS Announcement 2024-3)

Taxpayers that want to participate in the Voluntary Disclosure Program must file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, on or before 11:59 pm local time March 22, 2024. Form 15434 must be submitted to the IRS through its Document Upload Tool at:

www.irs.gov/help/irs-document-upload-tool

Eligible taxpayers must meet all four of the following requirements:

1. The taxpayer cannot be under criminal investigation and they cannot have been notified that the IRS intends to commence a criminal investigation;
2. The IRS has not received information from a third party alerting the IRS to the participant’s noncompliance, nor has the IRS acquired information directly related to the noncompliance from an enforcement action;
3. The taxpayer is not under an employment tax examination by the IRS for any tax period for which the taxpayer is applying for the ERC Voluntary Disclosure Program; and
4. The taxpayer has not previously received a notice and demand for repayment of all or part of the claimed ERC.

Taxpayers whose ERC claims were filed by third-party payers, such as an agent or a professional employer organization, must apply for the Voluntary Disclosure Program through the third-party payer.

For more information on how this voluntary disclosure program works, sign up for Spidell’s 2023/24 Federal and California Tax Update. Click herefor details.

The IRS is granting about $1 billion in automatic late-payment penalty relief to 4.7 million individuals, businesses, and tax-exempt organizations that were not sent automated collection reminder notices related to 2020 and 2021 tax returns as a result of COVID-19 pandemic relief. (IR-2023-244; IRS Notice 2024-7)

Relief is only available to individuals or entities:

• With assessed income tax of less than $100,000, excluding any applicable additions to tax, penalties, or interest (determined on a per-return basis);
• Who were issued an initial balance due on or before December 7, 2023, for the 2020 or 2021 taxable years; and
• Who are liable for failure-to-pay penalties related to specified eligible returns listed in Notice 2024-7 (Form series 1040, 1041, 1120, and 990-T).

The relief will be automatic and penalties previously paid will be refunded or credited. The relief does not apply to interest accrued.

Adjustments will be made to individual and business accounts in December and January and to trusts, estates, and tax-exempt organizations in late February to early March.

The IRS will issue a notice to each eligible taxpayer that reflects the updated amount owned and any refund or credit due to the taxpayer.

The IRS press release is available at:

www.irs.gov/newsroom/irs-helps-taxpayers-by-providing-penalty-relief-on-nearly-5-million-2020-and-2021-tax-returns-restart-of-collection-notices-in-2024-marks-end-of-pandemic-related-pause

IRS Notice 2024-7 is available at:

www.irs.gov/pub/irs-drop/n-24-07.pdf

Sign up for Spidell’s 2023/24 Federal and California Tax Update and see why more than 18,000 tax professionals choose Spidell each year. Click here for details.

The CDTFA will open a new office starting at 8 a.m. on January 8, 2024, at: 

455 Market Street, Suite 620
San Francisco, CA 94105 

The new location can be reached at: 

(415) 356-6600 

For a listing of all CDTFA offices, go to: 

www.cdtfa.ca.gov/office-locations.htm

California businesses of any size or industry can apply to receive an income tax credit through the California Competes Tax Credit (CCTC) program.  

For the 2023–2024 fiscal year, GO-Biz will accept applications for the CCTC during the remaining application periods: 

• January 2, 2024 – January 22, 2024: $164 million in tax credits available 
• March 4, 2024 – March 18, 2024: $164 million in tax credits available plus any remaining unallocated amounts from the previous application periods 

Applicants will be evaluated based on 12 factors, including: 

• Number of jobs created or retained; 
• Amount of investment; 
• Overall economic benefit to the state; and 
• Opportunities for future growth and expansion. 

More information is available at:  

https://business.ca.gov/california-competes-tax-credit/

The IRS has confirmed that some CP14s have been sent out erroneously to California taxpayers who qualified for November 16, 2024, disaster-related payment and filing postponements. If taxpayers received these notices and have confirmed that these payments/filings have been made correctly, no further action is required.

Sign up for Spidell’s 2023/24 Federal and California Tax Update and see why more than 18,000 tax professionals choose Spidell each year. Click here for details.

The IRS will treat 2023 as an additional transition year for implementation of the American Rescue Plan Act’s lower 1099-K reporting threshold, but only for third-party network transactions, such as those through Venmo, PayPal, Apple Pay, online marketplaces, etc. (IRS Notice 2023-74)

The IRS will not regard 2023 as a transition year with respect to payment card transactions, which are transactions where a customer pays with a credit card, such as Visa, Mastercard, or American Express.

This means that taxpayers who receive payments through third-party network transactions should not receive Form 1099-K for the 2023 taxable year, unless the aggregate payments received through a single third-party network exceeded $20,000 and the total number of transactions exceeded 200 for the year.

However, taxpayers should expect to receive Form 1099-K for the 2023 taxable year for credit card transactions if the aggregate payments received through a single credit card company exceeded $600, regardless of the number of transactions.

In the IRS’s press release announcing the 1099-K reporting delay, it stated that at a later date it intends to announce a filing threshold for third-party network transactions for 2024 of $5,000. (IR-2023-221) The $5,000 filing threshold for 2024 was only part of the press release and was not made part of Notice 2023-74.

The IRS Notice 2023-74 is available at: www.irs.gov/pub/irs-drop/n-23-74.pdf

The IRS press release is available at: www.irs.gov/newsroom/irs-announces-delay-in-form-1099-k-reporting-threshold-for-third-party-platform-payments-in-2023-plans-for-a-threshold-of-5000-for-2024-to-phase-in-implementation

We’ll cover this topic and all of the tax law changes that happened in 2023 at Spidell’s 2023/24 Federal and California Tax Update. Click here for details.

Effective January 1, 2024, the state disability insurance (SDI) tax (currently set at 1.1% for 2024) will apply to an employee’s total wages rather than being capped at a specified amount. (UIC §985) For 2023, the maximum wage base that the tax could be applied to was set at $153,164.

Elimination of the wage base essentially amounts to a 1.1% tax increase on wages above the current $153,164 wage base. However, California employers may consider participating in a voluntary plan instead of the SDI program, especially if they have a number of highly compensated employees. Also, sole shareholders are allowed to elect out of SDI and may buy disability insurance on the private market which, with the removal of the wage base cap, may now be cheaper than SDI. (See the December 2022 and April 2023 issues of Spidell’s California Taxletter^® for more information.)

The FTB is extending the timeline to enter into a closing agreement as part of a limited-time resolution program for eligible taxpayers who engaged in certain micro-captive insurance or syndicated conservation easement transactions. (FTB Notice 2023-03)  

Taxpayers will now have until January 31, 2024, to enter into closing agreements to reverse the tax benefits from these transactions and receive reduced penalties for any applicable tax year. All outstanding taxes, interest, and penalties must be paid at the time the taxpayer submits the closing agreement. However, if the taxpayer can demonstrate financial hardship, they can enter into an agreement to pay the tax over a 12-month period. 

For additional information see the July 2023 article entitled “Limited time to avoid penalties for certain abusive transactions” in Spidell’s Strategic Tax Advisor.

In early 2023, the FTB introduced Notice-Based Self-Service (NBSS) which provides taxpayers and tax representatives the option to respond to notices via a URL on the notice. (FTB Tax News (November 2023)) This response method is in available addition to the usual methods of mail, phone, or through a MyFTB account. NBSS does not require the taxpayer or representative to have a MyFTB account; they only need to follow the directions on the notice and respond using the new NBSS online process.

If the taxpayer has the option to respond using NBSS, there will be an “Electronic Upload” option under “Send Documents” on the notice. The URL will be available for timely responses only, as indicated for the type of notice the taxpayer receives. After submission, the taxpayer or representative will receive a confirmation number validating a response has been sent.

In October 2023, the FTB expanded NBSS to include additional notices and will continue to expand the number of notices available for the NBSS online process over the next few years.

The IRS has reminded tax preparers that all 2023 PTINs will expire on December 31, 2023. (PTINs expire on December 31 of the calendar year for which they are issued.)  

The fee to renew or obtain a PTIN for 2024 is $19.75. The fee is set at $11 per application or renewal (plus an $8.75 fee payable to the third-party contractor). Failure to have and to use a valid PTIN may result in penalties. 

To prepare for the upcoming filing season, tax preparers can renew their PTIN online at: 

www.irs.gov/tax-professionals    

First-time PTIN applicants can also apply for a PTIN online.