Updates on Tax Rules 2024

Reporting for certain cryptocurrency payments must occur within a 15-day timeframe upon receipt

A filing requirement now applies to cryptocurrencies.: any business receiving cash, coins, and, as of January 1st, 2024, cryptocurrency as a payment for services or goods must report such payments on Form 8300 if the payments exceed $10,000 per transaction within 12 months.

The form must be filed within 15 days after the receipt of cash and contain:

👉🏻 The name, address, and taxpayer identification number of the individual or entity from whom the cash was received.
👉🏻 The name, address, and taxpayer identification number of the person on whose behalf the transaction was conducted if the recipient is aware or has reason to believe that the individual providing the cash is acting as an agent for someone else.
👉🏻 The cash amount received, along with the transaction date and its nature
👉🏻 Any additional miscellaneous information as specified by the form.

In general, electronic filing is predominantly required, with a relatively low threshold for businesses. This applies to those obligated to submit a combination of at least 10 specific information returns, excluding Form 8300, such as the Form 1099 series (e.g., Form 1099-B) and Form W-2.

Be careful:

Those submitting an information return must authenticate the identity of the individual providing reportable cash. If someone claims to be an alien, verification requires scrutinizing their passport, alien identification card, or another official document indicating nationality or residence. For others, identity confirmation may involve inspecting a standard identification document used for cashing checks, like a driver's license or credit card. Additionally, a return will be deemed incomplete if the filer is aware or has reason to believe that an agent is conducting the transaction for a principal, and the return fails to identify both parties.

Those obligated to submit Form 8300 must provide an annual written statement to each individual named in the return ("identified person"). While the statement doesn't require a specific format, it must include the name and address of the individual submitting the return, the total amount of reportable cash received by the person filing the information return in all cash transactions with the identified person throughout the calendar year, and a statement indicating that the information is reported to the IRS.

Provide statements to identified individuals by January 31 of the year following the calendar year in which the cash is received. The statement is considered furnished if mailed to the identified person at their last known address. Electronic provision is also acceptable if the recipient consents to receive the statement in this format.

Records for this filing must be maintained for five years.

You have the option to voluntarily file the form to report any suspicious transaction to be utilized by FinCEN and the IRS, even if the total amount is below $10,000. A suspicious transaction is defined as one in which there seems to be an effort by a person to prevent the filing of Form 8300 or to submit a false or incomplete form.

IRS Form 8300 Reference Guide | Internal Revenue Service
Form 8300 (Rev. August 2014) (irs.gov)

If you anticipate that your business will be impacted, we advise initiating preparations for this upcoming compliance requirement promptly to ensure timely readiness. Feel free to reach out with any inquiries, as our staff is ready to assist you.

All U.S. business owners need to be informed about a recent filing obligation overseen by the Financial Crimes Enforcement Network (FinCEN). Every non-exempt entity must now gather details about its beneficial owners and submit this information to the agency. Certain exemptions apply 👇🏻

Beneficial owners subject to reporting are individuals who possess a direct or indirect ownership stake of at least 25% in the entity or exert significant "control" over the entity, such as holding a position as an officer or director.

To comply with FinCEN, you must furnish the subsequent details for every beneficial owner:

• Full Name
• Date of Birth
• Residential Address
• A distinctive identification number obtained from an accepted identification document.

Furthermore, for companies established or registered on or after January 1, 2024, the identical details must be reported for their company applicants, with a limit of up to two individuals who meet the criteria as company applicants.

• The person directly submitting the document for the creation or registration of the company.
• If multiple individuals are engaged in the filing process, the person is chiefly accountable for guiding or overseeing the filing.

The reporting entity must additionally submit a picture of the identification document used to acquire the unique identifying number. If the company applicant is engaged in corporate formation, such as being an attorney or corporate formation agent, the reporting entity must disclose the business address of the company applicant. If not, the reporting entity should report the residential address of the company applicant.

If your company was established or registered before January 1, 2024, the reporting deadline is January 1, 2025. For companies formed or registered on or after January 1, 2024, the report must be submitted within 30 days (potentially extended to 90 days) from the creation or registration date. It's important to highlight that any modifications or corrections to the previously filed beneficial ownership information with FinCEN must be reported within 30 days (possibly extended to 90 days).

It is advised to involve your legal counsel to finalize this report and ensure compliance with all deadlines. Failure to comply will result in potential civil penalties of $500 per day and criminal penalties, including fines up to $10,000 and/or imprisonment for up to two years, for willful non-compliance with the beneficial ownership reporting obligations outlined in the Corporate Transparency Act. These penalties may be applicable to the responsible individuals within the entity, the beneficial owners, and their advisors.

Please carefully review the reporting requirements here: FinCEN’s Small Entity Compliance Guide. Please see additional FAQs Beneficial Ownership Information Reporting | FinCEN.gov  

Individuals acting as nominee owners or those whose control is exclusively based on their employment with the entity are exempt from reporting requirements.  

Research and Experimental expenses

Recent recommendations regarding Research and Experimental (R&E)
Expenses Code Sec. 174:

Research and Experimental expenses incurred in the years starting after 12/31/2021 must be capitalized and amortized over 5 and 15 years for US and foreign research, respectively.  
Taxpayers must look at where the activities are performed to determine whether the corresponding expenditures are attributable to foreign research. There is a mid-year convention for amortization in year one - that is, amortization is ½ of the usual amount, as all the costs are assumed to be incurred on July 1st of that tax year, the mid-point. Any development of computer software are a capitalizable expense. A recently released notice offers comprehensive instructions on calculating Research and Experimental (R&E) Expenses. The notice furnishes detailed insights into the application of these regulations, outlining the following information.

Examples of expenses that can be capitalized, not intended to be exhaustive:
‍
Labor Costs: All components of compensation, excluding severance pay.
Materials and Supplies: Costs that are not capitalized should be depreciated as equipment.
Cost Recovery Allowance: The annual cost recovery depreciation of capitalized equipment costs is considered a capitalizable R&E expense.
Patent Costs: Attorney fees and government fees associated with patents are capitalized.
Certain Operation and Management Costs: Overhead costs such as rent, utilities, insurance, taxes, repairs and maintenance, security costs, etc., pertaining to facilities, equipment, and other assets used in research and experimental activities. Allocation of various operation and management costs to R&E activities is necessary.
Travel Costs: Travel expenses related to R&E activities are subject to capitalization

Examples of expenses that cannot be capitalized, and the list is not exhaustive:
‍
General and Administrative Costs: This includes services such as those provided by payroll personnel, human resources personnel involved in hiring research personnel, accounting personnel managing research expenses, and general business attorneys, even if they indirectly benefit R&E activities.Interest on Debt for R&E Activities: Interest expenses incurred to finance research and experimental activities are not capitalizable.
Software Development Activities: Various costs related to software development are excluded from capitalization.
Content Input Costs for Websites: Expenses associated with inputting content into a website are not eligible for capitalization.
Website Hosting Costs with Specified Periodic Fees: Costs related to website hosting, involving periodic payments to an Internet service provider for hosting a website on its server(s) connected to the Internet, are not capitalizable.
Expenses for Registering Internet Domain Names or Trademarks: Costs incurred for registering an Internet domain name or trademark are not capitalizable.

Activities in regulations:

(i) The ordinary testing or inspection of materials or products for quality control (quality control testing);
(ii) Efficiency surveys;
(iii) Management studies;
(iv) Consumer surveys;
(v) Advertising or promotions;
(vi) The acquisition of another's patent, model, production, or process; or
(vii) Research in connection with literary, historical, or similar projects.

Allocation of costs should be determined by the cause-and-effect relationship with Research and Experimental (R&E) activities or through other reasonable methods. Consistency is crucial, and the chosen allocation method for each cost type must be consistently applied. For instance, labor costs can be allocated based on time spent, and rent can be allocated based on the footage used, as specific examples.

Computer software includes a computer program, a group of programs, and upgrades and enhancements.

The term upgrades and enhancements generally means modifications to existing computer software that result in additional functionality (enabling the software to perform tasks that it was previously incapable of performing), or materially increase the speed or efficiency of the software.

Examples of expenses related to software development that are considered Research and Experimental (R&E) activities include:

• Planning the development of computer software, including the identification and documentation of software requirements.
• Designing the computer software, including upgrades and enhancements.
• Building a model of the computer software, incorporating upgrades and enhancements.
• Writing source code and converting it into machine-readable code.
• Testing and addressing defects in the software, up until the point it is placed in service (for internal use) or is ready for sale to customers.
• Production of a product master.

Examples of software development expenses that are NOT treated as R&E:
Expenses associated with purchased software, such as reengineering for compatibility with business processes and integration, are not eligible for capitalization. The following activities also do not qualify for capitalization:

• Training employees and other stakeholders for the use of computer software.
• Maintenance activities performed after the software is in service, excluding those that involve upgrades and enhancements (e.g., debugging and fixing programming errors).
• Data conversion activities, except when developing software to facilitate access to existing data or data conversion.
• Installation of computer software and related activities for placing the software in service.
• Marketing and promotional activities.
• Maintenance activities that do not result in upgrades and enhancements.
• Distribution activities, such as making the software available via remote access.
• Customer support activities.

For Research and Experimental (R&E) activities conducted on behalf of another party:

• If the research provider assumes financial risk according to the contract with the research recipient, the associated costs are capitalized.
• Even in the absence of financial risk for the research provider, if they have the right to benefit from the research, the relevant costs are still subject to capitalization.
• Upon disposal or retirement of the property resulting from the R&E activities, immediate deductions for unamortized costs are not permitted. Instead, continued amortization on the established schedule is required. However, in the event of a corporate liquidation, deductions for unamortized costs can be taken in the same year.
• Feedback is invited, and additional guidance is anticipated.

The Congress has been trying to cancel these rules for four years and may do so at any time.

Guidance on Amortization of Specified Research or Experimental Expenditures under Section 174 (irs.gov)

Feel free to contact us with any inquiries or assistance you&your business may need.
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