Dear [CLIENT NAME]:

We hope that you and your family are doing well. Enclosed is your annual organizer for your 2023 taxes. It’s been an interesting year with important tax changes that will impact you. Here are some of the changes and issues you need to know about.

Tax return due dates:

• Individuals must file returns by April 15, 2024, for the 2023 tax year;
• Partnerships and S corporations must file returns by the 15th day of the third month following the close of the taxable year (March 15 for calendar-year taxpayers);
• C corporation returns are generally due by the 15th day of the fourth month following the close of the taxable year (April 15 for calendar-year taxpayers); and
• W-2s and 1099s must be filed by January 31, 2024, for the 2023 tax year.

SECURE 2.0 Act: Passed in the closing days of 2022 as part of the annual year-end appropriations bill, the SECURE 2.0 Act, like its predecessor, the SECURE Act, which was passed in 2019, makes significant retirement changes, including increasing the age at which required distributions must be made, changing the catch-up contribution limits for older workers, and numerous Roth account changes, among many more.

Clean vehicle credits: Starting in 2023, taxpayers have three separate tax credits available for the purchase of clean vehicles: a credit for new vehicles, a credit for previously-owned vehicles, and a credit for business vehicles. Each credit contains many rules and limitations, and starting in 2024, some of these credits can be claimed at the dealership at the time of purchase.

Be sure to discuss the tax ramifications with us if you are unsure whether you qualify for a vehicle credit.

Property transactions: Did you sell any real estate this year? Be sure to provide copies of escrow statements, as well as the Loan Estimate form and the Closing Disclosure form. We need these documents to properly prepare your return. If you can get them to us as early as possible, we can make sure we have everything we need, and make sure that any state withholding documentation is correct.

1099s and K-1s: If you received 1099s or K-1s from investments in 2023, we may extend your return in case these documents are corrected after the original filing deadline. We are seeing increasing numbers of corrected information returns, which require taxpayers to amend their original tax returns to reflect the corrected amounts. In some cases, the amounts are vastly different and can create additional costs in amending the tax returns and potential penalty problems.

1099-Ks: The filing threshold for 1099-Ks has dropped to $600 for 2023. If you receive income through a third-party settlement provider (such as a credit card company or even a mobile phone app like Venmo or Apple Pay, among many others) then you may receive a 1099-K for that income even if you haven’t in the past.

Be sure to provide a copy of any 1099-Ks you receive and let’s discuss the source of the income. In the case of mobile phone payment apps, if you designated your account as a business account, but receive payments for non-business items, then you may receive a 1099-K for income that should not be taxable to you. Do not ignore the 1099-K. The IRS will expect you to report the income. If the income was not receive in exchange for goods and services then we can report the 1099-K in a way that ensures you are not taxed on it.

Foreign accounts: We must report overseas assets owned by businesses as well as individuals. The reporting requirements are increasing and the penalties for failure to report continue to be harsh. Not all foreign holdings must be reported. If, for example, you hold stock in a foreign company through a U.S. broker, those holdings do not have to be separately reported. However, if you hold any other types of foreign assets, including bank accounts and securities accounts, please let us know. If you have any doubt as to whether any of your assets are foreign, please discuss those assets with us. Again, this year we will need information on a business’ foreign holdings as well.

Please take extra care in preparing your organizer and documentation so we can do the best possible job to find new tax benefits that are hidden in the law and protect you from more aggressive audit programs and larger penalties.

Yours truly,

Your tax professional

Dear [CLIENT NAME]:

You are receiving this letter because there are special rules pertaining to the way the IRS audits all partnerships (and LLCs taxed as partnerships). These rules are referred to as the Centralized Partnership Audit Regime (CPAR) or BBA partnership rules by the IRS.

Additional taxes assessed due to an audit will be owed by the partnership or LLC directly and will be assessed in the “adjustment year” based on adjustments found in the “reviewed year.” This effectively shifts the economic burden of the additional tax liability from those persons who were partners for the year under audit (the reviewed year) to the current partners in the partnership or LLC. In order to address potential partner inequities resulting from these new partnership audit rules, we recommend discussing amendments to your partnership agreement with your partnership attorney.

In general, all adjustments resulting from the audit will be netted, and if an “imputed underpayment” for the adjustment year is calculated, then it is assessed using the highest tax bracket for individuals. In 2023, the highest tax rate for individuals is 37% for ordinary income.

The new rules allow partnerships to elect out of the new partnership audit process annually on your partnership’s income tax return, but only if certain requirements are met. You can’t wait until you are selected for audit to elect out of the CPAR rules. For partnerships that are eligible to elect out of the CPAR rules, doing so is often the most appropriate course of action.

Also under the CPAR rules, partnerships must elect a partnership representative. This representative does not need to be a partner and is the only party authorized to act on behalf of the partnership and all of its partners during the course of an IRS audit. All agreements made by the partnership representative and the IRS are binding on the partnership and its partners. The election of a partnership representative should be accomplished by amending your partnership agreement and is made on the partnership’s income tax return each year.

Further information

This is a simplified overview of the complex CPAR rules. Please contact our office to discuss how these new rules will affect your partnership and the changes you should consider making to your partnership agreement to address these new audit rules.

Sincerely,

Your tax professional

The FTB has announced that it will commence sending out its annual notices in December, including FTB 4693, State Income Tax Balance Notice. Due to the tax filing extensions from the winter storms, the FTB had delayed sending out these notices until now. (FTB Tax News, December 2023)

The EDD unveiled its new ID.me identity verification system after opening up its claim processing system that was shut down for two weeks to address the hundreds of thousands of unprocessed unemployment insurance claims. (EDD News Release No. 20-52) The new ID.me system is an automated identification verification process that uses multiple data sources to authenticate identity documents or a virtual in-person session requiring specific knowledge of an individual’s financial history. The EDD aims to have more than 90% of unemployment insurance claims processed automatically, reducing the current 40% of cases that have been flagged to be processed manually.