David Bolner

The 2024 tax event season was marked by significant in-person tax information reporting conferences including the EEI International Tax Withholding and Information Reporting conference in New York, and The Tax Reporting Group Conference just outside of Washington DC.

These events brought together the Internal Revenue Service (IRS) with financial services tax operations, tax advisory, service providers and corporate tax professionals and a valuable opportunity for attendees to connect with other industry thought leaders.

From the events, we saw several consistent themes and topics emerge shaping the discussions and providing key insights into the current and future state of tax information reporting. including:

Digital Assets

Tax information reporting on Digital Assets was featured prominently at all conferences. Discussed amongst industry and with Regulators were aspects of the draft US digital asset tax regulations, including:

• Draft Form 1099-DA - A draft digital asset reporting form was released by the IRS on April 19, 2024. The Form 1099-DA and instructions were discussed with regulators and expectations are for the form to be completed by end of 2024 for use during the 2025 tax reporting period. LINK to the draft Form 1099-

• Final Digital Asset regulations - The draft regulations were issued on August 25, 2023, and the IRS has received unprecedented level of comments. The IRS and Treasury are now faced with the daunting task of going through all the comments and adjusting the draft regulations accordingly. Link to the draft regulations

• Current obligations with draft regulations - The draft regulations call for Brokers to capture cost basis information for Digital Assets acquired from January 1, 2023. This information will be used for gross proceeds reporting for sales from January 1, 2025, and cost basis reporting for assets sold on/after January 1, 2026. Even without final regulations, Brokers should be capturing digital asset cost basis information for all of 2023.

• Digital Assets have multiple upcoming global reporting regimes impacting Brokers - There are multiple global tax information reporting regulations all coinciding within a similar timeframe. In addition to the US Digital Asset regulations there is also the OECD (Organization for Economic Co-Operation and Development) CARF (Crypto Asset Reporting Framework) and, CRS (Common Reporting Standards) updates for Digital Assets all coming over the next few years. Each regulation has its own time frame and nuance and is a lot to keep track of. These regulations have a collective aim to close the reporting gap for Digital Asset transactions, enhancing transparency and reducing tax evasion but will also leave the Digital Asset Broker with multiple regulations to implement.

IRS is getting bigger

The IRS very publicly received extra tens of billion dollars in the 2022 Inflation Reduction Act with additional proposals to receive more funding in 2025. The regulators highlighted the impact of the funding on the information reporting area within the IRS. The IRS foreign payment practice is adding new teams to the program office, withholding and credits and field compliance groups. Also, the IRS is investing in new technology capabilities for reviewing data. This all leads to greater Tax Information reporting enforcement by the IRS and something firms should consider.

Other Hot Topics

Every year brings new tax information reporting updates and regulations as was also evident at this year's tax reporting events. Here are details on some of the new hot topics. Highlighting from the new areas discussed.

• Electronic Form 1042 reporting: Notice 2024-26 (issued Feb 27, 2024) delayed electronic filing of the 1042 for 2023. For US withholding agents, electronic submission is now required for 2024 1042 (due March 15, 2025) and for non-US withholding agents, electronic submission is now required for 2025 1042 (due March 15, 2026). Both can be six months later with an extension. N-2024-26 (irs.gov)

• Recipient copy extension Form 15397 - The conferences highlighted a new form for a 30-day extension of sending recipient copies of forms including Forms 1099 and 1042-S. Form 15397, Application for Extension of Time to Furnish Recipient Statements., replaces the previous guidance of faxing a letter with specific information to the IRS. The form was released in February 2024. Extension of time to furnish statements to recipients | Internal Revenue Service (irs.gov)

• Safe Harbor de minimis error - Final regulations issued in January 2024 provide a safe harbor exception for information reporting penalties related to providing correct information to the IRS and payees. The payee does not need to correct reporting errors for income difference when the difference between any single amount in error and the correct amount is equal to or less than $100 and withholding amounts when the difference with respect to an amount tax withheld is equal to or less than $25. IRB 2024-03 (Rev. 01-16-2024) (irs.gov)

• Form W-9 update - New line 3b on Form W-9. The Form W-9 has a new check box that applies to US "flow through entities" (partnerships, trust, etc..) when providing to another flow through entity. The final requester instructions reiterate the instructions found on Form W-9, taxpayers are only required to verify that the box on Line 3b has been properly checked if they are a flow-through entity that is otherwise required to obtain a Form W-9 from a partner, owner, or beneficiary. This was in response to industry concern about verification when the payee is not a partner of a partnership (e.g., service relationships with brokers or other vendors like law firms).

For more information see About Form W-9, Request for Taxpayer Identification Number and Certification | Internal Revenue Service (irs.gov)

Treaty updates- recent treaty updates between the US and other nations were highlighted and included:

• United States and Chile - A new treaty for Chile went into force February 1, 2024, which includes reduced withholding treaty rates for dividends and interest.
• United States and Hungary - The US treaty rates with Hungary expired end of 2023 with an effective date of January 1, 2024, and includes no reduced treaty rates on US source income for Hungary residences.
• United States and Russia -Subsequent to the conferences but worth highlighting as on June 17, 2024, the US Treasury department confirmed the suspension of US -Russia tax treaty going into effect on August 16, 20224. At this time, taxpayers may no longer claim benefits pursuant to the income tax treaty between Russia and the US. This provides two months to update systems with new withholding tax rates.

Financial institutions should make sure their systems are updated for the new treaty rates.

§871(m) - Notice 2024-44 extends transition relief for Section 871(m) two years until December 31, 2026. The Notice restates the regulator's intention to "provide sufficient time for taxpayers and withholding agents to implement any changes to the section 871 (m) regulations." The relief includes:

• §871(m) does not to apply to non-delta one transactions issued prior to January 1, 2027
• Withholding agents are not required to combine transactions through 2026 that are either:
  • listed.
  • or over the counter (OTC) - so long as they are not priced, marketed or sold in connection with each other
• The IRS will consider the extent to which the taxpayer or withholding agent makes a good faith effort to comply regarding enforcement of the §871(m) regulations for: 1) any delta-one transaction in 2017 through 2026; and 2) any non-delta-one transaction that is a section 871(m) transaction in 2027.

These are some of the highlights from conferences our team of S&P Global Market Intelligence Tax Solutions experts have attended in the US. As industry experts, our team has firsthand experience working with clients to simplify their tax compliance and due diligence processes. Be sure to set up time with us to learn more. We look forward to sharing additional information reporting from the upcoming Fall conference schedule.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.