Major Tax and Financial Reporting Developments of 2024
This year wasn't shy of tax and accounting news making waves for both taxpayers and professionals. Here are my top selections for the noteworthy tax and accounting storylines of 2024:
The Political Landscape Shift
Political elections generally capture attention, and the 2024 election season was no exception. On November 6, news broke that Donald Trump would once again claim the Oval Office, with the Republicans also taking control of the Senate and the House.
The prospects of immediate tax reductions may surface, but their implementation speed remains uncertain due to reconciliation processes. Some campaign promises and proposals will likely take a backseat, while others will gain traction, such as the expiring provisions under the Tax Cuts and Jobs Act. Additionally, Trump plans to implement new tariffs, albeit possibly on a more moderate scale than suggested throughout his campaign.
Furthermore, residents from various states had the opportunity to vote on a plethora of tax-related measures, from property tax relief to cannabis taxes. Approximately one-third of all states had some tax or revenue matter appearing on the ballot, excluding municipalities.
Weather-related Woes
The nation was plagued by numerous natural disasters in 2024, including Hurricanes Beryl, Debby, Helene, and Milton. Severe weather conditions triggered damage in South Dakota, Puerto Rico, and regions in Connecticut and New York. Wildfires also ravaged western areas. Consequently, the IRS managed to push back the filing deadlines for federal income tax returns for affected parties—victims of Hurricanes Beryl and Debby up until February 3, 2025, and for those impacted by Helene and Milton up until May 1, 2025.
The Financial Crimes Enforcement Network (FinCEN) also provided filing deadline extensions for Reports of Foreign Bank and Financial Accounts (FBARs) and Beneficial Ownership Information (BOI) reporting.
Moreover, Congress approved tax relief for wildfire victims.
IRS Ramping Up Efforts
Leveraging Inflation Reduction Act funding, the IRS implemented some changes in 2024, including intensifying compliance efforts regarding high-income taxpayers. IRS Commissioner Danny Werfel revealed that over 125,000 non-filed tax returns from 2017 would receive compliance letters. These letters would primarily target taxpayers with income exceeding $1 million, along with 100,000 individuals with incomes between $400,000 and $1 million during the 2017-2021 tax years.
The new effort aimed to prompt taxpayers to pay their outstanding taxes. In early 2024, Werfel reported that focused efforts directed toward taxpayers exceeding $1 million in annual income and more than $250,000 in recognized tax debt were yielding significant outcomes.
Earlier in 2024, Werfel also announced IRS audits on business aircraft that were primarily used for personal purposes. These audits commenced in the spring of 2024, focusing on large corporations, large partnerships, and high-income taxpayers.
Admitting Mistakes
The IRS had to acknowledge a data breach in October 2023, when a former IRS contractor named Charles Littlejohn admitted to disclosing tax return and return information without authorization. In January 2024, Littlejohn was sentenced to five years in prison for releasing thousands of tax returns—including Donald Trump's—illegally.
Furthermore, many taxpayers affected by the data breach received notifications from the IRS early in 2024. Around the same time, Kenneth C. Griffin, the founder and CEO of Miami-based hedge fund Citadel, reached a settlement in his lawsuit against the IRS. Griffin sought compensation due to the agency's alleged failure to secure his tax information. The settlement details were kept confidential, however, resultant in a public apology from the IRS.
Adjusting Reporting Thresholds
In 2024, the IRS announced new changes to the $600 Form 1099-K reporting threshold for third-party settlement organizations. The revised threshold will only trigger reporting when the taxpayer has exceeded $5,000, regardless of transaction numbers. The threshold will be reduced gradually, to $2,500 for transactions in 2025, and then reach the original $600 threshold in 2026 and beyond.
As such, taxpayers below this adjustment will not receive Form 1099-K for early 2025, under the same circumstance in which no form was provided last year. It's worth noting, however, that some transaction threshold companies may still send Form 1099-K for totals exceeding $600—taxpayers in this situation should not worry as the tax treatment remains unaffected.
In 2017, a provision within the Tax Cuts and Jobs Act had the potential to disrupt the tax industry. This provision required companies to pay tax on previously untaxed foreign profits, a situation which was challenged in court. In a divisive decision, the Supreme Court determined that the mandatory repatriation tax, which attributes foreign corporation income to American shareholders and subsequently taxes their shares, does not surpass Congress's constitutional authority.
This law contained two primary components: (1) It clarified that, when certain foreign corporations, including Controlled Foreign Corporations (CFCs), distribute their earnings as dividends to U.S. corporate shareholders, such earnings become tax-exempt; and (2) It included a one-time mandatory repatriation tax to ensure that previously deferred income would not evade future taxation.
The mandatory repatriation tax targeted U.S. shareholders who owned 10% or more of foreign corporations primarily controlled or owned by American entities. As a part of the new law, shareholders had to account for deemed income proportionate to their ownership interest, dating back to 1986. This taxation initiative served as a revenue-generator to help transition U.S. corporate taxation from a worldwide system to a territorial one, where U.S. corporations are taxed exclusively on their domestic-source income. In 2018, U.S. multinational enterprises allegedly distributed around $777 billion to U.S. shareholders, with the mandated repatriation tax projected to generate approximately $340 billion in tax revenue.
A lawsuit to invalidate the provision was unsuccessful.
The Court also declined to address the debate over whether realization is a constitutional prerequisite for an income tax (a suggestion that may have related to the proposed wealth tax during the 2024 presidential election debate).
The European Union Sets Its Sights on Apple
The European Union's highest court ruled that Apple must pay billions in back taxes as a result of an ongoing legal dispute over tax benefits. In this case, the Court of Justice of the European Union (CJEU) determined that companies belonging to the Apple Group gained unlawful and incompatible tax advantages that benefitted the Apple Group.
This case originated over a decade ago, when an initial inquiry was launched to investigate whether Apple had made preferential tax arrangements with Ireland to reduce its tax liability. In 2014, the European Commission commenced an official investigation, suggesting that tax rulings granted to Apple artificially decreased the tax Apple paid in Ireland since 1991.
The European Commission required the recovery of "illegal state aid" for the ten years prior to its first request for information in 2013. This bill amounted to €13 billion ($14.5 billion USD at the time) plus interest.
The Accounting Profession's Talent Pool Dwindles
The number of accounting professionals is shrinking as Baby Boomers and soon Gen Xers retire, and Gen Zers express disinterest in accounting, particularly the additional training and tests needed to become a licensed CPA. According to the American Institute of Certified Public Accountants' 2023 Trends Report, 65,305 accounting bachelor's and master's degrees were awarded in the 2021-2022 academic year, a decrease of 18% compared to six years prior. During the same duration, the number of CPA test candidates passed falling by 32% in 2022, decreasing from 2016.
Firms are seeking to recruit tax professionals, but the pool of talent is limited, leading to increased workloads for existing CPAs. Consequently, there is a growing interest in alternative career paths.
While the IRS has been hiring more aggressively – a sharp contrast to past years when hiring freezes and inadequate funding made it difficult for the IRS to expand its workforce – they still struggle to maintain sufficient staff levels. In Fiscal Year 2023, the IRS employed 82,990 full-time equivalent (FTE) positions, the highest since the previous decade. Out of these positions, 40% were dedicated to enforcement, and 44.8% were dedicated to taxpayer services.
IRS Tackles Fraudulent Employee Retention Credit (ERC) Claims
In 2023, the IRS announced its intent to deny numerous high-risk Employee Retention Credit (ERC) claims due to widespread concerns about improper claims. IRS Commissioner Werfel confirmed that this "extra scrutiny" revealed numerous instances of inappropriate claims.
ERC was intended to support eligible employers that continued paying wages to employees during the COVID-19 pandemic. Generally, qualifying employers are those that paid qualified wages to their employees between March 12, 2020, and January 1, 2022, and either experienced a forced closure due to pandemic-related regulations or a specific decline in gross receipts. Some businesses may even be eligible for the recovery startup program during the third and fourth quarters of 2021.
The IRS halted the acceptance of new ERC claims in 2023, citing fears of fraudulent activity. By 2024, the IRS reported receiving more than 17,000 ERC claims per week, with Werfel suggesting that many of these submissions were inappropriate.
The IRS provided several options for companies that may have submitted improper claims, including withdrawal and two rounds of an amnesty program (the most recent program concluded on November 22, 2024).
Numerous businesses are still awaiting IRS communication regarding their claims, while investigations are ongoing for others.
Private equity firms are actively seeking investment opportunities, and in 2024, the accounting sector proved to be an attractive prospect. The need for accounting services hasn't waned – demand remains robust. Private equity firms have identified this as a potential source of sustained, long-term growth.
Numerous investment firms are positioning themselves—as of November 2024, five of the largest 25 U.S. accounting firms, ranked by revenue, have secured private equity funding.
Approaching Due Dates
Early in the year, businesses started considering the deadline for filing beneficial ownership information (BOI) returns. As of January 1, 2024, many companies were required to disclose ownership and control details to the U.S. government. This is due to the Corporate Transparency Act (CTA), a 2021 law that mandates reports to FinCEN.
Originally, reporting companies established before January 1, 2024, had until January 1, 2025, to submit their initial report. This deadline remained unchanged regardless of the year the company was established.
However, a lawsuit complicated matters. In Texas Top Cop Shop, Inc., et al. v. Garland, et al., Judge Amos Mazzant issued a preliminary injunction, prohibiting the U.S. Department of Treasury from enforcing the CTA's reporting requirements. Mazzant went further, halting BOI reporting nationwide.
But then... well, buckle up. On December 17, Mazzant ruled that a nationwide preliminary injunction preventing FinCEN from enforcing the CTA would remain in place. A week later, on appeal, a unanimous Fifth Circuit bench granted the government’s emergency motion to halt the preliminary injunction. The change of course meant businesses required to file BOI reports had to comply while the government's appeal proceeded. FinCEN subsequently updated its website to extend the reporting deadline to January 13, 2025.
But wait—there's more! On December 26, the Fifth Circuit issued an order reversing the stay. The acquisition meant that the injunction was no longer in effect. According to FinCEN, BOI reporting is currently voluntary.
Unexpected Shutdown
Bench Accounting, a Vancouver-based company providing online bookkeeping services, unexpectedly ceased operations last week. This week, Bench's customers learned of the news via a message on the company's website: "We regret to inform you that as of December 27, 2024, the Bench platform will no longer be accessible. We understand that this sudden news may cause disruption, so we are committed to assisting Bench customers in navigating the transition."
Public response was swift. But the story took an unexpected turn at the end of the month. According to a December 30 press release, the company had since been acquired by Employer.com.
Bracing for Change
The 2024 tax year was marked by unexpected developments. What awaits the 2025 tax year remains to be seen. Stay tuned!
- In the context of the 2024 election, the prospects of immediate tax reductions are uncertain due to reconciliation processes, which may lead to some campaign promises taking a backseat.
- The IRS recently announced changes to the $600 Form 1099-K reporting threshold for third-party settlement organizations, reducing it from $600 to $5,000 in 2024, and further adjusting it in subsequent years.
- In 2024, the IRS manages to push back the filing deadlines for federal income tax returns for affected parties due to numerous natural disasters, such as Hurricanes Beryl, Debby, Helene, and Milton.
- The top accounting news stories of 2024 include private equity firms' interest in the accounting sector, with numerous investment firms securing funding for accounting firms, positioning themselves as a potential source of sustained, long-term growth.
