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Comply Connect – November 2023 – Issue 6

David Marley CEO

With all of our client’s knee-deep in reporting preparation, it is important to consider any new filing or reporting requirements that may impact your organization this upcoming reporting season. As a technology company, we of course focus on automation; but, the IRS is, too. Be mindful of any new electronic filing requirements coming your way, or new regulations that may require you to report on your payees. With DAC7 and CARF requirements right around the corner, information collection and reporting is only becoming more complex and challenging for companies to comply with. With Comply at the forefront of information collection and validation, we are here to help you navigate these complex and often competing regulations.

COMING UP IN December 2023:

COMING UP IN December 2023:

We will be releasing the 2023 Year-End Reporting brochure in just few weeks. This brochure outlines key updates and noteworthy reminders ahead of reporting season. We will also highlight best practices as well as common errors to be mindful of.

November 2023 KEY UPDATES:

Final Form W-8EXP – Oct. 2023 Revision

On November 20, the IRS released the final version of the new Form W-8EXP (Rev. October 2023) and its instructions. The following adjustments were made:

  • Purpose of form. This section has been revised to provide additional background on the withholding regimes that may apply to payments to foreign entities and the exemptions to withholding that may be claimed with Form W-8EXP. These revisions are not intended to be substantive changes.
  • Qualified foreign pension funds. These instructions have been updated to reflect final regulations published in December 2022 (87 FR 80042) regarding qualified foreign pension funds and claiming an exemption to withholding under section 1445.
  • Non-private foundation status. The instructions to line 13c have been updated for revisions to the supporting information required for an entity qualifying under section 501(c)(3) to represent that it is not a foreign private foundation. These revisions generally relate to modifications to Rev. Proc. 92-94, 1992-2 C.B. 507 (previously referenced in these instructions) that were made in Rev. Proc. 2017-53, 2017-40 I.R.B. 263.

If you collect Forms W-8EXP, you need to consider updating your procedures to ensure you are collecting the latest revision of the form as of the effective date. The IRS does permit a 6-month sunset period to transition to the latest form revision.

Form 1042

Beginning with the 2023 tax year, the Form 1042 must be filed electronically (instead of paper filing).  If your business has 10 or more information returns (including Forms 1099, W-2, 1042-S, etc.), then you will need to comply with the new electronic filing requirements.

If you are filing on your own, remember that businesses must appoint Responsible Officers to oversee the use of the Modernized e-Filling (MeF) services—these officers require specific credentials or extensive background checks including fingerprinting. Once the application is submitted, the IRS process to review can take up to 45 days to complete. Finally, after you have been approved, you will need either a reporting solution or assistance from your IT team to build out a method to produce the electronic transmittal that will be accepted by the IRS MeF system.

Alternatively, you can use a service provider. Contact Sovos, an IRS-approved vendor, to electronically file your 2023 Form 1042 return(s) on your behalf. LEARN MORE about Form 1042 MeF requirements and how to contact Sovos to help you stay compliant this year!

Draft Form W-9

On November 9, the IRS released draft instructions for Form W-9 (Rev. October 2023). Most notably, the instructions have been added to clarify that a filer of Form W-9 should check box 3b to allow partnerships, trusts, and estates to indicate that they have foreign partners, owners, or beneficiaries.

Draft Forms 1099

In November, the IRS released the following draft Forms 1099:

Draft Form 1042-S

On November 20, the IRS released the draft version of the 2024 Form 1042-S. As of now, the only update to this draft version is the exclusion of Copy E for Withholding Agent.

Form 1099-K: Reporting Threshold Delay

The IRS announced a delay for the new $600 Form 1099-K reporting threshold requirement for third party payment organizations for tax year 2023, following feedback from taxpayers, tax professionals, and payment processors and to reduce taxpayer confusion. The previous reporting thresholds of $20,000 and over 200 transactions will remain in place for 2023, with plans to phase in a new threshold of $5,000 for 2024.

Form 1099-K can be sent to anyone using payment apps or online marketplaces to accept payments for selling goods or providing services. Taxpayers should be aware that while the reporting threshold remains over $20,000 and 200 transactions for 2023, companies could still issue the form for any amount. This higher threshold does not affect tax requirements to report income on your tax return. All income, no matter the amount, is taxable unless excluded by law, whether a Form 1099-K is issued or not.

IRS IR-2023-207: IRSAC 2023 Annual Report

On November 9, the Internal Revenue Service Advisory Council (IRSAC) issued its annual report for 2023. The 2023 Public Report includes recommendations on 23 issues covering a broad range of topics including:

  • Form 1099-K Reporting
  • Section 302, Escrow and Certification Procedure
  • Timely Obtaining Employer ID Numbers (EINs) to Comply with the Corporate Transparency Act Requirements
  • Self-Correction Guidance for Employee Plans
  • Forms Modernization

The IRSAC serves as a federal advisory committee to the IRS commissioner that provides an organized public forum for discussion of relevant tax administration issues between IRS officials and representatives of the public.

November 2023 FATCA AND CRS HEADLINES:

OECD: Crypto-Asset Reporting Framework (CARF)

On November 10, OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes published an announcement that 48 countries and jurisdictions intend to implement the Crypto-Asset Reporting Framework (CARF). It is anticipated that the first exchanges of information under CARF will be made in 2027.

The Crypto-Asset Reporting Framework provides for automatic exchange of tax-relevant information on crypto-assets. The 48 countries and jurisdictions issued a joint statement regarding the collective engagement to implement CARF: “To keep pace with the rapid development and growth of the crypto-asset market and to ensure that recent gains in global tax transparency will not be gradually eroded, we welcome the new international standard on automatic exchange of information between tax authorities developed by the OECD – the Crypto-Asset Reporting Framework (CARF)”.

The 48 countries and jurisdictions which issued the joint statement are: Armenia, Australia, Austria, Barbados, Belgium, Belize, Brazil, Bulgaria, Canada, Chile, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Netherlands, Norway, Portugal, Romania, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, the United Kingdom, and the United States of America; the Crown Dependencies of Guernsey, Jersey, and Isle of Man; and the United Kingdom’s Overseas Territories of the Cayman Islands and Gibraltar.

OECD: Updates to Tax Residency, Tax Identification Numbers & Legislation

The OECD published updated information on Tax Identification Numbers, Tax Residency rules and primary legislation for various jurisdictions. Tax Identification Number information was modified for Ecuador. Tax Residency rules were modified for Guernsey. Primary legislation was modified for Canada.

Barbados: Guidance Note OGC No. 09/2023

On November 6, the Barbados Revenue Authority (BRA) published Guidance Note OGC No. 09/2023 to provide Reporting Barbados Financial Institutions (RBFI) with guidance on their obligations for reporting Tax Identification Numbers (TINs) for new and preexisting accounts for the purposes of CRS.

British Virgin Islands: BVIFAR Portal

The International Tax Authority (ITA) of the British Virgin Islands published a Press Release reminding all Virgin Islands Financial Institutions to ensure that they have accurate and up-to-date information in the BVIFAR portal. This includes their reporting entity type and CRS entity classification. Updates to both the reporting entity type and CRS entity classification can be done by completing a change of reporting obligation filing.

Germany: CRS Newsletter 04/2023

The Federal Tax Office of Germany published CRS Newsletter 04/2023 which included updates on submission of missing self-disclosures on the new BZSt online portal, updates to Communication Manual 5, and updates to FAQs on how to report a missing self-disclosure.

Ireland: Revenue eBrief No. 235/23

On November 6, the Office of the Revenue Commissioners of Ireland published Revenue eBrief No. 235/23 noting the availability of the Tax and Duty Manual Part 33-03-05 Registration Guidelines for DAC 7 for EU Reporting Platform Operators. Effective January 1, 2024, DAC7 obliges certain platform operators to collect and automatically report information on certain sellers using their platform to earn consideration.

Switzerland: FATCA IGA Update

On November 13, the State Secretariat for International Finance (SIF) of Switzerland announced that negotiations between the United States and Switzerland have concluded and preparations are underway to implement the change of FATCA agreement type from a non-reciprocal Model 2 IGA to a reciprocal Model 1 IGA agreement for Switzerland.

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