EEI Tax & Information Reporting Fall Virtual Conference

EEI International Tax & Information Reporting Conference November 2024

Between November 13-15th, the EEi virtually hosted the International Tax & Information Reporting Conference - Fall 2024. Industry experts and IRS representatives spent the three days providing regulatory updates and providing insight into best practices to adopt policies and procedures to comply with regulations. The first day of the Conference was a one-day Crypto Boot camp. This was a multi-hour long focus on all known requirements for the upcoming regulations including back up withholding, cost basis tracking, and 1099-DA reporting. Days two and three of the Conference open to all attendees, in which there were further presentations and discussions around upcoming regulations and interpretations provided for industry participants to adopt.

Conference Key Takeaways

• Year-In-Review

• Crypto Reporting Regulations

• IRS Updates

• QI Updates

Year-In-Review

One important session highlighted all the changes we saw in 2024. This review included many impactful changes which were made or announced this year to impact future years.

Reporting

• Digital Assets including updates to section 6045 and additional guidance in Notices 2024-56 and 2024-57, as well as Rev. Proc 2024-28. There is still more to clarify especially around transfer statements. And with much of the transitions to compliance starting on January 1, 2025, the industry is running short on time on how to best implement these changes.

  • There has also been a couple draft versions of the new 1099-DA published for comment. The September draft was updated to provided clarity in which the April draft was muddled. There was also draft instructions for the 1099-DA published with public comment window hoping to provide the final clarity needed for impacted Payers.

  • The IRS will unofficially use the IRIS system for reporting.

• Form 1042-S had no consequential updates for reporting of 2024 income, however the draft form and instructions for reporting of 2025 does see some changes including:

  • New Income code:

    • 59 Consent Fees

    • 60 Loan syndication fees

    • 61 Settlement payments

  • New chapter 3 status codes:

    • 40 should be used by a partnership that is a QDD when reporting allocations to its partners with respect to QDD items.

    • 41 added for US government entities or tax-exempt entities other than a Section 501(c) entities.

  • With an additional note for 2026, the IRS intends to require a chapter 3 exemption code where the tax withheld is less than 30%.

• Form 1099 Reporting Thresholds were also discussed around Form 1099-K and 1099-MISC/NEC.

International Impacts

• FATCA updates

  • US-Switzerland FATCA Agreement is transitioning from a Model 2 to Model 1.

  • US- Thailand FATCA Agreement is now in force as Model 1

  • Increase in letters and inquiries from non-US taxing authorities in regard to FATCA and CRS filings. Several jurisdictions have increased their penalties for compliance failures while others have reached out to the OECD looking for guidance on what to look for:

    • No returns filed or nil returns filed – verify no reportable accounts, as well as reduction in number of reportable accounts year over year – seeking explanation

    • Missing TINs or Incorrect format for FTINs and missing date of birth

    • Breach notices for compliance failures

• CRS and CARF updates

  • The OECD published XML Schema and User Guide for updates to CRS and CARF. There are new reportable fields that firms will need to consider for account keeping starting January 1, 2026. Each jurisdiction that has adopted CRS into law will need to update their laws by the end of 2025 in order to ensure financial institutions are complying with these changes.

Crypto Reporting Regulations

The first day of the Conference was a one-day Crypto Boot camp. This was a multi-hour long focus on all known requirements for the upcoming regulations including back up withholding, cost basis tracking, and 1099-DA reporting. On day 2 there was further discussion about Crypto Reporting.

Topics included:

• Timeline of events

  • January 1, 2025:

    • Gross proceeds of sales of digital assets are tracked for reporting in 2026

    • No backup withholding required

  • January 1, 2026:

    • Cost basis of sales of digital assets that are acquired and sold on or after this date must be reported starting in 2027

    • Backup withholding applies for new accounts or pre-existing accounts without a certified TIN

    • No W8 required for pre-existing non-US accounts with foreign address (CARF is not considered in this timeline)

  • January 1, 2027

    • Backup withholding applies to undocumented presumed US persons

    • CARF reporting

    • W8 form collection is required for non-US persons

• Draft forms of 1099-DA and Instructions have been published with public comments received.

IRS Updates

Also on Day 2 of the Conference, we heard from IRS representative about many topics related to recent announcements and Notices. However, the most consequential updates shared were around audits and what firms should be looking out for. Because of the increase in funding from the Inflation Reduction Act, there has been an increase in Revenue Agents providing more resources to enforce compliance. More information about audits included:

• Expansion of entities subject to examination will include all types of withholding agents.

• Data analytics with machine learning AI is being leveraged to check for anomalies on Forms 1042-S which will drive selection for 1042 audit exams.

• The IRS will be conducting onsite and offsite examinations.

• There will be comprehensive review of policies and procedures at the start of examinations. Form 1042-S and 1042 procedures and reconciliation proof are critical components to passing audits now.

• Further artifacts required for complex payment sourcing and characteristics

  • For Accounts Payable departments, be ready to determine onshore vs offshore work and prove that a payment is royalty instead of non-employee compensation.

QI Updates

The QI agreement outlines all requirements a Qualified Intermediary must follow to remain compliant with their obligations. The following items related to QI’s were discussed:

• QI Agreement from 2023 has had updates to FAQ. However the most impactful item to come out of this agreement from a US withholding agent perspective is a new QI list which is being published by the IRS.

  • The QI list identifies all registered QI and includes name, GIIN, QI versus QDD designation, and the last two digits of the QI-EIN.

  • It was confirmed that this list is intended for QI to confirm their details are accurate and that they are on the list.

  • At this time, there is no due diligence requirements for withholding agents to confirm any of the QI information provided on W-8IMY forms.

• Form 1042 filing has been required to be filed electronically starting with 2024 reporting of income paid in 2023. However this has been delayed for two years for foreign persons due to limited vendor options.

• There have been updates on FAQs relating to QSL and PTP type transactions

• Reminder that Pub 5262 is your friend.

How can TAINA Help?

The conference highlighted the urgency for industry participants to adopt new policies and procedures to comply with the evolving regulatory landscape. With significant changes on the horizon, particularly in digital asset reporting and international agreements, the insights provided were invaluable for staying ahead of compliance requirements.

The discussions emphasized the need for timely implementation of new regulations, such as the upcoming requirements for gross proceeds and cost basis tracking for digital assets. The IRS updates underscored the increased audit activities and the use of data analytics to enforce compliance, making it crucial for firms to review and strengthen their internal policies and procedures.

Internationally, updates to FATCA agreements and CRS/CARF reporting requirements were also a focal point. The transition of the US-Switzerland FATCA Agreement to a Model 1 agreement and the enforcement of the US-Thailand FATCA Agreement as Model 1 highlight the global shift towards more stringent compliance measures. Additionally, the OECD's updates to the CRS and CARF frameworks necessitate that financial institutions adapt their reporting processes to meet new standards by 2026.

Overall, the conference served as a critical reminder for industry participants to stay proactive and informed about regulatory changes to ensure compliance and avoid potential penalties. Now more than ever it is important to think of an automated solution in the tax operations space. There are limits to how much we can stretch internal resources.

Let's focus on automating repetitive processes. The TAINA Platform takes care of your tax form collection and validation, as well as maintaining FATCA and CRS reporting compliance in a seamless end-to-end process. Attending these types of events ensures TAINA is maintaining an up to date, robust and detailed ruleset meeting our clients' needs. 

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