The Financial Crimes Enforcement Network (FinCEN) has removed the requirement that U.S. companies and U.S. persons must report beneficial ownership information (BOI) to FinCEN under the Corporate Transparency Act.

The Financial Crimes Enforcement Network (FinCEN) has removed the requirement that U.S. companies and U.S. persons must report beneficial ownership information (BOI) to FinCEN under the Corporate Transparency Act. This interim final rule is consistent with the Treasury Department's recent announcement that it was suspending enforcement of the CTA against U.S. citizens, domestic reporting companies, and their beneficial owners, and that it would be narrowing the scope of the BOI reporting rule so that it applies only to foreign reporting companies.

The interim final rule amends the BOI regulations by:

• changing the definition of "reporting company" to mean only those entities that are formed under the law of a foreign country and that have registered to do business in any U.S. State or Tribal jurisdiction by filing of a document with a secretary of state or similar office (these entities had formerly been called "foreign reporting companies"), and
• exempting entities previously known as "domestic reporting companies" from BOI reporting requirements.

Under the revised rules, all entities created in the United States (including those previously called "domestic reporting companies") and their beneficial owners are exempt from the BOI reporting requirement, including the requirement to update or correct BOI previously reported to FinCEN. Foreign entities that meet the new definition of "reporting company" and do not qualify for a reporting exemption must report their BOI to FinCEN, but are not required to report any U.S. persons as beneficial owners. U.S. persons are not required to report BOI with respect to any such foreign entity for which they are a beneficial owner.

Reducing Regulatory Burden

On January 31, 2025, President Trump issued Executive Order 14192, which announced an administration policy "to significantly reduce the private expenditures required to comply with Federal regulations to secure America’s economic prosperity and national security and the highest possible quality of life for each citizen" and "to alleviate unnecessary regulatory burdens" on the American people.

Consistent with the executive order and with exemptive authority provided in the CTA, the Treasury Secretary (in concurrence with the Attorney General and the Homeland Security Secretary) determined that BOI reporting by domestic reporting companies and their beneficial owners "would not serve the public interest" and "would not be highly useful in national security, intelligence, and law enforcement agency efforts to detect, prevent, or prosecute money laundering, the financing of terrorism, proliferation finance, serious tax fraud, or other crimes."The preamble to the interim final rule notes that the Treasury Secretary has considered existing alternative information sources to mitigate risks. For example, under the U.S. anti-money laundering/countering the financing of terrorism regime, covered financial institutions still have a continuing requirement to collect a legal entity customer's BOI at the time of account opening (see 31 CFR 1010.230). This will serve to mitigate certain illicit finance risks associated with exempting domestic reporting companies from BOI reporting.

BOI reporting by foreign reporting companies is still required, because such companies present heightened national security and illicit finance risks and different concerns about regulatory burdens. Further, the preamble points out that the policy direction to minimize regulatory burdens on the American people can still be achieved by exempting foreign reporting companies from having to report the BOI of any U.S. persons who are beneficial owners of such companies.

Deadlines Extended for Foreign Companies

When the interim final rule is published in the Federal Register, the following reporting deadlines apply:

• Foreign entities that are registered to do business in the United States before the publication date of the interim final rule must file BOI reports no later than 30 days from that date.
• Foreign entities that are registered to do business in the United States on or after the publication date of the interim final rule have 30 calendar days to file an initial BOI report after receiving notice that their registration is effective.

Effective Date; Comments Requested

The interim final rule is effective on the date of its publication in the Federal Register.

FinCEN has requested comments on the interim final rule. In light of those comments, FinCEN intends to issue a final rule later in 2025.

Written comments must be received on or before the date that is 60 days after publication of the interim final rule in the Federal Register.

Interested parties can submit comments electronically via the Federal eRulemaking Portal at http://www.regulations.gov. Alternatively, comments may be mailed to Policy Division, Financial Crimes Enforcement Network, P.O. Box 39, Vienna, VA 22183. For both methods, refer to Docket Number FINCEN-2025-0001, OMB control number 1506-0076 and RIN 1506-AB49.

FinCEN Interim Final Rule RIN 1506-AB49

FinCEN News Release

Melanie Krause, the IRS’s Chief Operating Officer, has been named acting IRS Commissioner following the retirement of Doug O’Donnell. Treasury Secretary Scott Bessent acknowledged O’Donnell’s 38 years of service, commending his leadership and dedication to taxpayers.

Melanie Krause, the IRS’s Chief Operating Officer, has been named acting IRS Commissioner following the retirement of Doug O’Donnell. Treasury Secretary Scott Bessent acknowledged O’Donnell’s 38 years of service, commending his leadership and dedication to taxpayers. O’Donnell, who had been acting Commissioner since January, will retire on Friday, expressing confidence in Krause’s ability to guide the agency through tax season. Krause, who joined the IRS in 2021 as Chief Data & Analytics Officer, has since played a key role in modernizing operations and overseeing core agency functions. With experience in federal oversight and operational strategy, Krause previously worked at the Government Accountability Office and the Department of Veterans Affairs Office of Inspector General. She became Chief Operating Officer in 2024, managing finance, security, and procurement. Holding advanced degrees from the University of Wisconsin-Madison, Krause will lead the IRS until a permanent Commissioner is appointed.

A grant disbursement to a corporation to be used for rent payments following the September 11, 2001 terrorist attacks on the World Trade Center was not excluded from the corporation's gross income. Grants were made to affected businesses with funding provided by the U.S. Department of Housing and Urban Development. The corporation's grant agreement required the corporation to employ a certain number of people in New York City, with a portion of those people employed in lower Manhattan for a period of time. Pursuant to this agreement, the corporation requested a disbursement as reimbursement for rent expenses.

A grant disbursement to a corporation to be used for rent payments following the September 11, 2001 terrorist attacks on the World Trade Center was not excluded from the corporation's gross income. Grants were made to affected businesses with funding provided by the U.S. Department of Housing and Urban Development. The corporation's grant agreement required the corporation to employ a certain number of people in New York City, with a portion of those people employed in lower Manhattan for a period of time. Pursuant to this agreement, the corporation requested a disbursement as reimbursement for rent expenses.

Exclusions from Gross Income

Under the expansive definition of gross income, the grant proceeds were income unless specifically excluded. Payments are only excluded under Code Sec. 118(a) when a transferor intends to make a contribution to the permanent working capital of a corporation. The grant amount was not connected to capital improvements nor restricted for use in the acquisition of capital assets. The transferor intended to reimburse the corporation for rent expenses and not to make a capital contribution. As a result, the grant was intended to supplement income and defray current operating costs, and not to build up the corporation's working capital.

The grant proceeds were also not a gift under Code Sec. 102(a). The motive for providing the grant was not detached and disinterested generosity, but rather a long-term commitment from the company to create and maintain jobs. In addition, a review of the funding legislation and associated legislative history did not show that Congress possessed the requisite donative intent to consider the grant a gift. The program was intended to support the redevelopment of the area after the terrorist attacks. Finally, the grant was not excluded as a qualified disaster relief payment under Code Sec. 139(a) because that provision is only applicable to individuals.

Accuracy-Related Penalty

Because the corporation relied on Supreme Court decisions, statutory language, and regulations, there was substantial authority for its position that the grant proceeds were excluded from income. As a result, the accuracy-related penalty was not imposed.

CF Headquarters Corporation, 164 TC No. 5, Dec. 62,627

The parent corporation of two tiers of controlled foreign corporations (CFCs) with a domestic partnership interposed between the two tiers was not entitled to deemed paid foreign tax credits under Code Sec. 902 or Code Sec. 960 for taxes paid or accrued by the lower-tier CFCs owned by the domestic partnership. Code Sec. 902 did not apply because there was no dividend distribution. Code Sec. 960 did not apply because the Code Sec. 951(a) inclusions with respect to the lower-tier CFCs were not taken into account by the domestic corporation.

The parent corporation of two tiers of controlled foreign corporations (CFCs) with a domestic partnership interposed between the two tiers was not entitled to deemed paid foreign tax credits under Code Sec. 902 or Code Sec. 960 for taxes paid or accrued by the lower-tier CFCs owned by the domestic partnership. Code Sec. 902 did not apply because there was no dividend distribution. Code Sec. 960 did not apply because the Code Sec. 951(a) inclusions with respect to the lower-tier CFCs were not taken into account by the domestic corporation.

Background

The parent corporation owned three CFCs, which were upper-tier CFC partners in a domestic partnership. The domestic partnership was the sole U.S. shareholder of several lower-tier CFCs.

The parent corporation claimed that it was entitled to deemed paid foreign tax credits on taxes paid by the lower-tier CFCs on earnings and profits, which generated Code Sec. 951 inclusions for subpart F income and Code Sec. 956 amounts. The amounts increased the earnings and profits of the upper-tier CFC partners.

Deemed Paid Foreign Tax Credits Did Not Apply

Before 2018, Code Sec. 902 allowed deemed paid foreign tax credit for domestic corporations that owned 10 percent or more of the voting stock of a foreign corporation from which it received dividends, and for taxes paid by another group member, provided certain requirements were met.

The IRS argued that no dividends were paid and so the foreign income taxes paid by the lower-tier CFCs could not be deemed paid by the entities in the higher tiers.

The taxpayer agreed that Code Sec. 902 alone would not provide a credit, but argued that through Code Sec. 960, Code Sec. 951 inclusions carried deemed dividends up through a chain of ownership. Under Code Sec. 960(a), if a domestic corporation has a Code Sec. 951(a) inclusion with respect to the earnings and profits of a member of its qualified group, Code Sec. 902 applied as if the amount were included as a dividend paid by the foreign corporation.

In this case, the domestic corporation had no Code Sec. 951 inclusions with respect to the amounts generated by the lower-tier CFCs. Rather, the domestic partnerships had the inclusions. The upper- tier CFC partners, which were foreign corporations, included their share of the inclusions in gross income. Therefore, the hopscotch provision in which a domestic corporation with a Code Sec. 951 inclusion attributable to earnings and profits of an indirectly held CFC may claim deemed paid foreign tax credits based on a hypothetical dividend from the indirectly held CFC to the domestic corporation did not apply.

Eaton Corporation and Subsidiaries, 164 TC No. 4, Dec. 62,622

Other Reference:

• Code Sec. 960

An appeals court affirmed that payments made by an individual taxpayer to his ex-wife did not meet the statutory criteria for deductible alimony. The taxpayer claimed said payments were deductible alimony on his federal tax returns.

An appeals court affirmed that payments made by an individual taxpayer to his ex-wife did not meet the statutory criteria for deductible alimony. The taxpayer claimed said payments were deductible alimony on his federal tax returns.

The taxpayer’s payments were not deductible alimony because the governing divorce instruments contained multiple clear, explicit and express directions to that effect. The former couple’s settlement agreement stated an equitable division of marital property that was non-taxable to either party. The agreement had a separate clause obligating the taxpayer to pay a taxable sum as periodic alimony each month. The term “divorce or separation instrument” included both divorce and the written instruments incident to such decree.

Unpublished opinion affirming, per curiam, the Tax Court, Dec. 62,420(M), T.C. Memo. 2024-18.

J.A. Martino, CA-11

The IRS expects to receive more than 150 million individual income tax returns this year and issue billions of dollars in refunds. That huge pool of refunds drives scam artists and criminals to steal taxpayer identities and claim fraudulent refunds. The IRS has many protections in place to discover false returns and refund claims, but taxpayers still need to be proactive.

The IRS expects to receive more than 150 million individual income tax returns this year and issue billions of dollars in refunds. That huge pool of refunds drives scam artists and criminals to steal taxpayer identities and claim fraudulent refunds. The IRS has many protections in place to discover false returns and refund claims, but taxpayers still need to be proactive.

Tax-related identity theft

Tax-related identity theft most often occurs when a criminal uses a stolen Social Security number to file a tax return claiming a fraudulent refund. Often, criminals will claim bogus tax credits or deductions to generate large refunds. Fraud is particularly prevalent for the earned income tax credit, residential energy credits and others. In many cases, the victims of tax-related identity theft only discover the crime when they file their genuine return with the IRS. By this time, all the taxpayer can do is to take steps to prevent a recurrence.

Being proactive

However, there are steps taxpayers can take to reduce the likelihood of being a victim of tax-related identity theft. Personal information must be kept confidential. This includes not only an individual's Social Security number (SSN) but other identification materials, such as bank and other financial account numbers, credit and debit card numbers, and medical and insurance information. Paper documents, including old tax returns if they were filed on paper returns, should be kept in a secure location. Documents that are no longer needed should be shredded.

Online information is especially vulnerable and should be protected by using firewalls, anti-spam/virus software, updating security patches and changing passwords frequently. Identity thieves are very skilled at leveraging whatever information they can find online to create a false tax return.

Impersonators

Criminals do not only steal a taxpayer's identity from documents. Telephone tax scams soared during the 2015 filing season. Indeed, a government watchdog reported that this year was a record high for telephone tax scams. These criminals impersonate IRS officials and threaten legal action unless a taxpayer immediately pays a purported tax debt. These criminals sound convincing when they call and use fake names and bogus IRS identification badge numbers. One sure sign of a telephone tax scam is a demand for payment by prepaid debit card. The IRS never demands payment using a prepaid debit card, nor does the IRS ask for credit or debit card numbers over the phone.

The IRS, the Treasury Inspector General for Tax Administration (TIGTA) and the Federal Tax Commission (FTC) are investigating telephone tax fraud. Individuals who have received these types of calls should alert the IRS, TIGTA or the FTC, even if they have not been victimized.

Tax-related identity theft is a time consuming process for victims so the best defense is a good offense. Please contact our office if you have any questions about tax-related identity theft.

An employer must withhold income taxes from compensation paid to common-law employees (but not from compensation paid to independent contractors). The amount withheld from an employee's wages is determined in part by the number of withholding exemptions and allowances the employee claims. Note that although the Tax Code and regulations distinguish between withholding exemptions and withholding allowances, the terms are interchangeable. The amount of reduction attributable to one withholding allowance is the same as that attributable to one withholding exemption. Form W-4 and most informal IRS publications refer to both as withholding allowances, probably to avoid confusion with the complete exemption from withholding for employees with no tax liability.

An employer must withhold income taxes from compensation paid to common-law employees (but not from compensation paid to independent contractors). The amount withheld from an employee's wages is determined in part by the number of withholding exemptions and allowances the employee claims. Note that although the Tax Code and regulations distinguish between "withholding exemptions" and "withholding allowances," the terms are interchangeable. The amount of reduction attributable to one withholding allowance is the same as that attributable to one withholding exemption. Form W-4 and most informal IRS publications refer to both as withholding allowances, probably to avoid confusion with the complete exemption from withholding for employees with no tax liability.

An employee may change the number of withholding exemptions and/or allowances she claims on Form W-4, Employee's Withholding Allowance Certificate. It is generally advisable for an employee to change his or her withholding so that it matches his or her projected federal tax liability as closely as possible. If an employer overwithholds through Form W-4 instructions, then the employee has essentially provided the IRS with an interest-free loan. If, on the other hand, the employer underwithholds, the employee could be liable for a large income tax bill at the end of the year, as well as interest and potential penalties.

How allowances affect withholding

For each exemption or allowance claimed, an amount equal to one personal exemption, prorated to the payroll period, is subtracted from the total amount of wages paid. This reduced amount, rather than the total wage amount, is subject to withholding. In other words, the personal exemption amount is $4,000 for 2015, meaning the prorated exemption amount for an employee receiving a biweekly paycheck is $153.85 ($4,000 divided by 26 paychecks per year) for 2015.

In addition, if an employee's expected income when offset by deductions and credits is low enough so that the employee will not have any income tax liability for the year, the employee may be able to claim a complete exemption from withholding.

Changing the amount withheld

Taxpayers may change the number of withholding allowances they claim based on their estimated and anticipated deductions, credits, and losses for the year.  For example, an employee who anticipates claiming a large number of itemized deductions and tax credits may wish to claim additional withholding allowances if the current number of withholding exemptions he is currently claiming for the year is too low and would result in overwithholding.

Withholding allowances are claimed on Form W-4, Employee's Withholding Allowance Certificate, with the withholding exemptions. An employer should have a Form W-4 on file for each employee. New employees generally must complete Form W-4 for their employer. Existing employees may update that Form W-4 at any time during the year, and should be encouraged to do so as early as possible in 2015 if they either owed significant taxes or received a large refund when filing their 2014 tax return.

The IRS provides an IRS Withholding Calculator at www.irs.gov/individuals that can help individuals to determine how many withholding allowances to claim on their Forms-W-4. In the alternative, employees can use the worksheets and tables that accompany the Form W-4 to compute the appropriate number of allowances.

Employers should note that a Form W-4 remains in effect until an employee provides a new one. If an employee does update her Form W-4, the employer should not adjust withholding for pay periods before the effective date of the new form. If an employee provides the employer with a Form W-4 that replaces an existing Form W-4, the employer should begin to withhold in accordance with the new Form W-4 no later than the start of the first payroll period ending on or after the 30th day from the date on which the employer received the replacement Form W-4.

Q: After what period is my federal tax return safe from audit? A: Generally, the time-frame within which the IRS can examine a federal tax return you have filed is three years. To be more specific, Code Sec. 6501 states that the IRS has three years from the later of the deadline for filing the return (usually April 15th for individuals) or, if later, the date you actually filed the return on a requested filing extension or otherwise. This means that if you file your 2014 return on July 10, 2015, the IRS will have until July 10, 2018 to look at it and "assess a deficiency;" not April 15, 2018.

Q: After what period is my federal tax return safe from audit?

A: Generally, the time-frame within which the IRS can examine a federal tax return you have filed is three years. To be more specific, Code Sec. 6501 states that the IRS has three years from the later of the deadline for filing the return (usually April 15th for individuals) or, if later, the date you actually filed the return on a requested filing extension or otherwise. This means that if you file your 2014 return on July 10, 2015, the IRS will have until July 10, 2018 to look at it and "assess a deficiency;" not April 15, 2018.

There are exceptions and caveats to this general principle, however. If you file prior to April 15, the IRS still has until April 15 of the third year that follows to audit your return. This means that if you filed an income tax return on February 10, 2017, you still won't be out-of-the-woods until April 15, 2020. For taxpayers who file fraudulent returns, incorrect returns with the intent to evade tax, and those who do not file at all, the IRS may open an audit at any time.

(Don't confuse the deadline for IRS tax assessments with your right to file a refund claim for an amount that you overpaid, either on a filed return or through withholding or estimated tax payments. That deadline is the later of three years from the filing deadline or two years from your last tax payment.)

You may also find some comfort in the practical IRS audit-cycle rhythm. While you are never truly beyond an audit until the statute of limitations has properly run, there are some general standards to keep in mind. Office audits are usually done within 1 1/2 years of the time the return was filed, and field office audits are complete by 2 1/2 years. The rule of thumb is that if you haven't been contacted within this time frame, you're probably not going to be. Especially for small businesses, the IRS has promised to shorten its normal audit cycle so that those taxpayers are not "left hanging" on potential tax liabilities (with interest and penalties) until the three-year limitations period has expired. Whether this shortened period happens, however, is still open to speculation. Most businesses should continue to make it a practice to keep "tax reserves" to cover such audit liabilities.