2023 Tax Season Toolkit
Specified R & E expenditures are those paid or incurred by the taxpayer for a tax year in connection with the taxpayer ’ s trade or business [ Sec . 174 ( b )]. R & E expenditures include amounts paid or incurred to develop software [ Sec . 174 ( c )( 3 )]. Note : IRS Notice 2023-63 , Sept . 8,2023 , provides interim guidance on amortizing specified R & E expenditures under Sec . 174 .
Treatment Upon Disposition , Retirement or Abandonment If any property , with respect to which specified R & E expenditures are paid or incurred , is disposed , retired or abandoned during the period these expenditures are being amortized , no deduction is allowed for these expenditures on account of that disposition , retirement or abandonment . However , the amortization deductions continue for those expenditures [ Sec . 174 ( d )].
Change in Method of Accounting Under Act Section 13206 ( b ), the Act ’ s amendments to Sec . 174 are treated as an accounting method change for Sec . 481 purposes and that this change is : ( 1 ) Treated as initiated by the taxpayer ; ( 2 ) Treated as made with the IRS ’ consent ; and ( 3 ) Applied only on a cut-off basis for any R & E expenditures paid or incurred in tax years beginning after 2021 . Also , no Sec . 481 ( a ) adjustments are made . Rev . Proc . 2023-11 , Section 2.03 ( 4 ), pertinently states that when an accounting method change is made on a cut-off basis , no amounts are duplicated or omitted , and therefore , a Sec . 481 ( a ) adjustment is not necessary or permitted .
Note : Rev . Proc . 2023-24 , June 15 , 2023 , provides the latest annual List of Automatic Accounting Method Changes .
Automatic Method Change Section 3 of Rev . Proc . 2023-11 contains procedures for an automatic change in method of accounting to comply with amended Sec . 174 . Under these procedures , a statement must be filed with the taxpayer ’ s original federal income tax return for the first tax year beginning after 2021 — in lieu of Form 3115 .
This statement must contain the six categories of information required to make this accounting method change that is set forth in Rev . Proc . 2023-11 , Section 3.02 ( 4 )( a )( ii ).
Other rules apply if the year of change is later than the first tax year beginning after Dec . 31 , 2021 . [ See Rev . Proc . 2023-11 , Section 3.02 ( 4 )( b ).]
Transition Rule Rev . Proc . 2023-11 , Section 3 , also provides a transition rule for taxpayers who filed a federal income tax return on or before Jan . 17 , 2023 , for a tax year beginning after 2021 . Under this transition rule , those taxpayers are deemed to have complied with the accounting method change procedures under Sec . 446 and the relevant rev . procs ., if the taxpayer properly reported the amount of specified R & E expenditures on Form 4562 , Part VI , filed with that return , and properly capitalized and amortized those expenditures in accordance with amended Sec . 174 .
Audit Protection A taxpayer that changes the method of accounting for specified R & E expenditures will receive limited audit protection under Section
8.01 of Rev . Proc . 2015-13 . But audit protection will not apply for expenditures paid or incurred in the years beginning :
• Before 2022 ; and
• After 2021 — if a change in method is made for the tax year immediately subsequent to the first tax year for which Sec . 174 becomes effective , which generally is the tax year beginning after , 2021 . Despite these audit protection rules , the IRS may still change the characterization or classification of expenditures as specified R & E expenditures in order to apply Sec . 174 and the change in accounting method procedures under the relevant rev . procs . to determine the proper amount of expenditures paid or incurred in each tax year beginning after Dec . 31 , 2021 .
Inapplicability This automatic method change does not apply to a change in the treatment of :
• Acquired , leased or licensed computer software under rev . procs . 2000-50 and 2007-16 , or
• R & E expenditures under old Sec . 174 , or software development expenditures , paid or incurred in tax years beginning before 2022 .
New Reporting Requirements
The corporate transparency ( CTA ) was enacted as part of the National Defense Act for fiscal year 2021 . Under the CTA , millions of entities must report their beneficial ownership information to the Financial Crimes Enforcement network .
For further details , see this month ’ s Fed Tax column on Page 25 .
Social Security Tax
The maximum amount of earnings subject to the Social Security tax will increase from $ 160,200 for 2023 to $ 168,600 for 2024 .
Preparer Tax Identification Numbers
The IRS announced that it is now PTIN renewal season for 2024 and that there is a $ 19.75 non-refundable renewal fee for 2024 PTINs . 2023 PTINS expire Dec . 31 .
Private Letter Rulings ( PLRs )
Rev . Proc . 2023-26 ( IRB 2023-33 , Aug . 14,2023 ) describes a program that provides an opportunity for fast-track processing of certain PLR requests solely or primarily under the jurisdiction of the Associate Chief Counsel ( Corporate ). This new program replaces the pilot program established by Rev . Proc . 2022-10 ( 2022-6 IRB 473 ).
Corporate Alternative Minimum Tax ( CAMT )
IRS Notice 2023-64 , Sept . 12 , 2023 , provides additional interim guidance regarding the application of the CAMT under secs . 55 , 56A and 59 .
Stuart R . Josephs , CPA , has a San Diego-based Tax Assistance Practice that specializes in assisting practitioners in resolving their clients ’ tax questions and problems . Josephs , a past chair of the Federal Subcommittee of CalCPA ’ s Committee on Taxation , can be reached at ( 619 ) 469-6999 or stuartrjosephs @ yahoo . com .
18 CALIFORNIA CPA DECEMBER 2023 www . calcpa . org