Three Things Tax Preparers Should Tell Their Clients This Season

Beyond the headlines about IRS layoffs and staffing changes, actual tax forms have remained largely unchanged—but still contain pitfalls for corporations. Tax professionals should pay special attention to the following three areas to avoid problems during this filing season.

Beneficial ownership information reporting. Most business entities faced an impending deadline to file BOIRs as part of the Corporate Transparency Act. The reports, which was to be filed with FinCEN, sought more information on the millions of limited liability companies and corporations operating in the US.

Beyond the extra burden placed on business owners, the information would likely be used to locate taxpayers who were not disclosing and paying taxes on business income. After a back-and-forth case in the Eastern District of Texas, the Treasury Department announced it wouldn’t enforce any penalties or fines associated with BOIR. For the time being, this issue seems to closed with no additional reporting requirements for entities.

The trinity of foreign accounts compliance. Though they’re not new requirements, practitioners often encounter foreign income and asset disclosure concerns on at least one of three forms: Schedule B, Form 8938, and FBAR.

Schedule B is used in this context to report foreign interest and dividend income as well as to make disclosures about ownership interest in foreign accounts or involvement with foreign trusts. Form 8938, filed with the income tax return is used to disclose specified foreign financial assets. Reports of Foreign Bank and Financial Accounts, or FBAR, is filed with FinCEN separately from the income tax return.

These issues fall on a wide spectrum with failing to disclose a foreign bank account with a minimal balance and no taxable income on Schedule B disclosure questions on one end to failing to disclose large, income generating foreign financial assets on the other end.

Tax preparers should recognize that disclosing foreign elements on Schedule B doesn’t necessarily require Form 8938 and/or the FBAR to be filed, but it should place them on heightened alert. They must ensure their clients pay proper tax on foreign income and proper disclosures are made across Schedule B, Form 8938, and FBAR.

Correctly reporting income or assets on one form, but not addressing it on others, increases audit risk and exposes clients to potential tax, penalties, and interest assessments. To ensure a complete and accurate reporting, tax preparers should ask each client about foreign income, accounts, and assets.

These forms may confuse tax preparers unnecessarily by asking the same questions, but in slightly different ways.

For example, if your client has a foreign bank account containing $250,000, the IRS expects that: the interest income would be reported on Schedule B; the Schedule B disclosure questions would indicate that there is a foreign bank account and an FBAR will be filed; Form 8938 would be included with the income tax return to disclose the account as a specified foreign financial asset; and an FBAR would be filed directly with FinCEN disclosing the asset as a foreign bank account.

Automatic extensions in disaster zones. In 2024, the IRS extended the filing deadline to June 17, for all San Diego County residents because of flooding. Residents who accepted the benefit were able to use that date as the new filing deadline. Those who still weren’t ready to file on June 17 could then request an extension to file by Oct. 15.

This is where the problems began for many clients. By June 17, the IRS had already stopped accepting electronically filed extensions. After April 15, an extension could only be filed on paper.

Even paper extensions submitted by certified mail after April 15, but before June 17, that showed a San Diego County address were rejected, and late filing penalties were later assessed against many taxpayers.

This is why those who file late due to natural disasters to be wary of such extensions. While you will most likely later be able to avoid penalties, it will require additional contacts with the IRS, and that probably won’t get any easier to accomplish in the current staffing environment.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Adam Brewer is a tax attorney focused on resolving state, federal, and international taxation issues.

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