Tax IRW Ops Quick Tips & Updates

Read the September article which highlights some possible state taxation implications resultant of the student loan relief plan recently announced by President Biden.

Is Forgiveness Free? Student Loans and State Reporting

September 15, 2022 | by Martin L. Mueller and Kelli Wooten

President Biden recently announced a plan that will provide student loan forgiveness, up to $20,000, for certain borrowers. As an added benefit, borrowers will not be subject to federal taxation on amounts forgiven under this plan. Although a handful of states have not indicated whether state taxation will be required, one has stated that it will. However, due to a recent IRS notice, federal reporting is not required by entities granting the relief, nor will state reporting be required due to tack-on laws in place for most states. Thus, it is unclear how states will identify the amounts forgiven, raising the issue of potential state penalties for taxpayers which do not self-report, even if they are unaware that self-reporting is required.


The first federal student loan program was not established until 1958, four years after discharge of indebtedness was officially codified as gross income in the Internal Revenue Code of 1954 (amendments to the Internal Revenue Code of 1939 previously carved out gross income exclusions for specific types of discharge of indebtedness). However, the IRS generally held the view that cancelation of student loans was non-taxable, as a form of scholarship. As college costs increased, lending rose through the 1970s, leading to more delinquent payments and more public scrutiny. Although defaults remained low, public pressure forced the IRS to reevaluate its stance. In 1973, under Rev. Rul. 73-256, the IRS ruled that loan scholarship payments conditioned upon a student practicing medicine in a state-selected area constituted taxable income, as the payments were designed to accomplish the state’s objective in boosting the number of doctors in rural areas.

In 1976, Congress enacted the Tax Reform Act of 1976, here, excluding certain discharge of indebtedness on student loans made before January 1, 1979, from being including in gross income. Specifically, the act excluded amounts discharged when the “discharge was pursuant to a provision of such loan under which all or a part of the indebtedness of the individual would be discharged if the individual worked for a certain period of time in certain geographical areas or for certain classes of employers.” As noted in the Joint Committee of Taxation Blue Book, here, this provision was made in part to reverse the former IRS ruling. The Revenue Act of 1978, here, extended this treatment through 1982. Thus, the earlier versions of gross income exclusions for student loan forgiveness focused on prior, unofficial forms of the Public Service Loan Forgiveness (PSFL) program. Blanket exclusion for forgiveness would not come until much later.

The American Rescue Plan Act of 2021 (ARPA), here, was enacted on March 11, 2021, as a way to provide further relief to Americans impacted by COVID-19. The $1.9 trillion stimulus package extended relief previously provided under the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 and the Consolidated Appropriations Act of 2021, and included several new provisions designed to speed up the economic recovery from the pandemic. In particular, one provision modified the treatment of student loan forgiveness under section 108(f), excluding from gross income discharges occurring during calendar years 2021 through 2025 for certain educational expenses. On December 21, 2021, the IRS issued an advance version of Notice 2022-1, here, notifying lenders of student loans that they “should not file information returns or furnish payee statements…to report the discharge of student loans when the discharge is excluded from gross income under section 108(f)(5).” Thus, Form 1099-C is not required for student loan forgiveness occurring under ARPA for calendar years 2021 through 2025.

On August 24, 2022, President Biden announced a three-part plan aimed at providing student loan relief to low- to middle-income taxpayers (see the White House Fact Sheet, here), including forgiveness of student loans for certain borrowers. Specifically, borrowers with individual income lower than $125,000 ($250,000 for married couples) are eligible for forgiveness up to $10,000, and Pell Grant recipients are eligible for forgiveness up to $20,000. Under the current plan, eligible borrowers may apply for one time forgiveness through December 31, 2023. The announcement was a welcome relief to borrowers but caused immediate questions on taxation and reporting at the state level.

State Taxation and Reporting Issues

At a high level, states determine how much of the Internal Revenue Code (IRC) to adopt in order to carry out state functions and are generally labeled as rolling or static conformity states. However, rolling conformity states are not required to adopt all provisions, and static conformity states may adopt specific provisions even if they have not updated to the current version of the IRC. The Tax Foundation provides a great summary of the nuanced issues this presents, here.

The initial issue is whether states will adopt the ARPA amendments to section 108(f), rendering discharge of indebtedness non-taxable at the state level. The Tax Foundation article above has tracked down each state’s position, updating as states have provided confirmation whether they will tax student loan forgiveness. As of the writing of this article, the following states are currently silent on the issue, but are posed to tax loan forgiveness unless subsequent guidance is issued: Arkansas, Minnesota, Mississippi, North Carolina, and Wisconsin. California is also listed, but bicameral members of the state legislature have since issued an informal release stating that they will work to ensure California does not tax student debt relief.

Conversely, Indiana has definitively stated that it will tax student loan relief. As noted by the Indiana Department of Revenue (DOR), here, the Indiana General Assembly updated its IRC conformity date to the post-ARPA version in effect on March 31, 2021, but decoupled from the student loan forgiveness provision and will require the relief to be added back for state tax purposes. Due to Indiana’s flat 3.23% rate, this means up to $323 in state taxation ($646 for Pell grant recipients) for borrowers, potentially more depending on the county they live in. Indiana has indicated that it will include a line on Schedule 1: Add-Backs of the individual income tax return for federal student loan forgiveness to be included to state income. The trickier issue is how Indiana will gather this information, and how compliance will be enforced. Even if federal reporting was required, Indiana does not require lenders to submit Form 1099-C to the state. Thus, Indiana is relying on individuals to self-report, which is problematic in the absence of recipient statements. This raises the question whether Indiana will assess penalties for borrowers who may not fully understand their state tax obligations, or how Indiana would even determine which borrowers took advantage of the forgiveness.

Similarly, many of the states that are currently silent on the issue do not require Form 1099-C, or only require it when the payor is required to submit for federal purposes. Thus, the same issue is presented across the spectrum, that payees will not necessarily know what to report, and state agencies will not have access to information in order to determine noncompliance. Perhaps with additional consideration, the remaining states will determine that the burden imposed on borrowers, and indeed the burden imposed on its own state agents, is not worth the negative public backlash. This is particularly true if state agencies turn to public audits to enforce collection of the minimal tax amounts that would be due. In either case, this is certainly an issue worth monitoring for those involved.

Past Quick Tips & Updates

August 22, 2022 | No Income Tax, No Worries? Form 1099-K State Reporting Issues

No Income Tax, No Worries? Form 1099-K State Reporting Issues

August 22, 2022 | by Martin Mueller and Kelli Wooten

Reduced Form 1099-K thresholds for the 2022 tax year will result in increased information reporting. Unfortunately, the challenges extend beyond federal reporting, as state Form 1099 reporting requirements can be much more complex to navigate. 

Some states do not require Forms 1099-K, particularly those states with no state income tax – e.g., Texas, Alaska, etc. However, state legislatures in Florida and Tennessee have created two outliers, both for non-income tax reasons. 


As discussed in a prior article, Form 1099-K reporting thresholds were lowered under the American Rescue Plan Act of 2021, found here, as a revenue raiser to help provide funding for Covid-19 relief. The legislation amended section 6050W, dropping the de minimis threshold for reporting on third party settlement organizations (TPSOs) from $20,000 on 200 or more transactions to any qualifying transaction over $600. The legislation went into effect beginning with payments made after December 31, 2021, meaning that all payments that occur throughout 2022 are subject to the lower requirement.

Roughly half of the states require Form 1099-K reporting in some capacity, with a number of these exempting reporting where withholding has not been required. In most cases, Form 1099-K can be submitted through the Combined Federal/State Filing (CF/SF) Program, making it much easier for taxpayers to comply. Although there are a few states that have set their own thresholds (such as New Jersey at $1,000 and Arkansas at $2,500), these would be captured under the new federal thresholds. Thus, taxpayers with no withholding that are utilizing the CF/SF Program are largely covered for state purposes.

While many states tie their reporting requirements to section 6050W, others tie their Form 1099-K requirement to section 6041 (see Virginia, here) or have specifically set their threshold at $600 (see Massachusetts, here). Practically speaking, this difference is inconsequential under current law, as most taxpayers’ due diligence processes will capture all required reporting. Note that any changes to the law (a proposed bill, here, would raise federal thresholds to $5,000) would result in state reporting disparities.

Far more impactful to taxpayers is those states which require direct reporting. For example, Connecticut permits filing under the CF/SF Program where there is no withholding to report, but specifically states that Forms 1099-K must be filed directly with the state. Similarly, Alabama permits filing of most Form 1099 through the CF/SF Program, but specifically excludes Forms 1099-K. Thus, taxpayers need to be aware of each state’s individual requirements, as states listed as participating in the CF/SF Program, and even permitting other Forms 1099 to be filed through the CF/SF Program, is not necessarily indicative of the state’s filing requirements for Form 1099-K.

Tougher still, it would seem that states which do not assess income tax, and do not require Form 1099 reporting, would bypass Form 1099-K reporting. At its root, Form 1099-K reporting is essentially designed to capture taxable transactions which would otherwise not be caught because they occur through a third-party intermediary. Thus, no state income tax typically means that there is no reason to require taxpayers to report in those states. This is true for seven of the states with no income tax. However, Florida and Tennessee prove to be the exception, for similar reasons – sales tax.


Due in part to the lack of income tax revenue, and one of the lowest property tax rates in the US, Tennessee is tied for the second highest sales tax rate (7.0%), behind only California. In 2015, Tennessee sought to improve on a successful three-year old sales tax compliance program, which primarily targeted tobacco and alcohol sales, through the introduction of SB 0107, found here. The bill expanded on the program by extending reporting to a wider range of wholesalers, specifically listing candy and cola wholesalers in the House Session. In addition, the bill sponsors were worried that some payors were cheating the system under the prior sales tax compliance program and sought a way to even the playing field. Informally referred to as the “Trust, but Verify” Act by co-sponsor Senator Watson, the bill included language requiring state reporting under section 6050W. Essentially, Tennessee wanted to leverage the federal reporting system in order to verify that sales reported, and sales tax remitted, by certain wholesalers were accurate. The bill was passed with near unanimous consent in both chambers.

Although the Tennessee legislature passed the bill specifically to capture certain wholesalers of goods, the legislation requires that all payments subject to section 6050W reporting, which are made to a payee with a Tennessee address, be reported for state purposes. Unfortunately, section 6050W requires reporting on a fairly wide range of payments, including payments for services. This leads to an interesting result, as Tennessee does not require sales tax on most types of service payments, but payors may still be penalized for failure to report. This can be particularly burdensome, as Tennessee does not permit filing through the CF/SF Program and imposes a $1,000 penalty for each month that the payor fails to file the return (capped at $10,000 per entity). Thus, taxpayers may incur significant information reporting penalties if they are not aware of the rules.


Similar to Tennessee, Florida has a disproportionally high sales tax rate (6%), tied at 16th highest in the US, as a way to help offset the lack of income tax and ultimately fund state expenditures. However, the Florida Department of Revenue found that not all sales were being reported and taxed. To enforce reporting, Florida also decided to leverage the federal reporting system, particularly for the purpose of enforcing reporting on purchases being made with credit cards.

In early 2020, the Florida House introduced HB 7097, found here. Versions of the bill varied widely, and contained a number of sales tax cut provisions, ranging from back-to-school tax holidays to tax cuts on Formula 1 Grand Prix races. An early version of the bill was estimated to reduce revenue by $126 million in the first year and up to $160 million on a recurring basis, (see here). Ultimately the legislature settled on a version with a revenue impact of $47.7 million in the first year and no recurring losses (see here). No revenue raisers were ever included in the various versions of the bill. Interestingly, Form 1099-K reporting was included in all versions, but appears to have never been intended as a funding offset, as the Ways and Means Committee and Appropriations Committee merely listed the provision as having an indeterminate impact. The bill was enacted in April, with an effective date of July 1, 2020.

Similar to Tennessee, Florida mirrored the federal language, and instituted a $1,000 per month penalty for each failure to report, up to $10,000 per entity. In its analysis, the Florida legislature specifically waived off the option to file through the CF/SF Program, noting that information from the IRS may be delayed, which would impact the ability for Florida to audit taxpayers within the three-year statute of limitations. Thus, direct reporting of the federal information return was established for the second no income tax state.


State reporting can be complex, particularly as states adjust their provisions to align with (or differentiate from) federal reporting requirements. The recent Form 1099-K federal threshold modification, and ongoing reconciliation across the states, proves that taxpayers must be ever vigilant in their due diligence processes to recognize and adhere to reporting requirements. While the addition of no income tax states to the list of those requiring reporting is an outlier, it is likely other states will join in the future to meet state objectives. In a future article, we will consider certain state information reporting, such as Florida’s nonemployee compensation reporting, which is unrelated to taxes altogether, but impactful, nonetheless. 

July 27, 2022 | A Primer on Wash Sale Reporting in a Volatile Market

A Primer on Wash Sale Reporting in a Volatile Market

July 27, 2022 | by Martin Mueller and Nelson Suit

On the cusp of a potential recession, investors in stocks or securities need to be cautious about advice they utilize for harvesting losses, if they plan on, or happen to repurchase substantially identical stock or securities close to a loss sale. Such tax loss harvesting strategies could trigger wash sale rules, even if the “repurchase” occurs before the sale. This is particularly problematic for unwary investors, since the information that brokers are required to report may be different from what investors need when determining whether they have run afoul of the rules. Born under recession era policy, both wash sale rules and wash sale reporting issues will likely rise in prominence again as investors face a volatile market. But what are the rules, why do they matter, and how can investors avoid inadvertently subjecting themselves to the impact of these rules?

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June 15, 2022 | Proposed Changes to the Qualified Intermediary (QI) Agreement

Proposed Changes to the Qualified Intermediary (QI) Agreement

June 15, 2022| by Laurie Hatten-BoydDanielle Nishida, and Carson Le

On May 3, Treasury and the IRS released an ad-vanced copy of Notice 2022-23 (Notice), setting forth the proposed changes to the QI agreement. The pro-posed changes will permit a QI to act in that capacity when receiving certain amounts from a publicly traded partnership (PTP) that are subject to withhold-ing under §1446(a) and §1446(f).  In this Bloomberg Tax Management Real Estate Journal article , the authors provide an overview of the IRS Notice proposing changes to the qualified intermediary agreement, as well as some observations. 

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May 20, 2022 | Backup Withholding – IRS Notices and Payor Responsibilities

Backup Withholding – IRS Notices and Payor Responsibilities

May 20, 2022 | by Martin Mueller and Kelli Wooten

The IRS celebrated Tax Day by announcing on April 15th that backup withholding notices were on the way. Specifically, the IRS issued IRS Newswire IR-2022-87, stating that it will be issuing CP2100 and CP2100A Notices to taxpayers that filed certain information returns with missing Taxpayer Identification Numbers (TINs), incorrect names, or a combination of both. The following information provides details about what these notices are and what taxpayers need to do if they receive one.

Note that the information below is focused on backup withholding requirements under § 3406(a)(1)(B), also known as the IRS Backup Withholding “B” Program. For further information on backup withholding under § 3406(a)(1)(C), dealing with payees that fail to fully report the correct amount of interest and dividend income on their federal income tax return, see the IRS Backup Withholding “C” Program webpage.


In the turbulent days of the early 1980s, the US experienced a whiplash effect on tax withholding, particularly dividends and interest, as numerous bills were passed in a short period to attempt to head off the eventual recession caused by the 1979 energy crisis. To counteract rising oil costs, and subsequent inflationary concerns, Congress first passed the Economic Recovery Act of 1981 (ERTA). ERTA contained a number of income tax reduction amendments, including a provision reducing the highest marginal tax rate on all types of income from 70% to 50%, as a way to encourage economic growth. However, tax revenue quickly plunged and deficits began to grow, causing concern within Congress, as the economy fell into the second dip of the early 1980s recession. To counter this issue, Congress passed the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), which contained revenue raisers, including tax rate raises and closed tax loopholes, to help reduce the budget gap. Notably, TEFRA instituted a 10% withholding requirement on payments of interest, dividends, and patronage dividends, with certain exceptions.

Less than a year later, Congress passed the Interest and Dividend Tax Compliance Act of 1983, which repealed the interest and dividend withholding provisions introduced under TEFRA and instituted a new backup withholding system in its place. Under the new act, payors were required to withhold 20% on payments of dividends and interest paid to payees which had underreported dividend and interest income, or failed to provide accurate taxpayer information, essentially the current IRS Backup Withholding “C” Program. In addition, the new act contained a provision requiring payors to backup withhold on payees when the Secretary notifies the payor that the TIN furnished by the payee is incorrect, effectively the IRS Backup Withholding “B” Program.  

The withholding rate was apparently not settled at the time the IRS was redesigning its Forms 1099 series, as evidenced by the 1983 Form 1099-MISC. The form contained a new placeholder Box 4, with instructions noting that it was to be used the following year for backup withholding at a 15% rate. Ultimately, the Act passed with a statutory withholding rate of 20% that remained in place until 1992. Under the Energy Policy Act of 1992, the rate jumped to 31%, matching the highest individual income tax rate at the time. Although two new brackets were added the following year, the backup withholding rate remained 31% until 2001, when the Economic Growth and Tax Relief Reconciliation Act of 2001, tied the backup withholding rate to the fourth lowest income rate under § 1(c), the provision for unmarried individuals. The rate ranged from 25% to 28% over the following 15 years. Due to temporary amendments arising under the Tax Cuts and Jobs Act of 2017 (TCJA), the rate will remain at 24% through the 2025 tax year.

B Notices and Backup Withholding

Payors must generally request a TIN when a payee initially opens an account or conducts a transaction with the payor. For interest, dividends, and amounts subject to broker reporting, the payee must furnish a certified TIN on a Form W-9; however, the TIN may be furnished in any manner for other payments. If the TIN is not provided at this time, backup withholding is required immediately. Payors must then request a TIN by December 31 of the year the account is opened (the first annual solicitation) and again by December 31 of the following year (the second annual reconciliation). If the payee provided an incorrect TIN at account opening, the payor must make two annual solicitations following receipt of a CP2100 or CP2100A Notice, discussed below.

Each year, the IRS reviews information in its own records, including the TIN, against information provided by payors reporting payments to payees. The IRS specifically looks for the name and TIN reported on Forms 1099-B, DIV, G, INT, K, MISC, NEC, OID, PATR, and Form W-2G. When a mismatch occurs, the IRS notifies payors through either a CP2100 or CP2100A Notice. Typically, payors classified as large filers, those with 250 or more error documents, receive a CP2100 Notice via a CD or DVD data file while midsized filers, those with between 50 and 249 documents, receive a paper CP2100 Notice. The CP2100A Notice is reserved for small filers, those with less than 50 error documents. Collectively, these notices are commonly, though incorrectly, referred to as B Notices (which is actually the name of the notice that the payor must sent to the payee as a result of the CP2100) The IRS sends out an initial round of these notices in September and October, and a second round in April of the following year. The notices identify the payee (or payees, if there are multiple issues) where the information reported included a missing or incorrect TIN, an incorrect name, or a combination of both. The notice also informs the payor that it is responsible for backup withholding.

When a payor receives a CP2100 or CP2100A, it should first review the payee information that it has in its system against the information that it provided to the IRS to ensure that the mismatch wasn’t the result of a simple mistake or unintentional omission. Note that the IRS also provides a TIN matching service, which allows the payor to determine whether the name and TIN combination that it has on file matches that in the IRS’s records. Once the payor has received the notice of the incorrect information return, it has 15 business days from the date of the notice, or the date it was received, whichever is later, to send a B Notice to the payee(s) of the name/TIN mismatch and to solicit curing documentation. The payor should include Form W-9 for the payee to fill out and may, but is not required to, send a self-addressed stamped envelope. The IRS also specifies that the outside envelope must be clearly marked “IMPORTANT TAX INFORMATION ENCLOSED” or “IMPORTANT TAX RETURN DOCUMENT ENCLOSED.” If the IRS notice was triggered by an error on the part of the payor, then the payor is not required to issue a B Notice to the payee.

To the extent a valid Form W-9 is not provided as a result of the B Notice solicitation, payors are instructed to begin backup withholding no later than 30 days after receiving the CP2100 Notice, though they may begin withholding at any point within that 30-day period. If the attempted delivery of the B Notice comes back as undeliverable, then the payor must immediately begin withholding. If the payee provides an updated Form W-9 after backup withholding has begun, the payor has 30 days to update its processes to stop backup withholding, but may cease withholding at any point within that 30-day period.

Payors that have deducted and withheld under the backup withholding rules are responsible for remitting these amounts to the IRS. Taxpayers are typically required to remit via EFPTS, though there are threshold exemptions. See section 11 of Publication 15, for additional information on remitting federal tax payments. On an annual basis, payors must report this information to the IRS on Form 945, Annual Return of Withheld Federal Income Tax

If the payor receives a second CP2100 Notice within a three-calendar year period for the same payee, then the payor is instructed to send a second B Notice to the payee. Unlike the first B Notice, the payor does not include Form W-9, rather the payor must instruct the payee to contact the IRS (if the payee is an entity) or the Social Security Administration (SSA) (if the payee is an individual) to either request a TIN or resolve any errors it is encountering with its current TIN. Specific to this, an entity payee must provide the payor with a copy of IRS Letter 147C, EIN Verification Letter. A payee that is an individual must provide the payor with a copy of his/her social security card that contains a different number than the one in the payor’s records or that has been issued less than 6 months prior to the date of the second CP2100. If the payor receives a third CP2100 Notice for the same payee containing a different name/TIN combination, then the payor should consider this as a new first CP2100 Notice with respect to its B Notice obligations. See Publication 1281, for additional information and a sample template of each of the B Notices.


For information on the recent IRS issuance, see IR-2022-87. For general information on the backup withholding, see Publication 1281, or the IRS Backup Withholding “B” Program webpage

April 29, 2022 | Cayman Issues Enforcement Guidelines for CRS

Cayman Issues Enforcement Guidelines for CRS 

April 29, 2022 | by Jigna Patel

On March 31, 2022, the Cayman Islands Ministry of Financial Services (Ministry) and Department for International Tax Cooperation (DITC) announced that the Cayman Tax Information Authority (TIA) has issued Enforcement Guidelines v1.0, with respect to the Common Reporting Standard (CRS) and Economic Substance (ES) frameworks. These guidelines set out the enforcement process and subsequent penalties for failure to comply by any persons within the scope of TIA’s compliance monitoring and enforcement powers.


The CRS Enforcement Guidelines are broken out into nine sections: (1) Overview; (2) Administrative Penalties; (3) Investigatory Functions of the Authority; (4) Breach Notice; (5) Contesting a Proposed Penalty on its Amount; (6) Penalty Notice; (7) Appeals Process; (8) Payment of Penalty & Interest; and (9) Notice Templates.

These Guidelines are only applicable to those under the administrative penalties’ regime of the CRS Regulations, and do not extend to the criminal provisions of the CRS Act. The intent of the administrative procedures under the Enforcement Guidelines is to ensure effective implementation of the CRS Act, including:

  • Rules to prevent any Financial Institutions (FIs), persons or intermediaries from adopting practices intended to circumvent the reporting and due diligence procedures;
  • Rules requiring Reporting FIs to keep records of the steps undertaken and any evidence relied upon for the performance of the above procedures and adequate measures to obtain those records;
  • Administrative procedures to verify Reporting FIs’ compliance with the reporting and due diligence procedures; administrative procedures to follow up with a Reporting Financial Institution when undocumented accounts are reported;
  • Administrative procedures to ensure that the Entities and accounts defined in domestic law as Non-Reporting FIs and Excluded Accounts continue to have a low risk of 
  • Effective enforcement provisions to address non-compliance.

The Authority may impose a Primary Penalty of up to 50,000 CI (approx. $60,975 USD) for offenses by an FI, as well as Continuing Penalties of 100 CI (approx. $122 USD) for each day the violation continues.

The Authority’s procedure for imposing penalties will be to initially issue a Breach Notice, potentially followed by a Penalty Notice. The statute of limitations for issuing penalties is the earlier of (a) one year after becoming aware of the breach, or (b) six years after the breach occurred. Notices will be issued by email to the PPoC of an FI, using the email address registered on the DITC Portal. If the PPoC is not available, the Notice will be sent to the Authorised Person (“AP”). If neither the PPoC nor AP are available, the Notice will be sent to the Registered Office address of the FI. In the case of Notices served on individuals, they will be served directly on that person electronically. The penalty amounts on the Notices are not final and may be appealed by the FI within 60 days of the Penalty Notice.

The following list provides some examples of what the Authority may prioritize during reviews:

  • Incorrect submission of undocumented accounts
  • No AP or PPoC registered on the DITC Portal
  • Incorrect Entity classification
  • Failure of an FI to register on the DITC Portal and notify its classification and reporting obligations
  • Failure to submit a CRS Filing Declaration
  • Failure to submit a CRS Compliance Form
  • Incorrectly reporting, or failing to report, a Reportable Account in a CRS XML Return
  • Incorrectly reporting, or failing to report, the Taxpayer Identification Number or date of birth of Account Holders or Controlling Persons

The FI under review should have its books and records, written policies and procedures, self-certifications and other documentary evidence readily available for the Authority.

KPMG Comments

While the potential Primary Penalty imposed on each FI, excluding Continuing Penalties, may be up to 50,000 CI, it is important to note the individual amounts for each offense. Some of the more notable offenses and their respective penalties are:

  • Failure to establish and maintain written policies and procedures under the CRS – 7,500 CI (noting there are 3 other offenses related to failure to comply with policies and procedures under the CRS)
  • Failure to register on the DITC Portal by the notification deadline of April 30th – 37,500 CI
  • Failure to provide an update via the DITC Portal to inform the Authority of changes to reporting obligations, Entity classification, or authorized users – 10,000 CI
  • Failure to submit a CRS return – 5,000 CI (penalty per reportable account)
  • Failure to submit a nil return or provide any further information (e.g CRS Filing Declaration and CRS Compliance Form) – 10,000 CI
  • FI relies on self-certification that it knows or has reason to believe is inaccurate and makes a return based on this self-certification – 20,000 CI


For further information, please refer to the full Cayman Islands CRS Enforcement Guidelines, here.

March 25, 2022 | Evolving Form 1099-K Thresholds

Evolving Form 1099-K Thresholds

March 25, 2022 | by Martin Mueller and Kelli Wooten

On March 15th, a bipartisan bill was introduced which, if enacted, will increase the federal Form 1099-K reporting de minimis threshold for reporting transactions made by third party settlement organizations (TPSOs) from payments exceeding $600 to those equal to or exceeding $5,000. The Cut Red Tape for Online Sales Act (H.R. 7079), found here, was introduced by House Representatives Chris Pappas and Cindy Axne in order to reduce the administrative burden encountered by small online sellers, particularly those merely reselling personal goods for less than they were originally purchased.

As noted in a November letter to the Speaker of the House, Rep. Pelosi, and the Chairman for the Committee on Ways and Means, Rep. Neal, here, Rep. Pappas and 15 other members of Congress outlined the issues produced by the reduced threshold for Form 1099-K reporting. Notably, the letter states that the $600 threshold will lead to overreporting of income and overpayment of taxes, potentially rendering some taxpayers ineligible for certain tax benefits. The concerned group also pointed out that the increased reporting will require additional collection of personal information, potentially leading to privacy concerns for online sellers. Thus, the bipartisan bill would increase the threshold to $5,000, retroactive to the beginning of the 2022 calendar year. In addition, the bill would provide relief for payments made during 2022 by extending the de minimis number of transactions to 200 for one transitional year.

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February 17, 2022 | Avoid Common Errors when Filing Forms Series 1099

Avoid Common Errors when Filing Forms Series 1099

February 17, 2022 | by Elis Prendergast

When planning for year-end reporting, necessary steps should be taken to ensure your forms series 1099 are correctly processed and filed timely. In the following, we would like to highlight some guidance to your attention to avoid common errors you may encounter while preparing the forms.

Follow the guidance

The Internal Revenue Service (IRS) issued several new versions of Forms series 1099 and its corresponding instructions in the fourth quarter of 2021. Most of the newly published forms are rolled forward without substantive changes. However, we recommend you carefully read the information provided in the general Form 1099 instructions and the instructions applicable to the specific Form 1099 filed. The updated forms include Form 1099-DIV, Form 1099-H, Form 1099-K, Form 1099-MISC, Form 1099-NEC, and Form 1099-R. 

All required fields should be completed and accurately presented when filling in the Forms 1099. The required recipient information includes the recipient’s name, address, and U.S. Tax Identification Numbers (TIN). The filer needs to provide the filer’s name, address, Employer Identification Number (EIN), payment amount, and a name and phone number for a contact person. In addition, the filer's name and TIN must match the name and TIN used on the form (which is required for Form 945), otherwise, the filer may be subject to information return penalties. 

Unexpected Forms series 1099

There are unexpected circumstances that may give rise to a Form 1099 filing requirement: 

—   U.S. Persons who receive payments through non-U.S. entities

When assembling Forms 1099 reporting, many withholding agents will initially treat any entity providing a Form W-8 as out of scope for Form 1099 reporting without considering the U.S. non-exempt recipients that passed up Forms W-9 through a chain of intermediaries or flow-through entities (i.e., attached to a Form W-8IMY).  For example, a payment made to a non-U.S. intermediary or non-U.S. flow-through entity may not initially appear to be reportable if the payment is not FDAP income, but may be in scope of Form 1099-B reporting if it constitutes gross proceeds that is allocated to a U.S. non-exempt recipient.  As a result, the actual scope of reportable payments may be larger than expected.  

—   Undocumented payees 

In most cases, an undocumented individual or entity will be presumed to be a U.S. non-exempt recipient even if invalid or expired documentation is on file.

—   Forms W-8IMY for which no allocation or underlying documentation is provided

Undocumented payees who receive payments through foreign intermediaries and foreign flow-through entities are typically presumed to be non-U.S. payees. Still, they may be presumed to be U.S. non-exempt recipients under chapter 61 claw-back rules (e.g., applying to short-term interest/OID) in certain instances.

Reconcile prior to filing

A final tip to all filers is that when you finish preparing your Form 1099 reporting, we recommend that you reconcile the gross income and withholding amounts reported and ensure the information is consistent with the amounts reported on Form 945 (for electronic filers) and Form 1096 (for paper filers).  If you are a paper filer, you should also reconcile the number of forms you are filing with the total number of forms reported on your Form 1096. 

February 17, 2022 | Form 1099-K Reporting and 6050W Updates

Form 1099-K Reporting and 6050W Updates

February 17, 2022 | by Elis Prendergast

The de minimis threshold for section 6050W reporting on Forms 1099-K by third-party settlement organizations (TPSOs) was reduced substantially.

The updated instructions to Box 1a require TPSOs to report under 6050W for any payment totals exceeding $600, regardless of the number of transactions. Under the prior de minimis threshold, TPSOs were not required to report under section 6050W until the total payments made to a payee exceeded $20,000 and the aggregate number of transactions for such payee exceeded 200. The new de minimis threshold applies to transactions made after December 31, 2021.

The change will require TPSOs to obtain U.S. Tax Identification Numbers (TIN) from payees sooner than before and bring a significant number of transactions back into scope for Form 1099-K reporting.

Direct state reporting

In addition, a number of states require Form 1099-K direct reporting with the state despite being listed as Participating States for CF/SF program in Publication 1220—a consequence of the changes of threshold and filing requirements of each state. These states include Alabama, Connecticut, Delaware, Massachusetts, Montana, and North Carolina. What’s more, the following states are required to File Forms 1099-K directly to the state but are not listed in Publication 1220: Washington DC, Florida, Illinois, New York, Oregon, Tennessee, Vermont, and Virginia.

Backup withholding update

Section 3406 of the Internal Revenue Code currently provides that backup withholding is imposed on the first dollar paid to payees that have failed to provide a TIN. The Build Back Better Act proposes to amend the backup withholding provisions by adding a de minimis threshold for amounts reportable under Section 6050W.  Under the proposed legislation TPSOs are only required to impose backup withholding, for purposes of section 6050W, on payments of $600 or more. In addition, transitional relief will be in place for calendar year 2022. During 2022, TPSOs are not required to impose backup withholding until the total payments made to a payee exceed $600 and the aggregate number of transactions for such payee exceeds 200. For payments made after December 31, 2022, backup withholding is imposed on payments of $600 or more made to a payee who has not provided a TIN,  without regard to the aggregate number of transactions conducted with the payee.  

January 24, 2022 | State Usage of the CF/SF Program for Form 1099-NEC

State Usage of the CF/SF Program for Form 1099-NEC

January 24, 2022 | by Cyrus Daftary and Martin Mueller

The Internal Revenue Service (IRS) issued an updated version of Publication 1220 in the fall of 2021. One noteworthy change was the inclusion of Form 1099-NEC into the Combined Federal State Filing (CF/SF) Program. Form 1099-NEC was reintroduced for the 2020 tax year, but was not originally included in the CF/SF Program, leaving state agencies and taxpayers scrambling to get their processes updated ahead of the filing deadlines. The recent inclusion of the form in the program for the 2021 tax year comes as welcome relief to many taxpayers. Accordingly, some states have recently updated their guidance to note that they will accept the form when submitted through the CF/SF Program. However, not all state agencies have caught up with the update. 

Click here to read the full article and view the table containing the states which currently accept Form 1099-NEC when there is no withholding to report.

For more information about KPMG State IRP Alerts, click here.



December 20, 2021 | Forms 1099-MISC and 1099-NEC State ID Requirements

Forms 1099-MISC and 1099-NEC State ID Requirements

December 20, 2021 | by  Kelli Wooten and Martin Mueller

Information return filing deadlines for the 2021 tax year are quickly approaching and state filing requirements are evolving. This notice outlines requirements to include state identification numbers when submitting Forms 1099-MISC and 1099-NEC.

Click here to learn more and access a table containing state-by-state requirements, along with links to state portals where registration is required.

For more information about KPMG State IRP Alerts, click here.


November 16, 2021 | IRS Issued Inflation Adjustments to Information Return Penalties

IRS Issued Inflation Adjustments to Information Return Penalties

November 16, 2021 | by Cyrus Daftary and Martin Mueller

On November 10, the Internal Revenue Service (IRS) issued Rev. Proc. 2021-45, containing inflation-based adjustments across more than 60 tax provisions for the 2022 tax year, for returns required to be filed in 2023. Notably, the IRS increased penalties for taxpayers which failed to file correct information returns to the IRS and to payees. 

Click here to read the full alert and learn more about the increases and corresponding 2021 amounts. For more information about KPMG IRP alerts, click here.



October 20, 2021 | Year-End Tax Topics for Cryptocurrency Investors

Year-End Tax Topics for Cryptocurrency Investors

October 20, 2021 | by Pete RitterNelson SuitJoshua Tompkins, and Hubert Raglan

Now is the time for investors in cryptocurrencies to recognize approaching year-end considerations and possible planning opportunities. Potential legislative developments that might affect cryptocurrency transactions and the cryptocurrency ecosystem more broadly should also be considered. In this KPMG What's News in Tax article, the authors review the classification of cryptocurrencies, issues concerning specific lot identification and tax loss harvesting, and current legislative proposals that may impact information reporting, wash sale rules, and constructive sale rules.

Read article

October 12, 2021 | Broker Crypto Tax Information Reporting Is Here, But It May Not Be Just for Brokers Anymore

Broker Crypto Tax Information Reporting Is Here, But It May Not Be Just for Brokers Anymore

October 12, 2021 | by Nelson SuitCyrus Daftary, and Phil Garlett

In this article, which appeared in the Journal of Taxation of Financial Products, the authors from the KPMG Information Reporting and Withholding Tax Services practice consider the cryptocurrency information reporting provisions in the U.S. Infrastructure Investment and Jobs Act. The legislation was passed by the U.S. Senate in August 2020 and is currently under consideration in the House of Representatives. The authors also consider the broader implications of tax information reporting for crypto transactions in the context of the recent growth in crypto-related platforms and services.

The legislative provisions, in part, would allow the IRS to issue regulations requiring “brokers” to provide Code Sec. 6045 cost basis reporting for sales of digital assets, thus requiring institutions such exchanges to report sales and transfers of digital assets much in the manner of stock and securities. Under these new reporting rules, crypto exchanges would be required to track customers’ cost of acquisition in cryptocurrencies and other digital assets at the tax lot level for purchases on or after January 1, 2023, monitor for events that may affect tax basis in these assets and report proceeds and gain or loss on disposition. Brokers would also be expected to report on the transfer of digital assets between brokers as well as from accounts at exchanges to non-exchange addresses, such as private wallets.

Beyond broker tax information reporting, the exponential growth in other crypto-related transactions and platforms from staking, crypto lending, crypto-linked payment cards to NFT marketplaces has raised additional tax information reporting questions both within the U.S. and in the cross-border context. The authors consider many of these transaction types and their implications for tax information reporting functions and industry participants that increasingly come into contact with digital assets, whether because they provide a crypto-related service such as trading or they simply pay a vendor in cryptocurrency.

Read article

October 7, 2021 | Form 1099-NEC Added to the Combined Federal State Filing Program

Form 1099-NEC Added to the Combined Federal State Filing Program

October 7, 2021 | by Martin Mueller and Kelli Wooten | On September 27th, the Internal Revenue Service (IRS) issued a revised version of Publication 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G (Rev 9-2021), containing several changes related to updates that the IRS issued over the 2021 calendar year. Notably, the IRS updated Section 12, Combined Federal/State Filing (CF/SF) Program, to include Form 1099-NEC, Nonemployee Compensation, on the list of information returns which may be filed under the CF/SF Program. In addition, Section 7, Reporting Nonemployee Compensation (NEC) for Tax Year 2021, was updated to note that the form is now part of the CF/SF Program, confirming that the IRS will accept submissions of the form for the 2021 tax year through the CF/SF Program.


Due to the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), the IRS accelerated the deadline for reporting nonemployee compensation, leading to a disparity between information returns submitted for other items on Form 1099-MISC, Miscellaneous Income. The issue was resolved for federal purposes in 2020, with the reinstatement of Form 1099-NEC, Nonemployee Compensation, which split out Form 1099-MISC, Box 7, reporting into its own form. In September 2020, the IRS issued Publication 1220 for the 2020 tax year, leaving off Form 1099-NEC from the list of information returns which may be filed under the CF/SF Program. This caused confusion amongst taxpayers and state agencies.

State Reporting Issues

Many state agencies rely on the CF/SF Program to collect state specific data, particularly for information returns with no state withholding to report. In some cases, state revenue software systems were not setup to accept electronically submitted federal forms. Thus, many state agencies were left scrambling to establish guidelines after the federal announcement that Form 1099-NEC would not be included in the CF/SF Program, leading to delayed, conflicting, and missing guidance. In one case, Wisconsin provided transitory relief, allowing taxpayers to continue submitting information on Form 1099-MISC; however, it was unclear from a practical perspective how to do that as Form 1099-MISC no longer contained the applicable fields. 

In the rush to provide guidance, some states merely updated electronic filing specification manuals to state that Form 1099-NEC would be accepted but did not state whether direct reporting was required. California was particularly noteworthy, due to the volume of filers in that state, as it did not issue guidance until mere weeks prior to the filing deadline. Historically, the state of California has requested that taxpayers submit information returns through the CF/SF Program, so the delay was particularly painful for taxpayers attempting to get their due diligence processes in order. To the state’s credit, it eventually issued an announcement stating that taxpayers would not be penalized for late filing due to direct reporting issues that arose.

Needless to say, the confusion at the state agency level certainly did not alleviate concerns at the taxpayer level. Many taxpayers which were unfamiliar with state reporting portals and processes were required to get up to speed in a short period of time. Those taxpayers which have historically relied on third party providers and the CF/SF Program to handle their filing needs suddenly found themselves stuck with direct reporting obligations. The adjustment required additional resources and burdensome internal due diligence updates.

2021 Form 1099-NEC Reporting

Taxpayers can breathe a sigh of relief with the recent announcement that the IRS will direct eligible Forms 1099-NEC through the CF/SF Program, However, there are a number of issues that need to be addressed prior to filing season. For starters, the IRS neglected to update the record layout position instructions in Publication 1220 for Form 1099-NEC. Note that the instructions for field positions 747-748, which trigger inclusion of the form in the program and help the IRS direct the form to the correct state agencies, are still instructing taxpayers to leave the fields blank. KPMG believes this is an oversight and will be corrected. 

It is also worth mentioning that the Publication 1220 list of states that participate in the CF/SF Program is not accurate for all forms, for all states. Although states may be listed as participants, the obligation ultimately rests with the taxpayer to determine if filing through the CF/SF Program is sufficient to satisfy their reporting needs. For example, both Massachusetts and Delaware are listed as participating states in Publication 1220, but both expressly state in their guidance that Forms 1099-MISC and 1099-NEC are required to be submitted directly to the respective state agencies. 

In addition, taxpayers should monitor for state updates after the recent federal announcement that the CF/SF Program will include Form 1099-NEC, as this does not guarantee that a state which previously accepted nonemployee reporting information through the program will still accept it. A handful of states previously noted that the CF/SF Program does not provide them with all of the information they require in a timely manner. Due to the one-off year which required direct reporting, it is possible that more states will seek to have this information reported directly to ensure they are capturing all possible revenue streams.

For further information, see Publication 1220 (Rev. 9-2021), here

KPMG State IRP Alert Service:

KPMG professionals monitor state developments and provide weekly updates under the KPMG State IRP Alert service. In addition to weekly summaries of all state IRW news, subscribers receive a set of tables detailing state reporting requirements across Form 1099s, notably Forms 1099-NEC and 1099-MISC. Please reach out to a member of the KPMG IRW team if this subscription is something that could benefit your company, particularly in light of evolving Form 1099-NEC state requirements. For further information, please see the KPMG State IRP Alert slipsheet, here

September 28, 2021 | Bermuda Issues CRS Compliance Certification Form

Bermuda Issues CRS Compliance Certification Form

September 28, 2021 | by Martin Mueller and Jigna Patel | On September 3, the Bermuda Ministry of Finance (Ministry) announced that it will require all Reporting Financial Institutions (RFIs) and Trustee-Documented Trusts (TDTs) to complete an annual CRS Compliance Certification Form (CRS Compliance Form), beginning with the 2020 reporting period. The Ministry noted that the CRS Compliance Form is expected to be available on the portal by October 15, 2021, and must be submitted by December 15, 2021, for the period ending December 31, 2020. Going forward, the Ministry will require the form to be submitted no later than September 30 following the end of the reporting period. An online form must be submitted by the primary or secondary user registered within the portal. Note that bulk uploads are not permitted. The Ministry released guidelines to help RFIs with the preparation of the CRS Compliance Form, found here

In addition, the Ministry announced that it will begin requiring RFIs to undertake a CRS Independent Compliance Review (CRS Review). Based on a risk-based approach, the Ministry will identify RFIs and issue notices informing the registered primary user of the RFI that it must engage an approved independent reviewer to perform the CRS Review. The Ministry released guidelines to help RFIs with the preparation of the CRS Review process, found here.

KPMG Comments

The Ministry noted that the heightened compliance measures are in line with Bermuda’s obligation to ensure RFIs implement and comply with CRS requirements. The actions being taken by Bermuda are similar to the Cayman Islands, which was recently added to the Financial Action Task Force (FATF) grey list of jurisdictions that are not in compliance with Anti-Money Laundering (AML) practices. However, the Bermuda CRS Compliance Form is more stringent than the version issued by the Cayman Islands, as it requires RFIs to upload a copy of its written policies and procedures. KPMG will continue to monitor for further updates as the Ministry issues further guidance. 


For further information, see an announcement from the Ministry, here.

September 3, 2021 | IRS Issued Draft Forms and Instructions in W-8 Series

IRS Issued Draft Forms and Instructions in W-8 Series

September 3, 2021 | by Martin Mueller and Cyrus Daftary | Over the past week, the Internal Revenue Service (IRS) has issued draft versions for its Form W-8 series, in particular Forms W-8ECI, W-8IMY, and W-8BEN and related instructions. The updates were necessary, in part, due to the Tax Cuts and Jobs Act of 2017 (TCJA). Specifically, the TCJA added Section 1446(f), which generally requires a transferee purchasing an interest in a partnership from a non-U.S. transferor to withhold 10% of the amount realized if a portion of the gain must be treated as effectively connected gain, unless an exception to withholding applies.

Included below are the pertinent updates to each of the forms:

Form W-8ECI Updates:

  • Part I: Line 4: Type of Entity: The draft form separated the “government” box in the entity type field (Line 4) into two boxes, one for integral parts of foreign governments and one for controlled entities of foreign governments. The IRS advises taxpayers to review Temp. Reg. § 1.892-2T for assistance if they are unsure which box applies.
  • Part I: Line 8b: FTIN: The draft form bifurcated the Foreign Tax Identifying Number (FTIN) line (Line 8) into Lines 8a and 8b to allow taxpayers to certify when an FTIN is not legally required.
  • Part I: Line 12: Section 1446(f) checkbox for dealers: The draft form added a checkbox for a dealer in securities that is transferring an interest in a publicly traded partnership (PTP) and is claiming an exemption from withholding under Section 1446(f) to certify this status. The certification also requires the dealer to certify that any gain from the transfer is effectively connected with the conduct of a trade or business in the U.S. without regard to Section 864(c)(8).
  • Signature: Certification of Capacity Checkbox: Due to the addition of Line 12, the spacing on Line 11 has been significantly reduced. Persons completing the form are instructed to write in items of income that have been received, or are expected to be received, that are effectively connected to the beneficial owner’s U.S. trade or business. To the extent that more space is required, a separate attachment may be used. The IRS also moved the signature checkbox, certifying that the signor has the capacity to sign, ensuring that authorized representatives do not miss this final requirement when filling out the form.

Form W-8IMY Updates:

  • Part I: Line 9b: FTIN: The draft form now includes a line to include a Foreign Taxpayer Identification Number (FTIN), if required.
  • Part III: Qualified Intermediary (QI) Certifications:
  • The certifications generally contain updated language clarifying that the certifications apply to all accounts identified on the withholding statement or, if no withholding statement is provided, then to all accounts.
  • Line 14a: Contains the general certification of QI status. The draft form has been updated to state that the QI will also provide documentation required for Sections 1446(a) and 1446(f), as required.
  • Added Line 15b: Allows a QI to certify that it is assuming all withholding responsibilities for transfers of PTP interests for Section 1446(f) purposes.
  • Added Line 15c: Allows a QI to certify that it is acting as a nominee for Section 1446 purposes for a distribution by a PTP.
  • Moved 15f to 15d: Former Line 15f, addressing a QSL that is assuming withholding and reporting for substitute dividend payments, was moved to Line 15d. The IRS also modified the certification to make clear that the QSL is assuming primary withholding and reporting for the substituted dividend payment (whereas previous language merely stated that the entity was acting as a QSL).
  • Moved 15g to 15e: Former Line 15g, which addresses the assumption of withholding and reporting for substitute interest, was moved to Line 15e.
  • Part IV: Nonqualified Intermediary (NQI) Certifications:
  • Added Line 17e: The draft form includes a checkbox for an NQI to make the required certification when providing an alternative withholding statement (i.e., a certification that the NQI does not have information in its files that conflicts with the information provided on the withholding certificates).
  • Part V: Territory Financial Institution (FI) Certifications:
  • Added Line 18d: Certification that the Territory FI agrees to be treated as a US person under Section 1446(f) for amounts received on sales of interest in PTPs.
  • Added Line 18e: Certification that the Territory FI agrees to be treated as a US person under Section 1441 and as a nominee with respect to distributions by PTPs.
  • Added Line 18f: Certification that the Territory FI is not acting as nominee for distributions from PTPs and is providing a withholding statement for the distributions.
  • Part VI: Certain US Branch Certifications:
  • Updated Line 19a: Certification was updated to address distributions from PTPs and amounts realized on sales of interests in PTPs.
  • Added Line 19d: The US branch certifies that it is acting as a US person under Section 1446(f) for amounts received on sales of interest in PTPs.
  • Added Line 19e: The US branch is acting as a US person under Section 1441 and as a nominee with respect to distributions by PTPs.
  • Added Line 19f: The US branch is not acting as a nominee for distributions from PTPs and is provided a withholding statement for the distributions.
  • Part VIII: Nonwithholding Foreign Partnership (NWP) Certifications:
  • Updated Line 21b: Certification was updated to apply to foreign grantor trusts that are partners in lower tier partnerships and are providing the form for Section 1446 purposes.
  • Added Line 21c: Certification that the entity is a foreign partnership receiving an amount realized on a transfer of an interest in a partnership for Section 1446(f) purposes.
  • Added Line 21d: Certification that the entity is a foreign partnership providing a withholding statement for a modified amount realized from the transfer. This box should only be checked if Line 21c is also checked.
  • Added Line 21e: Certification that the entity is a foreign grantor trust providing the form for each grantor or other owner of the trust to allocate the amount realized by each owner for Section 1446(f) purposes.

Form W-8BEN Updates:

  • Part I: Line 6b: FTIN: The draft form bifurcated the Foreign Tax Identifying Number (FTIN) line (Line 6) into Lines 6a and 6b to allow taxpayers to certify when an FTIN is not legally required.
  • Signature: Certification of Capacity: The current form requires authorized individuals to write in the capacity in which they are acting, when signing on behalf of the beneficial owner. The draft form eliminated the write-in box and now includes a checkbox for the authorized individual signing the form to certify that they have the legal capacity to sign on behalf of the beneficial owner.


For further information, see:

  • Draft Form W-8ECI, here, and instructions, here.
  • Draft Form W-8IMY, here, and instructions, here.
  • Draft Form W-8BEN, here, and instructions, here

August 25, 2021 | Upcoming Cayman Islands CRS Compliance Form Deadline

Upcoming Cayman Islands CRS Compliance Form Deadline

August 25, 2021 | by Jigna Patel | On April 16, 2020, the Cayman Islands Tax Information Authority (TIA) updated the Common Reporting Standard (CRS) (Amendment) Regulations requiring reportable financial institutions (FI), tax resident in the Cayman Islands, to provide additional information annually to the Authority to ensure compliance with the reporting and due diligence requirements as required under the CRS. This additional information is required to be reported on the new CRS Compliance Form and will be required for reporting years FY19 onward. The forms will be completed via the Department for International Tax Cooperation (DITC) Portal, so the same mechanism as the annual CRS reporting.

Which entities fall under the reporting obligations? All Cayman reportable FIs, with the exception of investment managers and advisers are required to submit the annual CRS Compliance Form.

What is the deadline?  The annual deadline will be September 15. However, in its initial year of reporting, both FY19 and FY20 CRS Compliance Forms will be due by September 15, 2021. An extension has not been made as of August 24, 2021.

What will be required? Information to be collected will revolve around five sections, for which we have noted some key observations:

  1. FI Profile Data. Section 1 covers the FI's logistical and licensing information. If you are a reporting FI licensed with the Cayman Islands Monetary Authority (CIMA), then you will update the form in this section with the CIMA license number and you may skip Section 3. If the FI was a reportable FI in both FY19 and FY20 reporting years but did not obtain their license number until calendar year 2020, then the FI Compliance Form should be marked "no" for FY19 and "yes" for FY20.
  2. Financial Account Data. This is really the crux of the Compliance Form. Section 2 dives into the total numbers of reportable versus nonreportable account holders, and the values of the FI broken down into those of reportable and nonreportable accounts. Thus, even if you submitted CRS nil returns for the reporting years, you would still need to complete the Compliance Form. Be wary of double-counting and over or under valuing accounts. Any mismatches between the Compliance Form and the filed CRS annual returns may trigger an inquiry from the DITC.
  3. AML/KYC and Accounting. Section 3 is a short section with administrative questions regarding outsourced service providers and anti-money laundering (AML)/Know Your Client (KYC) procedures. As previously mentioned, if the FI is licensed with CIMA, this section is not required.
  4.  CRS Process. Section 4 further covers administrative aspects of the FI's obligations include due diligence and health checks along with confirmation of the FI's obligation to maintain written policies and procedures, as set out under the CRS legislation.

How to submit. As previously mentioned, the submission of the CRS Compliance Form will be made, similar to the annual CRS return, via the DITC Portal. The submission can be completed by the FI's Principal Point of Contact (PPoC) or an assigned Secondary User. There are two options for submission: the Smart Form and the Bulk Upload CSV file. The long-awaited bulk upload option is a welcome one for those clients that have more than a few FIs in their structure. This option to submit the CSV file in the Portal has gone live as of Wednesday, August 25, 2021. There are some anticipated errors for this new option; the DITC has released an FAQ available on their website.

Overall observations. The Cayman CRS Compliance Form is mandatory for reporting years FY19 onward. As the Cayman Authority will likely be administering penalties to FIs that have missed any filing obligations for this new form, we strongly urge all FIs to reach out to your KPMG contacts if you require assistance with your questions and/or reporting needs.

August 12, 2021 | Senate Infrastructure Bill Expands Cryptocurrency Tax Reporting

Senate Infrastructure Bill Expands Cryptocurrency Tax Reporting

August 12, 2021 | by Nelson Suit | On August 10, 2021, the Senate passed the Infrastructure Investment and Jobs Act (Infrastructure Bill). The bill contains significant provisions that expand the scope of tax information reporting in respect of cryptocurrency and other digital assets, in particular for entities that fall within a broadly expanded definition of “broker”:
  1. Broker Definition Expanded. IRC Section 6045 would be amended to define a broker as including “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” Industry participants and a number of Senators had voiced their concern that this provision was overbroad and could bring into scope certain non-custodial actors within the crypto ecosystem such as blockchain validators, sellers of hardware and software wallets and software protocol developers. But several proposed amendments to limit the scope of the definition of broker never made it into the final bill.
  2. Digital Assets Defined. Amended Section 6045 would also define digital assets as “any digital representation of value that is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.” This definition includes common cryptocurrencies but could have broader application to other (and newly developed) digital assets such as nonfungible tokens or NFTs.
  3. Covered Securities. Digital assets are treated as “covered securities” if acquired on or after January 1, 2023. Covered securities under Section 6045 are subject to cost basis reporting by the broker.
  4. Transfer Reporting. Section 6045A which currently governs the production of transfer statements when accounts are transferred between brokers would also cover transfers of digital assets. In addition, new Section 6045A(d) would require a broker to report transfers of digital assets to an account or address not maintained by a broker – for example, private wallets.
  5. Receipt of Digital Assets. Through an amendment to Section 6050(I), digital assets would also be treated as “cash” for purposes of the statutory requirement to report receipts of cash in excess of $10,000. The provision applies to any person engaged in a trade or business and who, in the course of such trade or business, receives more than $10,000 in cash in one transaction or two or more related transactions. There is, however, an exception to Section 6050I reporting for certain financial institutions already subject to similar Title 31 currency transaction reporting rules.

The Senate bill next goes to the House, which is due to reconvene in September. It is expected that there will be continuing lobbying by industry participants to limit the scope of the “broker” definition.

What seems more and more evident from the new Senate bill and the current regulatory project under Section 6045 is that crypto tax reporting for exchanges and institutions that fall within the definition of “broker” would utilize a Form 1099-B or a new form with a similar format, rather than a Form 1099-K as may have been considered by crypto exchanges in the past. Moreover, the new bill specifies that digital assets would be “covered securities” subject to cost basis reporting if acquired on or after January 1, 2023. This will leave relatively little time for institutions to incorporate cost basis functionality into their core systems.

Developments in regard to the progress of the Infrastructure Bill and the associated IRS regulatory project need to be monitored. For those institutions that would likely fall within the broker definition (e.g., centralized exchanges), it may be an opportune time to begin assessing existing systems and procedures for cost basis and broader broker tax reporting readiness.

July 26, 2021 | Treaty Claims and the Form W-8BEN-E

Treaty Claims and the Form W-8BEN-E

July 26, 2021 | by Kelli Wooten | With August quickly approaching, it’s never too early to start thinking about Form W-8 resolicitation efforts. A significant number of institutions begin this process in early September to ensure as many updated Forms as possible are collected and validated by the time the clock strikes midnight on New Year’s Eve.

One of the most frequent questions we see is what makes for a valid claim of treaty benefits on the Form W-8BEN-E. The answer will vary depending upon the type of income.

Let’s first look at a claim for treaty benefits on actively traded dividends or interest. To be valid, the beneficial owner must:

  • Tick box 14a 
  • Write in the country for which treaty benefits are being claimed on Line 14a 
  • Tick box 14b 
  • Select the appropriate limitation on benefits (LOB) provision. For those few treaties in which there is no LOB provision, the beneficial owner should tick the “Other” box and indicate N/A; this field should not be left blank.

We often receive questions on how withholding agents should validate the claimed LOB provision. The IRS actually included the requirement to identify the relied-upon LOB provision as an effort to ensure the beneficial owner completing the form was reviewing the treaty to help ensure it qualified under one of the provisions, not as a “gotcha” for weary withholding agents. Therefore, as per the regulations, withholding agents would only invalidate a form based on the claimed LOB provision if they have actual knowledge the claim is incorrect.

Withholding agents are also responsible for validating that there is no address either on the Form or in the related books and records that is not in the claimed treaty jurisdiction and that there are no standing instructions to pay amounts to an account in a country other than the claimed treaty jurisdiction.

Now, if you think that was challenging, let’s look at a claim for treaty benefits on services income earned by a non-U.S. entity, e.g., business profits. To be valid, the beneficial owner must do all of the above PLUS:

  • Provide either a U.S. or foreign taxpayer identification number on the Form W-8BEN-E
  • Complete Line 15 and indicate that the income is not attributable to a permanent establishment in the United States. Line 15 must be completed when the beneficial owner is claiming treaty benefits that require it to meet conditions not covered by the representations otherwise included on the Form. As the business profits treaty clauses require that the income for which the treaty claim is made is not attributable to a permanent establishment in the United States, the beneficial owner must certify to this on Line 15. While some may argue that this is not required, it has consistently been our experience—both on audit and in discussions with IRS examination teams—that Line 15 should be completed.

These rules are complex. That is why withholding agents should not to leave the validation process to chance and should either create a robust validation checklist that is reviewed periodically to ensure it reflects the most current validation standards or choose an electronic form validation system that automates these requirements.

Now let’s start resoliciting and validating those Forms W-8! What are some other form validation challenges you would like to see discussed in future posts? Email us your ideas at

June 25, 2021 | New TCC Process Presents Hurdles for Nonresidents

New TCC Process Presents Hurdles for Nonresidents

June 25, 2021 | by Martin Mueller and Cyrus Daftary  | The IRS recently announced changes to its process for submitting information returns through the Filing Information Returns Electronically (FIRE) system. Specifically, the IRS noted that the application process for Transmitter Control Codes (TCC) will be updated in September to eliminate Form 4419 and Fill-In Form 4419. In place of the forms, users will be required to create accounts through IRS Secure Access Account to obtain a TCC. As discussed below, new users, particularly nonresident filers, should seek to obtain a TCC before the changes go into effect to avoid problematic hurdles unintentionally imposed by the IRS.

As a bit of background, the IRS requires taxpayers that file 250 or more information returns to file electronically through FIRE, including Forms 1097, 1098 series, 1099 series, 3291, 3922, 5498 series, 8027, 8955-SSA, and W-2G. Additionally, the IRS requires financial institutions that are submitting Forms 1042-S, regardless of number, to file electronically through FIRE. Taxpayers seeking to submit information returns electronically must currently request authorization to file electronically by submitting Fill-In Form 4419 or Form 4419, Application for Filing Information Returns Electronically (FIRE). Upon successful submission, the IRS assigns a TCC to identify the transmitter of all electronic files, which is then used by the taxpayer for all files submitted through FIRE. Beginning in September, the IRS will retire Fill-In Form 4419 and Form 4419, requiring new users to apply for an account through the IRS Secure Access Account. Notably, the IRS is requiring all Responsible Officials (ROs) listed on the information return application for the TCC to authenticate their identity and create a new account through the Secure Access Account process.

The IRS states that the new application process will automate the TCC application for new users, allow users to manage their account status online, and improve the speed of the application process. However, in creating one efficiency, the IRS may have inadvertently created several issues, particularly for nonresident filers. IRS Secure Access requires a number of items that may not be available to all filers. For example, to create an account, taxpayers must submit a Social Security Number (SSN) or Individual Tax Identification Number (ITIN) and provide their U.S. tax filing status and mailing address from their most recently filed tax return. This is problematic for non-U.S. filers that do not have an ITIN or a U.S. tax filing status.

This issue was raised at the recent International Tax Withholding Virtual Conference (hosted by Kaplan Financial Education), discussing IRS enforcement updates. The IRS representative noted that customers can have companies file on their behalf or purchase software to file. Ignoring the additional costs, this option may not be sufficient in light of security issues posed when dealing with third-party providers in some locations. Despite clarification from the IRS, there are still outstanding questions. For example, it is not clear whether non-U.S. individuals that are not filing U.S. tax returns can obtain an ITIN purely to register with IRS Secure Access, though this raises other timing and administrative issues to consider.

The IRS will need to address other U.S.-centric requirements, such as the list of accounts from which filers must provide a financial account number. Additionally, filers must submit a U.S.-based cellphone in the name of the applicant to receive an activation code. If the applicant does not have a U.S.-based cellphone, they may provide a mailing address. However, the activation code is only good for 30 days, which may be an insufficient amount of time for nonresident filers to receive the code, given current IRS delays seen by non-U.S. persons when correspondence is delivered overseas.

During the conference, the IRS representative indicated that the IRS will take these issues into consideration, but it is not clear that timely answers will be forthcoming. Given the upcoming switch in September, it is highly recommended that any potential information return filers for the 2021 tax year secure a TCC, or revise/update current TCCs, as soon as possible through the historical Form 4419 process. After the forms are retired, it is not clear how quickly the IRS will address these issues, but it appears likely there may be unintended hurdles for nonresident filers.

May 28, 2021 | TIGTA Report Details Backup Withholding Compliance Issues

TIGTA Report Details Backup Withholding Compliance Issues

May 28, 2021 | by Martin Mueller | President Biden recently announced an aggressive plan to upscale the IRS workforce to combat tax evasion and noncompliance. The proposal would provide $80 billion in funding to hire nearly 87,000 workers over a period of 10 years, effectively doubling the size of the IRS. The proposal comes as part of a wider effort to secure funding for President Biden’s American Families Plan. As noted in a recent study by the Treasury Department, The American Families Plan Tax Compliance Agenda, found here, the difference between taxes owed to the government and taxes actually paid was $600 billion in 2019 and is expected to rise to about $7 trillion over the next decade. The study attributes 80% of that tax gap to underreporting, i.e., those that underreport income or overclaim deductions and credits on tax returns. The study attributes an additional 9% of the tax gap to those who fail to file in a timely manner. Of the underreporting group, the largest culprit is classified as income subject to little or no information reporting, which the study states includes nonfarm proprietor income and “other income.”

Coincidentally, on May 17th, the Treasury Inspector General for Tax Administration (TIGTA) released its results of a study on backup withholding noncompliance, Backup Withholding Noncompliance and Underreported Employment Taxes Continue to Contribute Billions of Dollars to the Tax Gap, found here. The TIGTA study analyzed information returns for the 2018 tax year and found over 440,000 information returns with missing or incorrect Taxpayer Identification Numbers (TINs), for which the payers failed to backup withhold $13.3 billion on $55.6 billion of reported income. The TIGTA study goes on to provide reasons for the noncompliance, pointing out that recent efforts to step up compliance have helped. However, the study indicates that backup withholding noncompliance remains a problem, with Form 1099-MISC (and now Form 1099-NEC) contributing a disproportionate share of that issue, accounting for over 77% of all noncompliant forms filed and almost 99% of all unique payers. As a reminder for readers, Form 1099-MISC, Miscellaneous Income, and Form 1099-NEC, Nonemployee Compensation, capture income not reported under standard Forms W-2, including “other income payments.”

President Biden’s tax compliance proposal seeks enforcement through an increased IRS workforce, leveraging information that financial institutions already collect to find taxpayers that misreport income, and updating IRS technology and data analytic tools. Notably, the proposal highlights an opportunity that would permit the IRS to require payees to certify their TIN to payers that issue third-party information reports. Ultimately, it appears that the Treasury has narrowed in on revenue raising measures and may soon have funding under the tax compliance proposals. Thus, payors may need to begin updating their due diligence processes and compliance systems soon in order to avoid penalties.

April 9, 2021 | Responsible Officer Periodic Certifications Extended

Responsible Officer Periodic Certifications Extended

April 9, 2021 | by Martin Mueller | On April 8, 2021, the Internal Revenue Service (IRS) updated its Qualified Intermediary (QI), Withholding Foreign Partnership (WP), and Withholding Foreign Trust (WT) Frequently Asked Questions (FAQs) to provide an additional extension for periodic certifications. Specifically, the IRS updated Question 10 in the “Certifications and Periodic Reviews” section.

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March 5, 2021 | IRS Releases Draft 2021 Forms W-4P and W-4R

IRS Releases Draft 2022 Forms W-4P and W-4R

March 5, 2021 | by Cyrus Daftary | Recently, the IRS published an updated draft of Form W-4P, Withholding Certificate for Periodic Pension or Annuity Payments, and a draft of new Form W-4R, Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions, for the 2022 calendar year. Form W-4P was previously titled Withholding Certificate for Pension or Annuity Payments. The IRS explains in a cover letter that the 2022 Form W-4P has been split into two forms, Form W-4P for periodic pensions and annuities, and new Form W-4R.

Click here to read the full alert. For more information about KPMG IRP alerts, click here.

February 19, 2021 | Form 1042 Compliance Tip

Form 1042 Compliance Tip

February 19, 2021 | by Kelli Wooten | Now is the time to order a transcript from the IRS to validate withholding deposits have been applied appropriately and that any credit carryovers from prior years have been posted to the taxpayer’s account. 

Not sure how to order a transcript?  Here are two methods to utilize:

  1. Use Transcript Delivery Systems (TDS). You will need to ensure that the user has a valid Form 2848 in place. A new version of the Form 2848 was rolled out in January 2021, so make sure you are using the most recent version. 
  2. Complete Form 4506-T and fax to the IRS. Fax numbers are included on the accompanying instructions. You will want to ensure that you include Form 1042 on Line 6, tick box 6b for account transcript, and include the appropriate year(s) on Line 9. Remember to use a MM/DD/YYYY year format. 

Remember to allow plenty of time to receive given potential delays in processing given COVID-19. 

Hot Topic—Cryptocurrency & Tax Information Reporting

June 1, 2022 | Early Signs from Treasury on the Scope of Digital Asset Cost Basis Reporting

Early Signs from Treasury on the Scope of Digital Asset Cost Basis Reporting

June 01, 2022| by Hubert Raglan, Pete Ritter, and Joshua Tompkins

Congress recently expanded the cost basis reporting rules of Sec. 6045 as part of the Infrastructure Investment and Jobs Act, P.L. 117-58 to require "brokers" to provide cost basis reporting for "digital assets." This article discusses some issues that Treasury will have to grapple with when providing cost basis reporting guidance.

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May 2, 2022OECD - Public Comments Received on the Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard

Public Comments Received on the Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard

May 2, 2022 | OECD

On 22 March 2022, the Organisation for Economic Co-operation and Developmen (OECD) invited interested parties to provide comments on the Crypto-Asset Reporting Framework (CARF) and Amendments to the Common Reporting Standard. Click here to access the CARF comment letters available on the OECD site, including input from KPMG. 


April 2022 | Proof of Stake—What’s Really at Stake on the Tax Front?

Proof of Stake—What’s Really at Stake on the Tax Front?

April 2022 | by Peter Ritter and Joshua Tompkins

Growing investment and recent tax developments have generated increased interest in cryptocurrency staking. In this Journal of Taxation of Financial Products article, the authors provide a general overview of staking and consider the different potential tax characterizations of staking and the general U.S. income characterizations. They then provide several considerations for special classes of investors, such as foreign and U.S. tax-exempt investors.

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January 21, 2022 | Cryptocurrency for Banks

Cryptocurrency for Banks

January 21, 2022 | by Nelson Suit and Joshua Tompkins

Joshua Tompkins and Nelson suit share their insights on existing and emerging income tax and tax information reporting issues for banks as they approach the crypto sector during this episode of In the Vault with KPMG banking podcast. 

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November 16, 2021 | New Crypto Reporting Rules

New Crypto Reporting Rules

November 16, 2021 | by Danielle Nishida and Nelson Suit

On this episode of IRW Coffee Break, Danielle Nishida and Nelson Suit discuss the new requirements for reporting of digital assets in the Infrastructure Investment and Jobs Act that was signed into law. 

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October 2021 | Cryptocurrencies and the Definition of a Security for Code Sec. 1091

Cryptocurrencies and the Definition of a Security for Code Sec. 1091

October 2021 | by Joshua Tompkins and Paul Kunkel

Although a number of cryptocurrencies have seen significant long term price appreciation, the volatility of these assets, their boom and bust market cycles, and taxpayers’ ability to specifically identify the units of cryptocurrency sold could result in some cryptocurrency investors realizing significant tax losses upon sale. In this article, which appeared in the Journal of Taxation of Financial Products, the authors consider whether the wash sale rules place limits on the deductibility of cryptocurrency losses and present a case for why cryptocurrencies are most likely outside the scope of the wash sales rules as they currently stand today.

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October 20, 2022 | Year-End Tax Topics for Cryptocurrency Investors

Year-End Tax Topics for Cryptocurrency Investors

October 20, 2021 | by Pete RitterNelson SuitJoshua Tompkins, and Hubert Raglan

Now is the time for investors in cryptocurrencies to recognize approaching year-end considerations and possible planning opportunities. Potential legislative developments that might affect cryptocurrency transactions and the cryptocurrency ecosystem more broadly should also be considered. In this KPMG What's News in Tax article, the authors review the classification of cryptocurrencies, issues concerning specific lot identification and tax loss harvesting, and current legislative proposals that may impact information reporting, wash sale rules, and constructive sale rules.

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October 12, 2021 | Broker Crypto Tax Information Reporting Is Here, But It May Not Be Just for Brokers Anymore

Broker Crypto Tax Information Reporting Is Here, But It May Not Be Just for Brokers Anymore

October 12, 2021 | by Nelson SuitCyrus Daftary, and Phil Garlett

In this article, which appeared in the Journal of Taxation of Financial Products, the authors from the KPMG Information Reporting and Withholding Tax Services practice consider the cryptocurrency information reporting provisions in the Senate Infrastructure Bill and the broader implications of tax information reporting for crypto transactions. The proposed legislation would require “brokers” to provide Code Sec. 6045 cost basis reporting for sales of digital assets and Code Sec. 6045A transfer reporting on transfers of such assets.

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October 2021 | Wrapped Bitcoin—Two Sides of the Same (Bit)coin?

Wrapped Bitcoin—Two Sides of the Same (Bit)coin?

October 2021 | by Peter RitterJoshua Tompkins, and Grant Dalbey

In this Journal of Taxation of Financial Products article, the KPMG authors consider he tax characterization of wrapped bitcoin and conclude that there are good arguments for treating minting wrapped bitcoin, burning wrapped bitcoin, and exchanging bitcoin and wrapped bitcoin on third-party exchanges as nontaxable transactions. 

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October 2020 | Cryptocurrency Loans—Taxable or Not?

Cryptocurrency Loans—Taxable or Not?

October 2020 | by Joshua Tompkins and Hubert Raglan

In this article, which appeared in the Journal of Taxation of Financial Products, the KPMG authors examine the proper tax treatment of cryptocurrency loans, a financial product that has recently emerged in the budding cryptocurrency industry. 

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