AICPA News – Sept 2023

The practice aid, Accounting for and Auditing of Digital Assets, is intended to provide nonauthoritative guidance on how to account for and audit digital assets under U.S. generally accepted accounting principles (GAAP) for nongovernmental entities and generally accepted auditing standards (GAAS), respectively. Practitioners who prepare financial statements and auditors with a fundamental knowledge of blockchain technology will find the guidance most useful. The practice aid addresses other key challenges for auditors that may create risk, including:

• Recruiting, developing and retaining talent with digital asset and blockchain expertise in a highly competitive market;
• Identifying any noncompliance with procedures surrounding know-your-customer or anti-money-laundering regulations that may present considerable reputational and business risks for an entity; and
• Determining the level of interaction between an entity and a third-party custodian that stores digital assets on behalf of an entity.

The Digital Assets Working Group is a joint working group under the Financial Reporting Executive Committee (FinREC) and the Assurance Services Executive Committee (ASEC), which consists of the Accounting Subgroup and Auditing Subgroup.

Download the Digital Assets practice aid and explore other AICPA resources for blockchain and digital asset accounting and auditing at these links.

AICPA Submits Comments to the Department of the Treasury and Internal Revenue Service

The American Institute of CPAs (AICPA) has submitted comments to the Department of the Treasury and the Internal Revenue Service (IRS) requesting guidance to taxpayers pertaining to energy tax credit provisions of the Inflation Reduction Act (IRA) of 2022 and on section 48D advanced manufacturing investment credit provisions of the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act of 2022.

The letter outlines the following recommendations:

• Consider an expedited process for the issuance of quick refunds for applicable entities eligible for direct pay.
• Provide additional clarity and simplify the pre-filing registration process by:
  • Establishing a minimum credit threshold to relieve some tax-exempt taxpayers who are claiming lower credit amounts from the pre-filing registration requirement.
  • Providing clarity about the pre-filing process; including timeline, process time and mode, and specified changes regarding amendment.
  • Providing clarity about the pre-filing process specific to the credits using qualified progress payments made in 2022.
• Consider allowing partnerships with all tax-exempt partners to be considered “applicable entities.”
• Provide further guidance on the definition of Restricted Tax-Exempt Amount.
• Retain in the final regulations the clarification of “applicable entities” and the definitions as included in Prop. Reg. § 1.6417-1(c).
• Omit the 5-step computation rule and provide guidance that allows taxpayers to elect to treat the advanced manufacturing investment and energy tax credits as a payment against tax “equal to the amount of such credit” under the direct payment final regulations.
• Provide in the final regulations that taxpayers who perform the carbon capture and receive the section 45Q tax credit in a transfer from the property owner be allowed to transfer the credit to another third party.
• Remove section 469 from Prop. Reg. § 1.6418-2(d)(1) and Prop. Reg § 1.6418-2(f)(3)(ii) in its entirety.

The AICPA has requested the removal of the reference to Section 469 in the proposed regulations in its entirety. Currently, the partnerships with all tax-exempt partners are not considered “applicable entities,” however the AICPA recommends they be considered as such.

AICPA Submits Recommendations to the IRS regarding IRS Form 3520

The American Institute of CPAs (AICPA) submitted recommendations to the Internal Revenue Service (IRS) on improvements to the IRS Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, and Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner, and instructions. A separate letter was also submitted providing additional recommendations regarding sharing Appeals Form 3520 and Form 3520.

Among the recommendations, the AICPA requested that the IRS update, add to and clarify Form 3520 and Form 3520-A instructions and allow for e-filing of both forms, clarification of the need for EIN numbers and inclusion of an exemption from both forms for foreign pensions where deferral of tax on earnings is available under a tax treaty.

In a second letter regarding sharing Appeals Form 3520 and Form 3520-A reasonable cause determinations with the Campus, the AICPA submitted recommendations aimed at better educating Campus personnel reviewing these specific issues with the understanding that resolving cases expeditiously will save taxpayers time and resources.

The AICPA recommends the following actions:

• The Independent Office of Appeals (Appeals) provide Appeals Case Memoranda (ACMs) where Appeals fully abates penalties relating to Form 3520 and Form 3520-A based on reasonable cause to Campus personnel handling initial reasonable cause requests.
• If Appeals decides that sharing ACMs is not possible or feasible, the AICPA recommends that Appeals coordinate with the Office of Servicewide Penalties to provide Campus personnel with a summary of Form 3520 and Form 3520-A cases where Appeals fully conceded the penalty based on reasonable cause, including the factors that Appeals relied upon in each case to make these concessions.

As Recession Fears Fade, Business Executives’ Outlook on the U.S. Economy Brightens a Bit, AICPA & CIMA Survey Finds

With concerns about inflation and a potential recession ticking down, business executives have grown guardedly less pessimistic about the U.S. economy’s prospects, according to the third-quarter AICPA & CIMA Economic Outlook Survey. The survey polls chief executive officers, chief financial officers, controllers and other certified public accountants in U.S. companies who hold executive and senior management accounting roles.

Only 29% of survey respondents expressed optimism about the outlook for the U.S. economy over the next 12 months, While modest, that’s the highest level since the first quarter of 2022 and a jump from last quarter’s measure of 14%. U.S. business executives’ views of the global economy also improved somewhat, with 17% expressing optimism, up from 11% last quarter.

Sixteen percent of business executives said they still expected a recession by year end, a dramatic drop from the 47% who expressed that sentiment last quarter. The percentage of those who said they believed the economy is already in recession also fell sharply. Twenty-seven percent still expect to see a recession in 2024.

Inflation, the top business challenge identified within the survey since the end of 2021, was supplanted this quarter by “availability of skilled personnel,” a reflection of the continued tightness in the labor market and executives’ perception of a lingering skills gap in the workforce.

Some 39% of business executives said their company currently has too few employees, down from 43% last quarter. Twenty-five percent said they planned to hire immediately, while 14% said they were hesitant to hire because of economic uncertainty.

Other key findings of the survey:

• Expansion plans increased from 43% to 50%, and those who expect their businesses to contract fell from 46% to 24%.
• 12-month profit expectations swung from negative (-0.9%) to a narrow positive (0.1%) in the quarter. Revenue growth for the next 12 months is now projected to be 1.9%, up from 1.2% last quarter.
• Business executives are more optimistic about their own company’s prospects over the next 12 months (45% vs. 35% last quarter).
• Some 37 percent of business executives said they expected their companies to raise prices by year end. Fifty-one percent said they expected no change, while 4% said they anticipated decreases.