Federal Tax News for Businesses

What Certain IRS Notices Mean

What does it mean if a business receives a Notice CP2100 or CP2100A from the IRS? These notices tell recipients that the Form 1099 information returns they’ve submitted contain missing or incorrect Taxpayer Identification Numbers, names or both.

To respond, payers need to compare accounts listed on the notice with their own records and make corrections, if necessary. They may also need to amend backup withholding for payments made to payees. Typically, the IRS sends these notices twice a year, in April and in either September or October. As always, you should promptly respond to any IRS communication. Contact us with questions.

What Exactly is a “Small Business?”

Though your business may seem big to you, you may wonder how the government classifies it. A recent report by the Joint Committee on Taxation, a nonpartisan committee of the U.S. Congress, discusses what a “small business” is for tax purposes. As the report states, there’s no one definition of a small business. Instead, several definitions apply depending on the context, various criteria and certain thresholds.

Criteria include a business’s gross assets, gross receipts and its number of shareholders and employees. Even if a criterion such as gross receipts is the same across definitions, different thresholds may apply. Also, for some purposes, the tax code might define a small business in more than one way.

Good Records are a Must for Businesses

Business owners can generally deduct the ordinary and necessary costs to conduct business. However, the burden to prove the deductions are legitimate is on the taxpayer. In one case, the U.S. Tax Court ruled that a physician who owned a film company wasn’t entitled to deduct expenses associated with the business because he didn’t “engage in those activities for profit.” In fact, the court considered nine separate factors to determine if the requisite profit objective was met. All nine factors weighed against the taxpayer.

In addition, the taxpayer wasn’t entitled to deduct purported business expenses associated with his medical practice because he lacked substantiation in the form of good recordkeeping. (TC Memo 2023-63)

The Advanced Manufacturing Investment Credit

New IRS guidance addresses elective payment provisions of the Advanced Manufacturing Investment Credit (AMIC). Created as part of the CHIPs Act, the AMIC is available to certain U.S. manufacturers of semiconductors and semiconductor manufacturing equipment. The guidance discusses how taxpayers that earn certain clean energy credits and meet other eligibility requirements can choose to make an “elective tax payment. “It also contains rules for qualified taxpayers to transfer certain credits to unrelated parties, outlines anti-abuse provisions and explains repayment of excessive elective payments. The temporary regulations are effective June 21, 2023. Read the guidance here.

The New Corporate Alternative Minimum Tax

The Inflation Reduction Act created the new corporate alternative minimum tax (CAMT). It imposes a 15% minimum tax on the adjusted financial statement income of large corporations for taxable years beginning after Dec. 31, 2022. CAMT generally applies to large corporations with average annual adjusted financial statement income exceeding $1 billion.

The IRS, in Notice 2023-42, is providing tax relief for corporations that didn’t pay estimated tax related to the CAMT. Specifically, the IRS will waive the penalty for a corporation’s failure to pay estimated income tax with respect to its CAMT for a taxable year that begins after Dec. 31, 2022, and before Jan. 1, 2024.