Cryptocurrency, Digital or Virtual Currency and Digital Assets 2024 Legislation

Digital or virtual currencies are a medium of exchange, but are not regular money.

Unlike paper bills and coins, cryptocurrencies are not issued or backed by the U.S. government or any other government or central bank. The lack of a physical token to count and hold may confuse some. Rather, Bitcoin and other cryptocurrencies are a form of digital currency used in electronic payment transactions—no coins, paper money or banks are involved; there are zero to minimal transaction fees; transactions are fast and not bound by geography; and, like using cash, transactions are anonymous.

Digital currencies are stored in digital wallets, which are software or apps installed by users on their computer or mobile device.

Each digital wallet contains encrypted information, called public and private keys, that is used to send and receive the digital currency. All digital currency transactions are recorded in a virtual public ledger called the “blockchain,” which is maintained by digital currency “miners.” These miners can be anyone, anywhere in the world, who is willing to invest in the specialized computer hardware needed to rapidly process complex computations. Miners are awarded digital currency, like Bitcoin, Ripple, Dogecoin, and Litecoin, in exchange for verifying each transaction and adding it to the blockchain.

At least 35 states, Puerto Rico and Washington, D.C., have introduced or have pending legislation on cryptocurrency, digital or virtual currencies, and other digital assets in the 2024 legislative session.

Examples of enacted legislation include:

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Citizens Against Government Waste: The Prime Cut Series (#2)

Eliminate Community Development Block Grants (CDBGs)
1-Year Savings: $3.3 billion
5-Year Savings: $16.5 billion

In the 1970s, many American cities suffered from destitution and blight. In 1974, Congress created the CDBG program in an effort to revitalize low income areas in cities across the country. Three years later during the 1977 World Series, swathes of New York’s South Bronx burned to the ground as Howard Cosell narrated on national television.The CDBG program was intended for infrastructure investment, housing rehabilitation, job creation, and public services in metropolitan cities and urban counties. Use of the grants was intended to be flexible, but the more than $100 billion given away to local governments over the last 35 years has fallen short on both accountability and results. Buffalo, New York, has received more than $500 million in CDBGs over the last 30 years, with little to show for it. Los Angeles handed out $24 million to a dairy that went bust 18 months later.

The CDBG formula for eligibility does not take a community’s average income into account. As a result, several very wealthy cities with robust tax bases, like Greenwich, Connecticut, have received CDBG dollars. A September 2012 GAO report found that “some cities with higher unemployment rates received less funding per unemployed person than other cities with lower unemployment rates.”

Former President Obama routinely recommended reducing CDBG funding because “the demonstration of outcomes [is] difficult to measure and evaluate.” Former President Trump’s budgets between FYs 2018 and 2021 recommended eliminating the entire CDBG program. Despite its lengthy record of failing to achieve its objectives and wasting the taxpayer’s money, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law by then-President Trump on March 27, 2020, provided $2 billion for the CDBG program, which represents 60.6 percent of the $3.3 billion appropriated in FY 2023.

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Biden’s budget request for fiscal 2025 includes $12 billion for student loan forgiveness

President Joe Biden has unveiled his proposed budget for the 2025 fiscal year, set to begin on Oct. 1, and in it, he is calling for $12 billion in spending to forgive student loans.

The proposed $12 billion is set to go to a new federal program called Reducing the Costs of College Fund that would support federal strategies to improve college graduation rates and make costs more affordable for students. (Related: Biden DID NOT wipe away debt via student loan forgiveness program – he only redistributed it to other taxpayers.)

Along with funding ways the executive can lower college costs and improve graduation rates, the $12 billion will go toward increasing the maximum that Pell Grant – federal subsidies for college attendees – awardees receive to $8,145.

The proposed budget will also allow the federal government to offer tuition-free rides through community college and eliminate origination fees, or fees charged by lenders for processing a borrower’s loans.

Finally, the $12 billion proposal will fund other student debt cancellation measures into a $3.7 billion state and local safety proposal.

In addition to the $12 billion specifically set aside for the Reducing the Costs of College Fund, Biden is also asking for the Department of Education’s budget to be increased to $82 billion, a $3.1 billion increase from the 2023 level. The White House claims the funding boost would address a range of early and higher education priorities.

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2023 Congressional Pig Book Summary

The publication of the research by Citizens Against Government Waste is a valuable body of research with surprising information. TaxConnections will post the information from this organization in a series to gain public attention to where your tax dollars are spent. We encourage you to reach out to Congress with your thoughts and/or make your commentary below and we will compile your thoughts and deliver this to them.

INTRODUCTION
The United States is on a path to fiscal insolvency. The national debt has surpassed $33 trillion for the first time and is set to grow at a record pace over the next decade. A February 15, 2023, Congressional Budget Office (CBO) report forecast an average annual deficit of $2 trillion between fiscal years (FY) 2024 and 2033. The annual deficits during this period will add $20.3 trillion to the national debt, bringing it to $53.3 trillion by FY 2033. According to the CBO, the deficit in 2033 will reach 6.9 percent of gross domestic product, “a level exceeded only five times since 1946.”

Rising interest rates will make payments for interest on the debt a fast growing share of federal expenditures. If Congress does not reduce spending, more money will have to borrowed to fund federal programs, which will mean more interest payments. Each one percentage point increase in interest rates means $330 billion more in annual interest payments on a debt of $33 trillion. That amount is more than the combined annual budgets for the Departments of Commerce, Energy, Interior, and Justice. The fiscal morass has been caused by several massive spending packages,
including bills signed into law in response to COVID-19 starting in the Trump administration, but mostly due to the bills passed during the Biden administration. They added $6 trillion in pandemic-related spending, much of which had nothing to do with the pandemic. The American Rescue Plan Act, which cost $1.9 trillion and was passed on a partisan basis by a Democratic majority in Congress and signed into law by President Biden, added as much as 3 percentage points to inflation. This excessive stimulus resulted in higher inflation in the U.S. than the average in 10 Organization for Economic Development countries.

Other legislation has not improved the picture. The Infrastructure Investment and Jobs Act of 2021 (IIJA), signed by President Biden on November 15, 2021, came with a price tag of $1 trillion. Then, on August 16, 2022, President Biden signed the Inflation Reduction Act, a deceptively labeled bill that included $369 billion in climate change/Green New Deal spending, $80 billion to hire 87,000 new Internal Revenue Service agents, and the establishment of drug cost negotiations that will result in price caps for drugs purchased by Medicare, crippling innovation by biopharmaceutical companies. Even President Biden admitted the bill was misnamed, saying on August 11, 2023, that “it has nothing to do with inflation: it has to do with $368 billion, the single largest investment in climate change anywhere in the world …” To help mitigate the fiscal tsunami, Citizens Against Government Waste
(CAGW) is releasing Prime Cuts 2023, which has been published since 1993. The 2023 version contains 543 recommendations that would save taxpayers $402.3 billion in the first year and $4 trillion over five years.

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Grantor Trust Rules

From a tax perspective, 2024 has started off with an important pronouncement from an estate planning perspective – CCA 202352018. Many of you Forum attendees may recall that we have discussed at prior Forum programs the concept of gifting and/or selling property to a grantor trust. As part of that planning, it is common for there to be a discretionary tax distribution provision that can provide the grantor with the funds necessary to cover the grantor’s income tax obligation related to the trust’s income. Long ago, the IRS ruled in Rev. Rul. 2004-64 that if the decision to make such a tax distribution is discretionary and is made by a non-subservient trustee, the grantor’s right to the tax distribution does not cause includability of the trust’s assets in the grantor’s estate.

In the event a grantor trust does not provide for a discretionary tax distribution, and the grantor had “donor’s remorse,” the IRS had privately ruled in PLR 201647001 that the modification of a trust to add a discretionary trustee power to make a tax distribution was an “administrative” change that had no gift tax consequences. Unfortunately, the IRS had changed its mind, and, in the CCA, which appeared in advance sheets this morning and had a release date of December 29, 2023, the IRS indicates that adding such a provision at a later date constitutes a gift by the beneficiaries back to the grantor. How this gift would be valued is anyone’s guess, and the IRS almost admits as much in footnote 2 in which it states that “[a]lthough the determination of the values of the gifts requires complex calculations, Child and Child’s issue cannot escape gift tax on the basis that the value of the gift is difficult to calculate.”

Here Is Who Needs To File A Tax Return In 2024

Most U.S. citizens and permanent residents who work in the United States need to file a tax return if they make more than a certain amount for the year.

The IRS has a variety of information available on IRS.gov to help taxpayers, including a special free help page. Here are some specific details to help people if they need to file a tax return.

Factors That Affect Whether Someone Needs To File A Tax Return

Here are some of the things that affect whether someone must file a tax return.

Gross income. Gross income means all income a person received in the form of money, goods, property and services that aren’t exempt from tax. This includes any income from sources outside the United States or from the sale of a main home, even if you can exclude part or all of it.

Required filing threshold. People need to see if their gross income is over the required filing threshold. Filing statuses have different income thresholds, so individuals may need to consider their potential filing status as well.

There are five filing statuses:

  • Single
  • Head of household
  • Married filing jointly
  • Married filing separate
  • Qualifying surviving spouse

Find details on tax filing requirements with Publication 501, Dependents, Standard Deduction, and Filing Information.

Tax Year 2023 Filing Thresholds By Filing Status

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Treasury, IRS Issue Guidance For The Elective Payment Of Advanced Manufacturing Investment Credit

WASHINGTON — The Internal Revenue Service (IRS) issued final regulations that provide guidance for the entities choosing the elective payment for the advanced manufacturing investment credit, established by the CHIPS Act of 2022.

The final regulations include special rules for partnerships and S corporations making the election. In addition, the final regulations provide rules related to the mandatory pre-filing registration requirement that were previously issued as temporary regulations.

This credit will incentivize the manufacturing of semiconductors and semiconductor manufacturing equipment within the United States. The credit is available to taxpayers that meet certain eligibility requirements, and there is the ability for taxpayers to make an elective payment election to be treated as making a refundable payment against the tax equal to the amount of the credit. A partnership or S corporation can make an elective payment election to receive a payment, instead of claiming the credit.

The final regulations provide guidance related to the mandatory IRS pre-filing registration process, which is available through pre-filing registration tool. The pre-filing registration process must be completed, and a registration number received, prior to making an elective payment election.

For more information, see Publication 5884, Inflation Reduction Act (IRA) and CHIPS Act of 2022 (CHIPS) Pre-Filing Registration Tool User GuidePDF.

IR-2024-62

Tax Information And Responsibilities For New Immigrants To The United States

This page provides a general summary of federal income tax responsibilities, procedures, and rights related to residents of the United States, and corresponding links to more detailed information.

Residency Under U.S. Tax Law

The taxation of an individual who is not a U.S. citizen or U.S. national is dependent on the residency status of such individual.

In general, U.S. tax residents are taxed in the same manner as U.S. citizens on their worldwide income, while nonresidents are generally taxed on U.S. source income and income effectively connected with U.S. trade or business.

An immigrant who obtains a green card is treated as a lawful permanent resident and is considered a U.S. tax resident for U.S. income tax purposes. For assistance in determining whether you are a U.S. tax resident or nonresident please refer to determining alien tax status.

In general, when you initially obtain a green card, your residency starting date is the first day in the calendar year on which you are present in the United States as a lawful permanent resident (the date on which the United States Citizenship and Immigration Services (USCIS) officially approved your petition to become an immigrant).

If you received a green card abroad, then the residency starting date is the first day of physical presence in the United States after you received the green card. For more information, please refer to residency starting and ending dates.

For tax years in which you are both a U.S. tax resident and nonresident, please refer to taxation of dual-status aliens.

Taxation Of U.S. Tax Resident

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Form 8854: The Final Step In Leaving U.S. Tax System

For US expats ready to renounce their citizenship, understanding the final legal and tax steps is essential. Form 8854, the Initial and Annual Expatriation Statement, marks the conclusive stage in breaking ties with the U.S. tax system. At 1040 Abroad, we specialize in navigating the complexities of Form 8854, offering the insights needed to finalize your departure from U.S. tax obligations confidently. This article is your definitive guide to completing Form 8854, the ultimate step in your expatriation journey.

WHAT IS FORM 8854?

Form 8854 is a tax form used by long-term residents relinquishing their Green Card and U.S. citizens renouncing their citizenship. Until you file it, you will remain a U.S. person for tax purposes. The form declares expatriation and compliance with IRS requirements, marking your official departure from U.S. tax obligations.

NoteA long-term resident, for the purposes of Form 8854, is an individual who has held a green card in at least 8 of the last 15-tax-year period before the year of expatriation.

WHAT IS THE PURPOSE OF FORM 8854?

Form 8854 has several key purposes:

  1. To notify the IRS of your expatriation or termination of long-term residency.
  2. To certify that you have complied with all U.S. federal tax obligations for the five years preceding the year of your expatriation.
  3. To determine if an individual is a “covered expatriate” under U.S. tax law, which has implications for their tax liabilities.
  4. To calculate the exit tax, if applicable,  under sections 877 and 877A of the Internal Revenue Code.

Importantly, for U.S. citizens who have renounced their citizenship, filing Form 8854 is necessary to formally cease being considered a U.S. person for income tax purposes. This step is essential to ensure compliance with U.S. tax laws and avoid continuing U.S. tax obligations.

WHO IS CONSIDERED A COVERED EXPATRIATE?

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California Digital Financial Assets Law

On October 13, 2023, Governor Newsom signed into law Assembly Bill 39 and Senate Bill 401, together called the Digital Financial Assets Law (DFAL).

The DFAL provides the DFPI with rulemaking authority and an operative date of July 1, 2025 to ensure the regulatory framework is thoughtfully tailored to provide investor and consumer protections and address the crypto asset industry.

Invitation for Comments by January 12, 2024

The DFPI seeks public comments on topics related to the DFAL license application, licensure requirements, and stablecoin approval. The Commissioner invites interested parties to submit comments by January 12, 2024.

Prior to the comment deadline, the DFPI will host a virtual informal listening session with stakeholders to discuss feedback on this informal invitation for comments on January 8, 2024. Interested parties should email regulations@dfpi.ca.gov with the subject line “DFAL Listening Session RSVP” for an invitation to attend. The DFPI anticipates invitations for comment on additional topics in the future.

Licensing

Beginning July 1, 2025, companies must be licensed by the DFPI or have applied for a license with the DFPI to operate in California. The DFAL prohibits an entity from engaging in digital financial asset business activity unless the entity holds a license from the DFPI. Digital financial business activity includes activities such as exchanging, storing, or transferring a digital financial asset, such as a crypto asset. The new law promotes consumer and investor protection by creating a robust regulatory framework, including supervision and enforcement authority, for certain crypto activities.

Prospective Licensees

If you are a prospective DFAL licensee, or have a question about how the law affects your business, join our email list to receive future updates or email crypto@dfpi.ca.gov.

Kiosks

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Taxpayers Should Report Digital Asset Transactions, Gig Economy Income, Foreign Source Income And Assets

The Internal Revenue Service reminds taxpayers they’re generally required to report all earned income on their tax return, including income earned from digital asset transactions, the gig economy and service industry as well as income from foreign sources.

Reporting requirements for these sources of income and others are outlined in the Instructions for Form 1040 and Form 1040-SR. The information is also available on IRS.gov.

This release is the third in a four-part series called the Tax Time Guide, a resource to help taxpayers file an accurate tax return. Additional guidance is available in Publication 17, Your Federal Income Tax (For Individuals).

Digital Assets, Including Cryptocurrency

A digital asset is a digital representation of value that is recorded on a cryptographically secured, distributed ledger. Common digital assets include:

  • Convertible virtual currency and cryptocurrency.
  • Stablecoins.
  • Non-fungible tokens (NFTs).
Everyone Must Answer The Question

Everyone who files Forms 1040, 1040-SR, 1040-NR, 1041, 1065, 1120 and 1120-S must check one box answering either “Yes” or “No” to the digital asset question. The question must be answered by all taxpayers, not just by those who engaged in a transaction involving digital assets in 2023.

Checking “Yes”: Normally, a taxpayer must check the “Yes” box if they:

  • Received digital assets as payment for property or services provided;
  • Transferred digital assets for free (without receiving any consideration) as a bona fide gift;
  • Received digital assets resulting from a reward or award;
  • Received new digital assets resulting from mining, staking and similar activities;
  • Received digital assets resulting from a hard fork (a branching of a cryptocurrency’s blockchain that splits a single cryptocurrency into two);
  • Disposed of digital assets in exchange for property or services;
  • Disposed of a digital asset in exchange or trade for another digital asset;
  • Sold a digital asset; or
  • Otherwise disposed of any other financial interest in a digital asset.

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Request A CPE Course For Your Firm Members: The Best Retention Strategy For Your Tax Team Is A Great Education

With years of experience communicating with tax professionals on why they stay with their organizations and why they leave, I know the number one retention strategy is training your team members. Training is what staff members want and as CEO and Founder of TaxConnections Executive Search Services Division, it catches my attention when I see a firm like Source Advisors offering to provide complimentary education services to CPA firms and corporate tax organizations, I take notice. Now is the time to contact Eric Larson at Source Advisors to schedule a training day or session for your team for free. Why does Source Advisors do this? They want to engage with you and your firm in case you have specialty work to outsource like R&D Tax Credits to do under your own label. Source Advisors is a specialty tax firm that many CPA firms outsource their work to ensure it is completed by leading experts in the profession.

Take a look at the education they want to provide your tax team:

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