Issuu

WINTER 2023

FREE STATE ACCOUNTANT

WINTER 2023

CONTENTS 2023-2024 Board of Directors

President

Donya Oneto, CPA

1st Vice President

Ellen Silverstein, CPA

2nd Vice President

Hannah Coyle, EA

Secretary

Jonathan Rivlin, CPA

Treasurer

Ann F. Elliott, EA

Delegate

Matthew T. Eddleman, EA

Delegate

Michael McIlhargey, CPA

Delegate

Michael L. Kohler, EA

Delegate

Nicole Moore, EA

Delegate

Sean Coggins, CPA

Past President

Barbara J. Smith, CPA

Board of Trustees Delegate

Christine Giovetti, CPA

Executive Director

Gigi Hawkins

2 Executive Director's Corner 4 Beware of Tax Scams: Red Flags and the New Corporate Transparency Act Scam 5 How AI Will Transform Accounting 10 Why Would I Work For You? 11 Interchange Rates for Small Businesses Require a New Innovative Approach 13 Bridging Generations in Accounting: Navigating Succession and Balancing Change 14 The Brief History of the Taxation of Digital Assets

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Change will not come if we wait for some other person or some other time. We are the ones we’ve been waiting for. We are the change that we seek. - Barack Obama This innovative portal is designed with user experience in mind, offering a platform for members to actively engage in community discussions through groups and forums, access and connect to registered courses and webinars seamlessly, and benefit from an on-demand online learning management system, which allows the flexibility of taking courses at your convenience. In addition, the portal will feature a member directory and an auto-renewal option for memberships, among other enhancements. 2024 also marks the 65th anniversary of MSATP, a milestone that we are eager to celebrate with a series of special events. Stay tuned for more details on these festivities! As we enter the legislative session this January, MSATP will be at the forefront, advocating for policies that support tax, tax preparation, and small business interests. Our 2024 Legislative Priorities are thoughtfully designed to reflect and further our mission statement.

Executive Director's Corner Happy New Year! As the Executive Director of the Maryland Society of Accounting and Tax Professionals (MSATP), I am delighted to share our remarkable journey in 2023. This past year, my first full year in this role, has been a time of significant transformation and growth. Pivotal changes marked the year 2023 as we embraced new processes and worked diligently to enhance the value of our membership. I hope you have experienced the expanded resources and benefits of your membership in the Society. Our vision for 2024 is bright, with a continued commitment to increase membership value. One of the most exciting developments for the coming year is launching a new site and member portal, set to go live in May 2024.

Here’s how: Business Tax Environment: We stand against complex tax rules like the throwback rule and mandatory unitary combined reporting. Our stance is based on fostering a thriving business environment for our members, especially for solo practitioners and small to mid-sized firms. Sales Tax on Services: We oppose expanding sales tax on services, as it could adversely affect small and mid-sized businesses, which are less equipped to handle new expenses or administrative tasks. Maryland’s De-coupling Provisions: We advocate for a careful evaluation of Maryland’s tax laws to ensure they are in harmony with federal regulations, allowing our members to provide accurate and current advice. Remote Work Tax Policies: In light of the shift toward remote work, we push for clear and permanent tax policies so our members can offer reliable counsel and manage their businesses effectively in this new era. Exploring Alternatives to Raising Taxes: We encourage the exploration of alternatives to tax hikes, aiming to create a business environment conducive to the growth of our member firms.

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Guarding Against Deceptive Tax Practices: Protecting taxpayers, especially the elderly, from scams is paramount. We strive to maintain the highest ethical standards in our profession. The legislative priorities of MSATP are a direct extension of our mission to support and safeguard our members' businesses, advocate for the profession, and ensure professional integrity. Through these priorities, we demonstrate our unwavering commitment to creating a supportive legislative climate that allows our member businesses to flourish while maintaining ethical standards and fostering a sense of community within the profession. Looking ahead, we are excited about the opportunities and challenges 2024 will bring. Together, we will continue to build on our achievements and enhance Maryland’s accounting and tax profession. Thank you for your continued support and involvement in MSATP. Here's to a prosperous and fulfilling new year! Warm regards,

Gigi Hawkins

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BEWARE OF TAX SCAMS: RED FLAGS AND THE NEW CORPORATE TRANSPARENCY ACT SCAM By Gigi Hawkins , Executive Director- MSATP

ax season is often associated with stress and anxiety, and for good reason. As taxpayers rush to meet deadlines and navigate complex tax codes, they become prime targets for fraudsters looking to exploit their vulnerabilities. In recent years, tax scams have evolved and become increasingly sophisticated. Today, we'll discuss common red flags to watch out for when dealing with tax-related communications and shed light on a new scam exploiting the Corporate Transparency Act. Red Flags of Tax Scams Tax scams come in various forms, from phone calls and emails to fraudulent letters and websites. Here are some red flags to help you identify potential scams: 1. Pressure to Act Immediately: Scammers often use urgency as a tactic to pressure victims into taking immediate action. They might threaten fines, legal consequences, or loss of benefits if you don't comply. 2. Unsolicited Communication: Be cautious of unsolicited emails, letters, or phone calls claiming to be from government agencies or tax authorities. Legitimate organizations usually communicate through official channels. 3. Suspicious Websites: Always verify the authenticity of websites provided in tax-related communications. Scammers create convincing fake websites that mimic official government sites. 4. Request for Personal Information: Tax authorities rarely ask for personal or financial information through email or over the phone. Be wary of any request for sensitive data like Social Security numbers or bank account details. 5. Too Good to Be True Promises: Scammers often promise unrealistically high tax refunds or suggest that you qualify for deductions that are too good to be true. 6. Unusual Payment Methods: Beware of requests for payment through unconventional methods like gift cards, cryptocurrency, or wire transfers. Legitimate tax agencies typically accept payments by check, credit card, or direct debit. 7. Grammatical Errors and Poor Spelling: Scam emails and letters often contain grammatical errors and misspelled words, which can be a telltale sign of fraud. 8. Caller ID Spoofing: Scammers may manipulate caller ID information to appear as if they are calling from a legitimate government agency.

A New Scam Exploiting the Corporate Transparency Act A recent tax scam that has come to our attention takes advantage of the new Corporate Transparency Act. The scam involves fraudulent letters that look official, bear the logo of the U.S. government, and claim to be from the "United States Department of Records Management." Here's what to watch out for in this particular scam: Misleading Deadlines: The scam letter advises recipients to file specific documents by a certain date, which may not align with the actual regulations of the Corporate Transparency Act. Official-Looking Letterhead: Scammers have become adept at creating official-looking documents, making it difficult to discern their fraudulent nature at first glance. Inclusion of Personal Information: Perhaps the most concerning aspect of this scam is that the letter references the recipient's SDAT ID #. This indicates that the scammer is likely scraping public data to personalize their fraudulent communications. QR Codes and Suspicious Websites: The letter includes a QR code that directs recipients to a suspicious website (www.deptofbusiness.us), further reinforcing the appearance of legitimacy. The Role of the Society's Members Members of the Society play a crucial role in safeguarding their clients from tax scams. Please share this information with your clients, informing them of the red flags associated with tax scams and the specific threat posed by the Corporate Transparency Act scam. Educating your clients empowers them to recognize and report potential scams, protecting their financial well-being. In addition to sharing this information with clients, members of the Society should also remain vigilant in their professional practices. Please verify the authenticity of any tax-related communications you receive, and be careful when handling personal information. By taking proactive steps to combat tax scams, members of the Society can contribute to a safer and more secure tax season for all. Tax scams continue to pose a significant threat to taxpayers, with fraudsters constantly devising new schemes to exploit vulnerabilities. By staying informed about the red flags and remaining cautious when handling tax-related communications, you can protect yourself and your clients from these deceptive schemes. If you ever suspect a tax scam, don't hesitate to report it and seek assistance from legitimate tax authorities. Together, we can work to ensure a safe and secure tax season for all. THE FREESTATE

HOW AI WILL TRANSFORM ACCOUNTING Blake Oliver, CPA Earmark CPE The accounting profession faces a growing talent crisis. Statistics show a turnover rate of 15.9% for accountants between 2019-2021. Most accounting firms are currently struggling to fill open positions. And due to demographic shifts, it won’t get any easier. Projections point to a global talent shortage by 2030 as baby boomers retire from the workforce. This raises a critical question - how can the accounting profession continue to meet rising demand with limited human resources? Artificial intelligence will provide part of the solution. By automating high-volume routine tasks, AI could free up capacity for accountants to focus on more value-added advisory services. It could also enhance productivity by reducing the number of staff required for compliance activities. This article explores current and potential future applications of AI in accounting. We’ll discuss current applications, the future potential, and long-term impact on the profession. I hope by the end, you’ll share my opinion that the outlook is bright for firms that can effectively leverage AI and automation to augment their human teams. Current Applications of AI in Accounting AI is already deployed today in accounting for document analysis, client communications, and content creation. Here are some of the ways firms are currently using this technology. Document Review and Analysis AI tools today can review lengthy documents and generate concise, accurate executive summaries. For example, when the federal court handed down its decision in the Ripple v. SEC case, I didn't have time to read the dozens of pages in the legal document — nor did I have the confidence I would be able to understand it. So, I uploaded the PDF to Claude and asked him to create a bullet point executive summary in plain English.

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In just moments, the AI provided a summary of the case, the critical issue at hand, four bullet points detailing the judge’s decision, and a summary of the decision and what to expect next. It’s an example of how AI can help us save time by summarizing long, complicated documents. But there’s even more potential. AI can identify key terms, clauses, and obligations in legal agreements. It can also extract details such as payment amounts, interest rates, liability limits, and expiration dates. Try it the next time you have a legal document to analyze. Client Communications You can use AI today to automate the creation of client emails and collection letters. Give an AI a bullet point list of what you want to say, or dictate what you want to say directly into ChatGPT. It can draft the email for you in seconds. For me, this is a game changer because I'm a slow writer but a fast thinker. I used AI recently to draft a termination letter. I provided it with the agreement and a prompt, and it did the rest. It got the date wrong, but with a little bit of review and editing, it saved me hours.

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The recipient even reached out to say how impressed he was that I followed the termination procedure in the agreement to the letter. That rarely happens. It only happened in this instance because I had the advantage of an AI assistant. Additionally, chatbot software developers are beginning to integrate AI into their apps. If you have one of these chatbots on your website, it may soon be able to answer simple questions for your clients around the clock without you having to get involved. Marketing Content Creation AI is a game changer for content creation. AI can draft blog posts, social media updates, and other materials by analyzing podcast transcripts and video recordings. AI helped me write this article you are reading now. As a starting point, I used Claude to generate an outline from a recording of my presentation on this topic last month. Then, after reviewing and editing the outline, it helped me create the first draft of each section. I assembled and edited the output into the final draft. AI tools can also help speed up the creation of audio and video content. It can automatically cut a longer video into shorter clips optimized for social media. For instance, Opus can create dozens of subtitled video clips from a single YouTube video. It will pick out the most compelling clips and even add captions. This allows firms to efficiently generate more high-quality thought leadership content to build brand awareness.

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Financial Statement Summaries AI chatbots can generate plain English summaries and explanations of financial statements. Simply upload a profit and loss and balance sheet to one of these AI chatbots and ask it to create a written narrative for a client. I know of one firm working on automating the creation of executive summaries for their clients. The plan is to provide the AI with financial statements via integration with their GL and have it generate the text automatically each month. You can give it a try yourself. Just be sure that if you use a chatbot, remove any identifying client information, such as the company name. And remember that given the tendency of AI chatbots to hallucinate, human review is essential. You’ll still need to be familiar with the financial statements. AI can’t (yet) do it all.

Future Potential for AI in Accounting AI has immense potential to automate and improve tax, accounting, and assurance processes beyond what is possible today. Let's dive into some areas where it could have a big impact once software companies integrate AI tools into their apps. Tax Preparation and Compliance Like a helpful administrative assistant, AI chatbots will collect tax documents from clients. By analyzing prior year returns, AI will generate request lists for the current year tailored to each taxpayer. An AI chatbot will text or email requests to clients (depending on their preference) and follow up until all documents are received. Matching documents and data input will become automated as well. This will significantly reduce the manual effort required for tax preparation. Audit Procedures AI will automate many routine auditing tasks. This includes confirming account balances, analyzing samples of transactions, and identifying anomalous journal entries for further testing. AI will flag potential issues and areas of concern to help focus the auditor on what matters most. Fraud Detection AI will detect potential fraud by analyzing patterns across expense reports, payments, journal entries, and other transactions. By flagging deviations from historical norms and unusual activity, AI will bring potential issues to light much faster and more reliably than manual review. Financial Statement Analysis AI will review financial statements, disclosures, and earnings releases to find irregularities or areas warranting additional disclosure. For client reporting, AI tools will provide insights into performance trends and benchmarks and generate commentary to explain results. Long-Term Impacts on the Profession When adopted at scale, AI will fundamentally transform nearly all aspects of the accounting profession. Here are some key ways it may impact workflows, skillsets, staffing, service offerings, etc. Advisory Focus By automating repetitive tasks, AI reduces time spent on data entry, document collection, bookkeeping, and other routine activities. This enables a greater focus on higher-value advisory services, analytics, and providing business insights. More judgment-intensive work can be reserved for human staff. THE FREESTATE

New Skills Required The expanded use of AI will change skill requirements for accountants. Key capabilities will include understanding how to build, implement, and manage AI systems. Accountants will be asked to think strategically about directing technology versus simple, tactical execution. Staffing Shifts With the rise of automation, the same volume of compliance work will require fewer staff resources. Capacity saved can be redeployed to advisory and consulting efforts. New positions like AI trainers, program managers, and data analysts may also emerge. Improved Client Service As routine work is automated, client service will focus more on real-time analytics, recommendations, and interactive advisory. Commoditized compliance services may see pricing pressure. New revenue streams will come from AI-enhanced offerings. Continuous Auditing For auditors, AI will expand testing and risk assessment capabilities. Continuously automated monitoring will supplement periodic reviews. However, liability issues related to AI-powered assurance must first be addressed.

The Future of Accounting is Automated The talent crisis in accounting and advances in AI present a pivotal moment for the profession. Automating high-volume routine tasks will unlock the capacity for staff to focus on more strategic initiatives with higher value to clients and firms. AI-generated insights from client data will enhance advisory services. Together, these applications can improve productivity and help address hiring challenges. Firms can start actively exploring AI and its applications. Gaining hands-on experience will provide a competitive advantage. Try out free software like ChatGPT and Claude to see the benefits firsthand. To stay current on the latest at the intersection of accounting and technology, subscribe to my blog at blakeoliver.com and listen to my weekly show, The Accounting Podcast. With a thoughtful approach, AI can transform accounting for the better. The future looks bright for those firms ready to embrace it.

WHY WOULD I WORK FOR YOU?

Jonathan Pocius, Founder of PeopleWorX

Why would I work for you? Why should I? I have a lot of options. Surely there are other companies out there that do what you do? How is your pay compared to the guy down the street? Do you offer benefits? Do I have job growth opportunities with you? Will you help me better myself? What commitment do you have in my growth? If I learn more, will you pay me more? Is your culture something I want to be a part of? Believe it or not, these are the questions employees ask even before applying for your job opening, yet employers question why they are having a hard time recruiting new applicants. Our mission at PeopleWorX is to help Employers build better Companies by building better Employees. It is said that business is simply people and math, but Employers are constantly getting the people's side of the equation wrong. The workforce has changed drastically since COVID. The biggest change is not that employees are overasking (some are), but it is that employees now expect certain opportunities as well as to be treated fairly. During COVID, Employers threw stupid amounts of money at new employees while forgetting about their longer-tenured staff. In my opinion, this is why “the great resignation” happened. Employers did not take a strategic approach to the people side of the equation. We recently did a survey of all of our clients, asking them if they had pay scales for their positions. 70% of our clients did NOT have a pay scale. A pay scale is nothing more than a strategic method for paying people. 22 States have some type of pay transparency law in an effort to conquer the “equal pay” chant. What if actually having pay scales built better work cultures and more success in companies? What if there was a reason why someone was being paid what they were? What if businesses had a plan around their people? What if instead of just hanging a shingle on our door, we took deliberate steps to solve the people's side of the equation? It's not like it's 50% of the equation.

Jonathan is the Founder of PeopleWorX, a workforce management company specializing in strategic methods for HR, Payroll, Timekeeping, Benefits, and more. THE FREESTATE

Interchange Rates for Small Businesses Require a New Innovative Approach USB Payment Processing The beginning of credit cards can be traced back to the

But what exactly is an interchange rate and what does this

1950s, this is when banks began to charge merchants fees

fee mean? Primarily, interchange is the foundation of the

to accept cards. This was to cover the cost of processing

payments industry. It is the costs that you pay to your

and approving the transactions. However, it was not until

payment processor each time that a credit or debit card is

the 1980s – 1990s that these expenses became significant

swiped at your business. They are set to cover handling

in the merchant's statements. Merchants began to fight

costs, fraud, severe debt costs, and the risk that is involved

back with responses that the fees were too high and that

in approving payments. Interchange fees are adjusted

they felt the costs were being pushed onto consumers, it

semi-annually, usually in April and October, to

wasn’t until the late 1990s to early 2000s that several

accommodate changing interest rates and market

lawsuits began to be filed against the card networks and

conditions. It may seem coinvent to have these fees

the issuing banks. These lawsuits were that these banks

lumped together, but with it, you lose the ability to

were alleging that they were engaging in anticompetitive

evaluate and optimize efforts and determine the actual

practices and charging merchants excessive fees.

cost of your transaction. These fees are set by the credit card company and can average around 2% of a transaction

In October of 2011, The Durbin Amendment was

amount and up to a 30-cent flat fee per transaction.

introduced as a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This amendment

Since the beginning ongoing costs for interchange have

was proposed because there was a belief that interchange

always posed an inconvenience for merchants. According

fees were not proportional to card issuers' costs. It

to the Merchants Payment Coalition, “Merchants paid

permitted the Federal Reserve to put a cap on the

$126.4 billion in processing fees for credit cards in 2022, an

interchange fees that were charged to merchants when a

increase of 20 percent. Fees for Visa and Mastercard credit

debit card was swiped. They hoped that this amendment

cards, which dominate the market, were most of that

would spur economic growth due to debit cards having a

amount and increased 21 percent to $93.2 billion. Credit

lower per-transaction fee. The result was lowered credit

cards, which have an average swipe fee rate of over 2

card processing fees, but big businesses saw the most

percent but can be as much as 4 percent when premium

benefits.

cards are used, account for 54 percent of payments but 79 percent of swipe fees.” Here are the average credit card processing fees for the 4 major credit card networks: Visa: 1.4% - 2.5% Mastercard: 1.5% - 2.6% Discover: 1.55% - 2.5% American Express: 2.3% - 3.5%

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These fees will be automatically deducted from all the

They hoped that this amendment would spur economic

payments that you are processing. You must follow the

growth due to debit cards having a lower per-transaction

guidelines set forth by Visa and Mastercard because if you

fee. The result was lowered credit card processing fees,

fail to comply with them, it could result in your merchant

but big businesses saw the most benefits.

services being terminated. You can negotiate your providers' costs. This Includes: Here is what Mastercard has to say about how

The processor's markup

interchange rates are decided:

Annual or monthly fees

"Setting interchange rates is a challenging proposition

Payment gateway / virtual terminal fee

that involves an extremely delicate balance.

Equipment fee/setup costs

If interchange rates are set too high, such that they lead

PCI compliance fee

to disproportionately high Merchant Discount Rates, merchants' desire and demand for Mastercard

Understanding the different verticals and how they decide

acceptance will drop. If interchange rates are set too low,

to take payments is crucial to deciphering these fees.

card issuers' willingness to issue and promote Mastercard

When you understand this, you can figure out what can be

cards will drop, as will consumer demand for such cards.

automated to decrease errors. This could look something

In response to these competitive forces, we strive to

like what discount card brands offer. According to the

maximize the value of the Mastercard system (including

Federal Reserve, since interchange fees are paid by the

the dollars spent on Mastercard cards, the number and

merchant's financial institution and not directly assessed

types of cards in circulation, and the number and types of

to consumers, these fees do not have to be disclosed to

merchants accepting Mastercard cards) by setting

consumers.

default interchange rates at levels that balance the benefits and costs to both cardholders and merchants."

When it comes down to the bottom line, we understand how difficult it can be to keep up with consistently

Once you agree to your interchange fees and begin to

changing rates, on top of hundreds of different statement

process payments your processor will just deduct your

formats. That is why we have taken the leap at creating

fees from the payments you process and put the

something that will help you simplify this equation. With

remaining balance into your account. But your

the Merchant Comparison Tool, in under a minute, you can

interchange rates can look different if you are considered

receive real-time results on how interchange has affected

in a high-risk industry, meaning you are likely to have

your clients' businesses. It will allow you to judge if the

fraudulent transactions or chargebacks.

change in rates has drastically affected their business so that you are prepared with the next steps to help them

In October of 2011, The Durbin Amendment was

bring that money back into their business. Be a hero to

introduced as a part of the Dodd-Frank Wall Street

your clients.

Reform and Consumer Protection Act. This amendment was proposed because there was a belief that interchange

Visit www.merchantcomparisontool.com to try this out for

fees were not proportional to card issuers' costs. It

yourself. It is free of cost and only requires an account to

permitted the Federal Reserve to put a cap on the

access the tool. Better yet you can send us your blacked-

interchange fees that were charged to merchants when a

out statements and we will walk you through this process

debit card was swiped.

so that you can understand all the intricacies that come with it, that way you will have the utmost confidence in the information you are presenting to your clients.

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Bridging Generations in Accounting: Navigating Succession and Balancing Change GIGI HAWKINS, EXECUTIVE DIRECTOR - MSATP In the evolving landscape of the accounting industry, a

This shift has been further accelerated by the COVID-19

critical challenge has emerged: bridging the gap between

pandemic, which demonstrated the possibilities and

the younger generations often referred to as Millennials

effectiveness of remote work, flexible hours, and the

and Gen Z, and the Baby Boomers. This generational

importance of mental health.

divide is not just a topic of casual conversation but a significant concern when it comes to hiring practices,

Integrating Generational Strengths in the Accounting

succession planning, and integrating diverse work-life

Industry

balance expectations. Historically known for its stability

In the accounting industry, where precision, accuracy, and

and conservatism, the industry now finds itself at a

adherence to rules are paramount, the strengths of both

crossroads, needing to adapt to the rapid changes

generations can be integrated to create a dynamic,

brought about by technological advancements and

resilient workforce. Boomers' experience and

shifting cultural norms.

understanding of the industry's intricacies are invaluable, while the younger generation's technological prowess and

Understanding the Generational Divide

innovative thinking can drive efficiency and adaptation to

The first step in bridging the gap is understanding each

new market realities.

generation’s unique characteristics, values, and expectations. Baby Boomers, born between 1946 and 1964,

Succession Planning: A Strategic Approach

are often characterized by their strong work ethic, loyalty,

As Baby Boomers approach retirement, succession

and preference for face-to-face communication. They

planning becomes increasingly critical. This is not just

value stability and are typically seen as resistant to

about replacing one body with another but ensuring the

change. On the other hand, Millennials (born between 1981

transfer of invaluable knowledge and relationships built

and 1996) and Gen Z (born after 1996) are digital natives,

over decades. Firms need to adopt strategies that allow

comfortable with technology, and value flexibility,

this knowledge to be passed down effectively while

purposeful work, and a healthy work-life balance. They are

empowering younger generations to bring new ideas to

often seen as more transient in their careers, willing to

the table. Mentorship programs, collaborative projects,

change jobs or careers to find the right fit.

and transparent career pathways can help bridge the knowledge gap and prepare the industry for a smooth

The Shift in Work-Life Balance

transition.

One of the most significant differences between these generations is their approach to work-life balance.

Hiring Practices: Attracting and Retaining Young Talent

Boomers often view long hours as a badge of honor and

Accounting firms need to understand and meet their

dedication to their profession. In contrast, younger

expectations to attract Millennials and Gen Z professionals.

generations are more likely to seek a balance that allows

This includes offering competitive salaries, opportunities

them to pursue personal interests and family time

for growth and learning, flexible work arrangements, and

alongside their careers.

a positive, inclusive work culture. In addition, firms must communicate their values and how they contribute to society, as younger generations are often driven to make a positive impact.

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Technological Advancement: A Common Ground Technology presents a unique opportunity for bridging the generational divide. While younger generations can lead the charge in adopting and leveraging new technologies, Boomers can provide the context and understanding of how these can be best applied within the industry's regulatory framework. Together, they can explore innovations like AI, blockchain, and data analytics to improve accuracy, efficiency, and service delivery. Fostering a Culture of Continuous Learning The accounting industry is known for constantly changing laws, regulations, and best practices. Fostering a culture of continuous learning can help all generations stay up-todate and adapt together. This involves not just formal training but also creating an environment where knowledge sharing is encouraged, and individuals from all generations can learn from each other. Communication: Bridging the Style Gap Effective communication is crucial in bridging the generational divide. This means not only adapting to different communication styles, from in-person meetings preferred by Boomers to the digital-first approach of younger generations, but also creating spaces where open, respectful, and productive conversations can happen. Encouraging multi-generational teams and open forums can help understand different perspectives and foster a more cohesive work environment. Bridging the gap between Baby Boomers and the younger generations in the accounting industry is not just about addressing differences but about creating a synergistic environment where the strengths of each can be leveraged for the greater good of the industry. As Boomers consider succession planning, it's crucial to view it through a lens that values diversity, adaptability, and a forward-looking approach. By understanding each other's perspectives, embracing change, and fostering a culture of continuous learning and adaptation, the accounting industry can not only bridge the generational divide but also emerge stronger and more resilient in the face of future challenges. The goal is to create an industry that is diverse, dynamic, and ready to meet the needs of a rapidly changing world. THE FREESTATE

The Brief History of the Taxation of Digital Assets Digital assets are any digital representation of value recorded on a cryptographically secured distributed ledger or similar technology.

By Christopher Williams, CPA/PFS, CFP®, MST

Introduction The landscape of digital assets, encompassing cryptocurrencies, non-fungible tokens (NFTs), and other blockchain-based entities, has evolved rapidly in recent years. With this evolution, taxation policies surrounding these digital assets have also developed, presenting unique challenges and opportunities for both taxpayers and tax authorities. This article delves into the history of digital asset taxation, focusing on key IRS rulings and their implications. IRS’s Initial Stance on Digital Assets In 2014, the IRS issued its first guidance on digital assets through Notice 2014-21. This was a groundbreaking development, as it was the first time the IRS acknowledged the growing importance of digital currencies in the economy. The notice classified digital assets as property for federal tax purposes, meaning that they would be taxed similarly to other types of property. This classification brought clarity but also complexities, as it meant that capital gains tax would apply to cryptocurrencies, just as it would to stocks or real estate.

Developments in IRS Guidance Over the next few years, the landscape of digital assets continued to evolve. New forms of cryptocurrencies and uses for blockchain technology emerged, leading to a need for further clarification from the IRS. This led to the publication of Rev. Rul. 2019-24 in 2019. This ruling addressed specific scenarios in the digital asset space, such as the tax implications of a hard fork in a cryptocurrency network and the receipt of new cryptocurrencies through airdrops. These were significant issues in the digital asset community and had been sources of confusion for both taxpayers and tax professionals. Latest Updates and Comprehensive FAQs The most recent and significant update came with Rev. Rul. 2023-14. This ruling provided guidance on staking rewards, a common practice in cryptocurrencies that use the proof of stake (PoS) mechanism. The ruling clarified that staking rewards are to be treated as income, thus taxable at the time they are received. This ruling was pivotal for investors and participants in PoS networks. THE FREESTATE

Additionally, the IRS’s Frequently Asked Questions on Virtual Currency Transactions, last updated in August 2023, has become a crucial resource. With over forty-six questions and answers, it covers a wide array of topics and scenarios, offering much-needed clarity on the taxation of various digital asset transactions. Understanding Digital Assets To fully comprehend the tax implications, one must understand what digital assets are. Digital assets include any digital representation of value that is recorded on a cryptographically secured distributed ledger. This broad definition encompasses cryptocurrencies like Bitcoin and Ethereum, stablecoins, and NFTs. Each of these assets has unique characteristics and uses, which add layers of complexity to their taxation. NFTs and Their Taxation NFTs, a relatively new addition to the digital asset space, have garnered significant attention. As unique cryptographic tokens, they represent ownership of digital or real-world items. The IRS has not yet issued specific guidance on NFTs, but based on existing rules, their sale and exchange could trigger capital gains taxes. Airdrops, Staking, and Mining: Tax Implications Airdrops, often used for promotional purposes or as rewards in the crypto community, are viewed as taxable events. The IRS considers them akin to finding property, which means they are taxable at their fair market value at the time of receipt. Similarly, staking rewards, as clarified in Rev. Rul. 2023-14, are considered income at the time they are received.

Mining, another critical aspect of the cryptocurrency ecosystem, especially in proof of work (PoW) systems, has its tax implications. Miners are considered to be receiving income equal to the fair market value of the mined coins at the time they are received. This is true for popular cryptocurrencies like Bitcoin and Litecoin, which use PoW mechanisms. The IRS’s Approach to Digital Asset Forks and Exchanges The IRS has released Chief Counsel Advice memorandums to address more complex issues in the cryptocurrency world. These include discussions on the tax treatment of specific events like the Bitcoin (BTC)/Bitcoin Cash (BCH) hard fork and the applicability of Section 1031 to exchanges involving cryptocurrencies. Conclusion As the digital asset landscape continues to evolve, so too will its taxation. The IRS is actively working to keep up with the rapid changes and provide guidance to taxpayers. It's essential for investors, users, and professionals in the digital asset space to stay informed about these developments. The IRS’s dedicated page on Digital Assets is an invaluable resource for up-todate information and guidance. By understanding the history and current state of digital asset taxation, taxpayers can better navigate their tax obligations and plan their digital asset activities more effectively. As this field continues to grow and become more integrated into our financial systems, the importance of clear and comprehensive tax guidance cannot be overstated.

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