Carried interests, partnership interests held in connection with services performed, will experience significant changes in reporting and taxation treatment this year.

2021 Changes❓

In January 2021, regulators published the final regulations in the Federal Registry, resolving some of the concerns raised in earlier versions of the proposed regulations.

Starting in November 2021, the IRS issued frequently asked questions to clarify compliance issues.

According to the IRS, owner-taxpayers (partnership investors) and passthrough entities need to comply with these final regulations when addressing their tax compliance reporting. Here are the highlights of those compliance requirements:

1️⃣ A passthrough entity is now required to attach Worksheet A along with their Applicable Partnership Interest (API) holders Schedule K-1 after December 31, 2021. The worksheet discloses one-year and three-year holdings gains and losses. For regulated investment companies (RIC) and real estate investment trusts (REIT), reporting information will be disclosed on Form 1099-DIV.
2️⃣ For tax reporting after December 31, 2021, Owner-Taxpayers (aka investors in the partnership) will now use the information filed by the passthrough entity to complete IRS Worksheet B, as well as IRS Form Table 1 and Table 2, and attach those forms to their annual tax return.
3️⃣ If a taxpayer does not hold a qualifying investment for the three-year minimum, the investment will be treated under short-term capital gains rules. The IRS calls that calculation recharacterization. Refer to Worksheet B for that calculation.
4️⃣ For reporting, taxpayers should note the recharacterization on Schedule D, as well as on Form 8949: Sales and Other Dispositions of Capital Assets, when submitting a 1040 or 1041.
5️⃣ Taxpayers with unrecaptured Section 1250 gain, gains from the sale of real property such as a commercial building, warehouse, or rental property, should also utilize Worksheet B and report the amounts on Schedule D of their tax return.

📜 Compliance requirements for partnership investments are more complex than ever

It seems clear that compliance requirements regarding partnership investments will be more complex this year. With so many moving parts in capital gains calculations, understanding the taxation treatment for carried interests can be challenging.

For expert advice on how to navigate the complex world of taxation for carried interests, including the latest changes in taxation treatment, reach out to Insogna CPAs for assistance when filing your 2024 return.

Need help navigating the latest taxation treatment changes for carried interests?

An Individual Taxpayer Identification Number (ITIN) is a nine-digit number issued by the IRS for individuals who need a U.S. taxpayer identification number but are not eligible for a Social Security number (SSN). If you don’t renew your ITIN on time this year (2024), it could delay your tax return

Depending on your income and filing status, you’ll generally either pay 0%, 15%, or 20% on your long-term gains. The 0% long-term capital gains tax rate applies if your taxable income is $0 to $44,625 (single filers) or $0 to $89,250 (married filing jointly).

There’s no avoiding this disclosure or payment of associated taxes—regardless of whether you receive a 1099-K, 1099-B, or 1099-MISC from a crypto exchange. Take the necessary steps to ensure you aren’t paying too little or too much. Start by reviewing how the IRS defines and taxes cryptocurrency.

Who Needs to Renew Their ITIN?

❗ Taxpayers with expiring ITINs or ITINs with the middle digits listed below need to file a Form W-7 renewal application. This applies even if you’ve used your ITIN in the last three years. The specific middle digits are 73, 74, 75, 76, 77, 81, or 82 (e.g., 9NN-73-NNNN).

❗ The IRS is sending the CP-48 Notice, “You Must Renew Your Individual Taxpayer Identification Number (ITIN) to File Your U.S. Tax Return,” to affected taxpayers. If you receive this notice but have already renewed your ITIN, no further action is needed unless another family member is affected.

❗ ITINs with middle digits 70, 71, 72, 78, 79, or 80 have expired. If you haven’t renewed these, you can do so anytime.

❗ Spouses or dependents in the U.S. should renew their ITINs. However, those outside the U.S. only need to renew if they plan to claim a tax benefit or file a tax return. Due to the suspension of personal exemptions from 2018 to 2025, there’s no need to renew ITINs solely for this purpose.

Family Renewal Option

Taxpayers can renew ITINs for their entire family at once, even if some family members’ ITINs are not expiring. This includes the tax filer, their spouse, and dependents.

Three Ways to Renew an ITIN

To renew an ITIN, complete a Form W-7 and submit the required documentation. You can:

1️⃣ Mail the Form W-7 with original or certified copies of identification documents to the IRS. These documents will be returned within 60 days.
2️⃣ Work with Certified Acceptance Agents (CAAs) who can verify identification documents and submit the ITIN application to the IRS.
3️⃣ Schedule an appointment at an IRS Taxpayer Assistance Center for in-person identity verification. Bring a completed Form W-7 and identification documents. Check the IRS website for more details.

⚠️ Avoid Common Errors and Delays

Federal tax returns with an expired ITIN will still be processed, but tax credits and exemptions will be disallowed. The IRS will notify you of any changes and the need to renew your ITIN. Once renewed, credits and exemptions will be restored, and refunds issued.

Common errors that cause delays include missing information or insufficient supporting documents, such as name changes. Ensure your form is complete before sending it to the IRS. Note that the IRS no longer accepts passports without a date of entry for dependents from countries other than Canada or Mexico, or for dependents of U.S. military personnel overseas. Acceptable documents to prove U.S. residency include:

👉 U.S. medical records for dependents under 6
👉 U.S. school records for dependents aged 6 to 17
👉 U.S. school records, rental statements, bank statements, or utility bills for dependents 18 and over

Act Now to Renew Your ITIN

Act now to renew your ITIN and avoid delays in your tax filing and refunds. Under the Protecting Americans from Tax Hikes (PATH) Act, ITINs not used on a federal tax return in the last three years, or those with specific middle digits, expired in 2018. Submit a renewal application as soon as possible.

If you have questions about ITIN renewal or need assistance, give us a call. We’re here to help ensure your tax season goes smoothly.

IRS Regulation