The Accounting Podcast

Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding!

Blake Oliver: [00:00:04] If you're the president and you don't want people paying attention to the economy, what do you do? You start foreign conflicts or you create.

David Leary: [00:00:13] Wars has always been an economy booster.

Blake Oliver: [00:00:14] Internal conflict. And it distracts your party, distracts your supporters. Right.

David Leary: [00:00:20] Coming to you weekly from the OnPay Recording Studio.

Blake Oliver: [00:00:26] Hey there. Welcome back to The Accounting Podcast, your weekly roundup of news in the profession. I'm Blake Oliver.

David Leary: [00:00:32] I'm David Leary and Blake. I think like most of the nation right now, I'm just trying to comprehend what's happening in Minnesota. It's been a crazy week. Uh, or a couple?

Blake Oliver: [00:00:41] Minnesota. I'm still trying to figure out Venezuela.

David Leary: [00:00:45] Okay.

Blake Oliver: [00:00:46] I came back from the holidays and I checked out for a week, and then I go back in and I'm like, Maduro is in captivity. We. And then and then somebody got shot in Minnesota like I catch me up. What is going on in Minnesota?

David Leary: [00:01:02] Okay, so December 19th. More than 90 people were charged across multiple Minnesota public assistance programs. Dozens of pled guilty or been convicted. And the numbers are outstanding. Daycares collected $110 million. There's a housing stabilization fraud. Um, basically, they were doing fake or inflated Medicare claims, uh, autism services fraud. Uh, basically people were billing. Prosecutors basically were billing for services that were never provided using unqualified staff. They were giving kickbacks to parents. There's a feeding our future scandal. Nearly 250 million in pandemic food aid fraud that was that occurred. Um, and there's a federal warrant that Minnesota has flagged 14 Medicare programs with significant fraud problems, potential losses reaching to the billions, so billions in the billions. So this is a fraud that have taken place over many years. This investigation there's for a while. Well, obviously it has political fallout. Right. So Trump accused Somali immigrants of the widespread fraud. And a YouTuber, a documentary filmmaker went to Minnesota and started trying to visit these daycares, creating lots and lots of. Obviously, this went viral, this viral content. Right? And it's a trend that now others are copying kind of nationwide. So it's turned into this story that Minnesota is corrupt on all fronts. So ice or sorry. So Trump sent 2000 Ice agents to Minnesota to carry out, quote unquote, the largest immigration operation ever, you know, to crack down on things.

Blake Oliver: [00:02:30] Okay, so.

David Leary: [00:02:31] So ties to a shooting yesterday or the day before.

Blake Oliver: [00:02:34] Okay. So I heard about this, these like fraud allegations in Minnesota, just like all sorts of different kinds of frauds going on there for some reason more than elsewhere in the country and Somalis getting blamed by Trump. So that's the justification to send ice in. That's.

David Leary: [00:02:53] That's that's the logical path that's happened. Correct.

Blake Oliver: [00:02:56] Okay. Okay.

David Leary: [00:02:57] Minnesota's super fraudulent. It's a blue state. We gotta go fix it.

Blake Oliver: [00:03:01] And Tim Walz is the governor there?

David Leary: [00:03:04] Yeah. And he's actually not going to rerun now. He's going to launch a new fraud prevention initiative. He's not going to run for governor now again to focus on this. So it's it's massive. There's no denying like this fraud that's happened is massive.

Blake Oliver: [00:03:16] Okay.

David Leary: [00:03:17] But let's digest this. I've tried to digest what's been happening a little bit. So we're going to take a time machine and go back in time to April 18th of 2022. Episode 292 of the podcast. Actually, at that time, we still called it the Cloud Accounting Podcast. So we're going back.

Blake Oliver: [00:03:34] Way back.

David Leary: [00:03:34] Three years. 22, 24, 2520. Yeah, almost three years. So in April of 18 of 2022, we talked about how the how the IRS was getting $80 billion in the Inflation Reduction Act. We also talked about the fair audit rates, and we also talked about this specific tweet from Adam Markowitz. Do you remember this tweet? Treat. Maybe. Possibly. I read it out loud.

Blake Oliver: [00:03:58] I do because it it got on to Fox News on that show. Gutfeld gutfeld gutfeld. And so we played a segment from Gutfeld where they called him out.

David Leary: [00:04:10] Yeah. So I'll read his tweet and then let's play the segment. Um, all of my GOP friends who are worried about the 87,000 IRS enforcement agents coming after the little guy. How about just don't cheat on tax returns? A fully truthful and accurate tax return is bulletproof in an audit. I never understood the fear of an IRS audit. Don't lie. Period. So this is setting our tone of what we were thinking. We as the nation was thinking in 2022, in regards to the IRS agents. So I'm going to play our clip.

Blake Oliver: [00:04:41] Took it for the team this week. The tax expert, the enrolled agent who became famous on cable news, Adam Markowitz, who I follow. And I love seeing his stuff, he tweeted. All of my GOP friends who are worried about 87,000 IRS enforcement agents coming after the little guy. How about just don't cheat on tax returns? A fully truthful and accurate tax return is bulletproof in an audit. I never understood the fear of an IRS audit. Don't lie. Period. And that tweet got a thousand retweets, 3000 quote tweets, close to 7000 likes and got picked up on Fox News. And Markowitz became the target of Gutfeld.

David Leary: [00:05:31] Well, even before he got even before the Twitter thread, Fox News, he was already the target, right? He got really attacked in this tweet. Yeah.

Blake Oliver: [00:05:39] Um, yeah. And it was. And it wasn't just, you know, crazy people on Twitter. It was like people, other tax preparers, CPAs who are on the conservative side of this argument, which I don't even think there is a liberal or conservative side of this argument. There shouldn't be anyway, but it is broken into a political divide. So I just I just want to play this segment for you from Gutfeld's show on Fox News, where he really goes after Markowitz, and it kind of just illustrates it very well, illustrates the insanity of the discussion around this. Here we go.

Speaker3: [00:06:16] So how does this help you? Well, first there's crime inflation. Your kids are in crappy schools. Gas prices are eating into your beer budget.

Blake Oliver: [00:06:24] I think he was talking about like the Inflation Reduction Act or whatever. Inflation. Right.

Speaker3: [00:06:28] Luckily, the government's working to make sure you have nothing, so then you have nothing to hide. Here's IRS agent Adam Markowitz justifying this new army. He says, quote, all of my GOP friends who are worried about these new IRS agents coming after the little guy. How about just don't cheat on tax returns? A fully truthful and accurate tax return is bulletproof. I never understood the fear of an IRS audit. Well, I like how it's just his imaginary GOP friends who fear this new IRS army, and he never understood the fear. Well, it's always tantamount of charging you with a crime, and it's up to you to clear yourself of the charge. That's what people fear, you schmuck. Bottom line a person can actually go to jail if they just aren't that organized. Like cat. But then this agent admits in a later tweet, I get that it's a headache to go through an audit. All right, so when you get finished being audited by the IRS, it's not your head that's aching, pal. You're at the wrong end of the horse and he's an ass. Comparing the IRS to the feeling I get from ice cream. Then he adds, and I get that it's costly to go through an audit and nobody ever wins. Well, wait a second, jackass. You just said no one should fear an audit. Then you say exactly why they should fear it. It disrupts your life, and nobody ever wins. I got a question for you. What are the property taxes in Fantasy Island where you live? But. But if you have an IQ higher than an artichoke, you must see that by now, this country is heading towards a police state. Where the police state they want your money. Now, if you don't see that now, do me a favor and change the channel. I think Fallon is playing beer pong with Harry Connick Jr right now.

Blake Oliver: [00:08:23] So that is the level of debate in this country when it comes to additional IRS enforcement. It's a police state. Crazy.

David Leary: [00:08:33] And so we'll stop it there. Um, the police state. And if you just to rewind a little bit, we talked about this during the, uh, IRS commissioner, temporary commissioner, commissioner hearings. During that whole time, a lot of the debate was should the IRS share data with Ice. Remember all these articles? Well, it turns out I don't know how we missed this in November. This news story. But on November 21st, a federal judge blocked the IRS from further record sharing with Ice. So that so this occurred. But as part of this ruling, there was disclosures happening because it's a loss. It's law. It's court. Right. So there's disclosures. So in August 2025, the IRS disclosed that they handed over tens of thousands of taxpayer records to Ice, including personally identifying information in home addresses, IRS records revealed in the lawsuit that showed that Ice requested more than 1 million records from the IRS earlier in 2025 and before that in April. You know, when they created that information sharing agreement of what they would transfer. But this is why people have resigned from the IRS. This might be the reason Billy Long is out. We weren't sure. Totally. But he might have been pushing back on this. There's no true evidence of that. He just also might just be an idiot. And they didn't like him. That could be. He's out. But if you really kind of follow this and, like, step back over the last decade, we've talked about this so many times on the show. Right. Blake cuts an IRS budget, cuts an IRS budget, cuts an IRS budget. And it's happened over and over and over again. So we cut the IRS budget, but we're spending more on ISIS budget.

David Leary: [00:10:06] So we're shifting from like, uh, investigation and fines to enforcement, like we're shifting. And you could argue, right? Taxes dictate, uh, social policies. Right. Budgets also do that. Right. What you fund and budget is what the government is going to do. So as you cut things out of the budget, defund the IRS or defund these, uh, government agencies that maybe should be auditing some of this fraud that's happening with Medicare and other things in Minnesota. This is the result you get. So I just think it's really interesting to go back in time. And we see this, this disguise falling fear of armed IRS agents because it will create a police state. Instead, now we've replaced them with Ice agents that arguably we have a police state. We got to the same end. It's just different types of people, right? And I probably based on my experience with accountants, they're probably a little bit more mild mannered, maybe less, you know, jump at the gun, you know, lack of better term, like short fuzed than probably the typical prototypical law enforcement agent. So and a lot of this is because we're we're doing less audits, right. There's less nonprofit oversight. Right? There's slower detection of payroll benefits and tax fraud. Right. And then this just adds up. And this is why Minnesota had all these fraud schemes occurring. It's probably not just Minnesota. I mean, you've been seeing this shows and shows ago that we're in the golden age of fraud. We're going to have a new Enron. Maybe the new Enron is not one company, and it's just billions and billions and billions of small frauds because we've cut everything to catch it.

Blake Oliver: [00:11:47] Right? So we've cut enforcement on tax and fraud, financial crimes. We've cut enforcement on that. And what we ended up with was massive fraud in Minnesota, potentially elsewhere as well. And that is what led to Trump deploying Ice. So we got the armed agents anyway anyway.

David Leary: [00:12:11] And so if you think about it, raids have replaced audits and guns have replaced spreadsheets. If you think about it that way. And then let's just even look at the last 30 days. So about a month ago, Taco Giro down here in Tucson, you probably saw the story. Congress member Alida Alva got, uh, maced. They shot mace down at her feet because she was protesting the ice invasion.

Blake Oliver: [00:12:33] Yeah, no, I didn't hear about that. Yeah. I'm out. I'm out of touch.

David Leary: [00:12:36] Yeah. So this is about a month ago in Tucson, and I'll just read from the article. Immigration and Customs Enforcement said that the agency's investigative branch was executing 16 search warrants in southern Arizona Friday as part of a years long investigation into immigration and tax violations and partnership with the IRS criminal investigation and other federal partners. So I imagine or would like to think, that's probably how things were done in the past, even before the IRS budget cuts. There's an investigation. Government agencies work together to investigate. They build a case, they get warrants, and then they go to arrest. So and, you know, after a yearlong investigation, there was executions of warrants. Right. It makes sense. I imagine also. Right. Businesses that are hiring illegal labor and which is basically tax evasion, it goes hand in hand like it's probably I don't know how you can go after somebody for illegal labor and it not be tied back to tax evasion. Right. So this makes sense that they're tied together. Right. And maybe you do need the ice muscle to execute these things. You need you need some of that muscle to come in because, you know the IRS agents aren't armed anymore apparently. So going back to Tucson, this is kind of a joke. And I have to say, like, if you think about this, they arrested Mexicans working at a Mexican restaurant. It's almost comical, like if you think about it that way. Right? So. But now let's fast forward 30 days. We're only 30 days later, Blake, and it's escalated.

David Leary: [00:14:01] Agents are now going door to door, not even executing warrants. So here's an interview with the Department of Homeland Security's assistant secretary, Tricia McLaughlin, on the Charlie Cook Show. And I'll, quote unquote, to get more information and make sure we're following the money here to make sure we were bringing arrest and prosecutions and ultimately removals, McLaughlin said. And then she continued on. Right now, on the ground in Minneapolis, Homeland security investigators are going door to door to these suspected fraud sites. If it's daycare centers or healthcare centers and businesses around them as well, she said. So no warrants. Ice is doing the work, arguably, of IRS going door to door to investigate these crimes. Um, because they want to, quote unquote, you know, get rid of this rampant fraud. And so the stack here is like, this is not one fraud crime, right? This is not one incident where one person got shot. This is the typical understanding that accountants should have that if you have underfunded controls and you don't have preventive measures, it always shows up as a very big expense. And one time it was Enron. Now the expense is humans getting shot. We have U.S. citizens getting shot by our government in a police state, which is what the argument of cutting the IRS to begin with was. It just it's like, seriously, like process this. You cannot even comprehend it. Like, we've replaced armed IRS agents with armed Ice agents doing work for the IRS.

Blake Oliver: [00:15:30] You connected the dots there, David, in a way I don't think anybody has. There's accounting underlies everything. And you.

David Leary: [00:15:40] Everything's an in accounting story.

Blake Oliver: [00:15:41] Everything's in accounting story.

David Leary: [00:15:42] And you can even look at a lot of the fraud, a lot of the fraud. Like the reason the fraud even exists is because of cutting budgets. If you think about it, instead of the public school system and the government providing autism services in public schools, they cut that from the budget. We're going to use a third party to do it. So the third party does it. But then you have an oversight committee that should be auditing them. That also gets cut. So they're both budget cuts. And so now you have people that are just rampant creating frauds. The budget cuts are creating the frauds in a weird kind of way. And it makes.

Blake Oliver: [00:16:13] Sense.

David Leary: [00:16:14] This goes back to the Doge stuff. People jumped all over you for saying people. The controls aren't there for what people are spending in these nonprofits, and people jumped all over you. I don't even know whatever the height of Doge was. People were pissed at you that you implied fraud was happening. Well, it's obvious fraud is happening. There's no controls. So we've moved away from auditing to shooting and enforcement.

Blake Oliver: [00:16:39] And we don't even know how much fraud is happening, because we can't measure it because we aren't detecting it. Yeah. Yes. Amazing. And that's that is the best argument. What you have just laid out, David, is the best argument for why we need accountants enforcing the law, why we need those IRS investigative agents, those criminal investigations agents.

David Leary: [00:17:11] Well, that's why you should fund your internal audit team. And your government agencies like all of this should not be cut. We need more accountants. We need people doing it, but also us as accountants. We can change the world. You're going to talk to your clients. I just made my estimated tax payment yesterday. Everybody has to make their estimated tax payments. When your clients are like, I don't want to pay taxes, what's this tax is going to explain to them where that money's going. Explain to them. And then they could have some understanding. Do you want controls over this money? I just wrote a check. I'd like some tighter controls over that money that I sent the IRS and sent to the US government, but we've pulled away all controls and just had flat out enforcement. It's a complete opposite. But the police state still happened. We didn't avoid it, which is the part that my brain is really trying to figure out here. Three years ago, you're like, oh, everybody's afraid of a police state because the IRS, we cut it thinking we'd stop the police state, but we still got a police state. I just I've lost sleep over this. It's driving me crazy a little bit, but. Well. Thank you. Cutting things.

Blake Oliver: [00:18:09] Thank you for bringing that story to the show. Um, I want to thank our sponsors. Thank you to on pay Tax Bandits and Unk. Are you tired of payroll headaches getting in the way of the client experience? You want to deliver manual workflows, creating bottlenecks, compliance, nightmares, and endless support calls that go nowhere. There's a better way for your team and your clients on pay is the payroll partner that accountants and bookkeepers actually love. Why? Because it's easy to use, packed with value and backed by support that actually supports you. Their team gets rave reviews for being fast, expert and actually reachable when you need them. Onp handles the heavy lifting. You get dedicated onboarding coordinators who set up worker profiles and transfer year to date data from previous providers, all at no extra cost. Their seamless QuickBooks and Xero integrations eliminate manual journal entries, and they support any type of business you serve farms, restaurants, nonprofits, you name it. Onp can handle unique requirements without adding complexity, and Onp keeps pricing simple to everything your clients expect. From multi-state filing to off cycle pay runs is included. No hidden fees, no surprises. For a limited time, you can earn up to $10,000 when you switch clients to Onp, add three clients and run payroll by January 31st, 2026, and you'll get 1000 bucks. Then earn another $200 for each additional client. To book a demo. Head over to The Accounting Podcast. That's The Accounting Podcast. 401 (K). A. And thank you to our livestream viewers. Welcome HK geek Tino. Boring accountant. We've got Ibai. Who says it's okay when the IRS investigates the poor but not the rich? Apparently a Hector Garcia's here. Hector says seeing you from four years ago. You can tell him it's what you lost. Good job. Blake. Well. Thanks, Hector. I've been following your fitness journey on Instagram, and, uh, it seems like you're at a CrossFit every single day. Or. What is.

David Leary: [00:20:17] It?

Blake Oliver: [00:20:18] Or maybe it's F45. I think I.

David Leary: [00:20:20] Was doing pull ups with weights hanging off his neck. He's in a whole different level now.

Blake Oliver: [00:20:23] He's doing box jumps like six feet in the air. It's amazing. Um. Who else? Uh, and great to see you too, Zeph. Eyal says CPS should be armed to those VP's and board members get upset when fraud is exposed. Boring accountant says every story has accounting. We can't spell journal entry without the word journal and personal journals are how we write down personal stories. Accountants are the storytellers. All right.

David Leary: [00:20:52] Should we jump into the regular show type of news?

Blake Oliver: [00:20:55] Well, you know what? I have a story that ties to what you just talked about, David. All right. Why is the Trump administration so focused on this, this ice stuff, this, these deportations and Venezuela too, which is like kind of shocking to me because it wasn't Trump's promise that we weren't going to get involved in like, foreign countries. And now we're taking over Venezuela.

David Leary: [00:21:21] So please open the door for me, because the years I've been doing this podcast, I get accused of being first. You were anti-Trump, they were pro-Trump. And now the last 24 hours on Twitter, I've been accused of being the bluest person you've ever met in your life. But I literally last week was defending Trump about like saying that Venezuela was not Trump like the powers that be that are well above Trump invaded Venezuela. It's not Trump. So I've also defended Trump on some actions. So I like all the people like because we'll see this in our reviews. We'll get a bunch of one star reviews. There's Trump supporters. They hate Trump. And that's yeah, you can be in the middle here. There's this is the beauty of us all being accountants. We could just figure out the truth. We don't have to be one way or the other. Sorry. Soapbox. Yeah.

Blake Oliver: [00:22:07] No. That's great. Like, you know, I like to look at the numbers. And to me, the numbers don't lie. I mean, you can spin them, right? But if you just. I look at the numbers and that's what I care about. And what I have been watching over the last few months is polling data and economic data that says that most Americans are not feeling very good about the economy. And when you are the party in power and the economy is not going well for you, you know that in the next elections, in the midterm elections, your party is going to get hammered because like Bill Clinton said, it's the economy, stupid. Yes. In the end, that is what causes people to to vote in big numbers is how do they feel? How does their pocketbook feel? And according to a new Harris poll, 45% of Americans. So almost half of Americans believe their financial security is worsening, while only 20% say it's improving. If you're the president and you don't want people paying attention to the economy, what do you do? You start foreign conflicts or you create wars.

David Leary: [00:23:16] Always been an economy booster.

Blake Oliver: [00:23:18] Internal conflict, and it distracts your party, distracts your supporters. Right. And, um, what this poll suggests is that despite us not being in a technical recession, GDP grew by 4.3% in Q3. Many Americans feel like it is. 69% of Democrats believe the country is in a recession. 58% of independents share that view. And even 45% of Republicans agree. So the economists.

David Leary: [00:23:49] Repeat that 45% of Republicans are agreeing that the economy is in a recession.

Blake Oliver: [00:23:54] Yes. And wow. This is because I think it's because, uh, inflation has eroded the buying power of Middle America, of folks making 50, 60, $70,000 a year, which I think that's about the range of like a middle class income.

David Leary: [00:24:13] Hopefully it's a little higher than that these days. But it's it's.

Blake Oliver: [00:24:15] It's not I mean, we accounting people were generally like our starting salaries can be like at the upper end of that. Right. We get we forget, um, when we're making six figures. What exactly a middle class income is. And so inflation has really eroded the buying power of those folks. And there used to be like during Covid we had big salary increases, but that's like basically stopped and plateaued. Right. So people feel like they're making less money and not doing as well. And then all this AI stuff has caused companies to start laying off people and stop hiring. So the job market has slowed for people, especially in jobs that, you know, are kind of like routine, right? Uh, less, you know, high level. So I think there's a connection here, like the do you ever see that movie Wag the Dog?

David Leary: [00:25:10] Yes, but it's been a very long time. It's probably should be 1997. I should watch it this weekend. I'll watch it this weekend, I promise.

Blake Oliver: [00:25:17] It's a political satire. Um, Dustin Hoffman, Robert De Niro. And it's about a spin doctor and a Hollywood producer who fabricate a war in Albania to distract voters from a sex scandal, a presidential sex scandal. And it's very dark, and I think it's worth a watch again. So that's my. That's my view of it. Whether or not that is Trump or it's the political machine behind him creating this, I think it all ties together.

David Leary: [00:25:50] Well, either either either even if the war is just a distraction from how bad the economy is over, history, like the economy, always turns the other way after war. War drives economic growth and always has in this country, so it makes a lot of sense. Every time the economy goes down, we go to war. It's historical precedence here, okay. Because it works, right? Ultimately it works.

Blake Oliver: [00:26:12] It does. Okay. So where do we go from here, David? You had a story. You mentioned this California billionaire tax last episode, and we didn't get to it. And I'm really curious what it is because as a native Californian, that's where I was born and where I spent most of my life. I, I always am.

David Leary: [00:26:38] To Arizona because you did not want to be subject to this billionaire tax.

Blake Oliver: [00:26:41] Yeah. And then I was like, wow, it's nice. Here in Arizona, property taxes are half what I paid in California. What is it? We have a we have a flat state tax. Now that's so low I even forget what it is. It's like two point something percent.

David Leary: [00:26:54] Of your federal, right? Not even of your income. I think it's like you pay a percentage of your federal. It's it's low. Um, so, yeah. So California has introduced a bill called the California Billionaire Tax Act. It's a one time 5% tax on individuals worth one 1 billion or more aimed at funding healthcare. And obviously people are losing their minds over this. Um, Larry Page, the Google co-founder, Peter Thiel have suggested leaving. And there's a big political divide, right? Representative Democrats are for the tax. And then obviously there's Republicans like the San Jose mayor and even Gavin Newsom is against the tax because I think they've seen people are going to leave. Excuse me. So I actually opened up the PDF and looked at the bill. So if you think about it, it's kind of broken up into six sections. So the first section just sets the table and lays out all the financial problems that California is having. The second section talks about kind of the math California is 200 billionaires with 2 trillion in wealth.

Blake Oliver: [00:27:56] How many billionaires?

David Leary: [00:27:58] 200 billionaires.

Blake Oliver: [00:27:59] Okay.

David Leary: [00:28:00] That have 2 trillion in wealth.

Blake Oliver: [00:28:01] So this is targeting like 200 people.

David Leary: [00:28:04] Exactly. That's kind of where my you jump to my conclusion. That's exactly I was like, this feels crazy to create a tax law for 200 people. But that's what's happening. The third purpose, they explain the purpose and intent. So essentially they want this to provide an equitable health care and high quality. And with a one time tax. That's the goal.

Blake Oliver: [00:28:25] And they're going one time 5% tax on individuals with assets of 1 billion or more.

David Leary: [00:28:30] Correct. And then the the next section, they'll talk about kind of they want to confront the unfairness that arises because billionaires have a unique ability to control timing, location, the amount of income tax that they pay. So they're they feel like billionaires don't pay at all. It's kind of reading this doc. Well, they.

Blake Oliver: [00:28:48] They don't really because they don't have income like we do. They have.

David Leary: [00:28:55] To.

Blake Oliver: [00:28:56] They have capital and they have capital gains. But then they can defer that. So, so so how would they actually do the 5% tax. Is it like a wealth tax.

David Leary: [00:29:06] So the section five and this is where it's crazy was pages 10 to 26. It was like 16 pages. How they calculate it. It's I couldn't even comprehend it like I tried. It's there's a lot. It's the point is there's probably 500,000 loopholes in it.

Speaker4: [00:29:23] Well, it's not as clear as.

Blake Oliver: [00:29:26] Tino points out in the chat on YouTube. These assets may be illiquid. That's why this is dumb, because you look at Elon Musk, richest man in the world, or I don't know if he is anymore. Is it is it the Nvidia guy?

Speaker4: [00:29:43] Jensen Huang I don't keep track.

Blake Oliver: [00:29:46] But these guys, they're rich on paper because they have all this stock in these companies. And so then, you know that's the problem with the wealth tax is you're going to force people to liquidate illiquid assets. Um, which is like there's like a it's not fair from that perspective, but also like what about the billionaires just leaving the state because it's pretty easy if you're a billionaire just to relocate somewhere, you know, you just just take your yacht and don't.

Speaker4: [00:30:18] Try and call back though.

David Leary: [00:30:19] California likes to claw back their the king of the claw back.

Blake Oliver: [00:30:22] Yeah. But like okay so so that's that's that's the the practical argument is that you'll just lose your tax base. The billionaires will leave. They'll go they'll go live somewhere else because they can live anywhere in the world, anywhere they want. Right. They'll just go live in a state that doesn't do this. Um, it's interesting though. Like, it may be different for the billionaires versus millionaires because Massachusetts, they did a 4% tax on incomes above $1 million back in 2022. And the millionaires didn't flee. They actually have more millionaires now than before the tax passed. So it's possible that the billionaires won't flee. But I, I think it's also different. Like being a millionaire is very different than being a billionaire.

David Leary: [00:31:09] It's a different mindset.

Speaker4: [00:31:10] Yes.

David Leary: [00:31:11] And so.

Speaker4: [00:31:11] The.

David Leary: [00:31:11] Other the other section of this, they talked about how they'll track, spend and manage the funds. So it's actually going to be put into a new fund in the state treasury called the the 2026 billionaire tax reserve fund. And that's where the spending of this will come out. It will not go in the general fund. So the they really lay out all the pieces of this. It hasn't been passed. But the fact that there's 16 pages of how to calculate it tells me these billionaires are going to hire really smart accountants and figure out how not to pay this. And this is a total this is probably a big pointless exercise to do this tax.

Speaker4: [00:31:43] Yeah.

Blake Oliver: [00:31:44] I think even just calculating what it would be would be an incredible challenge. And then trying to like like you said, billionaires will have the best of the best tax pros and lawyers out there figuring out how to get around it. So it's it's yeah, I don't it just seems stupid to me.

David Leary: [00:32:08] And the fact that the governor of the state is against it. But that also makes sense because if you follow the money, he did a lot of work for the Getty family, which is like they're one of the 200 billionaires, right? So he's very close with the Gettys? Yeah, it kind of makes sense why he'd be against it.

Blake Oliver: [00:32:23] Let's thank our next sponsor, David. And that is tax bandits. If you're feeling the pressure of juggling 1099 w-2s and aca 1099 forms, listen up. Tax bandits is the solution you've been waiting for. They've got over a decade of experience and support 100 plus tax forms, including everything from your 94 series to those tricky state filings. Tax bandits handles both federal and state e-filing seamlessly. So your set no matter how many states your clients operate in Tax bandits is IRS certified, meaning they offer instant processing of your forms and provide real time status updates, ensuring accuracy and eliminating the risk of Be notices. For additional peace of mind, Tax Bandits goes a step further with ten matching USPS address validation and the Bandit commitment their promise to stand by your filings. This commitment includes free retransmissions for rejected returns. No cost corrections for accepted forms, and a money back guarantee if a form can't be accepted or is a duplicate. Ensuring your filing stay accurate, compliant and stress free from start to finish. Plus delivering recipient copies is a breeze. Go with traditional postal mail or give clients online access to their forms. It's all about flexibility. As an accounting pro, you'll love Tax Bandits Pro features like a secure client portal, team management tools, and full branding customization. Everything you need to streamline your workflow and provide top tier service. And when it's late, you're tired and you need a helping hand. Tax Bandits support team is actually there via phone, email or live chat whenever you need them. If you're ready to take control of tax season and join thousands of tax professionals who trust tax bandits, head over to The Accounting Podcast. Bandits, that is Accounting Today Podcast promo forward slash v a n d I ts.

David Leary: [00:34:23] So, Blake, I have a story. We can kind of pivot off the billionaire taxes.

Speaker4: [00:34:27] Okay.

David Leary: [00:34:27] Uh, Vrbo, the parent company or verbose parent company? They're suing Michigan for an $18.8 million tax bill. The parent company of Vrbo, HomeAway, is suing the state of Michigan over an 18.8 million tax bill tied to short term rentals from 2020 to 2022. The company argues that it's not responsible for remitting tax Michigan's use tax, saying the obligation belongs to the host to rent out their properties. Michigan. Michigan's Treasury Department claims that HomeAway is unjustly enriched by alleging for allegedly failing to pass along taxes collected on behalf of the host, a charge the company strongly disputes. So this took place over a few years. But the argument is that there's no precedent about this unjust enrichment argument like so they're unless they're truly having the rent the host I'm going to use I don't know what they call them but Airbnb they're Airbnb host right. You're renting your house. You're renting your property. You're getting that money. So unless verbose, collecting that money and then not paying it over, they would be unjust enrichment. But they're not really saying that's happening. It's weird that they're accusing them of that, but it's not really laid out very clearly.

Blake Oliver: [00:35:44] So what's the tax that is supposed to be collected?

Speaker4: [00:35:49] Uh, you.

David Leary: [00:35:50] Use uh.

Speaker4: [00:35:52] Use tax.

David Leary: [00:35:52] Use tax.

Speaker4: [00:35:53] Yeah. Okay.

Blake Oliver: [00:35:54] So like like the equivalent of like a sales tax on rentals essentially. So Vrbo is doing the thing the Amazon used to do where they're saying like we don't, we don't collect the sales tax or anything like that. You've got to do it.

Speaker4: [00:36:08] You've got to do it.

Blake Oliver: [00:36:09] Interesting.

David Leary: [00:36:10] But the interesting part is how they're saying that's done. So if if they're not actually collecting the tax at all. How is that unjust enrichment? The arguments like illogical. Well.

Blake Oliver: [00:36:20] Okay.

David Leary: [00:36:21] Um, if you collected it in your shopping cart for Vrbo and then kept the money and never turned it over to the authorities, that's that's unjust enrichment.

Blake Oliver: [00:36:28] How could it be on. I mean, I'm not, I guess maybe because it makes Vrbo more competitive versus like Airbnb because people know that they're not.

David Leary: [00:36:38] Oh, the prices always show up cheaper. I see that cheaper. Maybe I could see that loop. Thank you. I can see that. That's high. All right, that's it. Any more taxes?

Blake Oliver: [00:36:46] Um, nothing about taxes. But I do want to talk about audit and private equity and CPA firms. The AICPA has been paying a lot of attention to private equity recently because of all these deals happening with big firms. And there's a lot of concern that money from private equity going into accounting firms is going to impair the independence of auditors. And as we have seen in some recent cases, such as the one with BDO, um, the appearance of independence has been questioned online by investors. And so the AICPA has proposed some new major ethics rule changes for accounting firms backed by private equity. And the biggest shift is that the new rules would distinguish between significant influence and control by investors, with specific guidance on how each affects independence requirements. Also, they are revising the definition of what a network firm is, independence frameworks and rules around firm structure and naming, and this proposed rule or guidance. Well, the rules, uh, they are available to the public to comment on until April 30th, 2026 and then, if approved, the independence updates would take effect a year after adoption. So we can dig into this if you like, David, because I.

David Leary: [00:38:23] Think I understand what confused me about them already proposing this. I feel like they were just surveying about it a couple months ago. It took them years of surveying the 150 hour rule before they took any action. Well, and then they created committees and other committees. And like this has happened fairly quickly.

Blake Oliver: [00:38:39] I'm glad because to me this is like an existential issue, because if if private equity comes in to a lot of CPA firms and, and auditors are no longer perceived as being independent, I mean, this is what this is what we stand for as CPAs is like independence, objectivity, ethics when it comes to audit, because that's the the one thing that we own as a profession that we have a franchise on. Nobody else can sign.

David Leary: [00:39:06] Nobody else can.

Blake Oliver: [00:39:07] Do audits, right. So we really got to protect it as CPAs. So let's talk about the, um, independent independence obligations. Um, or no, let's start. Let's start with the broader let's start with the definition of what APS is. Right. So alternative practice structures where you separate out the test work into like you keep the test work in the CPA firm and then you create a new non CPA firm entity that does everything else consulting tax administration. But they're like really closely connected because they're leasing employees back and forth. And they're the non audit entity is providing management all that. So the APS will now be defined based on economic substance and not legal form. And that's a really big deal because firms doing this have been able to get out of their independence obligations under the old rules because they created this new legal structure and the rules didn't apply. But now it'll be economic substance, not legal form. So the attest firm and the non attest entity are treated as closely aligned when the attest firm depends heavily on the non attest entity for staff infrastructure and administration. So the non attest entity is like doing all the management of the attest entity. They are closely aligned. Now you cannot escape. Um and that would justify treating the non attest entity as if it were part of the attest firm for independence purposes. Uh second big change is the non attest entity and entities it controls must comply with the same independence requirements as the attest firm as a result of that closely aligned structure. Um, so.

David Leary: [00:40:58] Even though you have two structures, you still have to keep that independence. You can't. Yeah. So that's a different, different business. So they don't have to be independent different entity.

Blake Oliver: [00:41:07] Right. So the non attest entity has to also comply with the same independence requirements.

David Leary: [00:41:12] That's really smart.

Blake Oliver: [00:41:14] Normal network firm exemptions do not apply to the non-attached entity in an APS. So the network firm thing is like um, you have all these like like a great example is, well, the big four. So you have like Deloitte is not one business. It's a bunch of entities in different countries. They're all networked together under the same brand. All right. The third thing is that there are broader audit prohibitions in the private equity structure. So if an investor has significant influence or control over the Non-attached entity, then the firm can't audit other portfolio companies in the same fund. So if you have private equity investing your firm, you can't audit their portfolio companies.

David Leary: [00:42:06] That's so.

Blake Oliver: [00:42:07] Which seems like it should be obvious, right? But we had to make a rule. Um, you can't do it in the same fund or in other funds, in many cases. And then entities affiliated with upstream investors such as funds, GPS, investment advisors or public parents, you also can't audit them. So audit services are prohibited for any investee. The PE firm controls or significantly influences if material. So basically, PE firms might have to exit audit relationships they currently believe are permissible. A lot of them potentially there's an expanded concept of covered members. So covered members now include may now include non attest entity board members executives at the non attest entity. Individuals who influence partner compensation or supervise engagement partners even if they are not CPAs and not employed by the attest firm. So covered members. You know that means the people who have to abide by these ethics rules. Non CPAs at the non attest firm will have to comply potentially.

David Leary: [00:43:14] It kind of makes sense right.

Blake Oliver: [00:43:17] Like they.

David Leary: [00:43:18] Owe the employees are.

Blake Oliver: [00:43:18] Closely linked.

David Leary: [00:43:20] Yes yes.

Blake Oliver: [00:43:20] Yes. You can't escape it just by creating a separate legal framework. Um, okay. The revised network firm definition, it removes automatic inclusion of entities under common control and adds a requirement that a controlling entity must actively cooperate to enhance professional services to be a network firm. Apps specific rules then override this narrowing by pulling non attest entities and their controlled entities back into full independence compliance anyway. So the network firm definition is narrower on paper, but the apps rules compensate for that. There's an increased use of the conceptual framework because not every scenario is black and white, where relationships aren't explicitly prohibited. Prohibited firms must apply the conceptual framework for independence. And there's new examples highlighting undue influence risk from investors boards and performance targets. So more judgment, more documentation, more regulatory risk for PE backed firms. So this is out for comment to the public. Who wins? Who loses? I think it's pretty clear that the traditional non PE audit firms win because there are no new restrictions for them, and it increases their competitive advantage because the PE backed firms are going to have to drop audit clients, decline new audits and spend more on independence compliance. So the PE firms are losers under this.

David Leary: [00:44:53] Are they or are all firms going to be losers? Because now the P company is going to buy your firm for less because they know once they get it, they're going to have this headache.

Blake Oliver: [00:45:01] Most firms according to surveys by Accounting Today, are not interested in taking private equity money. And it's only about 400 that have done so out of the 40,000 something CPA firms in the country. So it's basically it looks like it's good for all those firms that aren't interested in taking PE money. If you are, then this could dampen the interest or make it less lucrative for you.

David Leary: [00:45:28] So there's a comment. Does this document outline any possible criminal penalties if you violate these independence requirements? Is there any like these are the recommendations. But are they recommending any penalties.

Blake Oliver: [00:45:40] Oh different that I don't know.

David Leary: [00:45:44] They didn't do.

Blake Oliver: [00:45:45] Okay I I'm not sure I didn't look into that. So the. The insurance carriers and risk managers, um they actually are winners in this because the rules make it clearer what's permissible and what's not. The pbac firms, those are losers. They will lose audit clients. So I actually am I'm really happy to see these rules, because I feel like they address a lot of my concerns as a CPA, and I hope they get adopted.

David Leary: [00:46:27] And it could. The reason this happened so quickly is because these are like blatantly obvious, right?

Blake Oliver: [00:46:32] When you have.

David Leary: [00:46:32] Major, pretty easy to do when.

Blake Oliver: [00:46:34] You have major news stories and like Reddit investor, uh, Reddit going wild over this kind of stuff.

David Leary: [00:46:41] Wall Street Journal wrote this up in no time. Yeah. Like this isn't this is questionable at best. How do we resolve this? Here are some things. Yeah.

Blake Oliver: [00:46:48] Um, so. Yeah, if you want to, um, leave a comment on this. Go online and search for the exposure draft. Proposed revisions related to alternative practice structures that was issued late in December. And then you can you can go on the website and comment.

David Leary: [00:47:08] I have a auditing related story.

Blake Oliver: [00:47:11] Before you do.

David Leary: [00:47:12] That. And then we'll do the ad.

Blake Oliver: [00:47:13] Now before you do that, let's thank you. Thank you. I'm so excited. Like UNC is a sponsor of our show, um, the University of North Carolina Kenan-flagler. Did I get that right.

David Leary: [00:47:27] I think so.

Blake Oliver: [00:47:27] Master of accounting program. Let's face it, the job market is especially tough right now, but every industry needs accountants and accountants are always in demand. In fact, employment for accountants is projected to grow 10% through 2026 faster than most other professions. That's where uncW Kenan-flagler Master of Accounting program comes in. It's one of the top ranked Macc programs in the country, with 98% of students accepting a job offer within three months of graduation and earning more than those with just a bachelor's degree 98%. Wow. If you are currently working full time, raising children, serving in the armed forces, or living halfway around the world, they're highly flexible. Mac program can also fit your lifestyle. You can choose their 12 month on campus program or their online only option, where you have up to 36 months to complete your degree. Plus, you'll join the powerful 46,000 strong UNC Kenan-flagler alumni network connections that will serve you throughout your career. If you want to set yourself up for a lifelong career, pick the Mac program with proven ROI to see why you should get your Master's in accounting at the UNC Kenan-flagler Business School, head over to The Accounting Podcast. That is Accounting Today 1099.

David Leary: [00:48:44] So I have an accounting story that's maybe more of an example of there's no consequences for doing bad audits. Maybe it's the way to think about this. Um, W.H. Smith is a company based out of London, England. Are you familiar with them?

Blake Oliver: [00:48:57] They're like one of those, um, like, uh, airport.

David Leary: [00:49:03] Convenience store, bookstore, magazines, bottles of water at train stations, airports. Right. Well, they, um, have also expanded out to the US now, um, and what happened was, is over multiple years, the North American stores have been overstating their profit. And PwC missed it in the audit. They missed it. And this caused about a 600 million pound reduction in market value for for the owners of the shareholders of W.H. Smith. And so they perform a bad audit. It creates a bunch of expense now. But the board is recommending that they keep PwC as their auditor.

Blake Oliver: [00:49:45] What?

David Leary: [00:49:46] Yes. So so because you don't get fired if you're the auditor, right. It's a commodity. Like they must be paying the right price. Who knows? There's no consequence to doing bad audits If you think about it, you might get a little fine 20 grand here by PCCW or PCAOB, but there's no you're allowed to do bad audits and they just won't do it. Um, PwC has audited them since 2014, after Deloitte previously had it for the contract for 65 years. So they don't like a lot of change. I kind of could see that maybe like you'd want to keep it around. So like maybe there's other things that PwC has been missing that might be questionable. They want to keep that same audit around. Why bring in new eyeballs to look at a problem? But then maybe it's just because if you change auditors, it just creates more upheaval for your company before you get your financials out and all the other stuff. And so maybe just you want to stabilize the stock price, stabilize the company, and maybe that's why. But in the end, you can an auditor can cost a company a half $1 billion. And they don't. They keep their contract. They don't lose their contract. It's kind of it's insane. Well, any other piece of business you do, if somebody failed that bad, you would fire them and hire the competitor.

Blake Oliver: [00:51:01] Well, you see, David, it's because the audit committee understands that it's not the auditor's job to detect fraud, but the public doesn't know that. No. Hey, I've got a fun story here about the Excel World Championships and specifically an interview with the winner of the 2025 Microsoft Excel World Championship. His name is Dermot Early. He's 40 years old and has 20 years of Excel experience. Got his start at Boston Consulting Group and then spent ten years at Deutsche Bank as a business manager doing data analysis and financial reporting, and then went off on his own. He's a longtime competitor who previously placed no better than fifth before winning the championship last year, and he offered his tips to Business Insider as to how to get better at Excel L, and his core advice is that whenever you find yourself doing something manual and repetitive in Excel, there's always a more efficient method. And 80% of Excel problems have already been solved by others. So all you have to do is Google it, or chat or search with ChatGPT or ask ChatGPT and then you'll get the answer.

Blake Oliver: [00:52:16] So it's really simple. Um, but you know, I understand it's it's hard when you're in the moment, like trying to get work done to actually take time out, to go find a better way to do the thing you're doing because you want to get it done. And it takes time to go and learn a new formula or learn a new strategy. But if you do that, he says, and the example is learning something like Sumif, if you learn sumif, it pays exponential dividends over your career versus doing it in a more manual way. And so I like this tip because it really works for almost anything in technology that you're applying to repetitive work, which is take the time, invest the time to learn a faster way. Because every time you do that, you save yourself a little bit of time and it stacks up and stacks up and stacks up over years and years until you're a wizard and everyone else thinks you're a genius. But it didn't happen all at once, right? It happened over time, with little tiny improvements in your process.

David Leary: [00:53:28] Now wasn't one of his tips to stop using the mouse?

Blake Oliver: [00:53:31] Uh.

David Leary: [00:53:33] Probably it has to be.

Blake Oliver: [00:53:35] I mean, well, that's that's a great example, right? It's like you're using the mouse. You're going through menus to do something. Take the time to learn the keyboard shortcut.

David Leary: [00:53:43] Is that a story? When the accounting twins were working for me, they were, you know, accounting graduates. Right. And one got I mean, this person got a top ten score in Arizona on and her CPA exam, and until she got a job at a firm nobody in college ever mentioned. There's hotkeys for Excel. It was like blew her mind up. Like like they're teaching Excel, but they're not teaching people to be good at Excel. Right. In college, like nobody mentioned. Hey, there's hotkeys. You should try to learn those. Be good for your career, like to not find that out until you're a new hired employee, that there's these hotkeys and you can do things much faster in Excel. It's like, what are we teaching people at school?

Blake Oliver: [00:54:18] Well, it's because I think a lot of educators feel that their job is just to teach the theory and not to teach how to do it in practice. And if you don't teach how to do it in practice, you don't learn all the little tricks, all the skills to to actually do it quickly. And these days, it doesn't really matter if you know the theory, if you don't know how to do it quickly and do it efficiently, you're not going to get a job. So also, just like we should teach people how to Google and how to use AI. Like that's not part of the curriculum. I don't understand why, because it's the most valuable skill you can have. There should be a whole class on just how to how to Google, but now also how to prompt. All right, David, that's all the time we have for this week. Thank you to all our livestream viewers. If you want to catch us live, go to YouTube, search for The Accounting Podcast, subscribe and hit that notification bell icon. You'll get notified when we go live and you can join us in chat. Let us know what you think. If you have a CPE requirement or an IRS CE requirement, you can earn free Continuing Professional Education or IRS CE credits for listening to this podcast and many other fine podcasts. While the IRS credits we don't, we don't offer for this show very often, but there's lots of tax shows that do. Great example is tax in action. Federal tax updates go to earmarked app to use the free earmark app in your web browser, or download it for iOS or Android. Listen to a podcast while you're on the go and earn CPE. You can earn one free per week, so that means if you start now in January, you can get your CPE requirement done for free.

David Leary: [00:56:09] We also enjoy that time between Christmas and New Years, when all the other people are doing their CPE. You can kick your feet up and enjoy that time you should be spending with your family, not doing CPE.

Blake Oliver: [00:56:20] You can subscribe for unlimited, um, courses every week, as many as you want. Certain subscriber only content. It's only $170 a year right now. Grab that, lock it in, and support the work that we're doing at earmark to make continuing education interesting, accessible, affordable, and bring new voices into the profession. David, I'll see you here next week. Thanks, everyone. Great to have you with us. And, uh, have a great one.