The Accounting Podcast

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Blake Oliver: [00:00:05] The IRS received 48.1 million calls, and they answered 9.9 million of them, or only 21%. 79% of the time when you call the IRS, you hang up before you get somebody because the wait times are that long.

David Leary: [00:00:21] Coming to you weekly from the OnPay Recording Studio.

Blake Oliver: [00:00:26] Hello and welcome back to the Accounting Podcast, your weekly roundup of news in the profession. I'm Blake Oliver.

David Leary: [00:00:33] I'm David Leary and happy. America 250 to you, Blake, 250 years.

Blake Oliver: [00:00:39] It's our Independence Day episode. We're recording this on Friday, July 3rd and tomorrow, July 4th. Trump accounts go live. Good selection for the start date. If you want to be pro America, I guess, right. That's the Trump brand.

David Leary: [00:00:56] They're already live. Or am I thinking of something else?

Blake Oliver: [00:00:59] Um, well, this is when you can start making those contributions, I think.

David Leary: [00:01:03] Okay. So you could sign up for it already, but now you can actually move money. Got it.

Blake Oliver: [00:01:09] Yes. They're available. Yeah. July 4th for contributions. We'll talk about that. Also there's talk in Australia about breaking up the big four because of all the scandals that have been going on down there. And we've got a new one, a new scandal, David. Some E staffers apparently accessed the Prime Minister's bank account.

David Leary: [00:01:33] Yes.

Blake Oliver: [00:01:34] Wild. We'll talk about this and more after. We thank our sponsors, David, who are our sponsors our sponsors.

David Leary: [00:01:41] This week we have on Pay Canopy Value Builder System and Cloud Accountant staffing. Are you tired of payroll headaches getting in the way of the client experience that 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 as 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 on pay handles all the heavy lifting you get a dedicated onboarding coordinator who sets up worker profiles and transfers year to date data from previous periods, all at no extra cost. They're seamless. Quickbooks and Xero integrations eliminate manual journal entries, and they support any type of business. You serve. Farms, restaurants, nonprofits, you name it on pay can handle unique requirements without adding complexity. And on pay keeps pricing simple to everything your clients expect, from multi-state filings to off cycle payroll runs is included. No hidden fees, no surprises. To book a demo, head over to The Accounting Podcast dot io slash pay. That is accounting podcast.io/onpay.

Blake Oliver: [00:02:55] Thank you MP. And I should say we love using on pay for our payroll for our different companies. It's fantastic. Go check them out. Support our show. Let them know you heard about OMP on The Accounting Podcast. All right, let's talk about these Trump accounts and we'll talk about Australia. So these accounts the Trump accounts began accepting contributions on. Well begin accepting contributions on July 4th. And they are available for children who are U.S. citizens born between 2025 and 2028. And the biggest perk is the free money. The Treasury is going to contribute $1,000 per child. Accounting Today did a write up of the pros and cons of these Trump accounts. They interviewed CPAs, accountants, advisers, tax planners about whether or not they recommend them or not. And I thought some of the some of the insights are interesting, some things I hadn't thought about as to whether or not you should use these. So obviously the biggest attraction is the free government money. I mean, sign up, get $1,000. Really? Everybody should be doing that, right? If you're a tax pro, help your clients get a $3,000. Hey, we know that a lot of tax pros are not even charging that much for an individual return. So there you go. You've covered your your cost.

David Leary: [00:04:14] You look like the hero.

Blake Oliver: [00:04:15] Exactly. The earnings grow tax deferred. So not tax free though. But the earnings will grow tax deferred. There's also now a safe harbor from gift tax reporting requirements, which make the contributions more attractive to those who would be otherwise affected by gift tax. Some employers are going to match the government contribution and that could increase the appeal. Um the reason that advisors are hesitant though is, is that well, and here's one I hadn't thought about, right. It's that the child gains access to the account at age 18. So you fund this account as a parent and instantly at age 18, when your child becomes an adult, they now have access to all the money, and there's nothing you can do to stop them from spending it. I had not considered this, but I think that alone might be cause for hesitation for some parents, you know, because what they say that your brain isn't fully developed until you're like 25 or something.

David Leary: [00:05:18] Like you want to be like, you could take out this much for school and then that's it. Like there's no constraints on the money. They could just get that and buy a new car or do whatever they want with it.

Blake Oliver: [00:05:27] And most of the families that are going to be in the in the income range where they're, you know, working with a tax pro and, and setting up these accounts and funding them, they're probably going to send their kids to college. And so there's already a vehicle for that. That's a 529 plan. And if you set up a 529 plan for your kid, the account owner, the parent, you can generally retain control and even change beneficiaries to different kids and whatnot, but this doesn't work that way. And here's the other part. That is the, you know, one of the bigger negatives. Trump accounts, the distributions are taxable generally, unlike 529 withdrawals. So you set up a 529 college plan for your kid. And the money when it's withdrawn is tax free, but not with a Trump account. It's taxable. And if the distributions occur while the child is a student between the ages of 18 and 24, the kiddy tax could cause the earnings to be taxed at the parent's rate. And there's a contribution limit. You know, you can contribute $5,000 in 2026 with inflation adjustments. After that, excess contributions automatically spill into a taxable custodial account, creating administrative complexity.

Blake Oliver: [00:06:41] So there's this. This is the big this is the big thing to compare them to, right? The 529 plans, Trump account plans. Um, some states for 529 offer state income tax deductions, which you're not going to get with a Trump account plan. And it's really that control. So Taxability, uh, state income tax deductions and control. Now there's also though, like a big opportunity in terms of advisory because to actually get this account to work right, you really need to work with a tax pro and like manage this properly, you know, make sure you're doing the contributions every year, um, planning this out. So like I see there, there's, you know, I'm not sure if for the individual taxpayer, there's necessarily like, it's necessarily a great option, but I don't know if you, if you work with a tax professional, you can maximize this. But I don't know, I don't really see these accounts as being like the greatest thing for the average American necessarily, because, right. Who is going to actually take the initiative on their own to go and get this money and then fund it and properly manage it and all that stuff, I don't know. Anyway, that's.

David Leary: [00:07:53] There is an opportunity here for accounting accountants. I fully agree in tax pros because I think I covered this on episode 42. It's how successful the Trump accounts are. They already in one year have 4 million accounts set up. So I guess today's the day the money actually gets into the accounts.

Blake Oliver: [00:08:10] Okay.

David Leary: [00:08:12] But if you compare that, that's, you know, that's 80 to 90% of all eligible births during that time are getting a Trump account. So it's hugely successful if you compare it to 529 college savings plans, maybe there's 15 to 16 million of those, but that took 25 years for one K plans. You know, there's still only at 3,040% participation from employees. And that took decades. So if you're talking to your clients about four one and 529, it only makes sense to also talk to your clients about Trump accounts because a lot more are going to have a Trump account than a 401k Well.

Blake Oliver: [00:08:48] What you can do at 18 is you can convert the money in the Trump account into a Roth IRA. So. So the way it works is that the account automatically becomes a traditional IRA when the child turns 18 under their control. And in a traditional IRA, then the withdrawals would be, you know, subject to ordinary income tax required minimum distributions. And so if at age 18, you then convert it into a Roth, you pay the tax. Now when the child is ideally in a low tax bracket, if you're not, if you don't have to worry about that kiddy tax issue right there in a low tax bracket, you convert it. And then all the money that's accumulated in there is now in a Roth. And so when they withdraw it at retirement, it's tax free. So if let's say you let's say you contributed $200,000, let's say it has $200,000 contributed at that 18 year point. And there is a, you know, $40,000 tax on converting it. So you could end up with $160,000 in a Roth IRA. That could grow to about $9.6 million tax free over 42 years. Now, I didn't come up with that. That's according to an opinion piece in Accounting Today by David Perez, who's the CEO of Tax Maverick. And that is something that, like you tell that story, explain that planning opportunity to a client. And that's powerful. So we do this right. We set this up. We fund it every year. We get it to 200 K pay the tax at 18. Now it's 160. It's in a Roth. It could end up being 9.6 million. And maybe that's aggressive I don't know. But like millions of dollars by the time your kid retires. So you're basically setting them up.

David Leary: [00:10:41] And this is like codified. It's a thing like at least maybe I'm answering this a different way. New administration comes in, right? Two years. Can they just say we're not doing Trump accounts anymore? Or is this like a financial vehicle that's now pure forever?

Blake Oliver: [00:10:57] Well, that's the thing is like, yeah, removing it is never going to happen politically, right? People have the money, the accounts are set up like, you're not going to shut this down. It's kind of brilliant. Right? You know, Trump tried to put his name on the Kennedy Center and, you know, they put it up and they took it down after a court order. This these Trump accounts, they're going to be around forever. It's brilliant. If you want to like establish your name in, in, in, in Americans lives.

David Leary: [00:11:22] Yeah. And the guy who did the for one case probably like, why didn't I call it my name?

Blake Oliver: [00:11:27] All right. David. Uh, let's go ahead and talk about this Big Four disaster in Australia. What is going on? Australia wants to break them up.

David Leary: [00:11:38] Yeah. So you know, there's been a lot of a misconduct happening in Australia, with firms from cheating on ethics exams to backdoor deals, whistleblower like they were running a whistleblower hotline and not actually taking the calls. I don't know if that's the easiest way to say it.

Blake Oliver: [00:11:56] But KPMG was spying on a whistleblower. They had a whistleblower at KPMG and they spied on them. And they and they they basically had investigations that said, oh, no misconduct. And now it's come out that there was a ton of misconduct.

David Leary: [00:12:11] A ton of misconduct. And so because of all this, two big four CEOs have been forced out over misconduct. Um, this is the quote from their Making Australia, the global epicenter of big four misconduct. And to some extent, it does feel like there's been a higher ratio of stuff going on in Australia right now. Um.

Blake Oliver: [00:12:29] Yeah. Talk about this ey thing.

David Leary: [00:12:31] Yeah. And so then now it didn't take long, but now there was another incident this week. Um two young UI graduates are there on audit engagement or something, right. Uh, Paul is a 21 and Philip is a 25. They might have been brothers. Same last name, I'm guessing. Right. They were, uh, at an engagement and they used this to access the Prime Minister's personal bank account. And then probably what really pushed people over the edge. They used it to access one of the partners At Ease private bank account. Wow. So they've been caught. They've been fired. I mean, they probably they're never going to work in accounting again, right? Like who's going to hire somebody who you can't trust to do the audit without spying on other people? Um, so.

Blake Oliver: [00:13:19] They were on an audit at a bank, Commonwealth bank. And then they were able to access like the, the bank statements.

David Leary: [00:13:25] It's not super clear that they're auditing the Commonwealth Bank, but they somehow they have access to computer statements.

Blake Oliver: [00:13:31] They were. Okay. So the client is Commonwealth Bank. They have access to the systems and and they access the Prime Minister's bank, bank records and then a partner at EMI. Yes as well.

David Leary: [00:13:43] That's probably what pushed everybody over the edge. Right. As the partner who did not like this, I'm sure.

Blake Oliver: [00:13:48] Wow. Uh, so what's the talk about then? Like, when it comes to breaking up the big four, where did that come from?

David Leary: [00:13:55] So this is coming from the Australian Australia's government. I feel like this is similar to a lot of the talk we're seeing in Europe. A few years back after the Wirecard fiasco and a bunch of failed audits, they wanted to break up the similar kind of talk. Um, they want to, uh, split the audit and division and consulting arms up. They don't want those under the same roof anymore. Um, they also want to slash the partnership size from 1000 partners to 400. So they're trying to make the firm smaller, I guess. Um, so they don't feel like they're bigger than the rest of the businesses in Australia, which basically I could do what I want. I'm bigger than any business here in Australia. They want to bring that that down. And then which I thought was interesting is mandatory audit firm rotation every 20 years. I thought that was a lot shorter already. I think just.

Blake Oliver: [00:14:42] Isn't it shorter here. I thought it was like ten years here. We reduced it. I don't know, listeners, if you're tuning in live, let me know what that is. All right.

David Leary: [00:14:53] David, I feel like Heather Smith on Australia needs to send us a recording of like the state of accounting scandal in Australia, or it needs to be its own show.

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Blake Oliver: [00:16:19] That's The Accounting Podcast dot io forward slash CANOY. Coca-cola is in tax court. They're facing off with the IRS. They had a hearing at the US Court of Appeals for the 11th Circuit on June 25th. This is a transfer pricing dispute with unusually high stakes. David. The total exposure for Coca-Cola could reach $20 billion, and for the IRS, the case could influence how aggressively it can pursue multinational transfer pricing disputes in the future. The case focuses on whether Coca-Cola's foreign affiliates paid enough to the US parent for access to valuable intangible property, including trademarks, brand names, and formulas. The IRS is arguing that those affiliates underpaid, which means that Coca-Cola should have reported more US income and owed more tax. The tax court sided with the IRS in 2020 and 2023, and Coca-Cola has been appealing those rulings. Those rulings since then. Coca-cola's main argument is that the IRS pulled a bait and switch. They argue that they relied on a transfer pricing method that they developed in an earlier settlement with the IRS, and the agency later changed the methods and imposed larger tax liabilities. They're also challenging the IRS Blocked income regulations, which can require a US parent to recognize income even when foreign law restricts how much an affiliate can actually remit as royalties.

Blake Oliver: [00:17:54] And the company contends those regulations should no longer get the same judicial deference. So the IRS side the IRS says that Coca-Cola had no basis to assume the prior pricing method would remain in place indefinitely. And they're also maintaining that Congress gave the IRS explicit authority to interpret transfer pricing law through regulations, and the Tax court agreed with the IRS on both the transfer pricing, treatment and the blocked income issue in the previous cases. Now, this is being appealed. So it's a lot of money, $20 billion potential exposure. Coke has already paid $6 billion to the IRS, which it's trying to recover through these appeals, but it could. Oh, 14 billion more if it loses from an accounting standpoint. Coca Cola has reserved only about half a billion for the exposure. So this could create a really unpleasant surprise for investors if the company loses. So 20 billion in exposure, they've only reserved half a billion for the loss if they lose this case. So there's other cases that could be affected by this. Three M meta. Medtronic, basically any of these companies that are multinationals that use transfer pricing to move money to shift profits around the globe.

David Leary: [00:19:11] I feel like this bait and switch thing, maybe we had a story we talked about with maybe with Microsoft sounded similar story. I think, if I remember correctly, where they had a settlement, agreed to pay this much, and then the IRS went back and recalculated it differently and said, no, you're going to owe this much. Instead, I think it's Microsoft. Not sure.

Blake Oliver: [00:19:29] And little review on transfer pricing, right? For those folks who don't work for multinationals or follow the details of nerdy international tax law. Right. I'm going to try to I don't know, we try to describe it as simply as we could, David, which is basically, uh, um, I sell or license the IP, the intellectual property, like my recipe for something to, I don't know, a company in Ireland. Right. Which then, uh, well, I sell it to them and then they license it back to me. So that allows me to, to shift income out of the US and into a more favorable tax jurisdiction with lower taxes. And as long as I keep the money there, I can pay that lower, say, Irish tax rate, not the US corporate tax rate. And I only have to pay the US tax rate when I repatriate. But I can also like sit around and wait for a tax holiday situation where we temporarily lower the taxes on repatriating funds. So that's basically it, right? And then, well, you know, the amount of money that these companies can charge their different entities is it's like a, it's that is what's up for debate here, right? Like, did Coca-Cola pay its U.S. entity enough for this IP or not? And that's a matter of opinion in a lot of cases. And so that's why this goes to court, because these companies are aggressive sometimes when it comes to that pricing, the transfer pricing. And then, uh, you know, if you're too aggressive, IRS goes after you and now you get to fight it out in court and you find out.

David Leary: [00:21:11] So the if, if they lose, this is going to be bad because it could be in the billions, but they've only budgeted, you said a half $1 billion as a hit on this.

Blake Oliver: [00:21:21] Yeah. They only they took as a reserve on their financials, half a billion for losing. But they have paid 6 billion and they could end up paying 14 billion more in taxes as a result. So could, you know, be a significant hit to their quarterly earnings and their stock price as a result? All right. David. I guess we're talking about taxes, right? So let's talk about some of these stories. You've got the IRS losing control of documents or.

David Leary: [00:21:47] Well there's so much documents. But so I think you talked about this last week. We've covered it before. The IRS shares data with other governments and agencies, right? Yeah. Like how like Ice. Right. And Homeland Security, they shared those. Well, apparently overall. So this is a new Treasury inspector general report. They have about 1124 data sharing agreements. You know, this is with different states. For example, they have 42 separate agreements with Ohio, four with Nevada. Um they have 30 agreements that are just not known. It's basically, hey, Blake, I'm going to share the IRS data with you. And then I never went and told the IRS privacy government liaison and disclosure office. So there's just IRS data going out to to third parties, other government agencies that the IRS does not know it's happening. Right. Um, but they, the deep down reason for this is the IRS just lacks a centralized database of like, here's all our agreements, here's when they expire and here's the data we're sharing. These don't have any, any due diligence over this. Um.

Blake Oliver: [00:22:58] Well, you know, this is right. This is the problem, right? Irs, uh, giant mess always has too much to do. Not enough money, not enough people. Bureaucratic. But hey, the Treasury inspector general had something nice to say about the IRS recently. The national.

David Leary: [00:23:16] Tax. Jump to that. This is the typical. So every time the Treasury Inspector General comes out with a report, this. You always see this too. Irs agreed to all recommendations, including creating a centralized database. But like they say this about every time there's a there's an expression report, whether or not like, where's the accountability? Does this actually get built? Do these things get implemented that I don't know.

Blake Oliver: [00:23:40] Go ahead. Well, here's something nice about the IRS. The national taxpayer advocate, Erin Collins, issued her midyear report on tax season. And she found that the IRS largely succeeded in the 2026 filing season, despite a 27% staffing reduction, tax law changes and leadership turnover. The agency performed better than expected overall, helped by continued technology modernization. But taxpayers needing individualized help face serious delays and poor service. Where did taxpayers run into problems? More than 14 million returns were suspended for additional review. That's out of 139 million individual returns, more than 1 million taxpayers waited beyond normal processing times for refunds. Those delayed refunds averaged about 5.5 weeks late. Identity theft victims they still face extremely long case resolution times, averaging 20 months on average. And by the end of the filing season, over 500,000 identity theft cases remained pending. One of the big operational problems this past tax season was the IRS implementation of the Trump executive order, pushing agencies away from paper checks toward electronic payments. This shift caused problems for unbanked and underbanked taxpayers, lower income taxpayers, some elderly taxpayers, those living abroad, and others that just didn't have access to electronic payment methods.

Blake Oliver: [00:25:09] As of April 27th, the IRS issued about 4 million notices to taxpayers who whose returns lacked valid direct deposit information. And the notices tell the taxpayers to go use online accounts to update information or request a waiver for paper checks, but most taxpayers don't have them. They don't have the online accounts. They struggle to create them. The notices didn't have good instructions about the waivers, and they also didn't tell in the notices. They didn't tell the taxpayers that they could request waivers by calling the 1040 phone line. So basically 4 million notices, there's like 4 million taxpayers out there who are like not getting their their refunds because of this issue. Yeah. Refund delays of six weeks or more. Phone service deteriorated. The iris received 48.1 million calls and they answered 9.9 million of them or only 21%. So 8,079% of the time when you call the IRS, you hang up before you get somebody because the wait times are that long. The average hold time was 14 minutes. Uh, that was worse than the prior filing season where they answered 25% of calls and the average wait time was eight minutes.

David Leary: [00:26:22] I guess I could pile on.

Blake Oliver: [00:26:24] Yeah. Do it.

David Leary: [00:26:26] So, you know, the IRS has these taxpayer assistance centers, so you can physically go in and ask a question to the IRS.

Blake Oliver: [00:26:34] I've heard of them. I've never seen one.

David Leary: [00:26:36] I've never seen one either. Uh, so the Treasury inspector general did a little bit of secret shopping, right? Everybody knows what that is. Like. If you have a retail store, you send somebody in as a customer, they buy some stuff. Then they come back and say, oh yeah, that salesperson was rude or the store was dirty, whatever. Right. So they did 91 unannounced visits to 82 different IRS Taxpayer Assistance centers nationwide. Of the 91 visits, 30 visits, you couldn't even get in either. The the building was closed unexpectedly, not on Post-It hours. Security won't let them in. Right? Or they just got an incomplete answer. They never got to a deep enough in the process of the 61 quote unquote successful visits where they actually talked to somebody and got an answer in return. Um, they 28 of those were incorrect assistance. So the, the person helping gave out the wrong answer 28 times out of the 60. So wow, that's like almost half the time if you go to a tax IRS, taxpayer Assistance Center, you're if you get in the door, you're probably going to get a half time. You're going to get a wrong answer.

Blake Oliver: [00:27:44] Well, that's, that's that's not that's not good. Right? Like, I think we maybe people would be better off not going to an assistance center versus getting a wrong answer.

David Leary: [00:27:54] You assume like you took time, you went face to face, you might be getting. But yeah, it's not it's not a good stat. Now, apparently they closed nine of these centers in 2024, but originally it was they were supposed to close 110. And some of the initial cuts that they were supposed to be making. So obviously people are trying to use these, but you just can't have half the people asking for help getting wrong answers.

Blake Oliver: [00:28:18] Well, and you would think that maybe like AI chatbots could help with this, but they're also having a problem with that. David. And I'm going to talk about that after the break. Right now let's think value builder system. Are you ready for today's magic number. It's 12%. That's how many of your clients received a written offer to buy their business last year. Unsolicited. Out of the blue. And when that offer lands, it triggers a wave of high margin advisory work like tax planning, estate planning, and quality of earnings. These engagements often run into six figures. The problem is, to most of your clients you're the tax pro. So all that lucrative advisory work goes to someone else. The estate plan goes to an attorney. The wealth work goes to a financial advisor. You only find out about the deal when the K-1 hits your desk. The end game conversation is upstream of everything. Whoever has it first wins all the work that follows. That's where Value Builder comes in. It's the exit readiness platform built specifically for accounting firms. You can assess every client across operational, personal and financial dimensions, benchmarked against data from over 80,000 business owners. You'll spot who's closest to a transaction and exactly what gaps need fixing. Ready to start leading the end game conversation with your clients? Head over to The Accounting Podcast dot promo slash value. That's The Accounting Podcast dot promo forward slash VALUE. So the IRS has been expanding the use of live chat and automated chat bots, but there's a problem. Inaccurate or incomplete responses are getting out to taxpayers. The Treasury Inspector general reviewed 40 live assistors and found that 24 of them, that 60%, were handling multiple live chats at the same time. So you've got these IRS employees trying to handle multiple chats at the same time.

David Leary: [00:30:19] Which is common. I think that's common call center behavior.

Blake Oliver: [00:30:21] Yeah, right. But one of them was handling 603 chats simultaneously.

David Leary: [00:30:26] What? That's insane. Like a human?

Blake Oliver: [00:30:29] Yes.

David Leary: [00:30:30] No way.

Blake Oliver: [00:30:31] That's that's that's one of the reports showed that, like, I don't know how that's possible. But anyway, um, they identified 29 responses and 44 keywords or questions in which the automated collection service chatbot either failed to give enough information or could not recognize what taxpayers entered. So I guess that's an automated chatbot system. Yeah, it's just, uh, maybe not that great so far. So you can't get help at a taxpayer center in person. Are you getting incorrect answers? And then, you know, they're also having issues with these chatbot solutions for people to get answers. I mean, hey, all of this means tax professionals will continue to be in demand.

David Leary: [00:31:17] But I think I saw an article fly by. Maybe I'm imagining this headline, but that the tax pro line was not giving the tax pros correct information either. Or did I imagine seeing a headline like that?

Blake Oliver: [00:31:29] I have no idea. Hey, now we're talking about the IRS. So I'm going to go through my stack of news here. So the Trump administration has not been particularly friendly to nonprofits. Remember all of the nonprofit funding getting cut like last year? Trump went after.

David Leary: [00:31:49] Nonprofits from the Doe stuff and.

Blake Oliver: [00:31:52] Huge impact, right? Um, well, the IRS is intensifying the scrutiny of tax exempt organizations. Officials at NYU's Tax Controversy Forum said that they are targeting nonprofit fraud more directly. Edward Killen is the commissioner of the IRS Tax Exempt and Government Entities division. He said fraud in the tax exempt sector is a major institutional concern. Acting Whistleblower Office Director Eric Martinez said that the IRS issued its first ever whistleblower alert in April, seeking public tips about the misuse of federal funds by tax exempt entities. They described a whole compliance strategy with multiple IRS units working together rather than operating separately now. And the IRS has also created a chief tax compliance office under Jared Koopman, who also leads criminal investigation to oversee compliance and work across several IRS divisions and offices. They are making tax exempt enforcement part of a broader compliance push. What have they been doing? Here's an example. Irs and Treasury have been cracking down on charities and non-profits by adding questions to form 990 and warning organizations. Their tax exempt status could be at risk if policies conflict with the administration. There was a recent enforcement against the. Involving the Southern Poverty Law Center and a nonprofit connected to the Los Angeles Homeless Services Authority. The IRS and Treasury plan to propose regulations under the One Big Beautiful Bill act that would limit tax exempt organizations ability to provide high compensation and parachute payments to top executives.

David Leary: [00:33:29] Isn't the governance governance structure of nonprofit accounting fundamentally set up to prevent fraud and non-profits? Because you have to have fund accounts and that money can only be from that fund, can only be spent on certain things that that fund determines. Yes, in theory, have a board that's reviewing the books, right. At what point is it like tip from? I almost feel like it has to be a conspiracy to commit fraud in a nonprofit.

Blake Oliver: [00:33:58] I feel like, I mean, this is just my opinion, but like, it would take a lot of work to do it because you've got to provide all of this documentation, like the nonprofits have like crazy compliance requirements in order to get these funds, and then they have to report on them and have a receipt for everything and diligently track all of this in fund accounting in their accounting software. Like if there's like massive amounts of fraud happening, I don't think it's across the nonprofit sector. I'm going to guess it's in the government contracting sector.

David Leary: [00:34:30] Yeah, that's probably true.

Blake Oliver: [00:34:31] Right? That's where it's at. That's where the money is.

David Leary: [00:34:34] Just like real money. The real money pouring out.

Blake Oliver: [00:34:36] Yeah. Hey, boring accountant made it. Welcome. Boring accountant. Uh, even on your, uh, July 4th holiday, right? Is this today? Friday is the, uh, is the federal holiday with 250 coffee tomorrow. Great to see you, boring accountant. And welcome Josh Pearson. Giles says, hi. Blake and David, we'll need to listen later this week as watching Australia versus Egypt priorities. Totally. I actually I got into the World Cup this, uh, this year I've been watching the games. It's fun. Starting to, like, kind of figure it out. Trying to, you know, it's funny. It's like, as a kid, I never really like, like watching soccer was hard because it's like, you know, the TVs had very low resolution, right? Yeah. So it's like watching hockey, right? Where you can like barely see the puck or the ball, right. Like, but, uh, but now with HD.

David Leary: [00:35:31] Hd has completely changed.

Blake Oliver: [00:35:32] It. It's great, right? You can see the, you can see the actual, you see all the players on the field pretty much. Right. So it makes a lot better. Um, a welcome fairly stated in the live chat, fairly stated, says I used to audit nonprofits. The additional work we did caught a lot of odd things for record keeping related, uh, for example, short term personal credit card usage for company expenses. Yeah. So it's like nonprofits have like rigorous requirements. They got to get audited. Like a lot of them, got to get audited. And so, you know, I don't know. It wouldn't be the place that I would if I was choosing to do fraud. I wouldn't do it in a nonprofit.

David Leary: [00:36:13] You're right. It's and then on top of that, it's just extra work. The the accounting and bookkeeping you have to do is so much extra work. Like you might as well just do the fraud in a regular business instead. And you have less work to do.

Blake Oliver: [00:36:27] All right, David, let's go ahead and thank our sponsor for this episode. And that is cloud accounting staffing.

David Leary: [00:36:34] Let me read it.

Blake Oliver: [00:36:35] Go for it.

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Blake Oliver: [00:37:43] Thank you. Cloud account staffing. Let's keep going on the taxes. Uh, topic. The California billionaire tax is heading to voters this fall. It's going to be on the ballot in November. It's a one time 5% tax on billionaire assets, and the supporters say that it will help replace healthcare funding lost after federal cuts enacted by the Trump administration. This is a retroactive tax on billionaires who lived in California as of January 1st, and it would apply to slightly more than 200 Californians. So just over 200 billionaires in California would get a 5% tax on their assets. It was sponsored and funded by SEIU United Healthcare Workers West. The union spent $31 million collecting signatures and submitted nearly 1.6 million of them, about twice the number needed to qualify. Bernie Sanders and Ro Khanna are supporting the proposal. Governor Gavin Newsom, while generally supportive of taxing the wealthy, is opposing the state level version, arguing that it's flawed and that a wealth tax would work better at the national level. There are two separate poison pill ballot measures that also qualified on the ballot, and if the billionaire tax passes, but either competing measure receives more votes than the billionaire tax would be invalidated. Supporters tried to negotiate a fallback legislative option, a 2% billionaire asset tax, but the Newsom administration rejected it and no deal was reached before the final withdrawal deadline. The big concern among opponents is that the wealthy residents, these billionaires may leave California because that's what billionaires can do. They can pick up and.

David Leary: [00:39:36] Leave retroactive.

Blake Oliver: [00:39:38] And that's why it's retroactive. But, you know, once they leave, are they coming back? So you're losing all the future tax revenue from those billionaires for a one time levy on their assets. Some billionaires have already relocated or moved companies, including reports that Google co-founder Sergey Brin left California and donated at least 82 million to groups trying to defeat the measure. I mean, David, you know, what's your opinion on this, these these, you know, these taxes on billionaires, these wealth taxes? I want to know.

David Leary: [00:40:09] I think we talked about before when this was kind of getting introduced, that it's it doesn't, it feels like a very, very, very targeted tax at an individual. And like, if you think about taxes, it's kind of like they're blind, right? Kind of.

Blake Oliver: [00:40:26] Well, they.

David Leary: [00:40:27] They, everybody pays it. If you're in that situation.

Blake Oliver: [00:40:30] It should be. I mean, I think we all like the idea of like everybody paying their fair share of taxes, right? Like, and they may, it may not be an equal share. Like that's why we have a progressive tax system, right? The more money you make, the, you know, we have the rate, the graduated rates, right? So, you know, make more money, pay a little more in tax as a percentage Progressive. But like this. This is like the the least progressive tax you could ever have.

David Leary: [00:41:00] And it's not like other when we're like, oh, we're going to do a cigarette tax or alcohol tax because we're trying to change behaviors of people. This is just going after these people because they fall in the billionaire demographic. It just doesn't it just doesn't pass the smell test. Half tax. Because if it's taxes like this today, then it's a different type of tax and a different group of people tomorrow.

Blake Oliver: [00:41:22] Right. And that's like good tax policy in general is broad low taxes because you target specific groups with high tax rates. And they will leave or figure out ways to avoid those taxes. And so you want broad low taxes. And yeah, I just it seems wild to me. Like basically they like the billionaires will leave Silicon Valley. They keep doing this, right. They're just going.

David Leary: [00:41:51] To good for Arizona. A lot of people keep coming to Arizona.

Blake Oliver: [00:41:54] Arizona, Texas, Florida. Yeah. Not great for California. All right. Uh, more tax news. Um, this this coming out of Florida. So there is a ballot measure in Florida to change property taxes there. They do not have an income tax. So this is a big deal. The and actually, um, the Wall Street Journal editorial board. This is where I saw this is is coming out against it. And this is Florida Governor Ron DeSantis bill. So this is the Republican governor of Florida. His tax bill, the Wall Street Journal editorial board, is saying that it would undermine the state's reputation for a relatively competitive tax structure. The the change would expand the homestead exemption for primary residences, which would reduce taxes for a lot of owner occupants. So the home that you live in is your primary residence, but would shrink the tax base and shift more of the burden onto businesses, renters, second home owners and commercial property. So the way it works in Florida right now with property taxes is that they exempt $50,000 of assessed value on primary homes from non-school property taxes. So you get $50,000 of assessed value exempt, no tax, no property tax on that, except for schools, school taxes. Yeah. Under this constitutional amendment that's going on, the ballot that DeSantis backed, the exemption would rise to $125,000 in 2027, and then $250,000 in 2028, and then be indexed to inflation. So it's going from a $50,000 exemption to $250,000. So 60% of homeowners, once this is fully phased in, would no longer pay property tax. They would still pay school district taxes, but no property tax. 60 over half of Floridians.

David Leary: [00:43:58] I don't understand how. How does the governor of Florida get money? There's no income tax. They're going to eliminate this property tax. Is it just sales tax mostly.

Blake Oliver: [00:44:09] Well they're going to have to force it's going to force local governments to make up the revenue elsewhere. So commercial real estate taxes, taxes on apartment buildings uh, because those are not exempt. Right. It's just your primary home, tangible personal property. Business equipment, right. Nonresident owners and renters who could bear that cost indirectly because the exemption does not apply. If you're renting out a house, you have to live in it. So this is a Republican amendment that would actually create a more progressive tax system in Florida. I think I misspoke earlier when I said that the California bill was like, did I say most progressive, least progressive? It's the most progressive in the sense of large disparity, right? Not having a wide base targeting like 200 people in your state with a tax is it's extremely progressive from a tax standpoint. Uh, and this would actually make Florida more progressive, taxing the rich, not everybody. So, but, but the way it's going to, that's what it's going to end up doing. And it's going to end up putting taxes on businesses, right. And, and renters and all that.

David Leary: [00:45:29] So, so California's billionaire tax is actually going to produce revenue for Florida as those billionaires move and relocate. Essentially.

Blake Oliver: [00:45:36] That's funny. I hadn't thought of that.

David Leary: [00:45:38] For to figure out how to, how to, you know, how to, how to how to monetize this, this situation. They're now going to be in.

Blake Oliver: [00:45:45] Uh, David, where do you want to go from here? Uh, we got some listener mail we could do. Oh, no no no no. Yeah. We got. I want to get to this listener mail. I've got some AI stuff. It's time for AI stuff.

David Leary: [00:45:58] Yeah. It's important. Okay. And somebody put a comment as well about some AI question I think came through.

Blake Oliver: [00:46:03] Okay. Let's see. Fairly stated says, what are your thoughts on changes in how engagement teams work together when it comes to AI? Think interpersonal brainstorming meetings, review or prepare interactions. Mm. That's a good question. Well, you know, the thing that has been the biggest shift for me when it comes to using AI tools is that I now think of Claude as a coworker. I mean, that's why they call it Cowork. I guess it's kind of brilliant because it's like somebody sitting with me at my desk and I can just talk through what I want to do, and it can help me sometimes or help me think about it. Um, it can't decide for me, but it can give me recommendations. And one of the ways I've gotten over this hesitancy to use it this way is by using dictation software. So I got whisper flow on my Mac, and now I can just put my cursor into clod, and I hold down the function key and I can just speak to it. And the dictation is good enough where it works. So I just speak to it and, and talk back and forth and solve problems that way. And it's way faster than if I'm typing or if I'm actually working. And so to answer your question fairly stated, I mean, it's going to change how the engagement team works together because now everyone on your team has an expert coworker right there on their desktop, but they have to learn how to use it that way.

David Leary: [00:47:35] But I don't even know if they need to do it individually. You bring this expert in the room with you when you have the meeting and you summarize like, hey, we have this audit engagement. This is going to happen. Here's our plan of attack. Ask us questions of things we may have missed or we should also be doing. And you almost you, you bring it to the meeting and interact with it as the full group. That's great. Instead of everybody doing it individually, it doesn't make a lot of sense. You just do it as a group.

Blake Oliver: [00:48:00] Well, and that's the thing that we need more of is like the ability to share conversations among people. Like I feel like right now, the issue is that these AI agents are kind of like, I can have mine and you can have yours, David. But we can't really share one easily. That's what needs to happen where it's like the entire engagement could have an AI agent that everyone is chatting with, and it knows everything that's going on, what everybody is working on, what they're all concerned about, and can surface all of the stuff that the manager needs to be aware of to them, because they're talking with all of the staff. That's the thing. That's the power of it, right? Is, is it can gather all of this context, know what everyone's doing, and organize all of that and tell me what I need as a manager to be focusing on. Yeah, I love that idea.

David Leary: [00:48:48] And keeping it in plain text. It's not in a portal or uploading things. Yeah.

Blake Oliver: [00:48:53] Tina says, I love whisper flow. Great investment. I barely type anymore. Yes, I agree, I have been trying to find the perfect dictation app for a while, and that's this is the one that has the best blend of like customization.

David Leary: [00:49:04] Mac right now, or is it open for windows?

Blake Oliver: [00:49:06] I don't know. Why don't you check it out and see while I read this, uh, message we got. So we got an email from Caleb Bancroft, CPA. And by the way, if you want to send us a message, we are the accounting podcast@yormark.me. That's the accounting podcast@yormark.me. Caleb said, Blake, I wanted to share a win I just had with AI. The Florida board requires me to enter information for each CPE course separately in their web portal. So this was a real pain last year since I had to manually type approximately 80 different courses to make sure all my required hours were reported. This year I utilized clockwork to handle this task for me. I created a folder on my desktop and saved all my CPE certificates. Mostly earmark, although I had one from Becker for my state specific four hours ethics requirement. Will earmark offer this soon. I also saved the CSV listing of the courses to the folder as well. Then I pointed Cowork to the folder and first asked it to create a consolidated Excel listing of the CPE courses categorized into the Florida reporting categories accounting, audit, technical, business, behavioral ethics.

Blake Oliver: [00:50:17] I then had it validate the list against all the PDF certificates to make sure I had everything required to report. Next, I logged into the reporting portal and instructed Claude to enter everything from the list it created. Claude entered everything and then validated its entries against the Excel list. It initially duplicated several entries, but it caught those automatically and made the corrections without me having to provide instruction. It also recognized the file upload feature in the portal only allows for one at a time, so it came up with the solution to combine all the PDF certificates into one file and upload the single file as well. After I confirmed this was okay. So at the end of the day, Cowork took care of this tedious task in the background while I caught up. Caught up on the show severance on Apple TV. I love that example. Perfect example of a tedious task caused by the Board of Accountancy. Having a antiquated website and clogged Cowork does the work, goes in, enters it, organizes it.

David Leary: [00:51:19] Gets it out for you.

Blake Oliver: [00:51:20] I actually had, um, I haven't, I haven't reviewed it yet. Let's see if it's right, but I assume, I mean, it's going to be I, um, I had, uh, clod cowork go and create an excel, um, tracker for my Arizona CPE requirements. So it's a it's a project now in Cowork and it has a spreadsheet, an Excel sheet in a folder, and I can dump all my CPE certificates in there and it can update the spreadsheet and keep me apprized of where I stand on my CPE requirements.

David Leary: [00:51:52] Good. You can show me this outside of this, and I'm going to put it into earmark. We're going to build it so it's scalable for others.

Blake Oliver: [00:51:58] So if you have examples of how you're using AI to make your life easier, we want to know. Email us The Accounting Podcast at earmark.me. That's The Accounting Podcast at earmark.me. I got another AI story, David. I'm just going to keep going. You interrupt me if you got something better. Um, this comes from KPMG. They are testing AI simulations to replace some of tax training's traditional grunt work. So this is interesting because this is one of the big concerns about AI. Ai at the big four automating all the grunt work the staff used to do to get trained up. So there's not this work for staff to do. Big Four don't want to hire them. How are they ever going to learn? How are they going to train? Right. The apprenticeship model. Well, it's not really an apprenticeship model. It's more of a up or out kind of right model. Yeah. That that that is that is breaking. So you have AI doing the work. How do you learn? So KPMG is testing a new training tool called tax SIM to help tax professionals build judgment and analytical skills because they're not doing the routine prep work anymore.

David Leary: [00:53:12] So instead of grinding out 1000 hours, 2000 hours of work, they're going to put thousands of hours into the simulator to to come up to the same equivalency.

Blake Oliver: [00:53:25] Well, I bet, though, that with proper simulation training, you could learn a lot faster than just putting numbers into boxes. Right? I mean, it's like, yeah, think about this. Like, uh, we've come a long way in education theory, the way that Americans used to learn. Let's just think back a couple hundred years to the like the founding, the founders, right? The way that you would learn, uh, like literature and history and Latin and other languages was literally by translating one book into another language over and over and over again. So like, this is how like John Adams, uh, educated his son. Was it John Quincy? Here's a, here's a classic. Translate this from Latin into Greek or Latin into English or something. Yeah. So you learn the language and you learn the material. But you know, that's not how we learn anymore, right? We've figured out there's better ways to learn. So this could be way faster.

David Leary: [00:54:34] Yeah, I think I've seen things like this to teach you poker hands in chess, these like rapid games. Like I there's no doubt stuff like this is going to exist.

Blake Oliver: [00:54:42] But here's how the tool works. Yeah. They developed it jointly with Centurion AI and the co-founder and CEO, Cass Sambanthar describes it as a. It's similar to a high performance simulator, such as a racing game. Users encounter many scenarios quickly and improve through feedback. Instead of waiting years to encounter varied client simulations, the staff can work through a large volume of simulated tax scenarios and see different outcomes based on their decisions, and the system is designed to push users to reason through problems themselves before turning to AI assistance. Reflecting the idea that difficult practice is what drives learning. I love this idea. What a what a better way to learn how to do something. So we're going to have less hands on experience and we're going to have to do more, you know, simulated training. You wonder why universities aren't using this kind of stuff already.

David Leary: [00:55:45] Yeah. The simulated training should happen in college. Like that's the whole point of that. Yeah. And I'm looking at this website for the Centurion AI. It's a little obnoxious, but it feels like an 80s video game.

Blake Oliver: [00:56:00] Um, yeah.

David Leary: [00:56:02] So it's, it's science backed assessments.

Blake Oliver: [00:56:06] All right. David, I think that's enough for this week.

David Leary: [00:56:10] I have a kind of a not a follow up story, but one more story to close us out.

Blake Oliver: [00:56:14] Okay.

David Leary: [00:56:15] Go for it. So remember a couple weeks back, we had this talked about police in Brooklyn were looking for somebody that walked into an accounting firm and just took $7,000 of cash.

Blake Oliver: [00:56:24] Off the desk.

David Leary: [00:56:24] Off the desk? Well, now in Toronto, uh, actually the town of Markham, an accounting firm, was robbed on June 19th, where three masked suspects broke in, assaulted an employee and took the computers. They just took a computer and a monitor. Wow. Like, I don't know. I feel like the accounting firms are always under attack for the data, right? But like, this is the second accounting firm that, just like in broad daylight, just got robbed. Like people were just walking right in. Are you going to have to get security at the doorway of your accounting firm?

Blake Oliver: [00:56:57] That's the problem with the talent shortage, right? You don't have enough people in the office.

David Leary: [00:57:03] Oh, actually, that's a good point. Yeah, there's just not. If you're there solo, you're by yourself. I could that's a good point on the the bodies.

Blake Oliver: [00:57:10] Thanks everyone who joined us live tuned in on this July 4th federal holiday. Um, don't forget, you can earn free continuing professional education for listening to this episode and the whole back catalog, basically of the accounting podcast. Go to earmark.app in your web browser, or get the free earmark app on the web store, the web store, the App Store, or the Google Play Store. It's free to earn one CPE per week, and for the low price of $200 a year, you can get unlimited unlimited CPE. Incredible. Stay up to date. Don't sit through boring webinars. Get your CPE done and support the work that we do. David. Is that it? Do we have anything else to share before we go?

David Leary: [00:57:58] That's it. Um, I, I was hoping one of us would come across a story about the 4th of July, because arguably, the 4th of July is a tax story. Kind of. Right. But I didn't see anything bubble up to cover, so we don't have to talk about it.

Blake Oliver: [00:58:14] All right. Thanks, everyone. Um, we will see you around here next time. Bye.

David Leary: [00:58:19] Have a great weekend, everybody.