The Accounting Podcast

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Blake Oliver: [00:00:04] A North Carolina woman, she lost 600,000 in a romance scam. The IRS then sent her a bill for $225,000 in taxes and penalties. Why did that happen? Because the money she sent, the scammer came out of her retirement account, so it counted as taxable income.

David Leary: [00:00:23] Coming to you weekly from the OnPay Recording Studio.

Blake Oliver: [00:00:29] Hey, everyone, and welcome back to the podcast, your weekly roundup of news in the accounting profession. I'm Blake Oliver.

David Leary: [00:00:36] I'm David Leary, and I'm beat Blake. I got the shingles vaccine this week and it's hitting me. So I'm gonna push through though for the show for the listeners. We got to push through here.

Blake Oliver: [00:00:46] The show must go on. Today we're talking about whether or not AI could replace CFOs and other top executives, some new survey data on what U.S. adults think about that. And an EY time tracked 188 IRS calls and reported the results, and we've got them for you. All that and more in this episode of the Accounting Podcast. But first, David, let's thank our sponsors.

David Leary: [00:01:10] Our sponsors. This week, we have on pay numeral savant labs and cloud account and staffing. Are you tired of payroll headaches getting in the way of your 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 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 on pay handles all the heavy lifting you get a dedicated onboarding support specialist who sets up worker profiles, transfers your 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 businesses you serve farms, restaurants, nonprofits, you name it. Onp can even handle unique requirements without adding complexity, and Onp keeps pricing simple to everything your clients expect, from multistate filing to off cycle pay runs. It's included no hidden fees, no surprises. To book a demo, head over to The Accounting Podcast dot promo slash Onp. That is Accounting Today dot promo forward slash OPAY.

Blake Oliver: [00:02:24] Thank you on pay so much for supporting us over the years and being our lead sponsor. Please do use those links that lets them know that you found them through the podcast. They appreciate knowing where you came from and it helps us get more sponsors. All right, David, let's talk about whether or not AI can replace CFOs and other top executives. This is something I've wondered about myself, because I'm automating more and more of my job as a CEO, as a founder, uh, and like a lot of it, just following up on stuff, pushing stuff forward. A lot of it is automatable and you've you've seen that you've been getting these emails from me and comments and, and all this stuff. And this is a.

David Leary: [00:03:05] Smart org where you're directly all the reports kind of roll back into you. Right? So I think there's more testing. But if you think about it, like at a bigger corporation, the CEO has this team of people that are just building slide decks for them. So I don't know if, if the CEO could be replaced by AI, but their direct is that that next layer of direct staff under the CEO? Yes.

Blake Oliver: [00:03:31] Maybe people who are mostly just doing project management, executing that CEO's vision, perhaps. Let's see what the survey data says about how Americans feel about this. Watch. Chest surveyed over 2000 U.S. adults and asked them whether AI should replace CEOs, CFOs, and other senior executives. And a lot of Americans are in favor of this. There's a steep gender divide though, so get this it's 45% of men who favor replacement. 45% of men say, I would be happy if they replaced these executives with AI.

David Leary: [00:04:09] Men hate their bosses, okay.

Blake Oliver: [00:04:11] But only 25% of women said that. I mean, that's a 20 percentage point difference, right? Quarter of women, almost half of men. The survey gatherer watches this company that did the survey, they suggested that women may be more reluctant to remove remove human judgment from decisions involving jobs, ethics, culture, employee well-being, privacy and accountability. Support also changed depending on how much money you make. So people earning 150,000 to $200,000 a year supported this the most. The upper middle income spectrum, upper middle class, and that peaked at 55%. So over half of those earning 150 to 200 K a year supported replacing executives with AI.

David Leary: [00:05:00] I could have a theory on that.

Blake Oliver: [00:05:02] Tell me why.

David Leary: [00:05:03] The average bottom of the rung employees, and possibly most of middle America, has never talked to the CEO, has never met the CEO, and definitely has never worked with the CEO or been in a meeting with the CEO. But people that are high income probably have higher level management positions, and they either think the CEO is an idiot. They don't trust the CEO. They're like, our team does all the work for the CEO. So I the income is probably just based on people's experience with CEOs.

Blake Oliver: [00:05:30] And maybe at that income level, you're sort of in the middle of the corporate hierarchy. Yeah. Where you're getting all these ridiculous demands from on top, and you are supposed to somehow execute these crazy visions. You know, I mean, there's.

David Leary: [00:05:43] The shade of yellow in a slide deck. Yeah.

Blake Oliver: [00:05:44] Yeah. There's bad executives, right. And you are at the mercy of them. And then you have to implement that and, you know, tell that to all the people that work for you. I mean, you know, if you if you think that management at your company is dysfunctional, which it can often be at a big company, then yeah. I mean, you would support it, right? Uh, so I was thinking about this, right? Like, let's think about this from the CFO perspective. We are seeing AI absorbing a lot of the work that finance teams do. It's taken over with forecasting, monitoring, month end, close workflows, strategy support, M&A type analysis, all of that. I mean, AI is everybody is using it. If you are in a role where you have to do complicated spreadsheet analysis and you're not using like cloud cowork by now, I mean, you're, you're a dinosaur at this point, if your company allows it and so many people are using it, even if their company doesn't allow it. I think we talked about on the show a week or two ago.

David Leary: [00:06:45] Shadow AI use, what's that called?

Blake Oliver: [00:06:47] Shadow AI use is like a third of employees. Uh, and so, you know, I mean, but but let's let's tackle the question of whether or not AI could actually replace these leaders. And my, my take is definitely, no, not at this point. Because the thing you have to do to make it work right now is you have to really monitor it and you have to correct it. You have to read all this analysis that it gives you, and then you have to tell it where to go. And if you just let it operate autonomously, you get terrible results at this point. So I am spending a ton of my time now just getting through a bunch of simultaneous chats that I'm going, I might have 20 going at a time and reading what it gave me and then telling it what to do next, which actually is, is hard. It's exhausting.

David Leary: [00:07:40] Oh yeah. I'm saying, but I have a couple AI agents doing different things. And yeah, you're constantly looking back where you're at reviewing. It's a lot of context switching, switching more than ever. Like the, again, we talked about this months ago, that cognitive load, even though more is getting done and you feel more productive, it's it's not, it's still a lot of work. Like you're not actually doing less work, you're actually working your ass off, but it's just going so much faster. And that's why it's exhausting.

Blake Oliver: [00:08:06] You're working your brain instead of sitting in meetings and then delegating and meetings all day long, which if I have to choose, I'm absolutely going to choose the current system of AI doing this project management for me and me directing it, it's, it's so much better. I don't have to sit around and wait, but I have to have so many chats going because I can't just sit there and wait for it to chug away. I mean, I like I get bored instantly. I'm just sitting there while, you know, it goes and it takes a while to get back to you sometimes, right? Minutes and I just. So then I have too many going. And then like you said, I'm context switching and it gets mentally tiring, mentally exhausting. That's one of the reasons why I think we're going to end up working a lot. Well, you know, whether we work fewer hours is debatable, but I don't think it's possible to be, like, doing what I'm doing and work more than six solid hours a day. Like I can't do it. I am exhausted at the end from the mental load.

David Leary: [00:09:05] The hours work that we may do is going to still feel like 40, but we might only be working 18. It's just going to feel like 40.

Blake Oliver: [00:09:12] Because you're doing heavier reps with your brain, right? Instead of just sitting in meetings all day, which is a different kind of endurance exhaustion. Yeah, yeah. So that's my take. Uh, I should say I spotted this thanks to cfo.com. Uh, they covered this in, uh, on their site. Um, oh, I should also add, the regions mattered. This is interesting. The West Coast supported this the most at 42%, followed by the northeast at 38, the South at 30, and the Midwest way behind at 18%. So Midwesterners don't think this is a good idea. Don't want this, but Californians, Arizonans, Washingtonians, Oregonians, I guess, you know, they they like it. So I guess the question to is, and a great follow up would be, does this say that people trust AI to run a company, or does it just indicate how much they don't like the humans who are running the satisfaction survey?

David Leary: [00:10:10] Yeah.

Blake Oliver: [00:10:11] But it would be interesting to like somehow run a test of this is like create a company, a business and put an AI in charge. And, uh, you know, as like the, as the executive team, like maybe a team of AI agents and see what happens versus a team of humans. And I think, of course, you're going to get wildly divergent results because, you know, AI trends toward the middle. But like, honestly, an average executive team could still generate profits for investors. So it might be a strategy.

David Leary: [00:10:45] Many times the senior leadership team and the CEO's admin basically run the CEO like, like they're the ones running the CEO. So essentially you're suggesting that the admin and the executive staff, the C-suite basically manages this virtual CEO.

Blake Oliver: [00:11:06] All right, David, enough about that. I want to talk about these IRS calls. You've got that story. But first, let's thank our next sponsor. And that's numeral. Let me ask you something. When you recommend a sales tax solution to a client, are you confident in the support they'll get. What about the pricing. What happens if something goes wrong? As accountants you've seen it all clunky support, surprise invoices and nobody picking up the phone when there's a problem. Numeral is built differently. It's a modern sales tax platform built for accountants, and it supports registrations, filings, Nexus tracking exemption certificates, and even VAT and GST in over 70 countries, all with great support, simple, transparent pricing, and no surprise invoices. Then there's the guarantee. If your client's sales tax isn't filed on time, numeral pays the penalties and interest. And for accounting firms looking for a true partner, numeral works alongside you to support your clients as they grow. Whether you're implementing it yourself or making a referral, numeral has you covered. To check them out, go to The Accounting Podcast dot promo forward slash The Accounting Podcast dot promo slash MERAL.

David Leary: [00:12:19] All right, so yeah, let's talk about this, uh, enrolled agent. So this is on the tax girl.com blog. Uh, Angeline, I'm her last name is possibly. I'm not pronouncing that correctly, but it's easy tax girl.com very easy to get there, right? Uh, so she's an enrolled agent and she tracked 188 calls to the IRS over four months. And she figured she figured out that she spent 92 hours on the phone. Basically, that's two full workweeks. So if this was just four months, that's a third of the year. That means enrolled agents are spending six weeks a year on the phone with the IRS. That's kind of crazy.

Blake Oliver: [00:12:55] Yeah. I mean, it might be seasonal, right? But even if it's just like two weeks out of four months, uh, what, 16, 17 weeks? And you're spending two of those on the phone? Yeah. Waiting around. I imagine a lot of it's waiting around. Right?

David Leary: [00:13:07] 94 hours on the phone, 74 hours were just waiting. Just waiting. So a 4 to 1 ratio for every minute of actual conversation, there's four minutes of waiting. Um, call time really spiked and jumped, um, in September up to 77 minutes versus like a, uh, versus July's easier times. Um, 1 in 5 calls is never connected to anything at all. So 20, 20% of times you call, you just nothing happens. It's a dead end.

Blake Oliver: [00:13:36] Get disconnected.

David Leary: [00:13:37] Yeah.

Blake Oliver: [00:13:37] Like, I wonder, like what's happening there is that like agents at the IRS are in the call center, and they're just like picking up the phone and hanging it up. Like, why don't these calls get connected to anyone.

David Leary: [00:13:49] Or just ring, ring, ring and ring? Like they route it and.

Blake Oliver: [00:13:51] I don't know.

David Leary: [00:13:52] Yeah, it's not really clear. And then this is really interesting because did you see the, uh, they relaunched, uh, america.gov and it's supposed to be like, basically it's basically it's a chat bot for the US government and to find resources. Now it's not super useful. It just gives you the links to the like you can ask questions about your tax return. It doesn't know anything. It just sends you to the IRS website. It gives you the links. It's a search engine. Basically. It gives you the link. So you can go to the IRS website. But but it, it would make sense if agents could ask and do something else while they're asking through a chat bot or an AI that can access the records on the back end. It would it would make a lot of sense, like the spirit of, uh, the america.gov. Like I get it in theory, but it's really just it doesn't actually help you. It's just a search engine. You can get the same thing in Google.

Blake Oliver: [00:14:47] Yeah. If you could chat with the IRS, you could have multiple chats going on for different clients. And yes, you're not sitting around on hold all the time. I mean, this is crazy. The average call lasted 36 minutes, but that was only seven minutes of actual conversation in that 36 minutes. The rest of it's just waiting around on hold. I mean, like, are these agents like taking breaks and just leaving people on hold, just screwing around?

David Leary: [00:15:17] Is there not enough.

Blake Oliver: [00:15:18] Or is it really that.

David Leary: [00:15:19] Hard? Well, sometimes you have to put you on hold to go research. Hold on. I got to research this, right? Yeah, but it's just a it's just these numbers are. It's just not very productive. I mean, we're wasting the time of lots and lots of enrolled agents.

Blake Oliver: [00:15:31] Now, this is important to note. This is not the public IRS lines used by most individual taxpayers. This is the practitioner priority service line. So imagine like what the regular lines are like.

David Leary: [00:15:45] I haven't called the regular line in a decade at least. Um, yeah, I can't imagine.

Blake Oliver: [00:15:51] All right, David, let's go to some more IRS news. I've got some follow up. Okay. This is about ice. Remember how the IRS started sharing information with Ice? Yeah, I.

David Leary: [00:16:03] Broke that story. I broke that story months and months ago. Nobody in the media was talking about it. Yeah.

Blake Oliver: [00:16:09] Well, that got appealed. And the US Court of Appeals for the D.C. circuit just upheld a lower court order barring IRS data sharing with the Department of Homeland Security's Immigration and Customs Enforcement while litigation continues. So that is, uh, on pause. This is funny. The IRS, the the. Oh, no, this is this is from the court. The court dismissed the administration's claim that the injunction was burdensome as, quote, weak sauce.

David Leary: [00:16:43] Unquote weak sauce.

Blake Oliver: [00:16:45] I want to know who this judge is that wrote this opinion. Yeah. Weak sauce.

David Leary: [00:16:51] But is it too late? I mean, they they asked for 12 million records, I think originally. And they were handed over 45,000. I mean that's probably going to keep us busy for years to, you know, to go after all those people if they want to go after them.

Blake Oliver: [00:17:03] Although it's so strange, like all the news about ice. I mean, that was a big deal here in Phoenix, given how many immigrants we have, how close we are to the border. And like, that's all stopped. Like, I'm not hearing about raids. Nothing. It's like the administration, I.

David Leary: [00:17:14] Haven't seen them. I think it's because of the midterms. I haven't seen a Maga hat in like months. Like, like, where did everybody go? Where did all the pro-Trump Maga people go? They all vanished. Please put your comments if that's you. But yeah, like, like, I think it's everybody's dying this stuff back because of the midterms. And then once, once, if the people who want to be in power when they have their position, they'll wrap it back up again because there's no threat of losing their seat. Right. It'll it'll it'll dial back up, no doubt.

Blake Oliver: [00:17:43] I've got some more IRS news. The Senate just unanimously approved a 65 reform IRS modernization bill. I don't think I said that right. It's an IRS modernization bill that has 65 changes in it, and it's called the Taxpayer Assistance and Service Act, bipartisan package intended to modernize the IRS, strengthen taxpayer rights, improve tax administration, and target predatory preparers. The AICPA has praised its preparer oversight, hardship protections, transparency and service reforms. Uh, it now has to go into the house where it could get divvied up and provisions taken out. Here's what's in there.

David Leary: [00:18:29] Things like this have passed before, like or.

Blake Oliver: [00:18:33] Well, I think we've been hearing about it maybe getting there. This legislation takes a while. I don't know. But here's what the bill mandates. It mandates barcodes for electronically prepared returns printed on paper, and OCR, a similar technology for manually prepared returns and correspondence. A public weekly backlog dashboard would appear when items remain unprocessed beyond 21 days, or the IRS fails to answer 30% of toll free calls in a week. So there's going to be a public dashboard. I like that idea. Transparency, right? We don't have to rely on one enrolled agent reporting her time tracking. Yeah. On IRS calls to figure out if they're doing their job. There's going to be taxpayer portals that show processing milestones, expected refunds and reasons for suspended returns. And the IRS would offer callbacks when rates exceed ten minutes, callbacks not having to wait on hold that could cut a lot of that time. Taxpayers could view six years of filings and correspondence, upload replies, and give representatives streamlined access to multiple client accounts. Math error notices would require plain language explanations, itemized adjustments, a helpline, and a bold 14 point abatement deadline on page one. Um, there's some other stuff in here that I'm going to skip past. The one that is really interesting is the paid preparer crackdown. So this is an ongoing issue. Paid preparers are often dishonest preparers too much of the time. Now if you want to get a tin you have to get checked. Your own tax compliance gets checked. Plus you get 18 hours of ethics and tax law education. The IRS could suspend or revoke patterns and impose penalties up to $1000 or $5000 for fraud, and willful PTEN. Misuse or evasion would become a felony, carrying up to two years in prison and fines up to $50,000 for individuals or $100,000 for corporations. Misappropriating a client refund would carry a penalty equal to the greater of 1000 or the full refund.

David Leary: [00:20:45] And those tax preparers, that's like a a certification or a bar that's lower than E, right? Like you don't have to do much is my understanding to do it right to sign off and prepare.

Blake Oliver: [00:20:56] Yeah. But well, wasn't there that there was a case right where that all that got reversed. The IRS couldn't regulate, uh, preparers. So like, I don't know what the situation is right now, but it's not, it's not, not, there's not a high bar.

David Leary: [00:21:10] It seems like at a minimum, if you're going to do more than return, you probably should if you're going to prepare more than one return for somebody else, you probably should get a PTEN. I think I could, that would make sense to me. Like you need to register if you're going to do two returns for two different individuals that are not you or family. Yeah, you gotta, you gotta, you gotta join the party here. Register for a PTEN.

Blake Oliver: [00:21:33] S Corp election deadlines would move to the return due date, including extensions. That's a nice change. Estimated payment dates would also shift. They'd go from June 15th to July 15th, and from September 15th to October 15th, paying 125% of the prior year's income tax liability would create a failure to pay. Safe harbor. Partnerships with more than 100 partners would be required to file electronically. The IRS could extend that mandate to partnerships exceeding 100 million in assets or income in the prior three years. I think that's everything worth noting in this bill.

David Leary: [00:22:12] So was any money designated to do this modernization and did make these changes? Is there any budget funds available or is this just go do this?

Blake Oliver: [00:22:21] They didn't get any extra money, but in a recent bill passed by the House, the IRS got an $11.2 billion annual budget approved through December 11th. That keeps it steady. So they've got the same amount of money at least through the end of the year? Pretty much, but no extra. All right. I've got more tax stories David here. Um here is a story about the GEAGAOS the Government Accountability Office, the GAOSA new report estimating the cost of annual federal tax fraud. This is the first time they've done this. And the estimate is in the hundreds of billions. Between 116 billion to 304 billion is lost due to fraud. Just federal taxes. That is roughly 2 to 6% of federal taxes owed.

David Leary: [00:23:19] Is this just like they did fraudulent tax returns, or is this just in general, the fraud across the economy is causing this loss.

Blake Oliver: [00:23:27] It includes return preparer fraud, but also tax evasion and identity theft. Refund fraud. So we've never had an estimate of this before. We've had estimates of the tax gap, which is the difference between the tax owed and the tax paid, which I think has been like 500, 600, 700 billion. This is specifically fraud that covers tax evasion, return preparer fraud and identity theft refund fraud. They did it with a statistical simulation that combined IRS fraud data, tax gap info and estimates of evasion in the shadow economy. So it's not precise. It's an estimate, and it's not the same as the tax gap, right? That's that's taxpayer errors are included in the tax gap broader noncompliance, that sort of thing. So fraud is estimated at between 17 and 43% of the gross tax gap. So let's just say roughly what like 20 to 40% if we round and they estimated the tax gap. Well, the IRS did this for that same year as 606 billion. Oh, and I should say this is for tax year 2022. They tend to lag a few years because they don't have all the.

David Leary: [00:24:35] Research and the data.

Blake Oliver: [00:24:36] Yeah. So there's that. Also, here's another stat on how much tax complexity costs the US economy. Tax complexity tax complexity now costs the US economy over half $1 billion annually. $544 billion. The Tax Foundation put together this analysis. Americans are going to spend 6.9 billion hours on IRS paperwork this year. That's the same as 3.32 million people working full time all year doing nothing but tax forms. 3 million people. And that's how you put the dollar value on the time. And you get that estimate of lost productivity. It's almost it's getting close to 2% of GDP. 1.7%. And it's 28 times what the IRS itself spent in 2025, businesses carry most of the load. The average 1040 takes 12 hours. The form 1120 for core averages 90 hours. For large corporations, it's 610 hours. That's more than 15 full time weeks on one return.

David Leary: [00:25:47] These are all numbers that should be on this new website, not just the call hold times. All these numbers should be on there.

Blake Oliver: [00:25:54] All right, David, I'm just going to keep going through my IRS stories, okay? And then I'm gonna hand it back to you. I got to get this done. Okay. So these are two kind of wild stories. One is about a victim and one is about a fraudster or let's say a tax evader, uh, somebody who has a little too aggressive. And I want to thank Ray Arellano for sending this to me. This, this is kind of a it's, it's relevant, David, because it's, it's about an influencer who went to tax court and tax court disallowed This. Interviews. Interviews. Influencers. Celebrity. Access. Deductions. It's called the case is called Sammy versus Commissioner. Suleiman. Sammy worked full time in it while operating three side hustles, transportation, event ticket sales and social media influencing and his influencer content featured athletes and celebrities. He sometimes appeared on camera, sometimes behind it. This was during 2019 to 2021, and Sammy paid thousands of dollars to attend the Grammys, the Emmys, Tiger Woods, Tiger Jam, other events offering celebrity access. He paid to meet Benedict Cumberbatch, Matt Damon and Mark Ruffalo. And he bought a personalized video from Chris Evans. He also paid to catch passes from Tom Brady and Drew Brees. He fumbled Brady's pass, but he did catch Brees, and the argument for these being a business expense was that the celebrity posts attract more views and attention. And Sammy argued in court that spending this money, taking this deduction was to get shared advertising revenue from his growing social media following. He called them marketing expenses, but the IRS challenged them and the tax court disallowed the deductions, finding that his primary motives appeared personal, personal or charitable, rather than sufficiently tied to business marketing. And he generated. I think this is kind of the key sticking point. He generated no influencer income with those expenses. So he's spending that money.

David Leary: [00:28:06] Yeah, yeah yeah.

Blake Oliver: [00:28:07] To build up his social following. Right.

David Leary: [00:28:09] Yeah. This is why it's not necessarily ordinary because he didn't the business didn't gain from this behavior.

Blake Oliver: [00:28:16] Well, here's the thing is he did start making money in later years because it took him time to build up this following. But the court didn't, I guess, think that was important or relevant or considerate?

David Leary: [00:28:29] Well, don't you have like capitalized that or something? And then like make it a capital expenditure, then expense it when he actually gets the revenue from these, these things he's paying for. And then maybe it would have been okay if it was aligned with the revenue.

Blake Oliver: [00:28:43] Yeah, maybe. Um, you know, so I guess there was some other thing in here that was funny is that he's actually an accountant.

David Leary: [00:28:53] Oh of course.

Blake Oliver: [00:28:55] Where did he work? He worked at like he should know better, right? Um, I can't find it right now in the story, but yeah, he was, um, he had, he has two accounting degrees and he didn't keep good records.

David Leary: [00:29:15] Like, I feel like this is like make an example of him. Like he should know better. This is ridiculous.

David Leary: [00:29:21] Yeah.

Blake Oliver: [00:29:22] Um, so apparently measurable audience growth does not necessarily establish the business purpose, especially when the expenses are, uh, really, really, you know, fun related.

David Leary: [00:29:36] Arguably frivolous. Yeah.

Blake Oliver: [00:29:38] One more story here. A North Carolina woman, she lost 600,000 in a romance scam. I saw this on CPA practice advisor. The IRS then sent her a bill for $225,000 in taxes and penalties. I'm rounding there. Why did that happen? Because the money she sent, the scammer came out of her retirement account, so it counted as taxable income.

David Leary: [00:30:02] Oh. Oh, yeah. Lady.

Blake Oliver: [00:30:05] Her name is Lori Flowers. She spent months talking online with a man who said he was from Belgium and was going to move to be near her. He convinced her to pull money from her retirement savings and sent it to him. We call that pig butchering.

David Leary: [00:30:19] Yeah.

Blake Oliver: [00:30:20] He built trust for months. Then he took her money. And part of the problem is that and why she owed this big tax bill is back with the 2017 tax law, which got rid of the theft loss deduction that fraud victims could rely on. So if you lose money that you pulled out of your retirement account, you still owe tax on it. There's an act in the House that's sitting that passed the House that's sitting in the Senate that would fix that. But at the moment, if you have like, you know, parents that fall for some scam like this and, and do that and take a penalty, you know, you're out.

David Leary: [00:30:57] But, but.

David Leary: [00:30:59] Like, I feel bad for her, but she knows those withdrawals are taxable, right?

Blake Oliver: [00:31:04] Well, not everybody not everybody knows this. You know.

David Leary: [00:31:08] Let's say she didn't get pig butchered and he actually moved there. And they're truly in love and live happily ever after. But she was still making the withdrawals like, kind of on her a little bit for not knowing, you know, or her financial advisor or whoever set up this retirement account for her.

Blake Oliver: [00:31:25] All right, David, I'm going to pass it back to you. Uh, after I thank our next sponsor. And that is Savant Labs. If your finance team is using AI for drafts and research, but still closing the books by hand, you're in the same spot as most enterprise accounting teams. Claude and Copilot handle the easy stuff, but what about the close, the reconciliations and the tax provisions? Still manual, still spreadsheets. Still eating up days every cycle. The real issue isn't effort. It's trust. General purpose. Ai gives you a different answer every time, and an auditor can't follow the trail. That's why savant exists. You describe a finance task in plain language, and savant turns it into a governed agent. It pulls, cleans, and reconciles your data across ERPs, spreadsheets, and PDFs. With over 500 connectors, every workflow runs the same way every time. Same inputs. Same output. Every cycle. Data. Lineage approvals and Sox reports are built in automatically. The result is up to 70% less manual work and 80% fewer errors. Here's the best part. Bring savant, a complex use case that's eating 20 plus hours a month, and they'll build you a custom agent for free with a 30 day trial. To learn more about savant and start building your first agent, go to The Accounting Podcast dot com slash The Accounting Podcast dot promo forward slash SAVANT.

David Leary: [00:32:50] I have an idea for your first agent. One that calls the IRS and sits on hold for you. It could be your first agent. It's just.

David Leary: [00:32:57] That.

Blake Oliver: [00:32:57] There's there's apps for that.

David Leary: [00:32:58] I think there's services for that.

David Leary: [00:33:00] Yeah, yeah.

David Leary: [00:33:01] All right. So do you remember two or so months ago, we I had a story about the two junior E employees that they allegedly accessed. And during the audit, the bank account and personal bank account of the Australian prime minister, Anthony Albanese, Do you remember this story?

Blake Oliver: [00:33:20] Their auditors and they had access to like they were auditing a bank. Right.

David Leary: [00:33:24] And something.

Blake Oliver: [00:33:25] And they grabbed his they grabbed his statements or something.

David Leary: [00:33:27] Yeah.

David Leary: [00:33:27] So they got caught. They were fired. Charges are being issued against the two men aged 21 and 25. Right. Because they've access bank data they weren't supposed to access. Okay, fine. Well, last week, last week, we didn't get to this story. And now I'm glad I didn't because it ties into a bunch of stories this week. Apparently, OpenAI agent breached the Australian government's system for Medicare data. So no charges. There's no arrest. Right. So? So two junior accountants get fired for peeking at a bank statement. Openai's agents hacks into the Australian, uh, Medicare system and no charges. So that was the story I had last week. So it was kind of watching that.

Blake Oliver: [00:34:12] This is happening because they're testing these like frontier models on finding security gaps, because that's what they're really useful for, is like plugging all these holes that were built or that didn't get fixed when they were built by humans. And these models are amazing. They can like run penetration tests and like solve it and fix it. So they have to test, they're testing it on like test companies. But then these models will break out of the test environment and go hack real servers and stuff.

David Leary: [00:34:42] And, and.

David Leary: [00:34:43] It's worse than that. Like if you, uh, apparently OpenAI's agents have now accessed apparently more than 100 organizations they've had to notify about things. I'm willing to bet it's thousands at this point. And I also want to bet before the year is over, we are going to cover a story how OpenAI's agents access the IRS. I 100% believe this. We should just get the episode ready to go now and put a date on it. Like we will be talking about that story. There is zero doubt. Um, so basically, OpenAI sent out alerts to more than 100 organizations after discovering the agents. So they've been on. They basically after the hugging face attack in July, they've been doing all this research internally to figure out what what happened when, etc. they have 50 pair bytes of data they have to go through to paint a picture of what a petabyte is. It's basically three 36.4 billion floppy diskettes. You know, the 3.5in floppies. It is an amazing amount of data. Um, now they, uh, they say they're going to go through this and they're, I think another store I saw, they're going to put 7000 servers on this processors to look at all this data to figure out what happened. Um, but I'm kind of starting to form the opinion that Hugging Face is the only company that had the skill set to detect it because remember Hugging Face detected it, and then they had their agents fight it back kind of a thing, right? I think all fortune 500 companies, I think they've all been accessed now. I think you could 8,090% of them. They have not detected it. It, uh, they also, there's an article that came out, so they actually went into US company or US government things. So it accessed the US Department of Education, uh, the Commerce Department, the SEC, all without anybody's knowledge. So the IRS is like right around the corner. We are going to find out this story.

Blake Oliver: [00:36:31] Well, no, the thing that protects the IRS is the fact that their systems are so old you can't log into them. You have to, you know, be in that office and like, walk over with like a disk and stick it into the computer.

David Leary: [00:36:42] Possibly. Yeah. I mean.

Blake Oliver: [00:36:43] Like not even networked.

David Leary: [00:36:45] Like to.

David Leary: [00:36:45] Believe this. We'd like to believe this, right? But like, if you step back and think about this, because they remember you were talking about like two weeks ago about it's not fair. Like somebody does this bad fraud. They get fined, they don't get fined as much. Maybe you're talking about that, like the punishment doesn't fit the crime. And I mean, think about this a lot. Like that's kind of what's happening here, right? These these two E kids peak at a bank account bank statement and they get fired and have charges brought against them. There's no charges happening here because all these frontier models are saying it's a lab we're testing in our lab. But think about this, Ford. Ford tests their crash tests their cars. Right. What if Ford's cars were just driving on regular roads, running into us? That's what's happening right now.

David Leary: [00:37:34] It's not acceptable.

Blake Oliver: [00:37:35] Okay, the analogy is not quite right because as far as we know, these models haven't leaked data.

David Leary: [00:37:41] Oh, no, that's not true. They have leaked data.

David Leary: [00:37:44] They have.

David Leary: [00:37:45] Yes they have. They've they've captured photos and released photos. Where did it go?

Blake Oliver: [00:37:51] Like taken hacked into systems and then released information online that other people were able to get because that's the crime, right?

David Leary: [00:37:57] Yeah.

David Leary: [00:37:58] They they somehow posted 53 user provided images like maybe images you've uploaded to OpenAI, and then they reposted them on other sites. It's not like.

David Leary: [00:38:10] It's not.

Blake Oliver: [00:38:10] Something big, like, you know, like leaking taxpayer information out of the IRS, like.

David Leary: [00:38:15] Yeah, yeah, yeah. I think.

David Leary: [00:38:17] I think we're in the yet on this because like, think about all basically they have all this data they have to go through now. Yeah, it's a, it's a crime scene investigation, essentially, but there's no charges.

David Leary: [00:38:26] Like they're going to go through the data.

Blake Oliver: [00:38:28] They're going to just have AI agents go through the data.

David Leary: [00:38:31] Well, that's what's funny too. They had a note on that. They, they're claiming that it's going to take months to investigate. And I'm like, wait a second. You don't you have the greatest, smartest AI being that's ever existed. Like, how do you not do this quicker? Like they're going to dedicate 7000 high end GPUs to go through this 50PB of historical data. We're going to find out. Thousands of companies have been accessed hugging face, which just happened to be the only company with the skill set to detect it and stop it. Nobody else is. And, and yes, they're they might be helping companies discover other holes and security patches might exist, but that's just a that's just there. Like, of course, if you get caught hacking into somebody, you're going to say, I was doing it to help them, let them know that they had a hole in their fence or their lock was unlocked. You're going to lie right there. I, uh, this is like, it's frustrating. It's really crazy that there's this much happening. But mark my words, mark my words. I've said it here. We will be covering a story about open AI accessing the IRS before the year is over. Zero it out. I guarantee you it's already happened. How? How can I not? You're like a nerd tech guy in this lab. Oh, what could we what could it hack the IRS? Let's see. It's, you know, they type that as a as a scenario. And of course it went and did it.

Blake Oliver: [00:39:51] All right, David, it's time for you to put your money where your mouth is and start a prediction on one of those prediction markets prediction market.

David Leary: [00:39:57] Yeah.

David Leary: [00:39:58] I'll vibe code my own prediction market on open open AI's hacks.

Blake Oliver: [00:40:02] Checking in on the live stream here. We've got Tyler. Tyler Otto says to be a tax preparer. It's like $85 a year in PTEN renewal fees, be a US citizen and not have a felony. That's the bar to being a tax payer. Thank you for updating us on that, he says. It's a pretty low bar, but I guess it would keep my uncle out. So that is saving America. Stanley says they are telling the AI agents to hack. So he's with you that this is not just an accident, that, uh, they're using the cover of being a lab in order to poke around, mess around Fez says. Tyler, I know him. He's like famous. All right, David, how about you thank our next sponsor? Well, I tee up our next story, and that sponsor is going to be Cloud Accountant Staffing. Make sure you take a big swig of water before you get into it, because there's nothing worse than getting halfway through an ad read. And then your throat gets dry and you get nervous. That happens to me.

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Blake Oliver: [00:42:13] I want to talk about big law and the billable hour, because they're having some challenges that might be informative for big accounting and just accounting in general. This came from Dealbook in the New York Times. My dad sent it my way. So Big Law has really embraced AI by big law. I mean these giant law firms that employ thousands of lawyers. Sullivan. Sullivan and Cromwell now has an agreement analyzer that reviews deals. Cooley has something called Go Public that assists with S-1 drafting. Ropes and gray is developing a system that can produce detailed, diligent diligence reports in hours instead of weeks. There's also a bunch of legal AI products from Google and Anthropic. Lots of investment here. And the report from the field is that clients are increasingly asking what this AI efficiency means for their bills. Because those legal bills from those big law firms are eye wateringly high from an hourly standpoint, you know, over $1,000 an hour on a lot of these, uh, on the, a lot of these attorneys and some of these clients are now using AI agents to identify invoice entries where automation could have reduced hours and then are striking those charges or demanding discounts. Kyle Poe of La Guerra said that in-house legal teams often request 20 to 30% across the board reductions now. And the firms are saying, well, AI hasn't actually saved us that much time, and it's letting us do more substantive analysis.

Blake Oliver: [00:43:51] But they're still having to fight this pressure on fees, and they are facing a bunch of AI native competition. Ai native, meaning these legal providers that are using AI a tonne from day one. They are using upfront pricing, not hourly billing. So Norm AI, they have an affiliated law firm and they serve financial services clients. So it's an app plus lawyers. They raised 260 million in July at a 1.2 billion valuation. And they're going after big law. And it puts these traditional firms in a bind. If they use AI, it reduces their billable hours, which reduces their income. But not using it allows competitors to undercut them. So what are they going to do? They're going to have to shift their pricing. Citi did a survey of 55 large law firms, and 35% of those expect to modify their billable hour models within the next year because of AI. That's over a third of these big law firms are going to switch to something other than billable hours, it seems, or do something in that regard. And it goes to A. It goes to two thirds of them by 2035. Wells Fargo, they said that large firm revenue grew more than 12% on average during the first six months of 2026, while standard billing rates rose by double digits. So fees have still been going up, right? But I think that we're going to see that really get disrupted.

David Leary: [00:45:29] I feel like I, I feel like it was a tweet or somewhere that or maybe we talked about on the show. I can't seem to find it, but that law firms are realizing their billing, their hourly, the hours they can bill for is going to decrease. So they're just changing the rate like, well, I'm just going to make my rate of $4,000 rate instead of $400 an hour now.

David Leary: [00:45:49] Yeah.

Blake Oliver: [00:45:49] But that breaks at a certain point because clients see the higher rate, they see the increases on the rates. And that is what makes them go check out these new.

David Leary: [00:46:00] Startups.

Blake Oliver: [00:46:00] Startup law firms that offer them fixed fees up front or something different than an hourly system. So I think it is going to break and law firms are going to totally pivot. Like we saw two thirds of them by 2035. So, you know, like that's within the next decade, they are going to switch away from their hourly billing model and I think accounting will follow. So Ron.

David Leary: [00:46:28] Baker, it's either it's either.

David Leary: [00:46:29] Switch or your billing.

David Leary: [00:46:30] Model or stay.

Blake Oliver: [00:46:32] With us. Ron Baker stay with us. Ron Baker You will see it happen during your lifetime. Stick around. Don't give up on us.

David Leary: [00:46:39] Or you have.

David Leary: [00:46:40] To add more services like for example, Soarin, which is a top 50 accounting firm. They we talked about them about about a year ago. They rolled up a bunch of regional firms.

Blake Oliver: [00:46:48] Yeah, they're a private equity roll up.

David Leary: [00:46:50] Roll up. Right.

David Leary: [00:46:51] They now have launched Soarin Law in partnership with Mansfield and Mayo. So just like Aprio did this similar move earlier this year. Um, it was actually Aprio in Arizona, right? That I think did that first.

Blake Oliver: [00:47:02] Yeah. Because Arizona now allows you to to, to do that.

David Leary: [00:47:05] Yeah.

David Leary: [00:47:05] Because that's the only way. Like if you're like worried about your revenue going down, you're going to have to sell twice as much stuff to the same customer and sell them legal and accounting services. This makes a lot of sense. And honestly, like from the other side, like, I just want to go to one place and have it all done. I don't want to have to go to separate entities to get my legal work done. And it gets rid of that dumb dance. All these accountants are like, oh, I'm never going to help you incorporate. That is not accounting job. That's legal work. Like they just get rid of that divide because at the end of the day, the business owners don't care. Like this, this constrained like that's legal work. We're not allowed to do that. We're accountants. This just gets rid of all that.

David Leary: [00:47:43] Um all right.

Blake Oliver: [00:47:46] Illinois ordered an audit of AI developers. But who's going to do it? That's the question in the Chicago Tribune. Here's the story. The state of Illinois just became the first state to require independent audits of AI companies safety claims starting in 2028. The big AI developers are going to have to bring in an outside party every year to check whether they actually followed their own safety plans and sign their name to the answer.

David Leary: [00:48:17] Who do they mean when they say big AI developers? They're talking about like the frontier models. Openai. Anthropic.

Blake Oliver: [00:48:25] Yes, OpenAI and anthropic. They actually backed the legislation. These big companies.

David Leary: [00:48:30] Oh, interesting.

Blake Oliver: [00:48:31] And you might wonder why would they do that. I think it's because once you get big enough, more regulation stifles competition.

David Leary: [00:48:38] I fully agree on that.

David Leary: [00:48:39] Yeah.

Blake Oliver: [00:48:39] And it also helps them put aside these like bad news stories about safety.

David Leary: [00:48:45] Yeah.

Blake Oliver: [00:48:46] Like what we just talked about these AI models leaking out of the lab and hacking into real companies. So this is going to be an annual independent audit. It's going to examine whether they followed their published safety plans. An outside party will sign on the conclusion. And California and New York are doing similar things. They're making developers published safety frameworks and report serious incidents, but there's no audit required as part of those. Illinois is the first state to require an audit.

David Leary: [00:49:19] Well, instead.

David Leary: [00:49:20] Of doing an audit, why don't they just look at their internal systems and and discover that they've already accessed them? Like, like, what are you going to audit? Just look at your own systems.

David Leary: [00:49:28] Guarantee you the state.

David Leary: [00:49:29] Of California for sure has been accessed.

Blake Oliver: [00:49:32] No doubt the auditors have to follow under this law. Generally accepted auditing standards. And here's the crazy part though. Like they don't actually have to be auditors like we think of them. You don't have to be a CPA under this law to do these audits. There's no license, certification registry, accrediting board or disciplinary body for these AI auditors. And this would be perfect work for CPAs. They just didn't require it.

David Leary: [00:50:08] So because it sounds a little.

David Leary: [00:50:11] Bit more like a internal controller type or internal audit type thing, even though they're not.

Blake Oliver: [00:50:17] Well, they're external though. These are external third.

David Leary: [00:50:20] Parties, external doing.

Blake Oliver: [00:50:21] This audit. And they have to they use generally accepted auditing standards as the standard for this audit. But they didn't actually require that anyone hold a license. So basically it seems like anybody can do it.

David Leary: [00:50:32] Tyler's uncle.

Blake Oliver: [00:50:34] Yeah. So you know I don't know maybe maybe I'll just. And and here's the thing. Think about this. Openai and anthropic. Right. They're going to go and hire a company to do this. A company or an auditor that doesn't have to have a license. Who do you think they're going to hire?

David Leary: [00:50:49] This is going to be the crypto companies all over again when they got the fake esthetician.

Blake Oliver: [00:50:56] Station reports right. The non audits that they called audits.

David Leary: [00:50:59] Yeah.

Blake Oliver: [00:51:00] Yep. So you know I mean this is a big missed opportunity here. I mean without requiring that these people have licenses. Uh, or like professional competence, like something that ensures that they're actually independent third parties. Like this is just a giant smoke and mirrors situation.

David Leary: [00:51:21] Yeah.

Blake Oliver: [00:51:22] So the public's going to be getting these reports and feeling better about AI security or whatever. But we all know that when anyone can sign an audit, it doesn't mean anything necessarily. Like the whole point is trust. So if you don't like, limit the pool of these potential auditors and ensure that they're professionals and they're ethical and they're competent to some extent, you know, you're going to get the same situation as like the the paid tax return preparer situation.

David Leary: [00:51:50] Yeah, this.

David Leary: [00:51:50] Is probably a situation where the AICPA had a chance to make a letter in response to this story. Issue an opinion on this, right?

David Leary: [00:51:59] Yeah.

David Leary: [00:52:00] For the profession.

David Leary: [00:52:02] All right.

Blake Oliver: [00:52:02] Let's see. David, I have to jump. I got to go.

David Leary: [00:52:05] So I've been doing five seconds. Remember I talked about meta. Facebook launched meta, meta launched muse. Muse is the new AI. And I said, like, it's the microwave moment for this. It didn't take long. Four days later, they actually direct integrations to QuickBooks, Shopify, stripe, Slack, and a dozen other black small business owners apps. So they're going to take this from being your personal assistant, and now it's your small business assistant overnight, just like that.

David Leary: [00:52:29] All right.

Blake Oliver: [00:52:31] Thanks everyone who joined us live. Great to have you here. Thanks for chatting. Subscribe on YouTube. Hit that notification bell icon. You can get notified when we go live and join us. You just got to find the accounting podcast on YouTube. You can find out what we look like. Sometimes it's really surprising. People are like, what? I've been listening to you for all those years.

David Leary: [00:52:49] I get called.

David Leary: [00:52:49] Blake. You people finally see you in person. They call you the wrong name. Yeah.

Blake Oliver: [00:52:53] Uh, and we'll see you here next week. Um, I am where are we going later this month? We will be at Intuit Connect. I will also be at CCH Connections in Orlando. So it's going to be a busy week for me at the end of October. Uh, if you will be at any of those events, you know, let me know. We could meet up. I'll be at CCH Connections on Monday the 26th and Intuit connect on Tuesday night and Wednesday. Be there Tuesday the 27th and Wednesday the 28th. You'll be there, David. And so send us an email The Accounting Podcast at earmark.me and, uh, hunt us down. Thanks, David. Thanks, everyone who joined us. Thanks to all of our loyal listeners for joining in on episode 508, and we'll see you around here next week.