Connect with us

Accounting

What does IRS flux mean for financial advisors

Published

1 year ago

on

Financial advisors, tax professionals and their clients are facing an IRS that is moving in a polar opposite direction from the agency that was bulking up on enforcement only a few months ago.

In the first few months of President Donald Trump’s second term, Treasury Secretary Scott Bessent and Elon Musk’s Department of Government Efficiency have presided over a halting series of mass staff layoffs that could eventually reach as many as tens of thousands of employees and the abandonment of a crackdown on wealthy tax dodgers under President Joe Biden’s team. Court cases may block some of the actions, but they’re already having an impact.

The budget- and staff-cutting efforts thus far certainly amount to “a shock to the system” of a size unmatched over the career of Niles Elber, a member in Caplin & Drysdale’s Washington, D.C.-based office who has represented clients in tax matters for 26 years, he said. Despite as yet unknown answers to questions about the extent of cuts and availability of taxpayer information to outside parties, a “conservative and cautious tax advisor” should counsel clients to “strive to meet their tax compliance obligations,” Elber said in an interview. 

“You don’t want the system turning on you, if, for some reason, you thought you could get away with it,” he said. “Now is not the time to be lax in your tax compliance efforts.”

READ MORE: Wealthy tax cheats set to benefit from Trump plans to halve IRS

Tax Day uncertainty

Clients may be forgiven for thinking otherwise, considering that the Trump administration plans to lay off as much as a quarter or even a half of the roughly 100,000 IRS employees by the end of 2025. The agency’s acting commissioner, its chief financial officer, chief of staff, acting chief risk officer and chief privacy officer reportedly plan to resign after the IRS and the Department of Homeland Security agreed to share private taxpayer information in order to ramp up immigration enforcement. An initial wave of terminations of about 7,000 so-called probationary employees with short tenures who are now stuck on paid administrative leave pending a lawsuit drew condemnation from a bipartisan group of former IRS commissioners pleading with Trump, Musk and the rest of the administration not to fire thousands of employees during tax season.

“If you were to ask the top chief executives in the world to name the best strategy to attack waste in their organizations and balance the books, there is one answer you would be very, very unlikely to hear: Take an ax to accounts receivable, the part of an organization responsible for collecting revenue,” the seven ex-commissioners wrote in a February essay in The New York Times. “Yet the private sector leaders advising President Trump on ways to increase government efficiency are deploying this exact approach by targeting the Internal Revenue Service, which collects virtually all the receipts of the U.S. government — our nation’s accounts receivable division.”

News reports suggest that buyouts and layoffs at the agency could hit 18% of the IRS workforce by the middle of next month, according to an analysis last week by Janet Holtzblatt, a senior fellow at the nonprofit, nonpartisan Urban-Brookings Tax Policy Center. Regardless of the ultimate level of staff and budget cuts to IRS enforcement and customer service from the Inflation Reduction Act passed by Congress and signed by President Biden in 2022, the previous administration’s programs left the building at the end of Biden’s term.

“In the two years since IRA’s passage, the IRS made significant improvements to taxpayer services and enforcement,” Holtzblatt wrote. “More taxpayers had their phone calls promptly answered or received help in person at a Taxpayer Assistance Center, and the agency developed a simpler, online, and free method for filing tax returns (Direct File). The IRS increased collections of taxes owed by higher-income taxpayers, began audits of some of the largest partnerships, and moved to strengthen IT security.  With the rollbacks of funding and staff, those improvements may not be sustainable, and the many other initiatives described in the IRS’s strategic plan are probably not achievable. The IRS may yet undergo transformational change, but starkly different than the intent of the IRA.”

READ MORE: Yellen, IRS trumpet crackdown on wealthy tax cheats

Bessent cites ongoing review, tariffs

Representatives for the Treasury Department and the IRS didn’t respond to inquiries about the potential impact of the cuts to customer service and enforcement. In an interview on NBC’s “Meet the Press” last month, Bessent accused “some very large print media” of “throwing out big numbers” that don’t reflect the reality of staffing levels at the IRS.

“I will tell you that there were about 15,000 probationary employees that we could have let go,” Bessent said. “We kept about 7,500, 8,500 because we viewed them as essential to the mission. And, you know, we will know once we get inside. But what I can tell you is that we are doing a big review. We’re not doing anything. Right now is playoff season for us. April 15th is game day. And even employees who could take voluntary retirement, the rest of the federal workforce, their date was in February. Our date for them is in May. So I have three priorities for the IRS: collections, privacy, and customer service. And we’ll see what level is needed to prioritize all those.”

In other forums, Bessent has also pointed to the importance of Congress passing a bill to extend expiring provisions of the Tax Cuts and Jobs Act, as well as new methods of raising revenue to pay for lower taxes in other areas.

“We’re pushing to get the tax bill done so we can guarantee low taxes, full depreciation within the first year,” Bessent said in an interview with conservative journalist Tucker Carlson last week. “We’ve taken in about $35 billion a year just on the old tariffs — not the new ones. In the CBO [Congressional Budget Office] window, that’s about $350 billion, which pays for a lot of the president’s promises: no tax on tips, no tax on Social Security, no tax on overtime, and making interest deductibility available on autos made in the U.S. Think what the president is doing here: He is backing into an affordability solution for the bottom 50% of wage earners. They are the ones who will benefit from all four of those programs.”

READ MORE: Tax Cuts and Jobs Act expiration: A guide for financial advisors

Taxpayers still under microscope

The economic volatility around tariff policy, though, may affect congressional negotiations on the legislation, and advisors and their clients are trying to prepare much more for any direct ramifications of IRS scrutiny of their returns. 

At a basic level, dialing the number of IRS enforcement personnel “back to more traditional levels” will mean that fewer people “are going to fall under the microscope” of an examination or audit, Elber said. The so-called tax gap between the estimated liability and the amount collected each year — a yawning $696 billion in 2022 — could grow wider still.

The “ability to create a real deterrent” will “substantially go by the wayside when people realize that there’s very little out there to keep people honest,” Elber said. 

“The way that you reduce the tax gap is by enforcement,” he added. “It’s boots on the ground who are working with the data analytics that the IRS has used as a mainstay of enforcement activity at least for the last decade or so. You’re losing a substantial portion of the boots on the ground. … I don’t think anyone knows the extent to which tariffs will potentially fill some of the basket that will be left unfilled.”

Axing 20% of the IRS workforce would be “catastrophic to the enforcement function,” Elber said. At a 50% level, then “I’m not sure what function the IRS is serving anymore” besides processing returns and checks, he said.     

“I cannot recall a comparable situation during my career,” Elber said. “I can’t comprehend how the IRS functions with half the staff they’ve got.”

That doesn’t mean that advisors and their clients should stop being vigilant about their taxes, however. The thinned IRS ranks of audit and enforcement teams will likely exercise the same types of probes as they have over the past decade or so, Elber said.

“You can expect a rather grueling examination,” he said. “That comes down to, basically, the audit lottery. You don’t know at the end of the day how you’re going to fare. Your chances are better than a year ago, but it’s certainly not a situation where there’s no risk.”

Related Topics:
Continue Reading

Accounting

AI-Driven Automation and Continuous Accounting Frameworks

Published

6 days ago

on

August 15, 2026

By

The accounting profession is undergoing a fundamental structural transition as enterprise finance departments shift from periodic month-end closes toward automated continuous accounting models. By integrating specialized machine learning algorithms directly into enterprise resource planning (ERP) platforms, chief accounting officers are transforming financial reporting from a retrospective exercise into a real-time operational asset.

The Shift from Periodic Close to Continuous Financial Reporting
Traditional accounting workflows heavily relied on manual data reconciliation, spreadsheet calculations, and multi-week closing cycles at the end of each fiscal period. In contrast, continuous accounting frameworks utilize automated software agents to process, validate, and post transactional data in real time as business activities occur.

Automated bank reconciliation tools cross-reference incoming bank feeds, invoice records, and purchase orders automatically. By resolving transactional variances instantly throughout the month, corporate accounting teams eliminate the traditional workload spikes associated with quarterly and annual closes.

Machine Learning in Audit Trails and Anomaly Detection
Advanced natural language processing (NLP) and machine learning tools are redefining internal audit and financial control environments. Automated systems analyze 100% of general ledger entries, identifying anomalous transactions, duplicate payments, and unauthorized journal entries in real time.

Rather than relying on random statistical sampling, corporate internal auditors can focus their attention on high-risk flags automatically surfaced by algorithmic monitoring platforms. This continuous risk assessment strengthens internal controls over financial reporting (ICFR) and significantly reduces fraud risk.

Evolving Roles for Accounting Professionals
As routine data entry and manual reconciliation tasks become fully automated, the skill set required for accounting professionals is shifting toward data analysis, system design, and strategic business advisory.
– Systems Governance: Accountants are increasingly responsible for monitoring algorithmic accuracy and managing data integration pipelines.
– Business Partnership: Finance professionals leverage real-time financial dashboards to advise operational leaders on margin management and working capital allocation.
– Regulatory Compliance Management: Accounting teams utilize automated platforms to ensure compliance with dynamic tax codes and international accounting standards.

Core Implementation Recommendations
1. Deploy Automated Reconciliation Tools: Integrate continuous transaction processing modules into existing enterprise ERP architectures.
2. Establish Algorithmic Governance Controls: Implement strict internal testing protocols to ensure automated accounting rules comply with GAAP/IFRS standards.
3. Reskill Accounting Teams: Invest in training finance staff on data analytics, workflow automation, and predictive financial modeling.

Continue Reading

Accounting

Global ESG Reporting Standards and Double Materiality Compliance

Published

2 weeks ago

on

August 9, 2026

By

Corporate accounting departments face expanding reporting expectations as international sustainability disclosure standards achieve regulatory enforcement across major global jurisdictions. Chief Accounting Officers (CAOs) and corporate controllers are establishing rigorous internal accounting controls to treat Environmental, Social, and Governance (ESG) metrics with the same data precision, auditability, and governance as traditional financial statements.

Regulatory Harmonization Under Global Sustainability Frameworks
The implementation of standardized sustainability reporting frameworks—notably rules established by international sustainability accounting boards—has created unified expectations for public and large private enterprises. Corporations must report standardized metrics covering greenhouse gas emissions (Scope 1, 2, and material Scope 3), energy utilization, workforce demographics, and supply chain governance.

In Europe and other participating international jurisdictions, double materiality principles are mandatory. Under double materiality, organizations must report both how external sustainability risks impact corporate financial performance, and how internal corporate operations affect surrounding environmental and social structures.

Integrating Sustainability Metrics into Core ERP Systems
To provide auditable non-financial data, enterprise organizations are integrating specialized carbon accounting and ESG management platforms directly into core ERP systems. Automated data collectors capture energy utility invoices, logistics fuel consumption metrics, and vendor compliance records in real time.

Establishing automated, traceable data pipelines ensures that non-financial reporting is supported by clear audit trails. This structured approach allows external financial auditors to provide reasonable assurance on sustainability disclosures during annual corporate reporting cycles.

Financial Impacts and Capital Market Disclosure
Accurate ESG reporting directly influences corporate cost of capital and institutional credit ratings. Commercial lenders and institutional asset managers systematically incorporate sustainability metrics into risk pricing models. Companies that demonstrate transparent, verifiable progress in operational energy efficiency and climate risk mitigation benefit from expanded access to green bond markets and lower debt pricing.

Action Steps for Accounting Leadership
1. Implement Double Materiality Frameworks: Conduct comprehensive assessments to identify material financial and operational sustainability metrics.
2. Build Auditable Non-Financial Data Pipelines: Automate ESG data collection within core accounting software to ensure data integrity.
3. Align Sustainability with Annual Financial Filings: Prepare non-financial disclosures concurrently with financial statements to satisfy regulatory audit expectations.

Continue Reading

Accounting

Modernizing Internal Controls: Machine Learning and Continuous Monitoring in Auditing

Published

2 weeks ago

on

August 5, 2026

By

Internal audit departments and corporate risk managers are modernizing internal control frameworks by shifting from periodic sampling techniques to continuous monitoring and machine learning analytics. As operational data volumes increase across enterprise organizations, automated control testing ensures financial integrity, prevents corporate fraud, and streamlines annual audit engagements.

The Limitation of Periodic Audit Sampling
Historically, internal and external auditors evaluated internal controls by reviewing random samples of financial transactions—often analyzing less than five percent of total ledger entries. In complex enterprise environments, periodic sampling methods carry inherent risks of overlooking localized financial misstatements, unauthorized disbursements, or operational control breakdowns.

In 2026, progressive internal audit functions are utilizing automated continuous monitoring platforms that evaluate one hundred percent of financial transactions in real time. Continuous control auditing systems continuously monitor general ledger entries, procurement approvals, and expense reimbursements across all operating subsidiaries.

AI-Powered Fraud Detection and Anomaly Identification
Machine learning models trained on historical corporate financial data excel at identifying subtle transactional anomalies that indicate potential fraud or operational error. Automated systems instantly flag duplicate invoice payments, unapproved vendor creation, unusual journal entry timing, and unauthorized override of authority thresholds.

When an anomaly is detected, the automated auditing platform generates an instant risk alert, allowing internal audit teams to investigate root causes immediately. Early detection prevents minor operational errors from escalating into material weaknesses in financial reporting.

Streamlining External Audit Preparation
Continuous internal control monitoring delivers significant benefits during annual external financial audits. External audit firms can review continuous audit logs and automated control testing documentation, reducing the time required for manual field testing.

This integrated approach lowers overall audit compliance fees, reduces administrative burdens on corporate accounting staff, and provides senior management and audit committees with real-time visibility into the organization’s overall risk profile.

Core Implementation Guidelines
1. Transition to 100% Data Testing: Replace legacy sampling methods with automated continuous audit monitoring systems.
2. Deploy Anomaly Detection Algorithms: Implement machine learning models to identify unauthorized transactions and operational control overrides.
3. Align Internal and External Audit Workflows: Coordinate continuous control testing protocols with external auditors to optimize annual compliance cycles.

Continue Reading

Trending