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At the end of a smooth tax season, an uncertain home stretch

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Although filing season began smoothly and proceeded with little fanfare, there are still some issues that are on the minds of tax pros.

“While it began looking like a smooth year, it has been anything but,” said, according to Misty Erickson, tax content manager at the National Association of Tax Professionals. She listed the following as contributing to the angst felt by many preparers:

  • With the IRS laying off employees, there are a lot of questions on how this will impact the filing season. The IRS will shift staff to help with return processing, but if a return stops for review, or if it is paper filed, there may be a delay. To help combat this, tax pros should double check the return before filing and compare last year’s return to this year’s; they should also ask about any missing income or other discrepancies. 
  • There’s also concern about the likelihood of delayed response from the agency. Erickson recommended using online tools whenever possible. The IRS has online accounts for individuals, businesses and tax professionals that can be utilized to reduce the need to call for assistance. Those who need to call should expect to be on hold for some time
  • Dealing with current law versus campaign rhetoric around not taxing overtime, tips, or Social Security. Until these promises become law there will be no changes. The challenge, Erickson warned, will be to convince clients that even though this has been in the news, it is not certain until it is signed into law.
  • Beneficial ownership information reporting for small businesses is an ever-changing landscape. Any enforcement actions have currently been suspended, and it appears that the focus will be on foreign entities reporting their BOI.

There has not been a lot of last-minute legislative changes, so the chores this tax season have revolved around all the other compliance work layered in, according to Kelly Myers, of Myers Consulting Group LLC, who spent 30 years at the IRS, including 20 as a senior technical advisor at the SB/SE Division. 
(Read more: See the most recent IRS tax season data.)

“A lot is crystal ball work — how to make strategic decisions to minimize the tax effect influencing future returns,” he said. “The IRS is still trying to process Employee Retention Credits, with taxpayers waiting for refunds. There are ERCs from 2020 still in the queue. Meanwhile the statute of limitations is running, so make sure to get the claim in before it runs.

“There was a bit of a domino effect,” he added. “When they released 6,700 employees, it caused compliance efforts to stop. People have called in regarding an audit and were told that it had gone on hold until further notice. They had new and probationary hires working on audits, but now those are gone.”

1040 tax forms for 2017

“The reality is we really don’t know what the future holds regarding people getting reinstated,” said Myers. It’s a season of adjustment — that’s different because the technical side of tax season is not here. When four probationary hires leave, the audits they were working have to go to someone. What do you do with clients when the IRS has shortages in the field causing the process to change? It affects filing season indirectly because things take a lot more time when the practitioner is dealing with the ripple effect of IRS staffing.”

Myers praised industry associations and professional organizations for stepping up and providing free membership and advice to departing IRS agents and outgoing staff to help them land jobs. 

Waiting for the other shoe to drop

“We have had no major issues or delays,” said Mark Steber, chief tax Officer at Jackson Hewitt Tax Services. “As with IRS guidance, we continue to see refunds being issued for nine out of 10 taxpayers within 21 days, and in many cases even faster than that. We also have not had any disruption in communication with the IRS.”

Bill Nemeth, immediate past president and education chair of the Georgia Association of Enrolled Agents, agreed. 

“E-filed returns are being accepted and refunds are being disbursed in a timely fashion just like we would expect,” he observed. “But as we get deeper into filing season, we may have more complicated paper returns that we have to mail in, and we are concerned whether they will be processed in a timely fashion. Someone has to open the envelope, and read and review the return. That’s our biggest concern — it’s still early but we are crossing our fingers.”

“Another concern is that tax revenues may be down 10% this year. If the IRS is not going to pursue people, fewer will file or file correctly,” he added. 

Nemeth files an extension for every return. “I then file the return later on. If I discover by looking at the transcript if something was left out, I can file a superceding return — a replacement return. Some people had two jobs in 2024 and forgot one of them. Kids are terrible at giving documents to their preparer, especially 1098-T,” he observed. 

“When we call the IRS, the answering assister will give their name and employee number,” Nemeth remarked. “New employees start with ‘100,’ which means that you’re talking to a ‘newbie’ that may not know what they’re doing. I always prefer to speak to someone with a number that begins with a number over ‘100’ that has been there awhile.”

“If you’re talking to a newbie, a polite way to end the call is simply to hang up while you’re talking,” he suggested. “It sounds like an equipment failure on your end as opposed to saying, ‘You don’t know what you’re doing.’ The other trick is calling during lunch time. Managers will often answer their own phone, and they’re the ones you want to talk to. They can make decisions while clerks cannot.” 

 

BOI, EV, Etc.

“The Treasury said they would not enforce the BOI requirements to file, so that’s taken a load off a lot of preparers,” said Stephen Mankowski of Mankowski Associates CPA LLC, a former tax chair of the National Conference of CPA Practitioners. “It was absolutely the right call, since there was no way they were going to get 20 million-plus reports filed, especially during filing season. It was almost as if they were setting us up just to be able to issue a whole lot of fines. The AICPA did a lot on their end. We don’t know if they might come up with something after filing season. I don’t know what filing that report has to do with money laundering because the bad guys will not file.”

“If you were a money launderer would you file?” he asked. “They were just going to get a bunch of moms-and-pops, with carve outs for really small businesses. So keep on top of it pending further action, but for now nothing needs to be done.”

The majority of returns are getting accepted and refunds are being issued in a timely manner, Mankowski said: “We always get a couple of juicy rejects, but even with those, we know what to do to get things resolved. That’s been good so far. The only potential hiccup is the giant elephant in the room: how the reduction in force at the IRS will affect filing season. I’ve been fortunate not to have to call the IRS, but I’ve heard mixed reviews. Some had a hard time while others have gotten straight through.”

The bigger issue is how it will play out with IRS employees at retirement age. “The problem is when people take retirement, they have the knowledge base that goes along with their career,” he explained. “‘Probationary’ just means new to a specific department or a switch from IRS to Treasury, but when all is said and done you could have 10 years and be viewed as probationary. The fact that the IRS is putting together a workforce reduction plan during tax season is almost a power play to other departments — they can say if the IRS is doing this, what’s your problem?”

Tax attorney Barbara Weltman, author of J.K. Lasser’s Small Business Taxes 2025, noted that, new for 2024, the clean vehicle credit for buying new electric vehicles and the previously owned clean vehicle credit for used EVs can effectively be “sold” to the dealer to reduce the purchase price of the EV. 

“Opting to transfer the credit to the dealer means the taxpayer does not have to wait to file a return in order to reap the tax savings from the credit,” she said. “The Treasury says that about 90% of the qualifying consumers buying a new EV have transferred their credits to dealers. But the taxpayer must file Form 8936 and Schedule A of this form. The taxpayer should have received a time-of-sale report from the dealer, which has information necessary to complete the form and schedule.” 

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Accounting

IAASB tweaks standards on working with outside experts

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The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

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Accounting

Tariffs will hit low-income Americans harder than richest, report says

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President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

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Accounting

At Schellman, AI reshapes a firm’s staffing needs

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Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

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