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In the blogs: Buzzing sounds

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Flat tax; doubts about “automatic” IRS calculations; when to shred; and other highlights from our favorite tax bloggers.

Buzzing sounds

  • Tax Foundation (https://taxfoundation.org/blog): From July 2021 to September 2022, five states enacted laws to transform graduated-rate income taxes into single-rate tax structures. Where things stand with the states’ flat tax revolution.
  • Institute on Taxation and Economic Policy (https://itep.org/category/blog/): Legislatures countrywide are resolved to write new tax policy, and debates are heating up. But states’ fiscal situations vary dramatically. 
  • Tax Vox (https://www.taxpolicycenter.org/taxvox): Washington is abuzz over whether Congress will address Trump’s ambitious policy agenda in one bill or two. But lawmakers must confront a more important question.
  • Global Taxes (https://www.globaltaxes.com/blog.php): In Case You Missed It Dept.: A circuit court has flip-flopped (again) on beneficial ownership reporting, and now the Supreme Court’s involved.
  • Current Federal Tax Developments (https://www.currentfederaltaxdevelopments.com/): An overview of new final regs that identify certain micro-captive transactions as listed transactions and transactions of interest. 
  • CLA (https://www.claconnect.com/en/resources?pageNum=0): A look at the new draft Form 7217, “Partner’s Report of Property Distributed by a Partnership,” to collect information such as a partnership’s basis in a property before distribution, the fair market value of the distributed property and any basis adjustments that may apply — all of which promise “a more pronounced impact on real estate partnerships.”
  • Tax Notes (https://www.taxnotes.com/procedurally-taxing): Final regs on the oft-litigated Sec. 6751 “supervisory approval” leave longtime questions unanswered. Among them: What exactly happens when a penalty is “automatically calculated through electronic means?”

Shore things 

  • Virginia – U.S. Tax Talk (https://us-tax.org/about-this-us-tax-blog/): Long-awaited and at last final Sec. 2801 regs — concerning gifts and bequests received by a U.S. person from certain foreign persons — resemble proposed regulations issued 10 years ago (and 17 years since Sec. 2801 was enacted). “In a nutshell,” a U.S. recipient may have to file a Form 708 (not yet available).
  • Armanino (https://www.armanino.com/articles/): How tax credits and incentives are among the details biz clients should keep in mind as they consider nearshoring, offshoring and reshoring.

Tough questions

  • MBK (https://www.mbkcpa.com/insights): What to remind biz clients about the Tax Cuts and Jobs Act’s Sec. 163(j), which generally limits deductions of business interest to 30% of a company’s adjusted taxable income.
  • The National Association of Tax Professionals (https://blog.natptax.com/): This week’s “You Make the Call” looks at Jason, who gambles at the local casino. He is not considered to be in the trade or business of gambling but does spend a large amount of money at one casino, which gives him perks that total $2,500. During the year, Jason’s gambling pursuits have resulted in gambling winnings of $10,000, which he will report on his 1040. He also keeps a log of all his wagers and has allowable documented gambling losses of $20,000. Assuming Jason can itemize on Schedule A, what amount of gambling losses can he deduct?
  • Gordon Law (https://gordonlawltd.com/blog/): What to remind them about who needs to file a FBAR.
  • Summing It Up (http://blog.freedmaxick.com/summing-it-up): Nonprofits seem especially vulnerable to theft (what they may comparatively lack in juicy resources from a thief’s perspective they often make up for in a lack of security). A look at common types of theft in nonprofits, as well as security measures they can take.
  • Palm Beach Accounting and Financial Services (https://www.pbafs.com/blog): Why do I exist? What is love? And for most of us, the real toughie: When can we shred our financial documents? 
  • Taxjar (https://www.taxjar.com/resources/blog): A question on your ecommerce clients’ minds, whether they admit it or not: Should you invest in sales tax software or hire a tax professional? 

Consider it a warning

  • Sovos (https://sovos.com/blog/): IRS due dates for 2024 information returns. (Largely unchanged from last year, though tweaked for weekends).
  • Canopy (https://www.getcanopy.com/blog): In a recent podcast, Dr. Jackie Meyer, CPA, entrepreneur and author of “The Balance Sheet of Life Formula,” “shares her journey as she goes from a traditional accountant to pioneering innovative approaches in the field.” She also discusses the challenges of postpartum depression and chronic fatigue.
  • Wolters Kluwer (https://www.wolterskluwer.com/en/solutions/tax-accounting-us/industry-news): How secure is the cloud?
  • Sikich (https://www.sikich.com/insights/): Artificial intelligence may be changing how marketers produce content, but where does content marketing go in 2025? Two challenges B2B brands must overcome.
  • Taxable Talk (http://www.taxabletalk.com/): New Jersey recently asked a client to send additional tax documents; one method suggested was email. “Is New Jersey aware of the risks of identity theft by emailing documents?  Is the Division of Taxation aware of their own guidance on this?”
  • TaxProf Blog (http://taxprof.typepad.com/taxprof_blog/): Congratulations to Ellen Aprill and Beverly Moran, recent recipients of Association of American Law Schools Tax Section Lifetime Achievement Award.

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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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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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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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