Accounting

Key wealth management legal cases to watch in 2025

Published

3 months ago

January 13, 2025

This year may not bring as many consequential Supreme Court decisions as the last one for financial advisors, but there are several pending lawsuits with big potential industry implications.

Ongoing uncertainty around the reporting of “beneficial ownership information” under the Corporate Transparency Act, a Supreme Court case testing the power of the IRS to collect pre-bankruptcy tax payments and possible new challenges to the agency’s rules after the demise last year of the so-called Chevron doctrine could each affect advisors and their clients, according to Leila Carney, a member in the Tax Disputes & Tax Litigation Group at the Washington, D.C., office of Caplin & Drysdale. In addition, the Securities and Exchange Commission and FINRA are facing their own legal confrontations over enforcement capabilities.

“What we’ve seen is, 2024 cases have chipped away at agency power, lending momentum to private litigants,” Carney said in an interview last month shortly after the high court heard arguments in the case involving creditors’ ability to claw back tax payments prior to bankruptcy, U.S. v. Miller. “This case will, I think, be a weather balloon to see whether we can expect continued weakening of agencies.”

In the wake of one of the Supreme Court rulings last year that gave every SEC defendant the right to a jury trial rather than an administrative law judge, the agency is contending with cases scrutinizing its authority to attach “follow-on” industry bans and FINRA’s process for expelling brokerages from its membership.

The victories by President-elect Donald Trump and his Republican allies in Congress also likely delivered the knockout blow to the Labor Department’s new retirement advice rule that was already in a stay blocking its implementation during an industry lawsuit. The Trump administration could drop Labor’s appeal of the stay or simply abide by any possible court decisions vacating the new rule.

The path ahead for another new law requiring companies to disclose their ownership to the Treasury Department’s Financial Crimes Enforcement Network looks much more murky. Federal judges have halted the Corporate Transparency Act under multiple lawsuits criticizing the law as overly broad under the Constitution, but the Justice Department has asked the Supreme Court to lift the injunction. For the moment, the law has yet to go into effect.

“The Corporate Transparency Act (CTA) plays a vital role in protecting the U.S. and international financial systems, as well as people across the country, from illicit finance threats like terrorist financing, drug trafficking and money laundering. The CTA levels the playing field for tens of millions of law-abiding small businesses across the United States and makes it harder for bad actors to exploit loopholes in order to gain an unfair advantage,” according to a website maintained by the agency with the latest updates on the status of the law.

“The government continues to believe — consistent with the orders issued by the U.S. District Courts for the District of Oregon and the Eastern District of Virginia — that the CTA is constitutional and will continue defending the law as necessary,” the agency said.

But the constitutional questions about whether the law extends beyond the federal government’s legally mandated oversight of interstate commerce could one day reach the high court, according to Carney.

“Most Americans are hesitant to share information that they would otherwise expect to keep private, just as a matter of good security practices,” she said. “The constitutional argument is that, because it’s requiring a report of entity formation, it’s not within the scope of regulating business because an entity may be formed and may not be doing any business.”

Another unit of the Treasury, the IRS, is fighting a legal case filed by 3M disputing an agency rule about companies’ allocations of corporate income. The U.S. Court of Appeals for the Eighth Circuit heard arguments in the case this past fall.

It and another case before the Tax Court filed by Abbott Laboratories represent the next struggles over a substitute framework for the Chevron deference taken away from agency rulemaking as part of last year’s decision in the Loper Bright Enterprises v. Raimondo case, tax lawyers Lauren Ann Ross and Adam Spiegel of Covington & Burling wrote in Bloomberg Law. Each of the cases are seeking to overturn earlier decisions that revolved around the Chevron deference.

“Two lines of inquiry are likely to emerge: First, does the regulation embody a policy choice or factual determination? If so, courts also are likely to defer to the agency’s regulation as long as it reflects reasoned decision-making,” Ross and Spiegel wrote. “Otherwise, if the regulation is interpreting the statute, courts may move to a second question: Does the Treasury have discretionary authority to interpret the statute through regulations? If so, the agency’s interpretation may still be entitled to deference. If not, the court would interpret the statute without deference to the regulation and could hold the regulation invalid.”

In light of Chevron’s demise, Congress could “easily fill the gap with legislation” that addresses the possible level of deference for agency rulemaking, Carney said. The incoming Trump administration may single out certain rules for non-enforcement as well, by “targeting regulations that are likely to be challenged” after the Loper Bright case, she said.

Trump’s administration and its allies in Congress are likely to pull back IRS enforcement funding that had previously ramped up the agency’s scrutiny of what it described as tax-dodging efforts by the wealthy. However, another area of enforcement called the “economic substance doctrine” that restricts tax benefits for transactions that do not present any legitimate business or economic purpose bears close watching by advisors and tax professionals too, according to Carney. A district court’s decision siding with the IRS in a case brought by a company called Liberty Global put tax attorneys on alert about the impact to basic strategies deployed by clients for savings. The case is currently awaiting a ruling in the 10th Circuit Court of Appeals.

“The IRS has been making it a priority to enforce the economic substance doctrine recently,” she said. “The litigation climate may make that harder.”

Accounting

IAASB tweaks standards on working with outside experts

Published

1 day ago

April 25, 2025

Business Finance News

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.

Accounting

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

Published

1 day ago

April 25, 2025

Business Finance News

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.

Accounting

At Schellman, AI reshapes a firm’s staffing needs

Published

1 day ago

April 25, 2025

Business Finance News

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.”