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Musk’s influence and new IRS bills could reshape tax season

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Tax season is underway, and the Internal Revenue Service is racing towards a major precipice. Hiring freezes and firings, proposed filing changes and the foreboding presence of Elon Musk’s Department of Government Efficiency promise to bring widespread change to the agency — but only time will tell if that change is good or bad.

In his first few days in office, President Donald Trump signed a rash of executive orders that included a government-wide hiring freeze (with a specific focus on the IRS) and the departure from a global tax deal brought about during the Biden administration.

“I will also issue a temporary hiring freeze to ensure that we are hiring only competent people who are faithful to the American public. And we will pause the hiring of any new IRS agents,” Trump said while signing orders following his inauguration.

Read more: IRS layoffs expected despite tax season assurances

Since then, lawmakers with the House Ways and Means Committee have advanced several bills that were part of earlier draft legislation proposed by Senate Finance Committee Chairman Mike Crapo, R-Idaho, and ranking member Ron Wyden, D-Oregon, known as the Taxpayer Assistance and Service Act.

Two noteworthy pieces of legislation are the Electronic Filing and Payment Fairness Act and the IRS Math and Taxpayer Help Act. The first would apply the “mailbox rule” regarding the timely submission of payments and documents to electronically submitted tax returns and payments. This standard currently applies only to physical documents.

The second seeks to provide taxpayers with more transparency into the IRS’ “math error” correction process for tax returns with math or clerical errors. If passed, the IRS would be required to provide reasoning behind the errors as well as a 60-day challenge period for taxpayers to confirm or refute the assessment of the error.

Read more: House committee advances IRS legislation

The newest change on the horizon for the IRS is a potential partnership with the White House’s Office of Personnel Management to grant certain officials unlimited access to taxpayer data, as originally reported by Bloomberg.

Few details are available from the draft agreement, which was obtained by Bloomberg Tax, but the deal would allow Gavin Kliger, a special advisor to the director at the OPM, to view troves of taxpayer information for debugging, software testing, programming and other purposes while working with the IRS, according to the memo.

Read on to dive into the latest coverage of Trump’s impact on the IRS, as well as procedural changes and other regulatory moves influencing taxpayers.

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DeFi firms catch a break on new tax reporting standards

While digital asset brokers, banks, traders and other individual cryptocurrency players are now required to start reporting their customers’ digital assets to the IRS, decentralized finance firms are enjoying the two-year buffer period — with a pro-crypto Trump administration potentially yielding future wins.

“Virtually the only part of DeFi that has any obligations at all under these regs are front-end service providers. … So everybody in the other layers of the DeFi stack doesn’t need to worry about anything,” Jonathan Jackel, managing director in the information reporting and withholding practice at Big Four firm EY, told Accounting Today’s Michael Cohn.

This hasn’t stopped the Blockchain Association, the Texas Blockchain Council and the DeFi Education Fund from jointly filing a lawsuit against the IRS for the final regulations they say “exceed the agencies’ statutory authority, violate the Administrative Procedure Act and [are] unconstitutional,” according to a December press release

Read more: DeFi companies win reprieve on tax reporting

Donald Trump speaking at his 2025 inauguration

IRS employee union calls Trump buyout deal “bait-and-switch”

IRS employees who opted to take the Trump administration’s federal worker buyout plan were left distraught to find that they will be required to work through May 15 to handle the onslaught of tax season, drawing widespread criticism from unionized workers.

Doreen Greenwald, national president of the National Treasury Employees Union, said in a Feb. 5 statement that those working in the IRS’s Taxpayer Services, Information Technology and Taxpayer Advocate Service divisions who agreed to the “deferred resignation” can’t accept until May 15 “because their work is essential to the tax filing season.”

“Not only is this a clear case of bait-and-switch — they were originally told they would be paid to not work through Sept. 30 — but it proves that the terms of the OPM’s so-called offer are unreliable and cannot be trusted,” Greenwald said.

Read more: IRS employees who took buyout told to stay through May 15

The IRS headquarters in Washington

The ins and outs of the new liability appeal process at the IRS

The IRS closed out the last weeks of former President Joe Biden’s administration by finalizing a new appeals process for taxpayers disputing their liability calculation. Enter the Independent Office of Appeals.

The final rules build on the 2019 Taxpayer First Act introduced by Rep. John Lewis, D-Ga., which created the IRS’s Independent Office of Appeals to “resolve federal tax controversies without litigation on a basis that is fair and impartial, to promote consistent application of federal tax laws and to enhance public confidence in the IRS,” according to the text of the bill.

Part of the appeal process, which is available for most taxpayers, provides those whose appeals are denied with a detailed explanation of the decision and allows those with $400,000 or less in annual income to gain access to all non-privileged aspects of their case files, according to a guide to the law from “The Tax Adviser” journal. 

Read more: Advisors and clients have a newly codified appeals process at the IRS

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ID theft victims see shorter turnaround for IRS help

Identity theft is a rampant problem in the tax world, one that the IRS has faced difficulty addressing amid a rise in scammers pretending to be representatives of the agency. But hope is on the horizon for taxpayers.

National Taxpayer Advocate Erin Collins provided insight into the IRS’s average timeframe for handling identity theft cases, which jumped from 299 days in the 2022 fiscal year to 676 days in the 2024 fiscal year. This year produced the first drop in that metric — to 506 days — for the IRS’s Accounts Management inventory.

“It is sad that a decrease to 506 days is good news, but after years of increases, it is positive to see the average IDTVA case processing cycle times going down instead of up,” Collins wrote.

Read more: IRS reduces wait times for some ID theft victims

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IRS unable to confirm eligibility of LITC grant recipients: Report

The Treasury Inspector General for Tax Administration concluded in a new report that regulations from the White House Office of Management and Budget forbid the IRS’s Low Income Taxpayer Clinics Program Office from viewing client information — effectively handcuffing the IRS’s ability to determine whether or not grant recipients are eligible.  

The TIGTA drew this conclusion in part by looking at a sample of grant applications along with interim and year-end review summary reports for 15 out of 130 LITCs from the 2022 grant year. 

“While we found that the Program Office reviewed all 15 LITC budget worksheets in our sample to ensure that the applicants listed their matching fund sources in detail and provided narratives to detail their calculations, it did not require the LITCs to provide supporting documentation to validate the existence or value of the matching contributions. … Therefore, we were unable to determine if the reviews were effective,” the report said.

Read more: IRS can’t verify LITC grant recipient eligibility

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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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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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