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TIGTA assesses IRS efforts to respond to Oct. 7 attack in Israel

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The Treasury Inspector General for Tax Administration issued a report Thursday on the Internal Revenue Service’s response to the Oct. 7, 2023 attack on Israel by Hamas.

The report noted that after the attack, the Treasury Department and the IRS issued a notice granting tax relief to individuals and businesses affected by the terrorist attack. The IRS also posted a news release detailing taxpayer eligibility requirements that qualify for the postponement of various tax return filing and payment deadlines. The information was available less than a week after the attack. This relief was in effect from Oct. 7, 2023, through Oct. 7, 2024. 

TIGTA found the IRS proactively identified and marked the tax accounts of the taxpayers who were likely to be affected by the attack. IRS management identified and proactively added freeze codes to 185,707 individual and 22,110 business tax accounts. The IRS also made available some of its well-established disaster relief processes for use by individuals and businesses who are affected by the terrorist attack to self-identify for tax relief.

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The Gat family house left in ruins after Hamas militants attacked the Kibbutz Be’eri, near the Gaza border, in Israel, on Oct. 13.

Alexi J. Rosenfeld/Photographer: Alexi J. Rosenfeld

“When the IRS does not accurately identify all affected taxpayers, these taxpayers may receive tax deficiency notices, which may place unnecessary stress and obligation on taxpayers already impacted by the trauma of experiencing the Israel terrorist attack,” said the report. 

However, unlike the IRS’s process of sending notifications directly to individuals and businesses that qualify for tax relief due to a federally declared disaster, the IRS did not send similar notices to taxpayers whom the IRS identified as qualifying for relief resulting from the terrorist attack, TIGTA found. As a result, individuals and businesses who probably qualified for the specific tax relief made available by the Treasury in response to the terrorist attack were not directly notified.

IRS officials pointed out that they elected to communicate the availability of the tax relief the day it was announced via the posting of the information on the IRS newsroom website, where media and other audiences go to for information. However, TIGTA noted that the IRS failed to include information regarding this relief on the website it uses to disseminate international press releases. 

TIGTA’s evaluation also found the IRS initially missed adding freeze codes to 2,176 individual and 1,306 business tax accounts that met the IRS’s criteria for relief. In addition, TIGTA identified 10,550 individual tax accounts where the IRS incorrectly added a freeze code based on the foreign country code on accounts for taxpayers who resided in the State of Israel, Gaza, or the West Bank when in fact the taxpayers had an U.S. address as their address of record. Finally, TIGTA identified another 413 individual taxpayers whom the IRS also incorrectly added a freeze code on their tax accounts when their international address was outside the covered area of the State of Israel, Gaza or the West Bank. 

TIGTA made three recommendations to the IRS, saying the IRS should: input the freeze code on all eligible individual tax accounts, remove the freeze code from all ineligible tax accounts, and ensure that IRS systems properly update the foreign country codes used by taxpayers to change their address. The IRS agreed with the recommendation to input the freeze code on all eligible individual tax accounts, but disagreed with the recommendation to remove the freeze code from ineligible tax accounts and the recommendation to ensure that IRS systems properly update the foreign country codes used by taxpayers to change their address. 

The IRS noted in response to the report that the foreign country code is necessary to accurately process and post tax returns filed by nonresident aliens.

“This relief effort represents two significant ‘firsts’ for the IRS disaster program — the first time the IRS provided relief based on a terroristic action (and not based on a federally declared natural disaster), and the first time the IRS implemented disaster relief internationally,” wrote Lia Colbert, commissioner of the IRS’s Small Business/Self-Employed Division, in response to the report. 

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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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