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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.

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

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 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

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

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

Cruise operators may yet avoid paying more U.S. corporate taxes despite threats from U.S. Commerce Secretary Howard Lutnick to close favorable loopholes. 

Lutnick’s comments on Fox News Wednesday that U.S.-based cruise companies should be paying taxes even on ships registered abroad sent shares lower, though analysts indicated the worry may be overblown.

“We would note this is probably the 10th time in the last 15 years we have seen a politician (or other DC bureaucrat) talk about changing the tax structure of the cruise industry,” Stifel Managing Director Steven Wieczynski wrote in a note to clients. “Each time it was presented, it didn’t get very far.”

Industry shares fell sharply Thursday. Royal Caribbean Cruises Ltd. closed 7.6% lower, the largest drop since September 2022. Peers Carnival Corp. and Norwegian Cruise Line Holdings dropped by at least 4.9%.

All three continued slumping Friday, trading lower by around 1% each.

Cruise companies often operate their ships in international waters and can register those vessels in tax haven countries to avoid some U.S. corporate levies. It’s exactly those sorts of practices with which Lutnick has taken issue. 

“You ever see a cruise ship with an American flag on the back?,” Lutnick said during the interview which aired Wednesday evening. “They have flags like Liberia or Panama. None of them pay taxes.”

“This is going to end under Donald Trump and those taxes are going to be paid.” He also called out foreign alcohol producers and the wider cargo shipping industry. 

The vessels are embedded in international laws and treaties governing the wider maritime trades, including cargo shipping. Targeting cruise ships would require significant changes to those rule books to collect dues from the pleasure crafts, analysts noted. The cruise industry represents less than 1% of the global commercial fleet, according to Cruise Lines International Association, an industry trade group.

They also pay significant port fees and could relocate abroad to avoid new additional taxes, according to Wieczynski, who sees the selloff as a buying opportunity. 

“Cruise lines pay substantial taxes and fees in the U.S. — to the tune of nearly $2.5 billion, which represents 65% of the total taxes cruise lines pay worldwide, even though only a very small percentage of operations occur in U.S. waters,” CLIA said in an emailed statement. 

Should increased taxes come to pass, the maximum impact to profits would be 21% on US earnings, Bernstein senior analyst Richard Clarke wrote in a note. That hit wouldn’t be enough to change their product offerings, though it may discourage future investment. Recently, U.S. cruise companies have spent billions beefing up their operations in the U.S. and Caribbean. 

Cruise lines already employ tax mitigation teams that would work to counteract attempts by the U.S. to collect taxes on revenue generated in international waters, wrote Sharon Zackfia, a partner with William Blair.

Royal Caribbean did not respond to requests to comment. Carnival and Norwegian directed Bloomberg News to CLIA’s statement. 

Artificial intelligence took the business world by storm in 2024. Content creation companies received powerful new AI-powered tools, allowing them to crank out high-quality images with simple prompts. AI also helped cybersecurity companies filter email for phishing attempts. Any company engaging in online meetings received an ever-ready assistant eager to show up, take notes and highlight the most important talking points.

These and countless other AI-driven tools that emerged during the past year are boosting efficiency in virtually every industry by automating the tasks that most often bog down business processes. Essentially, AI takes on the business world’s day-to-day dirty work, delivering with more accuracy and speed than human workers are capable of providing.

For accounting, AI couldn’t have come at a better time. Recent reports show that securing capable accounting staff is becoming more challenging due to a high number of retirees and a low number of new accounting graduates. At the same time, globalization, the rise of the gig economy, the shift to remote work and other recent developments in the business landscape have increased both the volume and complexity of accounting work.

As companies struggle to do more with less, AI offers solutions that promise to reshape the accounting world. However, putting AI to work also forces companies to accept some new risks.

“Bias” has become a huge buzzword in the AI arena, forcing companies to consider how the automation tools they bring in to help with processing data may introduce some questionable or even dangerous ideas. There are also ethical issues associated with next-level AI-powered data processing that have some concerned that achieving AI-assisted business efficiency also means risking consumer privacy.

To make AI worthwhile as an accounting tool, companies must find ways to balance gains in efficiency with the ethical risks it presents. The following explores the growing role AI can play in business accounting while also pointing out some of the downsides that should be carefully considered.

AI upside: Increased accuracy and efficiency

Accounting isn’t accounting if it isn’t accurate. Miskeyed amounts or misplaced decimal points aren’t acceptable, regardless of the company’s size or the business it is doing. When the numbers are wrong, the decision-making that relies on those numbers suffers.

Consequently, manual accounting typically moves slowly to avoid errors. Business leaders have learned to wait on financial reporting prepared by hand. They’ve also learned that because of processing delays, they may not have the numbers they need to take advantage of unexpected opportunities.

AI changes the equation by improving the speed and accuracy of reporting. AI-powered data entry automatically extracts numbers from invoices and other financial statements, eliminating the need for manual entry and the mistakes that can occur when an accountant is distracted, tired or just having an off day. AI can also detect errors or inconsistencies in incoming documents by comparing invoices and other documents to previous records, providing a second set of eyes for accounts as they ensure companies aren’t being overbilled or under-compensated.

When it comes to increasing the pace of accounting, AI’s capabilities are truly astonishing. As Accounting Today has reported, in the past, the type of robotic process automation AI empowers can be used to drive automated processes 745% faster than manual processes. And AI accounting programs never clock out or take a lunch break. They work 24/7, even on bank holidays, to keep the books up to date.

AI accounting gives business leaders accurate financial data in real time, meaning they have relevant and reliable accounting intel when they need it rather than requiring them to wait until the end of the month to have a report on where their cash flow stands. It also has the potential to give a glimpse into the future by drawing upon historical data to drive predictive analytics. AI can look at what has been unfolding in a business and its industry to plot the path forward that makes the most financial sense. It’s not exactly a crystal ball, but it’s as close as most businesses should expect to get.

AI upside: More time for high-level engagement

As AI began to make inroads in the business world, experts warned it would ultimately replace hundreds of millions of jobs. While the consensus seems to be that AI doesn’t have what it takes to replace an accountant, it certainly has the potential to reshape the profession in a positive way.

The manual work typical of conventional accounting is tedious, tiresome and time-consuming. Doing it well eats up much of the energy accountants could otherwise apply to higher-level activities. By using AI automation for those tasks, accountants gain the resources needed for high-level engagement.

Accountants who partner with AI gain the capacity to shift their role from bookkeeper to financial advisor. Rather than focusing all of their energy on preparing reports, they are freed up to interpret the reports. Delegating data entry and other day-to-day tasks to AI allows accountants to become strategic partners with the businesses they serve, whether as in-house employees or external advisors.

Financial forecasting becomes much more doable when AI is in play. Accountants can develop comprehensive financial models that forecast future revenue and expenses. They can also assess investment opportunities, such as determining the viability of mergers and acquisitions, and help with risk management and mitigation.

Tax planning and optimization will also become more manageable once AI automations have been added to the mix. Automating data extraction and categorization streamlines the process of classifying expenses for tax purposes and identifying expenses that are eligible for deductions. AI automation can also be used for tax form completion, adding speed and a higher level of accuracy to a process that very few accountants look forward to completing manually.

AI downside: Higher data security risks

Accountants are well aware of the dangers of data breaches. Allowing financial data to fall into unauthorized hands can lead to financial loss, operational disruption, reputational damage and regulatory consequences. Shifting to AI accounting can potentially increase the risk of data breaches.

Changing to AI accounting often means concentrating financial and other sensitive data and moving it to interconnected networks. Concentrating data creates a target that is more desirable to bad actors. Shifting it to the cloud or other interconnected networks creates a larger attack surface. Both factors create situations in which higher levels of data security are definitely needed.

Addressing the heightened threat of cyberattacks requires a combination of tech tools and human sensibilities. To keep accounting data safe, encryption, multifactor authentication, and regular testing and update protocols should be used. Training should also help accounting teams understand what an attack looks like and how to respond if they sense one is being carried out.

AI downside: Less process customization

Developing the types of platforms that can safely and reliably drive AI automations is not an easy — nor cheap — undertaking. Consequently, many companies choose the economy of “off-the-shelf” platforms. However, opting for a standardized platform could mean closing the door on customized financial workflows a company has developed.

For example, an off-the-shelf platform may not have the option of accommodating the accounting rules of highly specialized industries. It may have a predefined chart of accounts structure that doesn’t fit the structure a company has traditionally used. It also may be limited in the formats that can be used for financial reporting, which could require business leaders to make peace with reports that don’t fit their personal tastes.

To avoid big problems that can surface after shifting to off-the-shelf solutions, companies should make sure to take their time and seek software that can scale with their plans for growth. Like any other technological innovation, AI is a tool meant to support and not supplant a company’s processes. The process of selecting an AI platform to improve accounting efficiency begins with mapping out a company’s unique process and identifying where AI can boost efficiency. If the platform you are considering can’t deliver, keep looking.

AI best practice: Take it slow and learn as you go

The biggest temptation for companies as they begin to embrace AI will likely be doing too much too fast and with too little oversight. Artificial intelligence is a remarkable tech tool, but still in its infancy. Taking advantage of its capabilities also requires managing some risks.

For example, AI has what some experts describe as an “explainability” problem. Developers know what AI can do but don’t always know how it does it. Companies that feel compelled to provide their clients or stakeholders with a solid explanation of the process behind their AI automations may be limited in how they can put AI to work.

Now is the time to begin integrating AI with your company’s accounting efforts, but take it slow and learn as you go. A solid best practice is to explore what is available, experiment with how it can help your business, and expect to make many adjustments before you arrive at an optimal process. Your accounting efforts will serve you best when they combine human and artificial intelligence.