← AICPA Town Hall
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- [00:01]
A
Welcome to the AICPA Town Hall Series, your resource for the latest news and updates on pressing issues facing the accounting profession. Welcome to the AICPA Town Hall. I'm Melanie Lordson, your host for today, August 6th, 2026. So we are nearing the end of the summer, which means for those in tax practice, you will start Preparing for the September 15 and October 15 deadlines. Now, as always, we have a packed agenda and we will cover quite a bit of things to help you prepare as we go into the filing season. Also in the DC studio, I have the A team and I'm very excited to host them. But before we jump into our agenda, I do want to connect with Mark to cover the CPA Trust brand awareness campaign. Share with us your thoughts.
- [00:54]
B
Yeah, thanks, Melanie. And just to. Hi, everybody. Good to be back on a town hall. We are joined today. We'll have Mark Peterson join a little bit. We also have Jan Lewis, our chair of the AICPA and the association joining us as well. Jan has grown up in volunteerism. She's been a big part of who we are. She happened to be here for other meetings that she and I had and got to hang out with the Tax Executive Committee, which she grew up with. And so it was kind of nice old home data kind of come back in and meet with the Tax Executive Committee. So that's kind of why we're all in D.C. doing a variety of things. So I want to thank everyone for joining us today. We have a number of people on vacation, which is why you're stuck with me. So that said, let's get into it. You know, you mentioned the trust campaign and I love the fact that we're playing the commercial before the town hall starts. And so this slide here talks about the campaign that we did and we started to plan this towards the end of last year and we propped up that commercial that you did see. We actually had a number of cable buys that we did with this. We ran it nationally. We thought originally we were only going to do it in D.C. we ran it nationally. You see at the bottom there, our national reach were 10.5 million views, which is absolutely phenomenal. And of that locally in the D.C. market, we were 2 million views. And the why of the ad and the campaign is to really get business leaders thinking about CPAs again and reminding them of how we are the trusted profession and who we are. Whether we're doing tax audit, advisory, it doesn't matter. We are the trusted profession. And this thing hit well. You know, you see the views that Are there just incredible feedback. Melanie was just telling me all her local friends, they've been seeing our ads in the metro. We had a big billboard on the corner of a rental building just outside of Washington Nationals Park. I had members who were texting me the ad in the billboard and they'd be watching it on tv. I was just in a meeting today. Two people said they saw the ad as they were on their treadmill in the morning. So just really great feedback. Great to see it. Now as far as other updates is kind of like a mini profession update as I typically work on. And so I'm not going to bore you with all the details that are here. There is a lot that's going on. I know Melanie is going to talk quite a bit about the IRS in a variety of issues and ways. Mark has some legislative items around that, some state related items that that Mark and I were meeting with Jan on over the last couple of days that we've really stayed on top of. And you know, we've talked about deregulation in the past. You know, I don't want to say it's quiet right now, but we also have stepped up, you know, thanks to the work on Mark's team. We have an organization, the alliance for Responsible Professional Licensing. Arpal. We are a member of, I met with all of the CEOs in that group. So our association counterparts and engineers, architects, landscape architects. There's about 10 groups in total and we met just to kind of touch base and that was a very instrumental group in helping us forward in what we wanted to do. But the two things I really, really wanted to focus on here today because one just keeps popping up in just about every meeting that I've been at in the last month or so there's been proposed legislation or some legislation that's passed in some states trying to reduce the requirements for smaller governmental entities over audit. So maybe instead of a full scope audit we're going to allow for agreed upon procedures. Maybe we're only going to look at the grant funding. Maybe it's, you know, the debt service that we're going to only do agreed upon procedures for. And there's been a lot of discussion around this. I heard from our members, we talked about this a year ago, the small firm auditor wanting or wanting to get out of the governmental space because it wasn't profitable. They're messy. The governments have a hard time finding the right people to do it. The financial reporting and governments is complicated versus what we have in regular gaap. When you put the gasback spin on it. And we have a variety of discussions around that. I'm talking to a number of people internally. We need to look at CAST for government. When I talked to so many small firms when they stepped up their CAST practice not for profit is where they typically started. That's where the market was wide open and so many different companies needed to help. And so I think we have opportunity here and we need to provide resources to help our member firms. One of the things is, I did a little bit of research on this. There was some CFO in government community and they were talking about two different types of ERP systems that they're using, one of which is Sage Intact, which we've talked a lot about. I moved the association that I ran before I came back to the aicpa. I put them on Sage Intech, huge fan of it. And that's being used in the government. It's just this great software for departmentalization and I think it could do the funds in a much different way. So I do think we have opportunity here, be talking to some firms in the near term to figure that out. And then finally Pipeline, you see Pipeline there on the bottom left. I wanted to finish up with that. If we go to the next slide, Melanie, we have spring 2026 enrollments. You see here. The numbers have continued to climb since 2021. We kind of had this dip and now everything's coming back to pre 2020Numbers. So very encouraging that we are seeing an increase over the last two years in enrollments in four year programs and in master's programs. Now that said, and I talked about, you know, some of the state related items that have happened. You know, we've added an additional pathway. We're now up to, I think 45 jurisdictions that have since passed. A number of them have come online or will come online in 2026 and then the majority of them in 2027 into 2028. So if we think about what our talent pipeline looks like coming into the profession, it's going to be the most number of students that we've seen in a really long time because we had the, you know, bachelor's plus two kids, plus the 150 and master's kids all kind of coming out at the same time. So some students have decided they're going to get out at the bachelor's and so that said, we're going to have incredible opportunity and I think a responsibility as a profession to get these kids hired up. We don't need them going back into school saying there's no jobs out there for accountants. We need to make sure that we continue down that path. And so it is something we're working on. We've talked to a number of schools. It's just a great opportunity for me. I believe in small firms and firms that have kind of given up on campus recruiting because there just never seemed to be anything available. I'm telling you that availability is there now if you're in business and industry, same thing. So I think we have a unique opportunity here this year to really take advantage of it. Yes, training is going to be different than it's ever been, but I do think we have that opportunity. So that, Melanie, in a nutshell, is kind of the update that I wanted to provide.
- [08:24]
A
That's very encouraging. And like always, there's something going on in D.C. and hopefully Mark can provide us some encouraging news there.
- [08:32]
C
Sure, sure. Little muggier than the picture here here in Washington, Melanie. So where we are right now, the House of Representatives has gone home for the August work period or recess. The Senate is still trying to hammer out a few things before they leave town. They could leave as soon as today or even carry it into the weekend. And then they will be gone until it looks like about mid September. I've got some issues I want to take you through, Melanie. Digital assets AI legislation, a little bit on tax, and I'm going to turn it over to you guys. There's also some language that we've mentioned that made it into the defense authorization bill. The Defense authorization bill has become a vehicle because it's must pass and they are able to find a bipartisan majority to get that passed. So it's attracted language. We've seen language in there. They're dealing with Chinese companies that are on U.S. exchanges. There's currently language in there that is a challenge for the profession for partnerships, which basically says, and it's not focused on the profession, but it's focused on making sure that all those public funds, all that taxpayer money goes to investment into defense production, not into stock buybacks or not into capital distribution. The problem is the way it's written. If you're a partnership who's working for doing contract work for the Department of Defense, you can't get paid. That language was included in the Senate. It's not in the House. They're going to have to reconcile that when they come back this fall. So we do think that we're going to get to a resolution on it, but we're going to have to stay on it. So the next slide let's talk about government shutdowns. Unfortunately, we're kind of back at that time of year. End of September, we're going to hit the end of the fiscal year for the U.S. government. The House, before they left July 21, passed a government funding resolution, a CR containing resolution, which is just kicking the can down the road. Okay, so it's not a budget, it doesn't have the appropriations bills in it. It was what we consider a clean continuing resolution where it's just current level funding out to December 4th. The Senate is expected to pass before they leave, one that kicks the can down the road to December 11th. They also have some other language in there, primarily focusing on prohibiting the administration from canceling grants during the period of the CR or this funding being in place. So no matter what happens when they get back, they're going to have to reconcile these two different dates. Let's say they get back in mid September, September 15th, they're going to have two weeks to figure that out. Otherwise we're going to run into a government shutdown, which as you know, heading into the fall filing season is a problem with, with treasury and the IRS and the other agencies we work with. The other thing I'll mention is a CR past the election sets up a lame duck session. So that means we have members of Congress coming back after the election. Some of them have lost their election, some of them have announced their retirement or run for other office. But there is a post election session where they're going to have to clean up government funding. It will also be an opportunity for, for other legislation. The other thing I would mention, because I think we could see it this fall, is a reconciliation bill. The House passed a $95 billion reconciliation package. Most of it's focused on defense spending. There is some other spending for the agricultural community, Department of Homeland Security. The most important thing to remember about reconciliation is does not require that 60 vote super majority in the Senate. So that is another vehicle that's going to be out there this fall. So although the calendar short, there are several things going on that create some opportunities for us. So let's talk about AI. I'm going to shift to AI really quickly. Lots of discussion we've had about AI as it relates to the administration, but Congress has actually introduced a bipartisan framework. I don't think this is going to get done for all the things I just said this year, but I do think that this framework is going to get invested in by lawmakers in order to live on past the election. And so it does Give us some opportunities. And of note for, for the profession is the language creates a regulator, the center for AI Standards and Innovation. And in that it creates a category of third party independent verification organizations. Ivo, we got another acronym for you. And so the regulator, the center for AI Standards and Innovation will certify these third parties, third parties that by the way, look a lot like us. CPA is not written in there. However, these are the kind of services that we could obviously do because what they're going to do is provide assurances that there are risk frameworks that are in place to prevent, to confirm that there is catastrophic risk. Mitigation. I am for mitigating catastrophic risk. So that is a good thing. Great conversations that are going on with lawmakers. I think, again, this is where that trust campaign comes in, Mark, because they are looking to the profession to provide trust in areas like AI. Slide. Now, the White House has actually put out and they've had several executive orders that they put out, but we are anticipating another plan to come out. Two things the administration is really focused on not creating regulatory hurdles so that they can compete through innovation with countries like China and some of the other Europe and the Euro. So they're focused on that. But one of the issues is that there is some concern, national security concerns, that the AI creators pre certify or pass by what they're planning to. These, these AI models pass the administration so that they confirm that it doesn't create a national security risk. The other part of this we anticipate is going to be a state preemption because they are concerned about a patchwork of regulation coming from the states. So what that means is next slide is the states are going to have a patchwork of legislation and regulation. So we've seen California introduce legislation that creates a similar framework to the legislation that I mentioned. Illinois has passed audit requirements. We are having conversations related to standards in many of these states. So if they are going to move forward with legislation, we are giving them the language so that we can try and meet those expectations. Next slide. All right. On crypto, we had the Genius Act. There were provisions in the Genius act that called for an audit, a review of the financial statements, proof of reserves. This is kind of phase two of the Genius act as it relates to crypto. It's called clarity. And what it is is about the regulation of crypto. And so really it's dividing up digital commodities and digital securities between the CFTC and the sec. Part of it though is also some language that we've been working on. We hope it gets included in the final package. That would give us some clarifications around controls language. So we're trying to get that in. This is past the House. There are threats in the Senate that they're going to get this done before they storm out of town. But there are some challenges. One big issue has been negotiating over ethics language about particularly members of Congress and members of the administration and their engagement with crypto. Next slide. So here's another one. We've been given updates for the last year and a half on what's going on on the tariff front. The Supreme Court made a decision which impacted the initial tariffs. So there's a process right now of refunds that are coming out to companies. At the same time, the administration has used new authority example of this section 301, which is unfair trade practices. They're really blaming workforce challenges as far as introducing these new tariffs. So there's been lawsuits that are coming from the Democratic ags. So a lot of this is being litigated. At the same time it's going on. The importers that are getting their refunds are trying to figure out if they were actually granted a refund, are they going to use that money or are they going to actually have to just give it right back to the government because of the reimposing of some level of tariffs? So this all plays out. It's playing out on Capitol Hill. It's playing out in the courthouses as well. Lastly, I said there'd be a little tax action. The Taxpayer Assistance and Service act, bipartisan. It has been supported by Ron Wyden from Oregon and Senator Crapo from Idaho. It has just passed the Senate Finance Committee. It's got some great provisions in it that Melanie's going to take you through. One did not make it in the package. That is disappointing for us, though. And that was the SAFE act, which is basically a safe harbor for extensions if you're 25% or 125% of the previous year. A lot of practitioners have talked to us about the relief and the certainty certainty that would provide. Unfortunately, when the Joint Tax Committee scores these bills or these provisions, this came out as a revenue loser. We don't necessarily agree with the modeling around that score of revenue. And so we're going to again try and find another opportunity to continue to push that.
- [18:06]
A
Melanie, that's actually a perfect segue. Mark, into the technical updates because we have the TAS act here, too. So even though we are disappointed about the SAFE act, there are really good provisions in there for taxpayers. And again, this is bipartisan. So if you look at sections 101 through section 105, those really are about digital access for taxpayers and making their lives easier as they go through and try to interact with the irs. And there is a QR code for a little deeper dive into the bills so that you can read through them. Now, sections 108 and 405, those are about the hardships and protections for taxpayers. So 108 has to do with economic hardship. And if you have a collections, what alternative are there for you? And as Mark mentioned, the shutdown, we are getting to that point where there might be a shutdown. And this last shutdown was an extended lapse in appropriations. And there are some protections for taxpayers there, too. Another piece of it that's very important has to do with preparer regulations, which is something that we have been working on for at least a dozen years and longer. But this provision actually has support by various stakeholders, too. And this would provide a minimum level of professional, minimum standards that we have to meet. And then of course, there's section 903, which is the extension of the mailbox rules. So for those who file tax returns in our practice, and you're submitting that electronic return at midnight on April 15, this would ensure that it would be timely filed electronically. So lots of good provisions in there. Now, every year, the General of Accountancy and the Tax Advisor has an annual software and practice issues survey, and the results have come in this year. There are about 1800 respondents to the survey. And we see some of the trends here, particularly with technology and pressure. People are satisfied with the software that they have, but there is mounting pressure around those costs of that software and how do you integrate it and how do you extract and import information to and from that software? So frustration is there with AI. That is where we saw the biggest shift in mindset for people. And now nearly two thirds of people are using AI for research purposes. So we've seen a huge change. And then we have the practice challenges, and we've asked them, what are those challenges? We're going to get into the details now of that survey. So again, one thing to know, none of those numbers will add up to 100. And that's simply because people had to pick their three top challenges. So that makes sense. But number one came in iris services and contacting the IRS. It's about the quality of being able to reach out to them and resolve issues with a human being at the irs. Now, that was one of the top issues. Last year it wasn't number one, it bounced up to number one. But that also kind of makes sense with the new legislation that has come forward. Now, the biggest shift that we saw has to do with managing expectations and setting boundaries with the clients. So last year our members were trying to get information from clients and trying to get it in timely so that they could move forward with the tax preparation. This year it's a little different. There's a lot of anxiety and a lot of questions around particularly that new legislation and what's happening with all the changes. So again, not a surprise, but that is where our members are seeing an increase in challenge. And of course there's the workload compression, which came in third. And that's exactly what the SAFE act is working towards, trying to alleviate the workload compression during the filing season. Okay. One of the other things that we talked and asked our members is if you're expanding your services, what types of services are you expanding into? And the biggest growth area had to do with tax advisory with a 25% of them going in this area. And then the second one was client services advisory services coming in at 19%. So that tells us that our members are looking for new streams of revenue. And there's also the thinking, we've heard a little bit of AI, that if you are using AI, maybe it gives you the opportunity to go into these higher level types of services that members can be offering. Now, like I said, AI is a topic of conversation. And we asked people, are you using AI? And 70% of the people said, yes, they are. What was interesting is the number of people who are not using AI and have no intentions of implementing it into their practice. That's at 16%. So that number is much smaller than what it was last year. So last year was more of a conversation around should we use AI? Is it something that we should consider? Now it's more of how do we use it? Which leads us to our next slide of how we use it. How do we incorporate it into our practice? So number one, and it's a big distinguishment here, we're using 65% of people say it's for tax research. So that means it's low risk, high return value with AI that they're using it, but they're also using it to fine tune communications. And only 13% of members are using it for tax preparation. Which of course that brings a wealth of questions from members because this is a gray area that we are all entering and it's very fluid and we're Trying to get definition around it. So on June 24, the IRS did issue an inventory informal guidance alert about AI. And what it said is, yes, you can use AI. And they talked about how it integrates with Circular 230. Now ultimately, if you use AI, you are still held responsible. That liability is still on you. That has not changed. You need to do your due diligence, you need to show competence and there needs to be oversight with this. Now a lot of people have also asked, well, with AI, how does 7216 disclosures come into play? And that comes in from the tax preparation side of it. If you're inputting clients data and you have an AI, even if it's closely held within the firm or practice, could your coworker access that same data? So therefore do you need that 7216 disclosure? You know what, the IRS has not provided guidance on that. And that is something we are working with guidance on on the irs. But we've also seen some of the language that that alert came forward with, which has created a couple of issues and concerns with that, which I do have Mark Cazeel beside me here that he's experienced it on the front lines. So Mark, like for you to share a couple of thoughts of what you've seen from the members.
- [25:11]
B
You know, I, I had a couple of members reach out to me about this because they said, you know, what, what do we do with this? I said, well, first and foremost, it's, it's not authoritative, right. So what this tends to be. And to me, yeah, maybe it's overstepping a little bit. It feels more like an opinion that does a statement, in fact, however, that said, you know, we've, you've had Eva Simpson on here, you've had Lisa Simpson on here. They've talked a lot about transforming your practice, building the new business model. We talk a lot about value pricing. You know, in my five years that I left AICPA to run a firm association, we worked with all of our firms about getting into three tier pricing. Good, better, best in value, sticking with that hard number versus saying it's hours times rate. If we did hours times rate, is this accurate to say that it should be a reasonable fee? The problem with the hours times rate thing, and Jan, I don't know how you feel about this, but hours times rate has been developed for probably 50 years. And the theory behind the rate was a third. A third. A third. Right. It was a third for payroll, a third for overhead and a third for profit to the partners. Those numbers have changed.
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D
Yeah.
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B
And what does the investment in AI look like? What are the investment in training that we have to do to our team? That's going to be very different. So to, to use a rate that is based on an old model of thinking is part of the challenge that we have with this. So a great opportunity. And you know, we got, I got rid of, you know, rate times hour long time ago when I was in practice and we were doing value pricing with our cl. You know, you all have, and there's some level of risk. We have our AON folks joining us today. You know, there's some level of risk and liability that comes with a tax return that also should be in there.
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D
That's right.
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B
So there's a variety of things I do think you can, you can value price, you could even three tier price. You know what standard tax return here? I used to say when I was in practice, we had, we started a wealth management division in our firm. And so then we started to talk to our clients differently about the tax return. Much like our competitors were talking, you know, the big houses, Edward Jones and the like, they're all saying, look, we'll, we'll throw the tax return in. It was the same thing for us. You know what, give us 100 basis points to manage your entire portfolio versus saying no, only, only charge 80 basis points. No, we'll charge 100. And we're just going to lump it all in there. Your tax returns included everything else. And if we start to bundle and package, you said research was the number one thing. How do we turn research into client proactivity? Right. And I think there's a lot of opportunity for us to think differently on what we can package in there. Because it's not going to be about just completing the tax return. We need to bundle the other advisory pieces in as well.
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A
And there's other costs associated with it.
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D
Well, exactly. I think as tax practitioners, we had all of those same thoughts marked when we first saw this come out. You first get scared by it. You know, what is OPR telling us? Are they telling us how do we bill for our services? But you're exactly right. We have training costs, we have the cost of software, we have a lot of costs associated with using AI. In our opinion, value pricing is perfectly acceptable. And I think that's what the aicb, I think that's what we really need to do is we just need to make sure OPR is not coming down too hard on this. We see their point, but in reality we know that AI generated work is valuable to our client and that value, however it is performed by AI or by the profession has a cost and it has a benefit and we need to bill for that service based on the value provided.
- [29:19]
A
Absolutely. And we're actually working with the IRS in order to provide clarifying language and also FAQs around it because value pricing is something that is just part of business and you have to be able even to include the liability that you're taking as you go through all of this.
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D
That's right.
- [29:37]
A
So here on the slide we have some wonderful resources for you. Again, it is a fluid situation that is changing as we develop more resources but also as we get more guidance coming in. So please take a look at the resources available now onto Round Robin. Just real quickly, international proposed regulations on the one month deferral has come out. We are expecting expecting quite a bit more regulations coming out in the international area towards the end of the summer to be finalized also at the beginning of the year and also as we start into the September 15 work. Also be aware that the business tax accounts have received expanded access with that now we're going to move in with our chair Jan Lewis to talk about CP53E notices. Now there have been lots of pain points around this notice and the IRS has told us about point blank that there are no erroneous notices. Now a lot of this is stemming from the fact that they have identified over 1.2 million returns that at the time of filing were not in a refund position. However, there was a net adjustment to those returns, 1.2 million of them that then became a refund position. Taxpayer was unaware and they received these notices when which weren't really friendly.
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D
How much time do we have, Melanie? So that's exactly right. I think we instinctively say erroneous technically. Okay, they're not erroneous. So for example, I live in an area that's affected by a lot of storms and hurricanes and tornadoes and high winds. And so we had some time periods that maybe the estimated tax payments were halted or some requirement. Calculating the estimated tax penalty for a client was very complicated in 2025 because of those moving due dates. So we had several that they are exactly right. At the time of filing there was no refund. The IRS adjusted the estimated tax penalty which then created the refund. The issue is the notice that's coming out is not we've adjusted your account. We found that your estimated tax penalty needs to be changed. The first notice they get is the CP53E because immediately comes Out. Oh, we need your direct deposit so that we can, you know, deposit your refund that we didn't even know we had. So I understand that it's not erroneous, but it is confusing.
- [32:04]
A
I will say that it scares people,
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D
it scares our clients.
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A
Fraudulent.
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D
That's right. And that's not to say I do believe there is some scam going. There are scams going on with this because obviously, you know, bad actors, see, oh, this is maybe a way that I can, you know, get someone's bank account. So yes, clients do need to be careful. What we experience at our firm is our clients expect us to handle things for them. And so usually when they get noticed, the first call they make is not to the phone number on the notice to give their bank account. I don't think that's what they do. They call us. A true IRS CP53E notice is basically just going to say we have a refund log into your online account. The client, the client only log into their online account. Right. And update your bank account information. And then there is a phone number on there. But if I'm right, the phone number just gets a prerequisite line.
- [32:59]
E
Yes.
- [33:00]
D
So first of all, if you're ever getting a call that says they're the IRS and we need your bank account information, that's not going to happen. But I do think just the notices and I've, you know, I've told Melanie the story of a client that's estimated tax penalty got changed by $1, $1 and they spent 70 cents on postage mailing the 53E notices. Now, I guess Melanie, say you do nothing. Okay. You do nothing. With the, with the notice, in six weeks the client's going to get a refund check, correct? Right.
- [33:32]
A
They're going to get the refund check. Because quite frankly, at the six week mark would be when the IRS needs to start paying interest on those refunds. And so they are going to cut the check regardless. Now, one of the things to take note, there's mainly three types of returns that are being targeted. Well, maybe a fourth one. So the first one is when you're expecting the CP53.
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D
Absolutely.
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A
So that's the taxpayer that knows they're getting a refund but intentionally did not provide that direct deposit. So they know they're going to get this notice with that. The second type of taxpayer is the taxpayer that had a refund and they may have provided that direct deposit information already. But the thinking behind the IRS on that, if there is that net positive adjustment.
- [34:19]
D
Okay.
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A
At the time of preparing the tax return. You have the option of how that refund gets allocated.
- [34:27]
D
Right?
- [34:27]
A
Right. So it can go into one account, multiple accounts, some of it can go into estimated payments. There are various ways that the refund can be treated. And because of that, when you have a net positive adjustment, even though you gave them that direct deposit information for that refund showing on the tax return,
- [34:47]
D
if the refund amount is different, then you're not going to deposit.
- [34:50]
A
Insurance does not automatically go to direct deposit and they're going to get this notice, which then makes it very painful because as you said, our members are coming to us to resolve the problem for them. They don't want to log online, create an account, go in there and put in their direct deposit information. And one thing too, even if you call the practitioner line or the regular 1040 line, they can't fix this. They can't fix it. You have to go online and provide that direct deposit or wait. Or wait six weeks.
- [35:22]
D
That's right. That's right.
- [35:23]
A
The other scenario which we have seen is if people have a refund and they're applying it to estimated payments and then they get this additional refund coming in, why can't that be applied again? It goes back to the same thinking of they need to know each time what to do with that refund.
- [35:41]
D
Right. And we, and we've had examples of maybe the prior, the prior year overpayment was applied to the 2025 payments it was claimed still came up with a refund or maybe had a balance due, whatever the case may be, on that original return. Somehow, someway, the client's prior year return had been adjusted so that overpayment changed. Here go the notices again, because you're going to get the CP53. I guess the concern here is the client gets the notice, the client gets upset. The client doesn't have an online account in some cases because they just don't want to. Or I have elderly clients that are not going to go online and get an online account. So then they call us again. There's not a whole lot of ways to explain it other than just to explain it to the client and they can either go online or wait for the refund. Now, I do think as CPAs, and maybe one solution to this overall problem is go ahead and get the power of attorney so that you can run a transcript just in case.
- [36:51]
A
And that's where you will see that net positive adjustment. And the IRS has requested, if your client gets one and you think it's an Error check that transcript.
- [37:00]
D
Exactly. And that's a good idea. In any case, I've had estimated payments be posted to the wrong year. Things like that happen. It's always good to look at the transcript just to see what's happening there. The irs. I know. On your slide, Melanie, the IRS came out first off with their frequently asked questions, which most are things that we know. I remember one that I had forgotten, which was I filed a lot of tax returns for wealthy taxpayers who have children with investment accounts, and the refund has to go into that child's account, not to the parent's account. They reminded us of that. Yeah, so that reminded us of that. But I think the FAQs were helpful. But I think even more helpful to our members is to see how. I think we've written two comment letters. I know one recently. And didn't we write one way back when about modernizing payments? Yeah. So we're on this. We're trying to help. I think our members just need to understand you're not alone. As long as you understand what's happening, generally speaking, you can explain it to your client and they accept it a lot more than if you immediately say, well, I don't know what's going on and you feel lost and you don't know where to go.
- [38:16]
F
Right.
- [38:16]
A
So the irs, the first tranche of notices, didn't even mention there was a true. A net positive adjustment. It didn't state anything. And that's where a lot of people started to think it was fraudulent because it's like all of a sudden, you know, give us your direct deposit information. And might people, some people might be in a knowing position originally and like, what? Why would you do this? Or I gave you my direct deposit information. So we have talked with the IRS at length about this and we actually were some of the. The first to bring this issue as a systemic issue to the irs. Originally, they hadn't realized what was going on and they have decided for their next tranche of CP53E notices that the notice will be revamped. It will provide a little bit more information as to what's going on and what could be the cause of it. So that is helpful. And we did put together a comment letter where we do provide suggestions to make this easier as we move forward. So, for example, if you have an exception, then just be able to document it on the 1040 and not get that notice, which I know and I've had many conversations with Mark 2 and you. It's that initial notice that gets triggered without reason or cause. And there isn't a lot of clear language around it. And I'm going to share one story that isn't the CP53e notice, but it's similar in that a member called me up because they got a notice for a frivolous, frivolous claim on the return. And it was saying that you could get a penalty for $5,000. And so we sent it.
- [39:43]
D
But that's it.
- [39:44]
F
But that's it.
- [39:44]
A
No details, no other details, no other information. And we sent it off to the irs. And the IRS literally came back to me and said, why would you think this is fraudulent? Our phone number's there. You can pull this information. And it's really frustrating to explain to them like there is no reason I'm getting this out of the blue. And we don't think there's a frivolous claim on this. So we are, and we've heard, you guys have probably heard from Mark talking about trying to partner with the irs, trying to improve and transform the irs. And this is an area where we are working with the IRS on these notices. So it's great from the IRS's perspective that the CP53e notices, so far, none of them have been erroneous. But the confusion around it, the language around, around it, there is so much that we can do to be able to work with the IRS and help them through this process.
- [40:34]
D
And that's not to mention, as you mentioned, the exceptions, the unbanked population, the poor folks that don't have CPAs that get this, and they didn't put their direct deposit because they don't have a bank account. They're waiting even longer to get their refund than they would have to if they could have just checked a box on the return originally. So, yes, we're looking out for our members, we're looking out for CPAs. We're at looking out for our clients. But again, some of this is just common sense that we're trying to get right.
- [41:01]
A
So on this slide, like Jan said, we have a QR code for the comment letter on how to improve the process. We also have resources available around it. And then, of course, the irs has their FAQs with a list of questions that can be answered through them. So they are getting better. Okay. With this, it takes us on to risk considerations as we head into the filing season. And I'm very happy to introduce both Sarah Ferencz, which is a Risk control director for cna, and we also have Nicole Graham, which is a risk consultant for Aon and they've previously been on the town hall. And they have a wealth of knowledge to guide people and to give advice around risk. The mitigation that we can go through this. Now, as we jump in to client risk taking, I do have to tell a story. There has been a lot of changes in the environment that we've seen. We've seen the IRS reduce their work workforce. We have heard announcements that enforcement isn't their top priority. And there's, I would say, a little bit of a misconception on what people can or cannot do on tax returns. And I actually had a member call me who had had a long standing client who was a straight arrow. She did everything by the book. She provided all her information. She did not want, want anything missed on her tax returns. And this past year she couldn't find some of the income that she needed to report. And she told the member, she goes, you know what? IRS probably isn't even enforcing this. So I really am not sure it's worth my time or energy to find this income because I won't get audited. And that's what she told our member. And our member, of course, knowing, wait a minute, this isn't accurate. That's not right. She did encourage her to find that income and they did it. But this was a woman who was a straight arrow and for years there had been no issues or problems. So, Sarah, Nicole, I turn it to you guys. What are you guys seeing? What is coming across your desks?
- [43:07]
F
Yeah.
- [43:07]
E
Well, when you share that story with us, I was also surprised a little bit. But if this taxpayer client was thinking that she could roll the audit dice and maybe omit this income, what are other taxpayer clients thinking that maybe have a bit higher level of risk taking? Just naturally. And that concerns me, but I think just in terms of a firm's liability, remember that regardless of the agency resources, the enforcement environment, any public comment, the CPA's responsibilities remain the same. Like the general standards and the obligations in the general standards to protect the public interest, to act with integrity. Those always exist and they're probably even more important when we have an environment where clients may well, whether it's a tax return position, whether it's a revenue recognition position, they might be more inclined to take on more risk without the potential fear of getting caught. But that doesn't change anything for the CPAs and the liability is still there. So I think it's important to consider that even a client's kind of short term risk taking decision making process may be there. That does create some potential longer term exposure for the cpa. Because if, you know, let's play this out for an example. Let's say this client of the member that Melanie spoke with omitted their income. The return was filed, the IRS came and audited that taxpayer, penalized the taxpayer, the taxpayer could turn around to the CPA and said, well, you should have told me that I should have included that income or you should have warned me that the IRS could disagree and you know, and assess penalties and interest. And now I'm going to blame you, my CPA for those penalties and interests and so forth. So I think it's always important just to always keep our risk management hats on. And if there is a client like this, one member had, that had, you know, was potentially trying to skirt the line there, it's important to remind them of the risks of that position and what might happen. And of course, this is risk management. So we're going to say do that in writing. That way that if the position doesn't turn out the way the client wanted to, then you can point to that piece of documentation and say, look, I advised you that this could happen. Client. It did. You accepted that risk when you, when you took that position. I would also say that if the position is so egregious and you can't sign the return, or if just it's way too borderline or it just doesn't match with your own risk, risk tolerance, is that the client that you really want to continue with? And what does that say about their integrity? Because if they're trying to roll the dice on one item, what are other items they might be rolling the dice on?
- [46:21]
A
That's great. And on this slide you have some good resources too, around, you know, risk taking for the clients. Now onto the next slide, it feels like AI has been a theme for every single session that we have. I mean, obviously this is, like I said, a fluid situation and things are moving in this area. Sarah, can you tell me how this could potentially impact auditors?
- [46:45]
E
Well, and I was, you know, I came from practice, I was an auditor myself. And we've always had a responsibility to evaluate a client's evidence for relevance and reliability and so forth. And, and we've always had the responsibilities to evaluate that documentation and make sure it's legit before we can rely upon it. And the use of AI and the introduction of AI and the sophistication of AI just might make that job all the harder. So I think when there's a potential risk and we see claims against Auditors for failure to detect theft or fraud. So it just heightens that risk when the sophistication of potential fraudulent evidence is increased.
- [47:32]
A
Nicole, your thoughts?
- [47:36]
F
So, you know, on AI, it's becoming more convincing, right? It's helping, you know, scammers, you know, hone their craft. It's really lowered the competence threshold for these scammers. Anyone with an iPhone can now create convincing deepfakes or invoices that look identical to the actual invoices that you see. So falling for these schemes really carry liability. It's one of the unfortunate situations where you, the victim are then, you know, also being held accountable for someone else's bad acts. So some of the things that firms can do at an organizational level is, is invest in AI detection technology. Some of these can be built into applications like Zoom, where it can alert you to different, you know, there's inconsistencies or there are things where you can check the connection to make sure it's coming from a geographical location that is, that is expected. If you have a client that you know is in Illinois and all of the sudden the connections are coming from a foreign country, that could trigger an alert. So something like that. But also it's really important to have internal controls on authorizing major transactions. And you should know your firm's internal controls, but you also need to know your clients internal controls. You want to know who can initiate and approve transactions. You want to know how requests should be made. You know, maybe you don't allow requests via email. You want to use a more secure platform for that that requires some form of, you know, two factor authentication. And you're going to always want to have a system in place to confirm payment requests. And this really, these are all great ideas, but at the same time, this requires rigorous and regular training of your employees because they're going to be at the front lines and they're going be the ones who ultimately can protect your firm from falling victim to one of these scams. So you want to express your people that they should remain vigilant and share common schemes that are happening with them. Make sure that they're aware of different things that they could fall victim to and also just train them to be skeptical. They want to have heightened scrutiny on any unusual or unfortunately unexpected transaction requests. Anything where there's a sense of urgency. They should take a beat and pause and try to make sure that they are following instructions or following internal controls. If there's a story that just doesn't fit or seems off, that's another thing this Deep fake technology is scary. And I feel as though people are very nervous about potentially falling for one of these. And, you know, one of the ways you can tell your people to prepare is to just one, get to know your clients. If their client is talking in a way that they don't normally talk to you, that should raise a red flag. Just having a knowledge of the actual person is helpful. Or even if you don't really trust yourself to know them to that extent, then maybe have a code word with the client and then just make sure that they're always following these, you know, internal controls for payment requests and just making sure that, you know, they, that they're always, you know, keeping track of who the we know any of these unusual requests.
- [51:27]
A
So we actually have a question mark,
- [51:30]
B
I think on AI, Nicole and Sarah. So one of our attendees asked, you know, with increased use of firms of AI, what changes should we as practitioners be aware of for our practices and what recommended safeguards do you have? So it's really around the use of AI internally, not just about the fraud around AI, but any thoughts on, you know, from a risk standpoint, what are you guys focused on or telling firms they should be doing with AI tools they're using internally?
- [52:01]
E
Well, I mean, I think Melanie mentioned it earlier, and this is really alluded to in the, in the IRS notice too, is that you're still responsible for the ultimate work product, regardless of how you get there. You know, whether that's using outsourcing professionals, whether that's using your own employees, whether that's using AI. At the end of the day, you're responsible for the work product that goes to the client. And if you use AI to get there, then you have responsibilities regarding its quality and the output and reviewing it just like you would the output that's generated from any team member in your firm. And then same thing goes for protection of clients confidential information too. That's those two responsibilities, quality and protection of confidentiality. Those two requirements exist now and have always existed.
- [52:54]
D
Right, Mark? At one of the conferences I was at, they mentioned to treat AI like you would a brand new intern. Well, you wouldn't let an intern's work product go out without reviewing it. So we've got to review our AI.
- [53:08]
B
That's a good point.
- [53:10]
E
AI might be smarter than an intern these days.
- [53:13]
D
I'm not going to go there.
- [53:15]
A
Okay, so a lot of people are feeling the pressure with the economy when they go to the grocery store. Groceries are more expensive at the gas pump. The prices have gone up. What does the economic cycle do to the claims. What pattern are you guys seeing?
- [53:30]
E
Well, when we see claims, they are closely correlated to the economic cycle, especially when it comes to say like an audit claim. When times are good and people are making money, then claims generally speaking don't arise. When people lose money, they sue their CPA or someone sues the cpa, whether it's like an investor or a bank, because they lost money. So whenever we see kind of periods of economic boom, usually claim activity is slightly lower depending on the type of service especially. But then when we see periods of economics decline, we always, we see claims generally tick up. And that's important to just understand because when you know, the claim doesn't always occur right after the error does or the asserted error. Sometimes claims can arise several years after the fact. But then your documentation is done, the services have been delivered, and what you have to defend yourself is something you did three years ago. So Nicole, you want to add anything?
- [54:36]
F
I agree with everything you said and I think that really the key for practitioners is to help yourself today for, you know, down the road, as you said, these can, these claims can take years to develop. So some of the things that I think are really important to do now are your, you know, cover your risk management basics. Right. Documentation is so key. So as an attorney who spent the bulk of her career defending professional liability claims, I will tell you that the cases are document intense. You know, it's hard to rely on memory alone. So you want documentation not only to help you remember and recall what happened during the course of the engagement, but also to verify your version of offense. And when you, if you are ever involved in the litigation and you have an attorney assigned, the first thing they're going to do is they're going to ask for your engagement letter and they're going to ask for your documentation. So documentation is vitally important, as we have said, I feel like throughout this segment. But just sort of keeping, you know, making sure that any, you know, important client decisions or mutual understandings are documented to keep, you know, expectations aligned is, is so key. And that can be as easy as a follow up email following a call or a meeting. I mean, just having something to document that what was discussed, what was said is so important and helps so much during the life of the litigation.
- [56:15]
A
Later on as part of the documentation, you guys have provided some risk allocation provision examples that can be included. And also on this slide, I love how organized this is. It kind of of pulls together some tried and true risk mitigation reminders that people should be doing across the board. They are the same. They are consistent in any type of work that you're taking on. And it's a good reminder it's administrative. But take that extra time to do it. It will pay tenfold at least to do this. And it gives you some, you know, some protections there.
- [56:48]
E
And Melanie, if I can add one thing on the risk allocation provisions, the asterisk, you know, for use of them, is that you can only use them where they will not violate or impair your independence. So public company audits, financial institution audits, typically you cannot use limiting loss limiting provisions in your engagement letter. Those do impair independence. So that is my asterisk for use of these provisions. But in general, yes, we support them. They do help us, you know, bring down some of the alleged damages.
- [57:20]
F
So.
- [57:20]
A
Well, thank you. And we will have to have you on again. Like I said, you guys are a wealth of knowledge for our members. Now, we do have some other resources. On September 24, CPA.com has a webinar to talk about adapting in this environment. And there are some trends for some slower firms. We have Pascal Fannette that will be on and of course, Michael Cerami. We also have some summer reading. I know my kids have assignments for school and if you have some time, there's a variety of general accountancy highlights that you can take on and read through them. So with that, we're going to go into open Forum. And I have a question for you, Mark Peterson, that I saw. There was a question that came in around the SSTB's and what's going on with that and is there any movement?
- [58:07]
C
Well, we're having lots of conversation on the SSTVs. I mean, fundamentally, we feel it's an unfair list. We provide just as much economic value to make Main street as corporations and we think we should be treated fairly. So we're continuing to have that conversation. The reality is it's a political reality of policymakers don't want to be accused of helping those that appear to be well off. Now, there are rock stars and professional athletes on that list, but I wouldn't categorize us with them. And so we're continuing to educate. We're fighting for, for fairness. When there is an opportunity, we are trying to kind of nip around the edges on it, but it's an ongoing debate.
- [58:49]
B
But there's a score to that.
- [58:51]
C
There is a huge score.
- [58:52]
B
And that's the problem. Where else is it going to come from trying to get that result?
- [58:57]
C
Well, you sound like some of the people I lobby because that's what they say is okay, how are you going to pay for it, Mark? But it's unfair.
- [59:04]
B
I know it is unfair and it's the unfortunate thing is, you know, not everything's logical in Washington.
- [59:11]
D
And not only that, but the whole SSTB terminology came about in the 199A.
- [59:16]
C
Sure did.
- [59:17]
D
But then what else could it be used for? We saw that last year with the pte. You always have to stay on top of it because that language could be
- [59:24]
C
used to worse those categories get pulled around from issue to issue.
- [59:27]
D
Right.
- [59:28]
A
So I'm going to take a quick question that I saw coming in around the Quang case and the status around that. There have been no movement. There has been no movement around the appeals. So for those who filed protective claims, that is still on hold. We have not seen anything forward moving, but we will keep you up to date as we move with that. Jan, do you have any questions or something?
- [59:51]
D
I was going to say one more thing when we were talking about CP53E, talking so much about refunds and payments to be made electronically. Let's just not forget still for the time being, you can make payments to the IRS by check if you choose to do that. Obviously they encourage electronic payments, but the focus is on the electronic, you know, the direct deposit of refunds. Right now you can still make payments by check.
- [60:19]
A
Okay, great. Now as a reminder for everybody, our next town hall is August 20th and we encourage you to find your friends in the county and finance colleagues and invite them to register. It is packed full of information. Also, we do rebroadcast for the town hall and the next Rebroadcast is Monday, August 10th at 1:00pm and also please take the town hall survey. We really do welcome feedback on how to best provide you information for your benefit. So for all of you, thank you so much for joining us on this town hall and we look forward to seeing you again. Thank you for your participation. You can also subscribe to the AICPA Town hall series on your favorite podcast platform, as well as watch archives on YouTube and find resources@cpa.com Townhall Tune in for live broadcasts Thursdays at 3pm Eastern Time.
- [61:16]
B
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