WAKE UP! It’s Monday. For some news that’s three or more days old, check out Friday’s Footnotes and be sure to swing by every Friday at 5pm Eastern for a fresh batch of headlines.
And now, news that’s news as of today.
This morning, the IRS announced new steps to combat abusive use of partnerships:
As part of ongoing efforts to focus more attention on high-income compliance issues, the Internal Revenue Service announced today a new series of steps to combat abusive partnership transactions that allow wealthy taxpayers to avoid paying what they owe.
IRS compliance work continues to accelerate in this complex area of law following Inflation Reduction Act funding. As part of this, the agency is announcing a new dedicated group in the Office of Chief Counsel specifically focused on developing guidance on partnerships, including closing loopholes. The office will work closely with a new pass-through work group being established in the IRS Large Business and International division that will be formally established this fall.
The IRS and the Department of the Treasury today also issued three pieces of guidance focused on partnerships following discoveries by IRS audit teams. Currently, the IRS has tens of billions of dollars of deductions claimed in these transactions under audit.
The new guidance is designed to stop the use of “basis shifting” transactions that use related-party partnerships to avoid taxes. In these complex moves, high-income taxpayers and corporations strip basis from assets they own where the basis is not generating tax benefits and then move the basis to assets they own where it will generate tax benefits without causing any meaningful change to the economics of their businesses. These basis shifting transactions allow closely related parties to avoid taxes.
Treasury estimates these abusive transactions, which cut across a wide variety of industries and individuals, could potentially cost taxpayers more than $50 billion over a 10-year period.
ProPublica did a story on “how remote work and artificial intelligence are ushering in new kinds of fraud in state and local governments” and interviewed Washington state auditor Brandi Pritchard. Municipal collapse, LET’S GO:
What’s the most shocking fraud you’ve ever run across?
Pierce County Housing Authority comes to mind. As far as we can tell, it’s the largest government misappropriation [by an employee] in Washington state’s history. And considering who the users of that particular district are, low-income folks needing housing assistance, that makes it even more staggering.
But on the fraud-nerdy side of things, it’s a wonderful case study. The way our auditor used professional skepticism was absolutely magnificent, in that she wasn’t just paying attention to the physical pieces of paper in front of her. She was capturing the environment, the culture there, and it felt off to her. The way our subject treated her staff compared to the way she treated the auditors felt off. So by the time the auditor looked at that bank statement and saw that weird wire to some title company, she was on high alert.
The Montgomery Advertiser of Alabama profiled an accountant stimulating her community both economically and charitably:
When Melissa Wood, accountant and entrepreneur, opened her accounting firm in Elba nine years ago she didn’t realize how much she would add to the town she describes as a close and genuine community.
More recently, Wood began an effort to help foster families in Elba and surrounding areas as she saw an unmet need. A relationship she developed with a foster parent and child opened her eyes to the need for support that foster families have for items like clothes, food, bedding and school supplies.
To answer that need she founded Fostering Angels. She applied for non-profit status in January, with the official ribbon-cutting held on May 18 in the former Bradley Florist space at 1951 Hickman Ave.
“We have already serviced 35-40 kids in the short time that we have been open,” Wood said.
And for an accountant allegedly behaving badly, let’s head to Thailand:
A woman accountant in Phuket has been apprehended by officers from the Central Investigation Bureau (CIB) on charges linked to multiple call centre scams. Identified only as Kanraya, the alleged scammer has been implicated in five separate arrest warrants for her involvement in fraudulent activities, including opening bank accounts used by scam gangs.
The investigation revealed that Kanraya used her bank account to receive money obtained through various fraudulent schemes. These included impersonating a police officer, deceiving victims into transferring money for verification, and tricking people into investing in online product sales with promises of high returns.
Kanraya denies the allegations.
Karen, you will never work in this town again! Compliance Week on a CFO behaving badly:
The SEC received a final judgment Friday in its case against former Synchronoss Technologies CFO Karen Rosenberger, filed in U.S. District Court for the Southern District of New York, the agency said in an administrative proceeding.
The details: In its complaint, the SEC alleged that Rosenberger engaged in accounting misconduct which overstated Synchronoss’ revenue in false financial statements, which allowed the company to meet revenue expectations it otherwise would not have met. The false statements related to five total transactions, including two with one of the company’s largest customers, and another related to Synchronoss’ acquisition of another company, the SEC said.
Per the SEC, she also “sought to cover up her and Synchronoss’s misconduct by lying to Synchronoss’s auditor in connection with those transactions, falsifying books and records, and by failing to implement or maintain, and circumventing, Synchronoss’s system of accounting controls.”
Two EY partners, Alison G. Yablonowitz, CPA and Shawn C. Rogers, CPA, were hand-slapped, browbeaten, and pilloried by the PCAOB in 2021 for their work on this client. Yablonowitz was engagement partner on the 2014 and 2015 audits of Synchronoss, Rogers stepped up to bat in 2016. According to the PCAOB order [PDF], Synchronoss said “trust me, bro” and EY was like “OK.”
In each of the transactions, Synchronoss licensed software technology to an entity—in exchange for a license fee—around the same time it was negotiating a strategic transaction (i.e., an acquisition, business venture, or divestiture) with that same entity or one or more of its affiliates. In each instance, Synchronoss incorrectly accounted for the license transaction as separate from the strategic transaction and improperly recognized the license payment as revenue.
With respect to these transactions, Respondents failed to adequately evaluate (a) Synchronoss’s accounting treatment of the license transaction as separate from the related strategic transaction and (b) the factors specified in the PCAOB’s fraud consideration standard with respect to significant unusual transactions. Moreover, Respondents failed to adequately resolve inconsistencies in audit evidence and investigate instances in which evidence contradicted management representations, and instead relied on uncorroborated management representations. In doing so, Respondents failed, among other things, to exercise due care and professional skepticism, and to obtain sufficient appropriate audit evidence to support EY’s audit opinions for the 2014-2016 Audits.
Forvis Mazars’ Phil Laminack talks about Pillar Two accounting for Bloomberg Tax:
As countries around the world adopt legislation to implement the 15% global minimum tax known as Pillar Two, tax accounting will become even more complex.
A country’s legislation will greatly affect multinational companies and pose numerous pitfalls based on sheer complexity and volume. Proactive planning and analysis will avoid problems down the road.
He gives some advice after that. Obviously.
Deloitte Australia is rolling out a new AI tool that supposedly makes working there more tolerable.
The news: Deloitte Australia will begin rolling out its new artificial intelligence platform MyAssist across its workforce after more than a year of development, as part of its strategy to become an “AI-fueled organisation”.
The numbers: The audit and consulting group will roll out MyAssist to its entire workforce of 13,000 from Monday.
Deloitte said that a trial of around 1,300 users found that a core set of common tasks can account for up to 50% of the work time of some users, and it is these tasks that the MyAssist platform has been optimised to support. As part of this trial, 70% of users reported the new platform “meaningfully improved” overall work productivity and 65% reported an improvement in work quality.
Meanwhile, Aussie KPMG did their own AI rollout to tax staff:
The firm describes [custom-built] KymTax as a combination of a research tool, knowledge management platform and content generator, designed to put the full breadth of KPMG’s proprietary tax knowledge at the easy reach of its practitioners.
The idea was conceived during an internal brainstorming challenge which aimed to uncover the most appropriate generative AI use cases within the firm, and is believed to be one of the first such applications globally for tax services.
And KPMG Canada is “expanding use of AI to boost efficiency and productivity“:
KPMG Canada says it has been investing in generative artificial intelligence (GenAI) proprietary tools, training, and solutions to enhance the work of its 10,000 professionals.
“At KPMG in Canada we’ve been experimenting, piloting, and implementing AI across the firm for some time,” Stephanie Terrill, AI executive leader and head of the management consulting practice, said in a press release on Wednesday. “And in some ways, we consider ourselves ‘client zero,’ which means we’re testing and piloting new generative AI solutions and sharing that expertise with clients by helping them implement their own AI solutions to solve a variety of business problems. It’s an exciting time to be innovating internally and with clients.”
ALM Treasury & Risk offers some advice for controllers who don’t want to get in trouble for bad financial statements:
Almost six out of every 10 accountants report making several errors every month, and one out of three says they make a few errors each week. These alarming statistics come from a July 2023 survey of 497 accountants conducted by Gartner research. The survey also found that the error rate among accountants is highly correlated with the extent to which their controllers report capacity constraints.
Obviously, financial errors can have tangible business consequences. If errors make their way into the monthly or quarterly close, business decisions may be based on incorrect data. Worse, the organization may issue inaccurate financial statements, opening itself up to an array of potential regulatory and investor relations challenges down the road.
Corporate controllers frequently seek to increase capacity by deploying new technologies in hopes of reducing errors. But so far, this approach has had mixed results. Many controllers have told us that their staff keeps doing manual work long after it is no longer needed.
INSIDE Public Accounting talks about firms embracing non-equity partnerships. “A win-win for talent and growth,” they said.
The accounting profession is adding far more nonequity partners to its ranks than equity partners, which means power is concentrated among fewer owners but stand-out pros are getting the opportunity for more responsibility, more autonomy and more money.
It’s a trend that’s remained solid for at least the last 15 years. According to the 2023 IPA Practice Management Survey, the number of nonequity partners among the IPA 100 (excluding the Big 4) has increased by more than 320% over the last 15 years versus just 85% for equity partners. The IPA 100 in 2023 included firms above $48.8 million in net revenue. The data also shows the practice has accelerated over the last five years.
The only thing holding back some “phenomenal” performers from becoming directors was business development experience. There’s room for both. “If we can get an outstanding business developer surrounded by people who can help them on the delivery front, make them more efficient and free up time for them to go out and make it rain even more, then that’s a really good answer for the firm.”
A Georgia accounting firm will be raising money to fund childhood cancer research this week:
The BRD Valdosta staff will run a lemonade stand for charity on Tuesday and Wednesday.
Stop by the office at 3006 N. Patterson St. from 11 a.m. to 2 p.m. each day to get a glass of lemonade for a donation to Alex’s Lemonade Stand Foundation for Childhood Cancer.
“Working at an old-school lemonade stand is a fun way to raise money for a worthy cause,” said CPA Janine Pendleton, the BRD branch manager. “Besides, it’s hot outside, and who doesn’t love lemonade?”
Alex’s Lemonade Stand says it is the largest independent childhood cancer charity in the U.S. and has raised more than $300 million since 2005.
Two firms in Pennsylvania you’ve never heard of have merged:
RKL LLP continues its expansion with a merger with Lancaster-based Kauffman CPA Company, effective July 1.
RKL said in a release the merger will add further expertise to RKL Virtual Management Solutions’ spectrum of outsourced accounting, financial management, human resources and payroll services.
Approximately 15 Kauffman CPA Company team members, including Doug Kauffman and other key leaders, will join RKL’s nationwide team of over 650 professionals and will be based out of the Lancaster office
That was a surprising amount of news for a Monday in June! Always nice so I don’t have to work too hard.
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