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DOGE Proves IRS Can Move 100X Faster Without Red Tape · The Accounting Podcast

• Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding! Blake Oliver: [00:00:04] The only system that is more antiquated than the IRS systems is our the one that they use in our nuclear silos that run on floppy disks. Now, arguably you want that because nobody can hack that using floppy disks. It's completely offline. Uh, but I don't think we want that in the case of the IRS. David Leary: [00:00:31] Coming to you weekly from the OnPay Recording Studio. Blake Oliver: [00:00:39] Hello, and welcome back to the Accounting Podcast, the number one podcast for accounting and tax professionals in the world. I'm Blake Oliver. David Leary: [00:00:48] And I'm David Leary. And Blake, we could summarize this week can be done in one minute if you want. It's tariffs tariffs tariffs tariffs tariffs tariffs. 401 (K) retirement stock market down. Stock market up. Tariffs stairs, stairs, stairs. And that's all the news cycle this week. And it was so over consuming everywhere that accounting stories almost got missed this week. So hopefully people are going to hear some stories. I'll give you the quick example. Sage had an outage last Friday and I didn't even know it until seven days later, because there's just all this other stuff. And look at the tariffs. Big, big for transparency only has two coffees. We don't even get five coffees anymore. We just get two coffee emojis where an account. Blake Oliver: [00:01:25] Has five welcome live stream viewers. Thanks for joining us. I agree with you David. So much news to cover again. We did like an hour and a half last week. We might we might have to do it again today. We're going to try to get it all to you in an hour. This is your weekly news roundup for accountants. We've got to talk about tax to David. The acting IRS commissioner resigned. Irs is going to share info with Ice to help deport immigrants, illegal immigrants, unauthorized undocumented immigrants. I guess they're documented because they're paying taxes. Uh, that could actually hurt the tax collections because they pay a lot. Uh, we'll talk about that. The estimates of that, uh, God, Audit Canada is going to name firms that that have bad inspection reports. We've got app news. Ai agents are everywhere. They're coming to your software, including Floqast and Intuit Enterprise and QuickBooks. We've got Big Four transparency data on remote work. We've got, of course, all the tariff stuff that's going crazy. I have an illustration for you because I feel like in my conversations on Twitter, I still encounter so many people who think that China pays the tariffs, and I want to prove it to you that they don't. And I want to show you what it does to the income statement of a business that relies on raw materials, parts, finished goods coming in from China. Let's model it out. It's not complicated. We've even got a bankruptcy as a result of this. That is probably going to happen soon. And the IRS is planning a hackathon. They're going to move taxpayer data to the cloud. They're going to build an API for it, and they want to do it in 30 days in the middle of tax season, which I think is actually possible because of something else that happened this week. They moved the login button. They moved the login button on the website. Now, that doesn't sound like a big thing, but apparently at the IRS that's a that's a months long project. And those got it done in one day. David Leary: [00:03:34] Change something and move it on a website. You know some of that important. I could see, you know, you need a lot of people to sign off on a change like that. Blake Oliver: [00:03:42] Yeah, you might believe that, David, if you've never actually edited a website before or made your own website. But like I'm telling you, it's not hard to do in WordPress. It's not too hard to do in Squarespace. And I'm sure it's not hard to do in and whatever the IRS is using for their website. And they did it in like an hour or two. And my biggest story in the accounting profession this week. A private equity firm is telling employees not to call themselves CPAs. A private equity owned accounting firm. This is a top 100 firm in this country, which means they've got thousands of employees. They're operating in all the big states. So the private equity investors who bought the firm are saying, don't put CPA in your email signature. Don't use it on LinkedIn. David Leary: [00:04:32] So just I worked my ass off to become a CPA. I go to work for a CPA firm for years. It's my whole career. It's my identity, gets bought by private equity. And then I'm being told, don't use CPA anymore, essentially. Blake Oliver: [00:04:45] And it's because of pressure from a state board of accountancy. I'm not going to name this firm because I haven't been able to confirm all the details, but this comes from a reliable source and we even have a statement from the AICPA. So I think this is actually happening for real. This is not just a rumor. We will talk about that. So David, we we started with tariffs last episode. So I think it's only fair that we start with our other favorite topic the Department of Government Efficiency. So let me show you what I mean by this login screen change. The Department of Government Efficiency posted on on X. Can I just call it Twitter I just whatever. So they post it on Twitter on the IRS gov website. The login button was not in the top right in the nav bar like it is on most websites. It was weirdly placed in the middle of the page below the fold. An IRS engineer explained that the soonest this change could be deployed is July 21st, 103 days from now. This engineer worked with Doge to delete the red tape and accomplish the task in 71 minutes. Here are the below before and after pictures below. There are great people at the IRS who are simply being strangled by bureaucracy. And here you can see the login option was buried in the middle of the page with a bunch of other options, which is idiotic. No modern website or app would ever do this, and they moved it to the top right where you would expect to see it. And the IRS, with its typical bureaucracy, would have taken 103 days to do this. Doge was able to accomplish this in one day, proving that if you delete the red tape, you can do things 100 times faster at the IRS. I love this illustration. I love this example because I bet you there is so much bureaucracy at the IRS that slows things down 100 times. And as we've talked about on the show, David, they have a lot of money. They get $1,415 billion a year in funding. They've got tens of thousands of employees. Thousands. David Leary: [00:06:56] They're not bootstrapped. They have resources. Yes I agree. Blake Oliver: [00:06:59] Right. They've got thousands, tens of thousands in it. And for some reason, for 20, 30 years, they haven't been able to modernize their systems. Well. I think this is probably why this is a great example. David Leary: [00:07:14] And it's a good start. Right? It's something that I think I remember noticing this. It's like, where's the lot? Where's the login? I was hunting around for it before like so. It's a good change. As long as as long as they make changes that make sense and they're quick on those. Not quick on dangerous changes. Right? Blake Oliver: [00:07:31] There's more. It's not just the login button that's going to change. Doge is planning a hackathon. The verge is reporting that Doge is planning a hackathon next week to create a mega API for accessing IRS data. The plan involves moving IRS data to a cloud platform, potentially third party, to serve as the agency's read center. So they're going to move the data and mirror it on a cloud platform so that other parts of the agency can read from it. So not I think that's a really important distinction. It's not taking the the right side of things. They're not moving that yet. They're going to create a a mirror of it. Doge aims to complete the API work in just 30 days. A timeline one IRS employee called not technically possible and would cripple the IRS. David Leary: [00:08:24] Now, who's going to work on this hackathon? Blake Oliver: [00:08:28] Irs employees. Engineers in DC are being pulled together for this hackathon. Dozens of them. So dozens of engineers. David Leary: [00:08:37] Because didn't they shut down that government agency, that technical agency, ATF who? Yes, tech nerds that go Going mercenary on projects like this. Blake Oliver: [00:08:47] Correct. So this is the internal IRS engineers who are going to be dedicated to this project. And there is some, uh, you know, speculation as to if they use a third party cloud provider, who would it be? This would make sense because for the IRS to build its own cloud provider cloud system would not be doable in 30 days. So the suspicion is that. David Leary: [00:09:11] It's not Amazon because of Bezos. For sure. It's not it's not Amazon Web Services. So it's got to be Google or Microsoft. Blake Oliver: [00:09:18] Oh no there's one you're not thinking of. The one that uh, there's a lot of business with the government Oracle. Not not Oracle. That would be a good guess. But there's one other uh, it gets its name from Lord of the rings Palantir. David Leary: [00:09:32] That's right. Blake Oliver: [00:09:33] Right. Which got its start doing Intel for the US government. Top secret classified stuff, data analysis. You know mining all that data so that we can bomb people, right? Shoot. Know where they're going to be when you when you target them with a drone. Right. That sort of thing. So actually, you know, that would probably be the the best bet for taxpayer data. I'm sure Palantir can keep that stuff secret. Um, so this is a big deal because this is what is holding back the IRS. It's the inability to access this data and to do it in the cloud and to build connections to other software. They're still doing stuff manually, as we learned when we interviewed Jeff Johnston, the IRS agent. Go listen to that bonus interview. It's called green screens and pink slips. He got laid off. He talks about how as a revenue agent at the IRS, he had to go to a computer terminal with a green screen and then print stuff either to paper or PDF in order to access it from the Master Taxpayer System. David Leary: [00:10:33] Imagine it won't render in a way to read it on the screen. Is the problem. Blake Oliver: [00:10:37] Right? But you also can't just like export it to Excel. You can't do any of that. So then you got to go and take that PDF and manually do your, you know, auditing stuff. Which is why in like all those months that he was working at the IRS, he had only like gotten three audits, right? So you can be so much more efficient auditing if you've got the data in the cloud. And then think about all the opportunities to use Llms and AI to do auditing. That's all possible. David Leary: [00:11:05] Just getting the data into the cloud is going to just accelerate the ability for other engineers in the IRS to solve other problems faster, because they can just. Blake Oliver: [00:11:14] That's right. David Leary: [00:11:14] Have an API access to some data. They can solve a problem. It could it could improve support. It could tie back to the phone systems, the automated systems press one to understand this. And they can go do the data. Yeah. Blake Oliver: [00:11:25] Why do why is the primary way that people interact with the IRS is still the phone. That's insane. So if this stuff was in the cloud, you could have portals where we could authenticate as tax professionals or taxpayers and get access to our data. And work with it. David Leary: [00:11:42] People have to call because you can't find the login button. Login to the site so you have to call the IRS. Actually go to your previous screenshot. I bet you it was easier to find the phone number on the site than it was before the change. Blake Oliver: [00:11:56] Nope. No phone number. Sorry, David. You're wrong. David Leary: [00:11:59] How did people even call the IRS then? The phone number is not even there. How does this even. Blake Oliver: [00:12:02] I know, right? So, more IRS news. We've got IRS workers are getting another final chance buyout as more job cuts loom. The employees who didn't accept the Trump administration's first buyout offer are getting a second and final opportunity through April 14th. So that is really soon. Uh. The program mirrors the first offering with paid administrative leave that was offered through September 30th. Most permanent and term employees are eligible, including those in probationary periods. Eligible employees can start paid leave as early as April 28th and no later in general than then June 2nd. So hey, if you're at the IRS and you are nervous about these layoffs, maybe take that buyout and go get a job at an accounting firm where they need us. They need your they need your help. David Leary: [00:12:52] So if you're I'm trying to understand, like, who's going to take this? So if I did not take the first one and then I was just let go as a probationary, now I'm getting a chance to actually take it. So if I because I'm supposed to come back to work on the 14th. Right. All hands, all the parishioners are supposed to come back. And so that same day, well, accept this and then get the. Get the. Blake Oliver: [00:13:13] Deferred. David Leary: [00:13:14] Registration, the. Blake Oliver: [00:13:15] Vacation basically. Right. Uh, the the only issue is that now the courts have cleared the Trump administration to fire those discretionary employees. So it's whiplash, right? Every week we report on this, and one week it's like, okay, they can't the court the court said, you can't fire these people. Now another court says you can now another court says you can't. It's moving its way up the chain. By the way, before we talk about that, about 4 to 5% of the IRS workforce already left via the first buyout offer in January. And there is still a plan, apparently, to cut 20,000 IRS workers, 25% of the workforce. Now, again, that sounds really bad, but if Doge can actually get the taxpayer data into a modern cloud system that is secure and then connect other systems to it, you probably don't need those 25% of people. I mean, immediately, yeah, it's going to create a lot of pain. Just like these tariffs are going to create a lot of pain. And we'll talk about that. But you know, we will see I actually don't believe that the headcount reduction at the IRS has to necessarily create a lot of trouble for taxpayers and for tax professionals. It might actually help sometimes. Too many people, too many cooks in the kitchen. Right. Is a bad thing. Yeah. David Leary: [00:14:31] Now the you have to have the right people leave. Eve. Yeah. Blake Oliver: [00:14:35] You have to have the right people stay right or stay. David Leary: [00:14:38] Exactly. People that are about done with their career, they take the buyout. I mean, it's probably not as much of an impact versus somebody that actually knows what they're doing or saying. People that have been there a long time or somebody that's on the way out the door doesn't know what they're doing. But if you're more of an active contributor to the future of the IRS, you don't want those people to be gone, right? Blake Oliver: [00:14:58] No. You want them to stay and be excited. If I was one of these engineers, I might be really excited. Who gets to work on this hackathon? What a cool thing. I mean, you're like, this is like, you sign up to work at the IRS, but now you're working on like in the style of, you know, Tesla or SpaceX. David Leary: [00:15:14] Right? Blake Oliver: [00:15:15] Or a startup. Now let's talk about those fired probationary federal workers. A federal appeals court ruled in favor of the Trump administration, allowing them to fire these probationary federal workers. This was the fourth US Circuit Court of Appeals. They decided 2 to 1 that terminations should be handled through employment processes rather than federal courts. This reverses the previous order by US District Judge James Bredar. That had required restatement of fired workers. This is at least 24,000 probationary employees who were terminated. They were told they could come back. Now they're probably going to be terminated again, because I can't imagine why the Trump administration would reinstate them when they don't have to. And they wanted to fire them in the first place. Now, a little more Doge news that's not IRS related, but is Social Security related. There was a report on Futurism.com that the Doge team is secretly reworking, secretly working to rewrite the Social Security Administration's computer systems. The team plans to replace the legacy COBOL programing language with modern code, likely using generative AI. Steve Davis, described as one of Musk's faithful enforcers, is heading this initiative. Sources indicate they aim to complete the massive migration within months, despite the system containing approximately 60 million lines of code. I don't know if that like what that means. 60 million lines of code? David Leary: [00:16:44] Yeah. One engineer writes ten lines of code. Another engineer does the same thing in three lines of code, like it's not. Blake Oliver: [00:16:49] Or you use cursor, the AI code writing app that our developers are using now, and you can write an entire app with a single prompt. So this may not be as impossible as it sounds. Cobol is an ancient programing language, very reliable, that currently powers the entire Social Security program, 43% of banking systems, and 90% of fortune 500 companies critical operations. David Leary: [00:17:19] What happens if all the COBOL engineers take the the buyout? Who's got I mean, like. Blake Oliver: [00:17:25] Most of them are like most of those COBOL engineers are like 70 or 80 years old now. David. So like this is this needs to happen. This needs to happen more. Doge news than I promise. We move on. The Pentagon is cutting 5.1 billion in consulting and IT contracts with Accenture and Deloitte. Pete Hegseth, the defense secretary, characterized the terminations as eliminating wasteful spending, and the Pentagon expects to save nearly $4 billion through these cuts. The cuts also include Booz Allen. The Air Force had a contract with Accenture for reselling third party enterprise cloud IT services. I guess that's crazy to me. So Air Force is paying Accenture to buy licenses of cloud IT services. Like that's literally the definition of a middleman. It's just like a reseller relationship. What a joke. David Leary: [00:18:26] But we saw this. You could see the writing on the wall that the consulting orgs were going to get hit. It only makes sense because that's the the amount of spend that they were getting from the government, and the amount of percentage of their overall revenue is pretty major from this. And that's why Deloitte had to do the layoffs. Blake Oliver: [00:18:44] All right. That's it for Doge. Now let's pivot over to my other favorite topic tariffs. Love Doge hate. Tariffs. You can do both. You don't have to support them both if you don't want to. It's funny because David because of this we keep getting called out as either MAGA or I don't know what's the other side of MAGA these days, right? Like I get attacked on both sides for this. Yeah. David Leary: [00:19:14] Somebody called you a buffoon pumpkin head or something because your take on tariffs, I'm like, I don't know. Blake Oliver: [00:19:21] About MAGA people coming after me on Twitter for, you know. David Leary: [00:19:25] Because they're. Blake Oliver: [00:19:25] Not liking the tariffs. Yeah. And then I've got you know I've got super liberals on LinkedIn coming after me for the Doge stuff and defending all this inefficiency. It's wild. I want to take a quick look at our chatter in the live stream. David, would you mind thanking our sponsors and let's do that first sponsor message? David Leary: [00:19:49] Yeah. So our sponsors this episode are Cloud Accountant staffing and Bluevine. Blake Oliver: [00:19:54] Thank you cloud Accountant Staffing and Bluevine. And who are we going to hear from first David. David Leary: [00:19:59] We're going to hear from cloud accountant Staffing. In case you've missed the last 1000 or 1100 or so episodes of our podcast. Blake Oliver: [00:20:07] 1000, we're getting. David Leary: [00:20:08] Almost a thousand. I know it feels like that some weeks. Blake and I have been discussing almost weekly that there's a shortage of accountants labor. Right. Regardless of the root cause, the problem is we're real. My social media feeds are full of firms attempting to fill open positions on their teams. But how can anyone increase their staff size if everyone is attempting to hire during a labor shortage? That is where cloud accountant staffing comes in. They'll help you hire a full time team. They'll help you hire full team, full time team members for your firm that reside in the Philippines. How much would your firm change? Or for that matter, your life? If you could add 40, 80, 120 hours of capacity to your firm in 2025? Cloud Accountant Staffing was founded by a firm owner who grew his firm using offshore talent, and now he's applying everything he learned to help you grow your firm. If your firm is in need of expert bookkeepers, accountants, CPAs or virtual assistants, head over to The Accounting Podcast. That's The Accounting Podcast. Thank you, cloud Accountant Staffing. Blake Oliver: [00:21:11] And thank you live stream viewers for all your commentary. Great to see you, Sean. Brenda. Boring accountant Heather. Gator big for transparency. Awesome if you are watching and you've never chatted with us before, put a comment in there. Let us know what you think we want to hear from you. There's so many of you on the stream today it would be great. Boring accountant says my laptop purchased seven years ago, will become obsolete next year because it can't migrate to Windows 11. But iris data systems are no exaggerating. 60 plus years outdated as reported by the Gao. Yes, the only system that is more antiquated than the IRS systems is our the one that they use in our nuclear silos that run on floppy disks. Now, arguably you want that because nobody can hack that. David Leary: [00:22:02] Using. Blake Oliver: [00:22:03] Floppy disk. It's completely offline. Um, but I don't think we want that in the case of the IRS. Welcome, Stephanie. Stephanie is a forensic accountant. Says great podcast. My new favorite. Awesome. Great to have you with us. Now let's turn to the other side of the debate. Uh, and talk about tariffs. China called our tariffs a joke. We are in a full on trade war with our biggest trading partner, at least used to be. And one of our biggest investors in the United States, China. So President Trump backed off of the global reciprocal tariffs, which are not actually reciprocal. Uh, apparently he was looking at the bond market and did not like what he saw. Doesn't care about the stock market, but cares about the bond market and backed away from this, which, uh, helped to lower yields on US treasuries. We'll talk about why that happened. But he's keeping the tariffs on China. And I honestly can't believe the markets popped as high as they did because the tariffs on China are enormous and they're our biggest trading partner. So it's going to really screw up the economy on both sides of the border. These tariffs have Every raised trade levies taxes on US imports, their highest level in 100 years. And let's just take a moment and think about what this is going to do. Total tariffs on Chinese goods are now 145%. So if you were importing something for $100 now it's going to cost you $245. David Leary: [00:23:50] So Dollar Tree is now the $2 and 50 cent store. Blake Oliver: [00:23:54] You literally have to pay more in tax as a as an American company to US customs. Then the product. Then you paid for the product to the Chinese manufacturing company or wherever you're getting it from in China, which basically completely destroys the economic reason to import anything from China. And China responded with its own tariffs. They said they'll raise tariffs on US goods from 84% to 125% starting April 12th, which is tomorrow as we record this. And the Chinese China's Ministry of Commerce called the US tariff increases a joke and economically meaningless because basically at this point, it just shuts down trade. There is no longer going to be anything going across the border either way, unless a company is extremely desperate and just has to have that that product. We currently trade approximately $700 billion worth of goods annually. So here we are. A US president has unilaterally shut down trade with China, declaring a national emergency to do so. Apparently, I don't understand how this works. Apparently the president can just say that persistent trade deficits are a national emergency, and that that allows him to use his emergency powers to change tariff rates. And this is the thing in the discussion that I just have not understood is how is this even constitutional? Because it's not the executive. It's not the president under our Constitution who has the authority to levy taxes, which is what tariffs are. It's Congress. Now, Congress passed a law that allows the president to use emergency powers in order to restrict the movement of goods across borders. It doesn't say anything about tariffs. But that is what the president is using to do this. David Leary: [00:25:59] Sometimes I think he confuses the deficit with a trading deficit with the country. There are two different things. Blake Oliver: [00:26:06] He's definitely confusing tariffs with a trade deficit. David Leary: [00:26:09] Yeah. Blake Oliver: [00:26:10] And that's what we talked about last week that the calculation for the tariffs is based on trade deficits and not actually the other countries tariffs or trade barriers. So it's a completely nonsensical calculation because it's not a reciprocal tariff. It's just based on a trade deficit. And you know, if you want to hear my argument about that, go back and listen to that episode. But you're not going to fix trade deficits by raising tariffs. Well, actually you will. But the way you'll do it is by destroying the US economy so that we're not buying stuff anymore from these countries. But it's it's not going to make us export more because it hurts on both sides of the aisle, both sides of the border. And, you know, the Wall Street Journal did a good job explaining this. So I think this is the thing that like, we have to as accountants, as CPAs, as financial experts, we have to communicate this to the public. We have to use our voice to make this clear because Trump's followers don't understand this. Trump himself may not understand this. It doesn't sound like he does based on what he says. And here's the best way I can describe it is that really high tariffs like this are basically the business equivalent of nuclear war. They hurt you as much or more than it hurts your enemy. Yeah. David Leary: [00:27:41] And the short term it can produce some revenue. But in the long term if it hurts GDP, you're not going to get as much revenue as you thought you were going to get. Right. And that's that's that that's it's it's a short term game not a long term solution. And and just to bring this back to like the tariffs and the real impact, I did a LinkedIn post about this for accountants and bookkeepers that have clients that are impacted by the tariffs. And so some people were putting in some stories. For example, this is a a story. So somebody had a client that was actually on Shark Tank and has a contract to deliver products to Walmart and Target. Apparently this client even won the Minnesota Small Business Person of the year award, but she has a bunch of products that she's abandoning in China because she can't afford the additional $160,000 in tariffs to bring these goods into the states. And this is a real. These are small business stories that are our listeners. These are their clients. Your clients are suffering from this. And there's a bunch of other stories like this where their Cogs just increases astronomically, and they can't afford to either buy materials or produce materials. Just you can't afford it. Blake Oliver: [00:28:48] And this is what's also lost in this debate, is that these orders of raw materials, parts, finished goods are placed by business owners here in the US months ago, and they may have already paid for this stuff. Now it's at the port. It's like at the Port of Los Angeles, and it's getting unloaded, and the business owner now has to take custody of it. Well, before they can do that, they have to pay the tariff and they pay the tariff to US Customs and Border control or border Protection. And if that tariff suddenly is now I don't know. I don't even know what it was before. It was very low before compared to what it is now. If it's 145% now, that means suddenly they have to come up with cash. That is more than they're cogs for the product, more than their cost of goods for the product. So where are they going to get that cash? What are they going to do? They're either going to have to borrow. And interest rates are not good right now, or they're going to have to cancel orders of their customers and abandon the product that they ordered. Or they're going to pay the tariff and then make cuts elsewhere and lay off employees and close stores and weather the storm and shut down. Here's another example. Npr did a story about Sarah Wells. She's the owner of a 13 year old company selling breast pump backpacks. So, you know, you're a you're a mother. You're breastfeeding. This is a backpack for all your gear. Very important these days because you got to take it to work, right. You got to do. David Leary: [00:30:29] All that work from home anymore. Exactly. Blake Oliver: [00:30:31] Yeah. Yeah, exactly. So she had to pay an unexpected $15,000 in tariffs that she hadn't budgeted for. And that was only when they were at 54%. And she is considering considering either raising prices, ordering less inventory, pausing, hiring or or halting new product development, probably all of those things. She says even if we pass some cost to the consumer, we can't pass it. All businesses will close. Same story with Jessica Bettencourt, who runs a 75 year old family general store in Massachusetts. She's talking about going into survival mode. They're going to cut back to only need to have items. And the issue is that these small businesses, if they try to source in the US, they find that there aren't enough US manufacturers right now to handle the production scale. The products still need raw materials from China. So you got to pay for the raw materials tariffs, and it's going to cost 3 to 4 times more. Rosalind Goodwin who sells, you know, hair, hair barrettes. David Leary: [00:31:41] I was listening to a podcast and they were talking about can you even build the iPhone in the US? We don't even have the skill set and technology to build the factory. Like we can't even build the factories. Then every time an iPhone comes out, the factory has to be completely retooled and reskilled to build that new version of the iPhone. Like, we just can't build it here in the States. It's kind of crazy that it seems so simple. We'll just make everything here. But it's way more complicated than that. Blake Oliver: [00:32:08] Wall Street Journal. Joanna Stearns at the Wall Street Journal tech reporter, did a a breakdown of the bill for an iPhone 16 Pro with these new tariffs. And that was only when it was 54%. So pre-tariff. An iPhone 16 Pro costs what, like over $1,000, right? Thousand, I think 1100 bucks. And basically half of that is Apple's Cogs. It costs about $550 for them to manufacture and bring in that that iPhone. David Leary: [00:32:42] And they basically have a break in markup and that's their profit margin. Blake Oliver: [00:32:46] They mark it up to X, which is a nice healthy markup for an electronics business. That's why Apple is so valuable. Well, think about it now. Now the graphic here shows that the price goes up 300 on their Cogs per iPhone, but now with 145% tariffs. I mean, just the cost of the iPhone is going to be like $1,500. So what's Apple going to have to charge to maintain their margin? 3000 bucks for a phone. But but that's just three x the price of an iPhone. David Leary: [00:33:21] But but that's in a perfect world where the demand is never going to change. But really, what's happening to people's profit and loss is your Cogs is going up because you have to pay like you just used that example twice as much to bring those goods into the country. But then on the other side, target, Walmart, the big retailers are pausing, purchasing because they're afraid consumers were going to be in a recession type scenario. So now your revenue might be shrinking and your Cogs is going up two x. We're creating a very bad situation for these smaller business owners. Blake Oliver: [00:33:51] I don't think Apple can sell the iPhone at $3,000. I wouldn't buy one. Well, I mean. David Leary: [00:33:57] If if you're you're not going to pay that much for an Apple product. Blake Oliver: [00:33:59] No. David Leary: [00:34:00] Heck no. Blake Oliver: [00:34:00] I'm not. David Leary: [00:34:01] You love your apple stuff. Blake Oliver: [00:34:02] I got my iPhone 16. You know, like this year, late last year. I'm probably going to keep this until we solve this problem. And here's the thing. Crazy thing is that everyone's saying, uh oh, yeah, Apple can just build the plants here in the US. Now that completely ignores the labor costs to do it here. And the fact that there's all these raw materials that you still have to bring in and to actually build this plant would take years and years and years. I've been trying to estimate this using AI research tools. Right. I'm using perplexity and it's saying the fastest you could do it would be like 5 to 7 years to actually pull it all here. Like actually that was that was in response to the Nintendo Switch canceling preorders. So what would it cost or how long would it take Nintendo to build a factory in Ohio to produce the Nintendo Switch? Two here. And 5 to 7 years is about as fast as they could do it. And I mean, you still have to bring in raw materials though, because we don't mine all that stuff here. Right. So you'd have to source it from places other than China. Um. It's it's this is the problem, right? Is it like. And I actually don't see how, um, the Republicans survive the midterm elections in this situation, because it's not like all this stuff, you know, like, yes, the tariffs will bring back manufacturing to the US. It will. Somebody's going to see the opportunity here and start making stuff here. Right. Obviously. But it's going to take a lot longer than when's the when's the next election cycle. Blake Oliver: [00:35:35] And the pain is going to be really severe until then. So you know I saw a clip of some really intelligent Republican senator asking this of Trump's tariff team in Congress, like grilling him, saying, look, we've got 14 months. What's going to happen in 14 months? Where are we going to be at? Um, and it's crazy that they're doing this because, like, it doesn't make any sense strategically, politically. When McKinley, you know, Trump likes president McKinley, I think William McKinley, who implemented the McKinley tariffs in the what was it, the 1890s? He's a big fan, but he didn't read to the end of the chapter in that textbook, because what happened is McKinley led the charge to implement high tariffs, just like we're doing now. So McKinley was the Trump of his era. He wasn't president yet. He was like the leader of the party in the opposition. But they controlled Congress and they put the tariffs in place, and they got blown away in the next elections that, like the Democrats, just destroyed them because it raised prices significantly. And it didn't, you know, hurt the economy a lot. So. Hey, you know, if you're a partizan on the Democrat side, I mean, this is going to suck for small businesses and all that, but I don't see how the Republicans control Congress after the next set of elections. Um, here's an example of another business, a big one actually hurt by tariffs. At home Group, based in Plano, Texas, there are home furnishings chain that has four. David Leary: [00:37:18] It's all Chinese stuff. Everything in there, right? Blake Oliver: [00:37:21] The whole place. David Leary: [00:37:22] The whole place. Blake Oliver: [00:37:23] They have 250 stores across 40 states. They sell furniture, decor and other home goods such as bedding and seasonal decorations. I mean, they're going to go bankrupt. That's according to exclusive reporting by the Wall Street Journal. 250 stores. How many employees do you think they have? Thousands. I mean, there aren't that many employees in that store because I've been in there and it's like literally just like a warehouse. And there's like there's like people there's like ten, maybe there's ten employees in each store, but still that's thousands of employees. Thousands. David Leary: [00:37:56] And the bigger risk to the economy is nobody knows what's coming next. So things are getting on pause. Why would you, if you're a business owner, take a chance to open a second location? If you don't know what your costs are going to be on a product or you want to resell, it makes you afraid to hire people. It's like, this could really make the economy just really slow down. And that's probably the worst scenario here is like, do we does it become a recession everybody's worried about like 041 K's went down and some of the stock market went down. But we probably have much bigger worries than that. Blake Oliver: [00:38:27] I want to make this crystal clear for our audience what the impact of these tariffs is. And the best way to do that is just to look at an income statement, a hypothetical income statement for a company that imports from China. And just for the sake of illustration, let's assume that it's like at home group where literally everything that they bring in is from that one country, from China. And let's also, just for the sake of simplicity, assume a 100% tariff rate on this business. Now there's three different types of goods you can bring in from China. There's raw materials, there's parts and there's finished goods. And they all have a slightly different impact. So let's start with the first or the last type right. The finished goods. So you're a retail business and you import finished products from China. And you sell those in the US market like at home group. Let's say that revenue is $100. And let's just illustrate what the impact is on net income. So before tariffs your revenue is 100 bucks. Let's say it's an item that's $100 right. So you sell that item for $100. What's your cost of goods sold. Your Cogs is probably let's just say $60 okay. This is just for illustrative purposes. I understand it might be more, it might be less, but let's just say it's 60 bucks. That means your gross profit is $40. And then let's say you have operating expenses of 20. That leaves you with a nice healthy net income number of of 20. Now, I know that might be too high. Whatever. But let's just say that's 20. That's a great business. That's a really great business. Okay. What happens after 100% tariffs. Well your Cogs goes from 60 to 120. So now you've got a gross profit of -20. You've got operating expenses at 20 and you've got net income of -40. How do you save that business. How do you even make that business profitable? You don't even have enough operating expenses to cut. David Leary: [00:40:23] Because especially if you're a retailer, you got to buy more goods to sell. And so your variable cost is just going to keep racing up faster than you can deal with. So you can't produce the revenue if you can't buy the products. Yeah. It's this is definitely a trap for retailers. Blake Oliver: [00:40:38] They're going to try and remember all these goods were ordered months ago. So you have to come up with the extra 60 bucks. David Leary: [00:40:45] That's the word that that actually is a horrible way this is implemented. It should have been whatever the hour text. What do you call Liberation Day? Any goods that are ordered on or after Liberation Day are subject to these taxes, not goods you ordered months and months ago. Blake Oliver: [00:40:59] Yeah, that's just cruel. Right? So somehow they have to come up with, like, you know, twice their net income in order to fund their Cogs, like, okay, so that's if you have finished goods, right. Let's say you just import the parts. Well your Cogs is going to be lower. Right. So it's 100 bucks revenue, let's say 40 cogs that and but then you have to pay 20 bucks, you know, to assemble everything in the US. So now your total Cogs is back to 60. That's actually kind of probably understating the cost of assembly in the US because it's cheaper to assemble in China, but whatever. So now we've got gross profit of, you know, um, 40 bucks actually did this do it right. So it's revenue minus so it's 100 -40. I used AI to generate these tables, so we have to actually fact check them in real time. Um, you have operating expenses of 20, like so basically your net income is, uh, 20 still, right? Well, after the tariffs, which increased the imported parts cost by double, you're at -20. So you're still you're still losing. So you're -20. It means basically you have to cut all your operating expenses in order to even just break even. You have to basically shut down so that that business that does assembly here is just going to sell its stuff and shut down and be done, go bankrupt. I don't know, or just pause. Actually, they're not going to go bankrupt. They'll survive, but they're just going to stop doing anything for a while. And then you have the businesses that import raw materials and it's kind of the same situation, right? So anyway, I just want to illustrate this because, um. David Leary: [00:42:43] So there's a direct relationship Between the percent of tariff and the percent of your Cogs is part of your profit and loss statement. Blake Oliver: [00:42:53] And the impact on your net income. And so this is the thing. It's like a 10% tariff. You can absorb that because that may only decrease your net income a certain small less than 10%. Right. And you can pass on a portion of that cost to customers. And that's why like 10% tariffs only resulted in, say, a 2 to 3% price increase for customers the last time because it was shared a little bit on discounts we got from Chinese manufacturers or suppliers, a little bit cut from net income or profit of the business and a little bit passed on to the customers. That works with low tariffs, with high tariffs, the whole business model becomes unsustainable. David Leary: [00:43:37] So because if you go into the home goods store tomorrow, it's our at home. I always forget the name of that store. Blake Oliver: [00:43:41] It's at home. David Leary: [00:43:42] Yeah, it's at home. Blake Oliver: [00:43:43] We have one here. David Leary: [00:43:44] Tomorrow in Scottsdale and everything is twice as much. You're just not going to buy things. I don't need that and that everybody suffers from that. You don't get a good you wanted. The retailer doesn't make the sale. People lose their jobs. Yeah. Blake Oliver: [00:43:57] And then those people have less money to spend in the economy, which hurts the broader economy. And then let's not forget the other unanticipated consequence of this policy. Well, our exports are more expensive. And that's because China, as I mentioned earlier, is one of our biggest investors. So the money that in the in the trade deficit situation. Right. China sells us a lot of stuff. We send a lot of dollars to China. Now China doesn't spend those dollars. China saves a lot. Chinese consumers save a lot and the government saves a lot. And so that money makes its way into the banks in China and into government coffers. The Treasury there. And they use that money to buy US bonds, treasuries, they buy our debt. They have been financing our debt for decades. China owns $670 billion in US government debt as of January, making it the second largest foreign holder after Japan. So China and Japan together. Japan is like 4.8%. China's close to 3%. That's a lot of US debt. Now, what happens when you start a trade war with your investor, with China and with Japan? Thank God it's not Japan anymore because that was a problem. But what happens? What are they going to do? Well, they're going to say, you know what? Screw you. I'm not interested in financing your debt anymore. Your lifestyle. I'm going to sell it. What does that do? When more U.S. Treasury bonds enter the market, the price goes down or demand goes down. And what happens if demand for bonds goes down? Well, when the US Treasury. Uh. When the fed. You know, when they need to sell bonds, they have to raise the interest rate. So the rate goes up. What happens when the rate goes up? All the interest rates in our economy that are fixed to treasuries go up. Blake Oliver: [00:46:08] Us debt becomes more expensive and borrowing becomes more expensive, both for consumers and for businesses. So now all those businesses that need to borrow money to pay these import taxes that President Trump has imported or implemented now, it's really expensive for them to get financing. Consumer credit card interest payments go up. It's hard to get refis on your house. So now they're spending less. Our whole economy, uh, slows down and our exports become more expensive because the value of the dollar falls. When there's more dollars out there too, then the value of the dollar falls. So our exports become more expensive to the countries that import them, and that reduces demand. And that's why Trump had to back off all this stuff, because we'll see this in the data, whether or not this happened. But I'm almost sure that, like, it's all these other countries that have been financing our debt that are just selling the debt that cause the, the, the rates to skyrocket. And that is a real problem because Trump wants to do tax cuts and you can't do the tax cuts if your debt payments grow because of these higher interest rates. So I don't even know if the Trump administration is aware of of what is happening here strategically. Like China has a lot of leverage in this respect by holding 3% of our debt foreign owned anyway in Japan can really mess with us too. So like here we are in a trade war that I don't. I don't know if we have the will politically to fight. And what will probably happen is we will suffer for a while and then the Republicans will get booted out and Democrats take control of Congress. And that'll just pause everything until Trump's out of office. David Leary: [00:48:05] And if with the tariffs, it might happen I mean, it can't happen sooner. But this could hurt the Republicans for a very long time. So the Tax Foundation was talking about how they did a study on the different tiers of taxes. Right. And, you know, 10% tariff with the hit on GDP would be a 15% tariff, a 20% tariff, but a 10% tariff is about 400,000 jobs lost over the next decade. A 15% is about 581,020% tariff is 100 735,000 jobs lost. That's only 20%. And we're talking what are these tariffs are being thrown around right now. Blake Oliver: [00:48:44] More. David Leary: [00:48:44] Than in. Blake Oliver: [00:48:45] Terms of what it's going to raise. David Leary: [00:48:46] Well no the tariffs we're I don't even know where we're at 40% tariffs 50% on some countries. Blake Oliver: [00:48:51] It's so now it's it's everything. But well it's 10% I think I don't even remember anymore. Right. It's like I think we still have 10% international or pause for 90 days. Pause for 90 days, except for China, which is now like 145%. Yeah. Which is it's like over $1 trillion in taxes on America in in one move. So remember, that's that's a lot of money because our total tax collections in this country are like 5.5 trillion every year. So like adding over $1 trillion in taxes, new taxes with this move is like 20% more taxes. David Leary: [00:49:31] With elections being one loss by a few thousand votes here and there between states. You can't afford to have 735,000 people lose their jobs. Yeah, you're going to lose those votes at the end of the day. Yeah. Blake Oliver: [00:49:43] Exactly. Um, Matt Kay says but won't the impact on China be far worse than the US? I think it's going to be bad on all sides. The thing about China, you have to remember is that they're not a democracy. So the leader of China is not doesn't have to worry about elections. David Leary: [00:50:04] But this. Blake Oliver: [00:50:05] Sucks. David Leary: [00:50:06] Like, if I oh I'm hungry. I couldn't afford to buy food this week. Good thing my neighbor is more hungry than me. Like, that's not a way to view this. If it sucks for us, just because it sucks worse for them doesn't mean it doesn't suck. Like, who cares if it's worse for China? Blake Oliver: [00:50:20] It's an awful game of attrition or war of attrition. And I don't think we have the political will to do this in this country. Like it? It's just. It's such a bad idea because it ultimately long term, all it does is it. It might weaken China, but it hurts us more. It isolates them more. And when we did this last time we created Germany, we created we created the Nazi Party in Germany. Basically, we enabled the rise of Adolf Hitler by isolating Germany, by turning it into a powerhouse. Because here's what's going to happen. So you're China now and you can't sell your goods outside your country. Well, they have been suppressing their, you know, currency and exporting goods to grow their industrial economy. They had to go from basically being farmers to being manufacturers Facturers in like a few decades. We're talking since Nixon went there in the 70s. So what is that now? David Leary: [00:51:37] 89, 60 years old, 50 years, five decades? Blake Oliver: [00:51:41] So in like in in basically one, two generations, China has completely transformed. This took us hundreds of years, right? It took us from our country's founding in 1776 all the way until 1900. Now China has done this in 50 years. Um, what are they going to do? Well, if they can't send their goods elsewhere, they're going to start buying it themselves. So it's just going to accelerate China's continued rise, if you ask me, because they're going to say, all right, we're going to stop subsidizing US debt. We're going to stop buying it. We're going to use that money, and we're going to get our people to become consumers. They're going to grow their own consumer economy. So China's going to turn into America in the 1950s, and they're going to be isolated. They have an enormous population. They've got advanced AI technology and robotics. They're going to build. What would you do if you were the president of China in this situation? You'd build a giant freaking military to rival the United States. David Leary: [00:52:52] All countries do. Right. If you have a depression, how do people get out of the depression? You go to war because what happens? You have to employ people to fight the war. You have to employ people to build all the war machines. Yes. If our economy goes bad and oth. Thank goodness China's is suffering worse than ours. The alternative is, like you said, maybe they somehow create their own internal economy and build all these, start consuming the products they're making. But the reality is it probably heads towards a war machine because that's what the. Blake Oliver: [00:53:18] Reason you do that, and the reason you do that politically is because nationalism is popular. It distracts your population from all the problems that are being created. So you blame an external force, which like would be very easy for China to do right now. We do not look like we do not seem very nice right now. So you blame the US for all your problems. You build up your military, which also helps you suppress dissent in your own country. This is this is not what we want to be creating. We want a China that is becoming rich by supplying the rest of the world with manufacturing. And we can do that while we still grow our own manufacturing because of robotics. If we invest in robotics and AI here in the US, we can build AI factories that rival and surpass what is happening in China. But we also have to make the investments in energy, in our infrastructure, in our grid, which we are not going to be able to do now because our debt is going to become more expensive to serve. And I guess we're going to have everybody working in like factories making t shirts now instead of Modernizing our grid, which is what we should be doing. David Leary: [00:54:29] Do you think we should read the next ad? And then I'll pivot to another, possibly bad decision by the federal government that's currently going on. Blake Oliver: [00:54:38] I want to I want to say one more thing before we get to that ad, okay. And this is something that I, I'm very sad that this is not like the the tone of the discussion online is so anti-China that it misses the humanity involved in this. And even the people here that are going to be affected. So. The people in China that are going to be hurt by this, they are people like you and me, David. They are human beings. They have families they want to feed. They have businesses. They are entrepreneurs. They're making stuff. They're trying to make a better life for themselves, just like the US companies here on our side that are buying those products, that are selling them, that are marketing them, that are designing them, their people, and those people are going to get ground under the boot of these tariffs and the policies that both of our leaders are putting in place. And, you know, that's what bothers me about this discussion. So when you go on Twitter and you say, yeah, yeah, like, you know, let's crush China, let's destroy China, that's billions of people, you know, human beings, business owners, entrepreneurs there. I just want you to think about that for a second. There's there's people over there. And, you know, they didn't sign up to be born in a communist country. Okay? That's just the hand they were dealt, and they're trying to make the best of it. These are the best people. These are the people in China that we want on our side. And here we've decided to make them an enemy. Let's make our second sponsor, David. David Leary: [00:56:29] Let's jump in. I'll let you read the ad. It's bluevine. Blake Oliver: [00:56:32] Thank you. Bluevine. Your small business clients deserve banking built specifically for them. Meet Bluevine, the business banking platform created to save you and small businesses time, money and hassle. With Bluevine, your clients don't need a savings account. They can earn up to 1.5 APY on checking balances when they meet an activity goal, and up to 3.7% APY automatically. With upgraded plans and with no monthly fees for standard plan customers, free standard ACH and competitive rates on same day ACH wires and international payments, they'll save more where it counts. But Bluevine doesn't stop there. 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That's The Accounting Podcast promo. And please do use those links when you go visit our sponsors. It helps us because then our sponsors know you listened, you heard about them through this show and then they want to sponsor more. And that supports the work that we do here at the accounting podcast, which includes someday, hopefully getting a research assistant. I would love that. A fact checker. A research assistant. If you complain that Blake gets it wrong. Help me hire a research assistant. Wouldn't that be a good point? Yeah. David Leary: [00:58:44] So let's talk about something else that maybe wasn't thought out fully before it was implemented. So the IRS has now agreed to share tax information with the Department of Homeland Security to basically deport taxpayers, also known as, um, illegal immigrants. Blake Oliver: [00:59:00] Unauthorized immigrants. David Leary: [00:59:01] Unauthorized immigrants. Blake Oliver: [00:59:02] Right. Illegal immigrants. We can't call them illegals. Yeah, you told me that before the show. David Leary: [00:59:06] And then. And then I still said it. Yes. Um. Unauthorized. So they've they basically are going to, um, share names, addresses from tax filers using their Taxpayer identification numbers because a lot of them don't have Social Security numbers. So they're paying into this. And some other articles about undocumented households paid 90 billion in taxes in 2023, and that includes 56 billion of federal and 34 billion of state and local taxes. And they're estimating over the next decade it's about 313 billion in revenue. We will not get taxes collected because of basically, you're scaring away people from filing their taxes if you're not deporting them. Anybody who's here is not going to file taxes, because that's just going to put you on a list of people that are going to be in trouble and getting deported. Blake Oliver: [00:59:55] How much could tax revenues fall because of. David Leary: [00:59:58] This over the next decade? It'd be about 313 billion. So over a trillion order over a quarter of $1 trillion won't be collected in revenue. Blake Oliver: [01:00:06] Over 300 billion per year, potentially. David Leary: [01:00:09] Um, this is over ten years. Blake Oliver: [01:00:11] Ten years. David Leary: [01:00:11] So per year, it's about anywhere I Anywhere. I think it's about 56 billion a year in federal, about 50 billion a year. Blake Oliver: [01:00:18] We talked about this last time. I think it's like 100 billion total from authorized immigrants. Yes. Unauthorized workers that are paying taxes here. I mean, I was listening to somebody from Doge on the All In podcast talking about this at effort. And I mean, this could be used for good or for evil, right? It's like we want I would argue that we want the immigrants here who are working and paying taxes and contributing to our economy. And you should agree with me, especially if you want more manufacturing in the US, because it's not like David and I are going to go get manufacturing jobs, right? We're podcasters. Most Americans do not want to freaking work in a factory. Like, who's going to go do that? What your Gen Z kid is going to go work in a factory making stuff? No. I'm sorry. Like, we need to import people if we're going to do it, so you can't have it both ways, right? You can't kick Pick all the, you know, people who weren't born here out of the country and then at the same time raise tariffs and say, we're going to reshore manufacturing. Who's going to work in these factories? And maybe it'll just be robots. David Leary: [01:01:25] I don't know. The stereotypical gripe is, oh, they're they're here illegally or not authorized and they're using our services. But nobody nobody forgets. The other part of that argument is they're paying in to use those services. They're paying taxes. And now we're going to scare away people from filing taxes because the IRS who says, hey, file your taxes, trust me, is now. Yeah, file. Blake Oliver: [01:01:46] Your. David Leary: [01:01:47] Taxes. Blake Oliver: [01:01:47] Just file your taxes, even if you're Al Capone, right? File your taxes if you're selling weed. File your taxes if you're doing anything illegal, we don't care. Right. We just want your money, which I think is the correct policy for the IRS. We want people to be paying their taxes, so we don't want to discourage them. Um, did you see the acting commissioner resigned. David Leary: [01:02:09] As a result of this? Yes. Blake Oliver: [01:02:10] So did you mention that? Sorry if you didn't. David Leary: [01:02:12] No. Not yet. Melanie Kraus, she's gonna, uh. She decided to leave the agency because of this. But not only her other officials have resigned. Um, Brian Musselman, he's the CFO. Emily Kornegay, chief of staff. Charles Messing, chief risk officer. And Kathleen Walters, chief privacy officer. So you're having this exodus of the C-suite now at the IRS because of this? Blake Oliver: [01:02:38] Okay, David, um, I blew it. And we spent the whole episode talking about tariffs, the IRS and Doge. And so we didn't get to any of the app stuff. So I'm going to commit to you that next episode. We're going to start with it no matter what, even if there's like the juiciest Doge tariff news. We're going to start with, with tech news. David Leary: [01:03:02] I'm going to make you next episode. Next. Blake Oliver: [01:03:04] Okay. Hold me to it. Can I do the PE firm thing before we go, because I think this is really important to talk about. I just posted. David Leary: [01:03:15] About this this CPA signature thing. Blake Oliver: [01:03:18] Yeah. David Leary: [01:03:19] So yes, please. Blake Oliver: [01:03:20] So this has to do with the future of the CPA license. This is probably the biggest threat to it. One of our listeners who I will not name unless he wants to be named. So let me know if you want to be named. And you're listening. Uh, one of our listeners called me to tell me that they have a friend who works at a we'll call it a top 100 accounting firm. This is one of the largest accounting firms. You know what? It's even bigger than that. It's a top 25 accounting firm. Don't want to get too specific because I don't want to identify them. This person works at a top 25 accounting firm. This is a firm that took on private equity money. They are now owned by private equity. And they did that thing where they split the firm in two. You create a non CPA entity that does everything but assurance. And you have the CPA firm that just does the audit and they share a name. They share a website. But they're two legal entities. And that's how you get around this non CPA firm ownership. Blake Oliver: [01:04:26] All the red tape of being a CPA firm etc.. It's been done for decades. And they did it. Uh the AICPA even supports this and has helped guides as to how to do this for firms. Right. So. This person who works at this firm that took on the PE money, they're a CPA and they were told to stop using CPA in their email signature and to even take it off of LinkedIn. Why? And why would the private equity people do this? It's the private equity people who are driving this. Why would they do this? Well, apparently at least one state Board of accountancy is going after this firm and telling them your CPAs who work in the non CPA firm on the consulting and on the tax side, they can't call themselves CPAs anymore. In their communications and the way they hold them out themselves out to the public, it's going to confuse the public. The public's going to think that you're a non CPA firm is a CPA firm and that is against the law. David Leary: [01:05:27] That's crazy. Look at all the insurance salespeople and financial planners that became a CPA once. And you have their CPA designation but they're not really practicing and they use CPA. This is this this is very interesting that that a society is going after this. Essentially it's a firm or they're going after the P company, but they're going after the firm. Blake Oliver: [01:05:46] Well they're going after the they're going after the firm. And they're, they're telling the firm you can't have your people using CPA. Want to talk about an existential threat to the CPA brand? When CPAs can't call themselves CPAs anymore. David Leary: [01:06:04] Because of at the State Society of CPAs says they're not allowed to call themselves a CPA. Well, members of the. Blake Oliver: [01:06:09] Board of Accountancy. David Leary: [01:06:10] Or Board of Accountancy. Yeah, you're paying into these memberships and you're not getting the representation. Blake Oliver: [01:06:16] Isn't that wild? So I reached out to a number of leaders in our profession to ask them if they know about this and if they have any comment on this. And we got a comment from the president of the AICPA, Mark Koziel. He said, quote, we support the use of CPA to everyone who has gone through the process of becoming licensed. As I've heard in my listening tour, the passion behind CPA is evident. The CPA and what goes with it integrity, accountability, objectivity, competence is the value that we bring to the market, to our clients and to communities. It's what creates trust and firms of all business models, including alternative practice structures. What does that sound like to you, David? Sounds like. Sounds like Marcos is supporting the use of the CPA by these individuals, but it's not clear to me how this addresses the concern of the Board of Accountancy, which is. Well, hey, here, you got this firm that now has a non CPA firm with the same brand name as the CPA firm. So I can kind of see the Board of Accountancy argument here. It is. It could be misleading. This firm was always a CPA firm. Now suddenly they're not a CPA firm for everything but audit. David Leary: [01:07:49] So the same name they should put pressure on you Blake from using CPA. Since we're not we're the accounting podcast. We're not a CPA firm. People could get confused because you're Blake Oliver, CPA. It's the exact same thing. It's the same argument. This society is making the border. Not quite. Blake Oliver: [01:08:04] Because I'm not providing accounting services to the public, so I'm not in public practice. So I can call myself a CPA and and give you all of my opinions, and that's fine. But if I'm providing accountancy services to the public and I use the CPA, is that if I work in one of those alternative practice structure firms, is that creating a misleading impression? And whether or not it is, I just think it's insane that you have a state board of accountancy that wants to reduce the number of people who are using the CPA, like literally reducing the value of the CPA, because now I can't use it if I don't work for a CPA firm. Or are they going to make all these alternative practice structure firms change the name? That would be another solution. Is you can't use the same name and just say, here's Firm Name LLC and here's firm name. Uh, what are they, LPs or their partnerships? Right? A lot of times. David Leary: [01:09:13] At the end of the day, I'm thinking about the the market. Who's buying these accounting services? Do they care? Because right now the market doesn't know the difference. The market your CPA, they ask you you must do taxes. Like that's that's to the consumers of accounting products are. They don't even know what a CPA does. Like they're really gonna they're already confused. Why are they. This is not going to add more market confusion. They're not going to mistakenly engage in a consulting engagement because, well, I thought it was getting a CPA for my taxes. That's not going to happen. Like like are we just is this just a lot of typical like we have these established agencies that just like to control things at the end of the day? Blake Oliver: [01:09:51] Yeah. Well, I think the boards of accountancy like they missed the boat on this. They lost their chance. They could have stopped this decades ago, but now it's too late. What are they going to do? The private equity money is coming. The partners who haven't created a like the partners can't get their managers to want to be partners and buy in. So they're selling out to private equity because that's their only option. So you're not going to stop it. I guess the best thing they could do well, not the best, but the only thing they could do is they could force these firms to either change their name or just, you know. But here's the thing is, the private equity is calling their bluff. Private equity is saying, well, fine, you give us a hassle. We're just not even going to call ourselves CPAs, period. Not even our people who work at our firm are going to. David Leary: [01:10:38] What are you going to do about it? At the end of the day, what are they going to do? Blake Oliver: [01:10:42] Well, the. David Leary: [01:10:42] Board of accounting, everybody's LinkedIn page, what can. Blake Oliver: [01:10:46] They do? That kind of stuff. Like that's what they're doing instead of actually working to advance the profession. You know, like that's how God I hate regulators. David Leary: [01:10:56] But they're just going to send a bunch of letters. But can they actually do anything? Can they go to this big firm and say, well, you're using CPA and all your email signatures. Can they find them? Can they? Blake Oliver: [01:11:07] They they could try. The firm is not a CPA firm. So the Board of Accountancy, the Board of Accountancy has jurisdiction. If the firm is pretending to be a CPA firm. Right. They could sue them. They have jurisdiction over the individuals. So they could go after the individual CPAs and give them a hard time. So that's really. David Leary: [01:11:31] So, so so we're going to go after my employees. That's going to go out really well. Blake Oliver: [01:11:34] Yeah I think this is the biggest problem right now with the situation with the CPA license, is that it's actually not at the individual level. I mean, there's a lot of problems there too, right? But we're fixing that with CPA licensure. We saw that Iowa added a new path to CPA licensure, allowing you to skip the 150 hours. Do it in four years. We're fixing that. The individual licensure is getting streamlined. But if you look at the red tape around being an actual CPA firm licensed in the state with the Board of Accountancy. There's a big question as to whether that's even worth it anymore. I would not if I was starting an accounting firm. I'm a CPA. Unless I wanted to do audits. There is zero reason why I would become a registered CPA firm, because all it does is create paperwork, fees, hassle for me and nobody cares in the public whether or not I'm a CPA firm or just a consulting firm. They can't tell the difference. They don't care. So I'm not going to do it. So, you know, these. David Leary: [01:12:44] Rules and laws are just there to be rules and laws. I feel like and correct my memory. I might be a completely crazy person, but I feel like four years ago. April he did the bureau founder or adapter. He put April in his name so legally he could call his firm April or something crazy like that. Blake Oliver: [01:13:03] It's my favorite story. It's my favorite story we've ever shared on the podcast, and I'm going to share it again for you now listeners. Richard Koppelman, the CEO of Aprio, one of the largest accounting firms in the country based in Atlanta, Georgia, acquired a firm, I believe, in North Carolina. And but I might be wrong on that. So don't blame North Carolina if I'm wrong. Anyway, they acquired a firm in a state they didn't operate in, and that state, the Board of Accountancy, said, I'm sorry, you can't call your firm Aprio in our state because our rules say that if you're a CPA firm, your firm's name has to include the name of one of the partners. So Richard Koppelman legally changed his name to Richard April Kopelman. Yes he did. And that is why I love Richard Kopelman. And it is a model of ingenuity that I think any accounting or tax professional can appreciate, because he found the loophole. He found the runaround. He found the exception to the rule. So if you ever get that problem, you know you can do it. Oh, and by the way, I was involved in something similar. Can I share this story too? I think I already shared it on the show, but like, yeah. David Leary: [01:14:30] I'm just. Blake Oliver: [01:14:30] Thinking about it. David Leary: [01:14:32] Just thinking about a possible workaround. Like, what if you put a C double space, a P double space and an A? So it's kind of spread out. So it's just three spaced out letters. It's not right next to each other. There's probably other workarounds to get around this. Blake Oliver: [01:14:44] Possibly you might be able to innovate here David. Uh dark horse CPAs also had this problem. Multiple state boards of accountancy are hassling or were. Anyway, I don't know if they're still going on, but they were hassling dark horse CPAs because they're a licensed CPA firm in all these states, and their name is Dark Horse, which is not the name of a human being. So what did they do? Well, they figured, okay, the rules say that you can have the initials of the partners in your name. So what if we just say our name is Dark Horse CPAs? You know, just like we're HBK, where we're w.t.f or we're HPC or we're ABC, CPA. Like, there's literally probably a CPA firm for every three letter acronym. Or is it an acronym? I don't know what it's called, but, you know, they said, okay, we just have to get shareholders who have one of those letters in their name. So guess who is the O in Dark Horse? David Leary: [01:15:54] Oliver. Blake Oliver: [01:15:55] Blake. Oliver. I own a minuscule number of shares of Dark Horse CPAs. I am a shareholder in Dark Horse CPAs, and it's my favorite thing. I just said that the Richard Kopelman story is my favorite thing, but this one's about me, so it's even better. Uh, David, I'm going to let you have the last word. And it could just be. Have a great weekend, everyone. David Leary: [01:16:25] It might be that, but I thought you I brought the story because I figured you would love this story. So Shopify CEO tells his teams that they can't hire a body unless they can prove I can't do the work. So Shopify CEO Tobi Lutke sent out an internal memo. He made it clear that effective AI usage is now a core expectation for everyone at the company, and basically it's a hiring freeze at the company. And you have to justify why I can't do the job before you go hire a person. And he's describing that, you know, in general, this is the most rapid shift in he's seen in work methods in his entire career. And this even includes senior leaders as well. And his himself. They're all going to be held to that standard. So this could be happening especially I think, at your firms. Right. Because you're going to have. If you're a small firm of four people, you hire one more. That's a 25% change in your company. So if you can figure out how to figure out how to use AI to do that. So it just this could be more to come. But I brought this because I figured you'd like this story. Blake Oliver: [01:17:34] I do, and I think he's mistaken because you can't yet use AI to replace entire jobs. Uh, not like like the kind of jobs that you would get at. What is this? Spotify. Shopify. David Leary: [01:17:48] This. Shopify. Blake Oliver: [01:17:49] Shopify. I get the confused all the time. Very different. Um, I love them both. Did you know that Vuori uses Shopify? I was at the Vuori store in Scottsdale, North Scottsdale, and like their sales point of sale is Shopify. That's amazing. David Leary: [01:18:05] I'm surprised, because I've heard the Shopify point of sale is not a great thing. Well, it's worked. Blake Oliver: [01:18:11] Great for me every time. David Leary: [01:18:13] They must do a lot of online sales, maybe. Blake Oliver: [01:18:14] Well, that's how they started. And the stores are just like very few and in, like, uh, certain areas. But yeah, it's all it's all online, right? Um. I'm sorry. I'm just going through all the chat. It's great to see everyone. Thank you all. Jonathan. Matt HK fit pill, red. Anthony. Anthony says do you need to be a CPA to publish a balance sheet? No. Well it depends what you call it. Again there's a workaround, right? So when I had my firm, we did not prepare financial statements. We prepared management reports which happened to have everything that a financial statement has in it. But it's not called that. Funny how that works, right? Nope. Now, if boards of accountancy wanted to actually increase the value of being a CPA firm, maybe they would give CPA firms more of a monopoly on certain services, right? But hey, if I can do exactly the same stuff in a non CPA firm as in a CPA firm, why would I go and pay the fee to be a CPA firm? Jonathan says, Arizona CPA said I don't need to register my firm because I didn't do attestation. Why waste $300? There you go. Right. We're accountants. We're not stupid. Stephanie, congrats on getting your acceptance to sit in Hawaii for the CPA exam. I am so proud of you. It's a lot. I know you can do it. Stick with it. David Leary: [01:19:41] And hopefully by the time you get those letters, you'll be able to put them in your email signature on your LinkedIn page. You you will be prevented from using those letters. Blake Oliver: [01:19:49] Yeah, yeah. Hopefully the Board of Accountancy won't prevent you from calling yourself a CPA. God, what an idiotic move. I have. David Leary: [01:19:55] A question. If you go back two episodes ago, you were talking about the efficiency of AI. Like what would take a human an hour to do? It's currently taking. How long to do? Oh, remember that chart? Blake Oliver: [01:20:05] Well, so yeah, it was a study that analyzes the capability of AI, the ability of AI based on the time it takes to complete a task. And right now, I can do tasks that take humans an hour, but it's only 50% effective, meaning it only succeeds 50% of the time. So like this idea that you're going to replace entire jobs right now with AI, unless that entire job is doing tasks that only take a few minutes and just doing them over and over again, you know you're not going to replace it. But hey, you know, like in manufacturing, what have we done? We've taken tasks that you do over and over again, probably many times a minute. We've automated that with robotics, and now we're going to use AI to do tasks that take minutes long with AI robots. And very soon it'll be tasks that take like an hour. So again, that's another problem with this whole idea of like, we're going to bring back manufacturing jobs to the US because those jobs will be done by robots. They're not going to be done by humans if we do this. And so you're not going to like, revitalize the Rust Belt. It's not going to happen. Um, those jobs will probably be in factories that are here in Arizona where it's not that far from the port. You know, you can ship. You can truck the materials you need from like San Diego, LA, Orange County. I don't know where the port. I forget where all the ports are, right. Truck them over or bring them up from Mexico. And you can do robotic assembly here. David Leary: [01:21:43] The reason I brought this up is there's a story to KPMG was spending one hour to book a job candidate interview. So when they're in there, this is their HR hiring team was spending an hour just that you apply for a job at KPMG, an hour of back and forth to book an interview, and now they have AI and they're bragging that it now only takes 25 minutes. And I just think that's insane, that it still takes 25 minutes to book the interview. Um, they have this new chatbot called Chi, and it reduced the interview scheduling time by 60%, saving the team over 1000 hours across the whole HR team a year. Blake Oliver: [01:22:17] Okay, so I have a question about that. Is that time estimate like the back and forth? So if if there's like a bunch of emails back and forth, I could see it taking 22 minutes because it's a few minutes per email that could add up. Like I could actually see it taking that long to book a meeting. I, I hand off stuff to my assistant to book now, and I see the emails going back and forth, and it'll be like five, six emails back and forth before something gets booked manually. David Leary: [01:22:43] I think the real benefit here that got missed is not so much the time, it's that it's reduced the time and it hasn't reduced it much. Right. Is that that they handled 23,000 candidate inquiries? A third of them occur after 5 p.m.. So this is where your your chat bot is helpful because people can self-serve themselves outside of normal business hours. And that's the real benefit to them because like I just booking appointments still takes 25 minutes with AI. It's crazy to me, but the real secret to their what they should be bragging about is how they're handling so many candidates outside of normal business hours. Blake Oliver: [01:23:21] I love that you brought this, David, because this is something that we get wrong in accounting about automation. Everyone listen up. It's not about reducing the time a task takes like this. It's about like the better metric is to reduce the total turnaround time. So it's not about taking a tax return that took four hours and making it take one hour. It's about taking a tax return where the turnaround used to be four weeks and making it one week, because that is what impacts the customer. And that's what impacts the people trying to book these interviews. David Leary: [01:24:02] And I mean, and then you're giving the customer the better experience. So somebody applying if they can deal with it outside of their school hours, or maybe they have another job and now they're applying for you. If they can do these things outside of when it fits their schedule. It's a victory. Like you're servicing the customer better, better. So same thing with your your firm. You want to meet your customers where they're at. Blake Oliver: [01:24:22] I want to address a comment here in the chat from Jonathan. This is actually a really good one. It's a legitimate concern about China owning manufacturing, right. It, Jonathan says. Outside of tariffs, China steals everyone's IP. They sue us here under our laws, but we can't sue them there. They use our systems against us. I'm okay with some volatility if they have to play fair. Okay. So this is a legitimate concern. I actually saw a clip of JD Vance talking about this. And it's I agree with this part. And the idea is this that by completely or by over outsourcing or, or offshoring to such an extreme are manufacturing. The United States put ourselves at a disadvantage because it's, you know, we design the products here, we manufacture them there. But as J.D. Vance said, there's a lot of knowledge that comes in the manufacturing process. So if you don't have the manufacturing here, you you lose a lot of knowledge, like we don't know how to make things anymore in this country. Right. And with AI and robotics. We want the manufacturing back here. We do. Because actually all the labor issue, like the cost of the labor, becomes irrelevant because now you can have like a handful of people that maintain this factory that you put in raw materials and you get out finished product. And if we can do that with AI, we basically will have like this will be a consumer revolution like you've never seen before. You think stuff's cheap now. It has to get made by people on the other side of the planet, and then it has to get shipped in these giant container ships that use like, how much fuel do those things use, right? David Leary: [01:26:17] And not only that, before that. Blake, I've always thought this is the craziest thing in my head. We grew a bunch of cotton. We put it in a container, we ship it to the other side of the world. They turn it into a t shirt and ship it back to us. I mean, this is insane. And that's cheaper than just making them here. And you're right. Because of the labor. Blake Oliver: [01:26:31] Labor because of the labor. Right. So if we can figure out how to do that here without all the labor, the people making the stuff by hand. Right. Um, the goods will be even cheaper. I mean, stuff is so cheap already, right? You and I can just go to at home. We can be like, hey, I'm going to drop a few hundred bucks and come home with, like, a completely new house, right? It's insane. You know the decor, right? All that, like, let's just. David Leary: [01:26:59] All falls. Blake Oliver: [01:26:59] Apart. Like, can you believe it? David Leary: [01:27:01] Like unglued? Blake Oliver: [01:27:02] Yeah. We live in a world in which, like, you know, if you live here, uh, you can just be like, you know what? I want to completely redecorate my house every season. No, not every season, every month. I'm just going to have an entire container of stuff and just swap out everything. All my plants, all my stuff on my walls, everything. And it's because it's so cheap, right? But, like, if we can make this stuff here, assuming we can get the raw materials here to, two goods will be many, many times like an order of magnitude cheaper. So that's what we need to be investing in. But it's not going to happen because of tariffs. Like not in the short term. And the tariffs are going to cause so much short term pain that it's going to totally screw up Trump's priorities for the rest of his term. It's going to be a it's going to be political suicide. So it's like the you know, the economists will tell you the best way to bring manufacturing here is to do, um, tax incentives and credits and investment like we did with the TSMC plant that's being built here in Arizona. I can drive in like 20 minutes to one of the most advanced chip manufacturing facilities in the world. It's the only one outside of Taiwan. It's being built here in Phoenix, and it's because of like $1 billion investment that the US government made all along with the investment from TSMC, and they're making the most advanced silicon wafers in the world that are going to power all these AI chips. That's how you do it. David Leary: [01:28:35] And that was done because of the chip shortage. Yeah, because of the pandemic. We realized supply chain can really affect you. And so when you put tariffs you're going to affect the supply chain again. We're going to have we just live this right. Blake Oliver: [01:28:47] The problem is the tariffs will shrink the economy which reduces the amount of money we have to invest in domestic manufacturing. And we want to be doing high tech stuff. We don't want to be making t shirts here. I mean, it'd be great if somebody can figure out how to do it, but wouldn't we rather invest in doing the advanced robotics chips, all the stuff that's then going to power the eventual ability to manufacture a t shirt anywhere? Like print on demand? Like not just print on the t shirt on demand, but literally like sew the t shirt on demand. Like, we could have 3D printing for clothing someday, but we got to make all the investments to do that first. Thanks everyone for joining us. Don't forget, you can earn free continuing professional education for listening to this episode, as well as our entire back catalog. That is like 400 plus hours of CPE that you could earn. I mean, that's more than you'll need in your lifetime. David Leary: [01:29:43] In this episode, probably 1.5 hours because we just hit an hour and 29 minutes. Blake Oliver: [01:29:48] So I don't know if we we do extra CPE David, on these. I think we just do the hour. David Leary: [01:29:52] Oh, just the hour okay. Blake Oliver: [01:29:53] Yeah, yeah. Just simplify. David Leary: [01:29:54] I spoke too soon. Blake Oliver: [01:29:56] Sorry everyone. Um, but you know, go get that free CPE, get the earmark app. You can download it on the App Store. You can go in your web browser to earmark that app. You can create a free account. It's free. You can register for one course per week for free. So listen to us. Come back every week. Get a free CPE. There's literally no cost to you. You got to put up with like an ad at the bottom of the screen. That's it. Um, And if you want to support us, subscribe to the app and you get unlimited so you can register for as many courses as you need. Let's say you got your renewal coming up. You need ten cfps. Just subscribe for 150 bucks a year and you can get it all done. And I'm really excited to report that soon. This year we are going to be offering live CPE as well. And I know that's important to those of you who are in states where, for some inexplicable reason, they still require that you get a certain percentage of your credits in person or on a webinar, because somehow that's better than an on demand. I don't know why. I guess they couldn't just go all on demand. Um, so anyway, we went and got live certified by Nasba. It took like eight months. I think we got our application approved so we can do live in person. We're going to build features into the app to support that, so that if you are doing a live event and you want to offer CPE for it, we're going to make it possible for you to do that really easily, as easily as possible. Like go into the app, type in what you want to teach, what you're going to do. Put in your credentials right? We will CPE ify it. Maybe that should be like our web 2.0 company name, right? David CPE. David Leary: [01:31:37] Or tagline. Blake Oliver: [01:31:39] Tagline. Just add CPE. And then we're also working on our webinar CPE delivery. So we're going to be able to do all of it. So if you're interested in learning more about that, if you create content, if you teach CPE and you want an easier way to do it, to offer CPE to people, if you don't but you want to start, send us a message. Um, you can email The Accounting Podcast at earmark. That's the accounting podcast at earmark Dot. Thanks, everyone for tuning in, and we'll see you around here next week.