‘We’re still the thinkers’ — a reminder for tax pros in the AI era

Sponsored by TaxConnex

In her professional career, Annette Nellen, Esq., CPA, CGMA, cannot recall a time when there was more misinformation in the realm of taxes than today, as practitioners wade through H.R. 1, P.L. 119-21, commonly known as the One Big Beautiful Bill Act.

She believes an overreliance on artificial intelligence tools in analyzing the budget law is one reason.

“You still have to review it,” said Nellen, a past chair of the AICPA Tax Executive Committee. “These AI tools — they’re tools. We’re still the thinkers. We’re the responsible party involved here.”

In this JofA podcast episode, Nellen mentioned several provisions of note in H.R. 1, including those where guidance is still needed. She also mentioned the value of the National Tax Conference in November — where new tax provisions will be a central topic in sessions and individual conversations.

What you’ll learn from this episode:

• Some previously temporary tax provisions that are now permanent.
• New tax provisions of note to Nellen.
• A selection of provisions for which guidance or technical corrections may be needed.
• IRS rulings and tax-related court cases Nellen has been following.
• The response of one website creator when Nellen told the creator that some dot-gov sites are not properly updated.

Play the episode below or read the edited transcript:

— To comment on this episode or to suggest an idea for another episode, contact Neil Amato at Neil.Amato@aicpa-cima.com.

Transcript

Neil Amato: Welcome back to the Journal of Accountancy podcast. This is your host, Neil Amato. Coming up on the show is a special collaboration episode between the JofA podcast and the Tax Section Odyssey podcast. You’ll hear a Q&A with tax expert Annette Nellen, starting with my introduction. That’s coming up after a brief sponsor message.

She’s a CPA who holds the CGMA designation. She’s also a lawyer, a professor at San José State University, and director of the university’s graduate tax program. Annette’s also in the midst of a three-year term on IRSAC, the IRS Advisory Council, and was chair of that group in 2024.

Annette, we appreciate you making time for this, which is serving as a preview to the National Tax Conference in Washington in November. Welcome to the podcast.

Annette Nellen: Great. Thanks, Neil.

Amato: Let’s first talk about that conference. Again, I said November in Washington. You’re scheduled to speak in at least two sessions. What do you look forward to most about this year’s event?

Nellen: Well, for this year’s event, which is mid-November, of course, we’ve got the H.R. 1, Public Law 119-21, OBBBA, whatever terms you are referring to this bill as. But there were slightly over 100 tax provisions in there. And, of course, it’s called “Big” because there’s more than just tax items in there, but a good amount of tax changes, which some of them are effective for 2025, most of them I guess 2026, even a few beyond that.

Also, we’ve got some provisions, mainly for individuals, that have been temporary for some time, which does affect planning, but some of those — like the individual rate structure, Sec. 199A, qualified business income deduction — those are made permanent, which now can have a different role in planning decisions such as choice of entity, planning for sale of assets, and a whole host of things there.

I think the new bill will be a big focal point. With this being signed into law early July, the IRS, of course, is working on guidance, and a lot of that guidance actually is needed for 2025 returns. There’ll be a good amount to talk about there. But of course, there’s always Congress passes a big bill, but we still have court cases going on, many of them quite significant, and IRS issuing guidance on not only the new legislation but the normal things they’d be issuing guidance on. So, there’s a lot to cover.

Amato: Exactly. There’s always news on the tax front. This year clearly different with the new law, the new provisions, H.R.1, commonly known as One Big Beautiful Bill Act or OBBA, as you say, a bunch of names out there. Two of your sessions obviously have an OBBBA — I said that wrong before — OBBBA focus: an individual tax update and a business tax update. One of the aspects of those updates is a look at some of the effective dates. What are some of the key provisions and dates, whether already in effect or coming soon that maybe you want to highlight?

Nellen: Well, for individuals, they did slightly increase the standard deduction for 2025. The child credit is getting increased. It was supposed to go back to $1,000 in 2026. It has been at $2,000 the last eight years, but they actually increased it to $2,200 starting 2025 and going forward. There are some new deductions that some individuals will get benefit of, such as for tip income, overtime income, a domestic car loan interest, and some seniors will get a deduction.

I say not everybody gets the deductions. Obviously, you have to have tip income and overtime pay to actually potentially get those deductions. But for the senior deduction, this is where we need to be careful in describing things. If you say, “Oh, all seniors age 65 or older get a deduction,” that’s not true, because some people have income so low that they don’t need the deduction.

These items that I’ve just mentioned, these four items do have phaseouts. If your income is too high, you won’t get benefit of that provision. Even though you have car loan interest on a domestic vehicle doesn’t mean you’re going to get the deduction. These deductions actually are from AGI. You don’t need to itemize, though, for those provisions.

A fair amount of work on many of these provisions, but there are also many where we really do need to wait for the IRS to give us some guidance. Another one relevant to individuals as well as to employers are the Trump accounts, which won’t start until 2026. It’ll just be one more consideration when, for example, individual client says, “Should I put money in a 529 account for my children, my grandchildren, my nieces, nephews,” whoever they’re going to put the funds in.

They’ll have to weigh, well, do you put the max amount in there or should you also put money into a Trump account? How’s that going to factor in with the gift exemption, or maybe we aren’t that concerned about the gift threshold every year, which is $19,000 this year, because the estate and gift exemption is going to be $15 million per person. Most people do not have to worry about their annual one other than filing a return, which has to be done, you know, a gift return if they go above these dollar limits. But just do planning considerations.

And we don’t know how a Trump account is set up because we don’t know that. And I mentioned that’s relevant to employers as well. This is where you want to look at the rules and then be thinking very broadly. Well, what does this also interplay with? On the Trump accounts, there’ll be a new provision where an employer can contribute up to $2,500 to the employee’s Trump account, which would be, I guess, an account for their children if they’re under age 18, and that would not be taxable to the employee. It’s like, well, some employers [might say], “Well, gee, that’s a great way to get some tax-free benefit to my employees here.”

It probably needs a technical correction because they forgot to put into that provision for the employer. It just says $2,500. It doesn’t say, is that a lifetime? Is that annual? What if the employee has 10 kids with 10 Trump accounts? Could they put $2,500 into each of those? That needs a technical correction to address that.

Then actually regarding employers, there’s some other provisions in there that have been either made permanent or modified. For example, one that I think gets overlooked. I mentioned all the time whenever I do an update is that if an employer has an educational-assistance plan under Code Sec. 127 — been around a long time — where under this written plan, the employer can cover up to $5,250 of tuition, books for their employee, and it’s tax-free to the employee.

Well, for the last few years, that’s also included where the employer can cover your student loan principle and interest. That’s now been made permanent. There’s what’s relevant to the business, we might first think about, what new deductions for businesses, but also looking at how do things like employee benefits, and the whole package of employee benefits, how have these things changed by provisions in this bill? There’s really a lot in there to be unpacking, not just individually what that provision does, but how does it interplay with other existing provisions?

Amato: Right, and Brandon Lagarde, one of the chairs of the conference, he said last year, “We’re going to know a little bit more.” You knew there was going to be certainty because you knew the results of the election at the last tax conference. But now coming into this one, you can say there’s certainty, but as you also say, there’s still a lot to unpack. I don’t know where you go with that, but there is so much still out there that has to be, uh — guidance has to be provided on.

Nellen: Just figuring out what it means, but then a few places where it looks like a technical correction is needed, is that going to happen? There’s no guarantee they can get a technical corrections bill passed. Then actually were still a couple of things that do expire at the end of this year that were not in the bill. The work opportunity tax credit, which has been renewed multiple times over the last probably 20-plus years, has not been addressed. Now maybe Congress wants it to expire. Who knows?

Then there were some enhancements to the premium tax credit, which a good number of individuals benefit from that, but that expires at the end of this year. Neither of those was [addressed] with the OBBBA, and we still, of course, might see some additional legislation. Obviously, they need to fund the government starting Oct. 1 and beyond. That might be a series of continuing resolutions, and sometimes tax provisions show up in there.

There’s also some push to have a digital asset bill, which actually might be a stand-alone one just with tax changes regarding digital assets. Then there’s a procedural bill with some changes regarding penalty assessment, collection practices. It’s actually sponsored by the bipartisan leaders of the Senate Finance Committee, Sens. Crapo and Wyden. Maybe that’ll get some attention before year end. There’s still could be more legislation even by the end of the year.

Amato: Away from legislation, are there any recent IRS rulings or other court cases that you’re following that are related to tax?

Nellen: Yes. On the business side, and this is I guess the first case came down, I think it was December 2023 regarding an interpretation of a Code Sec. 1402(a)(13) written in 1977, and it had regs. written 20 years later, which got dinged by Congress. But it deals with when does a limited partner in a partnership owe self-employment tax. There’s been some significant cases regarding significant dollars involved.

The IRS has said, well, if you’re a limited partner under state law, but you do all kinds of things, like you’re a key player in this limited partnership, you’re not really a limited partner as such, which is the language in the Code Sec. 1402(a)(13). Others think, well, no, limited partner as such means, well, you might actually own a limited partner interest along with a general partner interest, and maybe they’re just saying your limited partner interest versus your general partner interest.

The IRS and the Tax Court has agreed that if you’re that involved in the partnership, you are not a limited partner for that purpose and you owe self-employment tax. Here we’re not talking about the 15.3%, which is a self-employment tax. These people have so much income. We’re talking way beyond the Social Security threshold. We’re talking about their 3.8% Medicare tax.

But some of these cases have had hearings in the appeals court, and we might see some of those decisions this year, which will be interesting from not just, what is the result? Are these limited partners owe hundreds of thousands of dollars of Medicare tax? I think also just coming down to what is the interpretation of this Code section and the words in there. So, that’s interesting. I assume that we’re going to see some of those cases come from the appeals this year. You never know when they finally get issued.

Also, there was an interesting ruling from the IRS regarding certain investment losses, which, like when someone gets scammed. These happened, unfortunately, a lot of times. It’s unfortunate that happened so often. That’s interesting.

Digital assets, there will be reminders about. You got clients that are going to get 1099-DA forms for this year and reminding folks that a lot of the transactions that are digital assets that are taxable will not have a 1099-DA form. Understanding some of the differences there, making sure they’re ready for all of that. Also just the guidance process, one of the executive orders from the start of the Trump administration was that an agency has to, example, pull 10 pieces of guidance before they can issue another one.

As to how this will play out, the president could put an exemption in for OBBBA guidance, but that actually hasn’t happened yet. As to how that will play out on the guidance, because, obviously, with over 100 provisions, there’s a need for binding guidance. The IRS can put in the form instructions what they think the law means, but that’s not binding guidance, and we really need that information.

Sometimes when these things come out, it also might surprise you. Well, one that comes to mind, because this happened in August, something in the OBBBA regarding green energy credits is going to be very impactful to individuals this year. Like, the clean vehicle credits. There’s one for commercial clean vehicles, there’s one for new, there’s one for used, and these were either added or modified by the Inflation Reduction Act in 2022, but they will expire for vehicles acquired after Sept. 30, 2025.

As to what that means, you think “acquired,” you bought it. Well, does that mean you have to take possession of it? The IRS just came out with some FAQs, which isn’t the highest level of authority, and they pretty much said, as long as you have a written binding contract and you’ve made some kind of a payment towards it by Sept. 30, you’ve acquired it. Well, the general rule in each of those credits that Subsection A talks about is, well, you get the credit if it’s placed in service.

Placed in service means take possession. And the FAQs aren’t real clear. They more or less say, as long as you acquire it, if you take possession later, but they don’t say how much later. I think you certainly need to take possession of it if you’re an individual in 2025 to be able to claim that. But I think the IRS, probably being very taxpayer-favorable on that, but then it leads us to question, well, how does that really interact with the general rule about it has to be placed in service to claim the credit.

You’ve got these oddities, but just a reminder, too, we do need guidance, and getting as much binding guidance as possible is always good. These FAQs that they issued, it’s a fact sheet, 2025-05, and it did come out as an information release. They are reliance FAQs, but it does just kind of just leave people in confusion. I think the safe thing would be yet buy the car by Sept. 30 and take possession of it or at least take possession of it very soon afterward. But I think you certainly have to take possession of it before the end of the tax year. But we’ll see many things where it’s just, what exactly does that mean?

Amato: There’s still so many questions, so much information, and also so much misinformation or just faulty information. As people are trying to digest this bill, understand it, do you have advice for how to get educated on it, the right way and the not right way?

Nellen: Yes, I’m so glad you asked that. I’ve been in the tax field for around 40 years. I don’t think I’ve seen as much misinformation as I’ve seen on this OBBBA, including even from law firms, maybe once in a while CPA firms — a newsletter where I think it’s a combination of, for some reason, it’s not getting sufficient level of review.

Some of it, I think, was produced by AI, which is no excuse. You still have to review it. These AI tools — they’re tools. We’re still the thinkers. We’re the responsible party involved here. Pull out the actual law. It’s Public Law 119-21. You can go pull it up on the congress.gov website and actually check it against what does that public law say.

You mentioned a few things I do in my day-to-day life, but something I spent a fair amount doing is volunteering for the AICPA on a few of task forces and other. But there was a group of us on the tax reform task force, and we got very involved in working with AICPA staff. We spent a lot of time going through, we need to get resources out and cautions and all to our members. But we all did this. We go and we read the actual public law and try to figure out what it means. One thing, and I’ll come back more to the tool. But another thing that really helps is actually having a group like that where we’re talking about, what do you think this means?

Because some of the stuff was written like that first version that the House had on the SALT cap — my gosh, that was the most confusing thing out there so far, as how it was drafted. But having the ability to talk about it with others. Also, the November National Tax Conference is both in person or you can attend it online. But if you’re in person, you get this added benefit of chatting with people. There’s hundreds of people there.

You can chat, and you might learn how they’ve interpreted something or, “Gee, now did you know this interacts with this rule this way?” Or, “we have these clients that are so surprised at how this works” or we had to do a new planning. That’s a great way. We don’t have a lot of in-person events at state and national levels these days. That’s another reason to take advantage of that.

But do be cautious on what you’re reading about H.R. 1. Just recently trying to get some exercises together for students to help them understand, you know, it is a tool. I purposely asked one of the gen AI tools, “Would you answer this question about these green energy credits and give me cites to the regs.?” Well, it didn’t give me any cite to the reg. It gave me the Internal Revenue Code, and it did say where it was getting it from, but the source it was getting it from, it is not always up to date.

I think if someone’s not aware of that and doesn’t go check a reliable place to find the law, we have issues. Also recently talking to somebody who had created some tools that was going to help on anything you needed. I said, “How would you deal with this if someone needs information that comes from the law?” “Oh, we’d make sure the database we’re using only has dot-gov references.” I said, “Some dot-gov references sometimes are wrong.” The House has a website that has all the U.S. Code is not always up to date, though.

Of course, also sometimes things are certainly on the website and for good reason, we need archival information. These gen AI programs can’t necessarily tell, “Yes, this case was decided 10 years ago, but there was another case that really changed the meaning of what that is.” That’s unlikely to get picked up.

But the creator of these websites, when I told him that dot-gov sites are not always up to date or reliable, he says, “Really?”

Another caution is to watch out for the language in the OBBBA are effective dates. Often effective dates are “tax years beginning after” and it’ll have some date. A few of them in there actually say, for “tax years ending after.” So, we’ve got to make sure we’re reading all those things very carefully.

Amato: That’s a good point on the dates, especially if they change the language where it’s sometimes ending before, sometimes ending after. You mentioned the tax conference. You mentioned the in-person aspect of it. For that event, in the show notes for this episode, we’ll share the agenda and the registration information, of course.

Any other nuggets from the sessions or anything else just related to the conference that you’d like to share in closing?

Nellen: I’ve attended, spoken at it for many years. It’s a great conference. We are celebrating our 50th year of this conference, so that’s a big deal. I guess we’ll go through a little timeline of history of things. Who even knows what things were 50 years ago. Of course, some things that were big lessons to learn from 50 years ago, there still may be lessons to learn today.

But, it’s a great conference so far as the range of topics.

Generally, good presenters from government joining panels as well, but also if you’re there in person, it’s a great way to interact with your fellow colleagues. I certainly encourage folks — I’m a college professor teaching folks who are either right out of their accounting major or maybe they’re a few years in practice. But, if you can, bring somebody new to your firm, it’s a great way to expose them, to meet folks from the AICPA and even learn how to get involved with volunteering for the AICPA, but just meeting other folks.

It’s a great experience there. I hope people will bring more than themselves in the firm because one thing we’ll say is, there’s three sessions going on at the same time. I’d like to go to all of them. No, bring a couple of colleagues. Then you can get to everything. Then just really have a great discussion there with your immediate colleagues as well as your new friends that you will meet there. But it’s a great conference.

Amato: That’s great. Annette Nellen, thank you very much.

Nellen: You’re quite welcome. Thanks, Neil.