Earmark CPE

Earn CPE Anytime, Anywhere

Podcasts

Forty Percent of Workers Admit Faking Receipts With Company-Paid AI Tools

· ·

Forty percent of U.S. workers admit to using AI to generate fake receipts for expense reports. Even more troubling is that 40% of those workers use AI tools their own companies paid for.

Blake Oliver and David Leary opened Episode 494 of The Accounting Podcast with these startling statistics from new surveys by AppZen and Emburse. David introduced a new term that’s emerged from this trend: “revenge spending,” in which employees who fear AI will replace their jobs turn the company’s own AI tools against it by submitting fraudulent expense reports.

“It’s similar to spam,” David explained. “AI and technology make it easier than ever for people to send you millions of spam messages. But then on your side, you’re using all these AI tools to detect the spam messages and move them to your trash.”

The numbers tell an interesting story. In just 14 months, AI-generated fake receipts went from virtually nonexistent to representing 70% of fraud flags in expense systems. These fake receipts average about $100 each, with a median of $32. Those deliberately small amounts are designed to slip under auto-approval thresholds.

NASBA Backs Down

The theme of shifting power dynamics became personal for Blake when he shared the resolution of Earmark’s standoff with the National Association of State Boards of Accountancy (NASBA).

Back in April, NASBA sent Blake a demand letter over comments he made at an AICPA conference. While demonstrating how to use AI to create CPE courses, Blake criticized NASBA’s methods as “backward” and called out the problems with current CPE practices, including webinar polling questions that serve as mere check-the-box exercises, attendees doing email during sessions, and people sleeping through in-person presentations.

NASBA’s letter directed Blake to “cease making any unfavorable, unprofessional, or inappropriate comments” about the organization, citing a sponsor agreement requiring programs to “reflect favorably on NASBA.”

Blake pushed back hard. “I felt that it was wrong, even unconstitutional, for an organization like the National Association of State Boards of Accountancy to tell a sponsor of CPE, a CPA, a professional educator, what they may and may not say about NASBA,” he explained to David.

In his response letter, Blake argued his comments were meant to improve CPE, not attack NASBA. He also asked for clarification on what exactly would constitute a violation, since terms like “unfavorable” weren’t defined in the agreement.

The resolution came in June when Amy Tongate, NASBA’s Director of Compliance Services, essentially backed down, writing, “NASBA welcomes constructive professional dialogue regarding continuing professional education. Based on your response and subsequent discussions, NASBA considers this matter resolved. No further action is required.”

Blake sees a deeper issue here. NASBA isn’t actually a regulator; the state boards are. NASBA was created as an administrator to handle licensure efficiently across all states. But it often acts like a regulator, which Blake argues oversteps its bounds.

“If a state board of accountancy tried to do what NASBA tried to do with that demand letter, that would be unconstitutional,” Blake said. “The question is whether or not the state boards can set up a private company, a nonprofit that then acts on their behalf and suppresses the speech of CPAs. And I would be willing to bet that they can’t.”

Big Firms Can’t Command Loyalty Anymore

While regulators discover the limits of their authority, big accounting firms are finding they can’t control their workforce as they once did.

A new academic study published in Contemporary Accounting Research with the dramatic title Losing Control: The Erosion of Disciplinary and Pastoral Power in Accounting Firms, reveals just how much has changed. Based on 31 interviews with Canadian auditors from 2021 to 2023, the research shows firms are struggling to shape employees into the traditional model of the committed, overworking auditor.

The numbers are striking. What the study calls “default auditors,” defined as people who enter under weaker selection standards and treat the job transactionally, are replacing the highly socialized, career-committed auditors of the past.

“The Big Four is becoming less of a cult,” David summarized bluntly.

The breakdown is happening on multiple fronts. Remote work disrupted the in-person observation that once normalized 80-hour weeks. When young auditors don’t see everyone else burning the midnight oil, logging off at a reasonable hour becomes much easier. The “we’re all in this together” busy-season rituals, like late-night pizza parties, matter less and less.

But employees aren’t just passively benefiting from remote work. They’re actively pushing back. According to the study, they’re setting firmer personal boundaries, prioritizing family and mental health, rejecting unpaid symbolic rewards, and openly comparing their compensation to that of partners and managers.

The partners and managers feel trapped. They’re taking on more work themselves, reviewing more because of lower work quality, and offering higher pay and more flexibility, but it’s not working. As Blake noted, “They are feeling more exhausted, underappreciated, unable to enforce the old standards and unable to design convincing new ones.”

This cultural breakdown makes the recent wave of private equity investments in accounting firms particularly puzzling. Eide Bailly just became the latest to take PE money: a majority stake from Reverence Capital valuing the firm at $1.8 billion, about 2.1 times revenue.

Looking at a chart of the top 30 U.S. firms, Blake and David counted that a majority now carry outside capital. Yet the hosts are skeptical these investments will pay off.

“I have not heard of a PE success story where PE came in and the company became this rah-rah great thing,” David said. “It gets worse from PE, right?”

“Are they really going to be able to turn it around and sell it for more?” Blake asked, pointing at the math problem.

David’s verdict was characteristically direct: “Put lipstick on that pig and sell it to somebody else.”

The AI Revolution Gives Power to Individuals

While institutions struggle to maintain control, individual practitioners gain capabilities that once required entire companies or expensive software.

The adoption numbers are explosive. According to Blue J and CPA.com’s latest survey, 60% of tax professionals now use AI for tax research at least weekly, up from just 33% a year ago. They use it for advisory projects (44%), tax planning (40%), and compliance research (39%).

“Where are the other 40% getting answers?” David wondered about those who are not using AI, noting that even Google searches now show AI answers first.

This surge in AI use prompted the IRS Advisory Council to issue its first-ever guidance on AI in tax practice. The guidelines don’t create new rules but clarify how existing standards apply. Most notably, practitioners can’t bill for time not actually spent, can’t charge manual rates for AI-assisted work, or double-bill for work done by both staff and software.

“This is the nail in the coffin of hourly billing,” Blake declared. If you use AI to cut your work time in half, you’re ethically obligated to pass those savings to the client.

The democratization goes even further. David highlighted Xero Developer’s new YouTube series, Is Everyone a Developer Now?, where the development team “vibe codes” working applications in real-time. In one episode, they built a functional month-end close tool in just an hour and fifteen minutes.

“Instead of chasing a small pool of developers to build apps, they basically have now opened up millions of accountants that could actually create apps,” David explained.

Blake shared his own example. He’d been procrastinating about converting Earmark’s books from a cash to an accrual basis because building the revenue recognition workpapers seemed overwhelming. Then he tried Claude.

“I just asked it what I needed,” Blake said. The AI walked him through methodology choices, downloaded sales reports from Apple and Google, and built a complete waterfall table that spread revenue across 12 months, plus reconciliation tabs and journal entries.

“This is the right template. This is the right format for me to have done this manually,” Blake marveled. “I don’t even know how many days it would have taken me to put this together.”

This shift in capabilities has venture-backed companies worried. Pilot, valued at $1.6 billion, just spun off its internal AI close platform as a standalone product. Another startup raised millions for similar technology. But as David pointed out, if you can “vibe code” these solutions in an afternoon, “is the app ecosystem the way it’s traditionally been just going away now?”

The Power Shift Is Just Beginning

These aren’t isolated stories; they’re all symptoms of the same fundamental change. Power is flowing away from institutions and into the hands of individuals.

Regulators like NASBA are discovering they can’t dictate what professionals say. Big firms can’t enforce the overwork culture that once defined public accounting. Private equity investors are betting billions on firms whose fundamental model is breaking down. And the same AI that helps Blake build sophisticated workpapers helps employees create fake receipts.

“It’s rules-driven innovation instead of customer-driven innovation,” David said about the institutional mindset that’s failing across the profession.

This shift brings opportunity and responsibility for accounting professionals. The tools that can build a revenue recognition system before lunch can just as easily fabricate an expense report. The capability is neutral; how the profession uses it isn’t.

Want to hear Blake’s complete walkthrough of building his rev rec workpaper, more details on the NASBA correspondence, and the hosts’ full analysis of these industry shifts? Listen to the complete Episode 494 of The Accounting Podcast. You can even earn free CPE credit through Earmark.

As Blake and David make clear, the redistribution of power in accounting is just getting started, and every practitioner needs to understand what it means for their future.

The Four Words Congress Never Defined That Could Cost Your Clients Thousands in Self-Employment Tax

· ·

Congress once wrote four words into the tax code: “limited partner as such.” But then it never explained what those words meant. Even worse, they wrote these words before limited liability companies existed. Today, those four words are at the center of a legal battle moving through multiple appellate courts, and the outcome will determine whether your partnership clients owe self-employment tax on their share of income.

In Episode 32 of the Tax in Action podcast, host Jeremy Wells, EA, CPA, picks up where his previous episode on partnerships left off. He tackles two critical questions: What actually makes someone a partner under federal tax law? And which partners must pay self-employment tax on their distributive share?

The answers turn on substance rather than paperwork, and that’s where things get complicated. Since Congress never defined “limited partner as such,” and since the phrase predates LLCs entirely, the courts have split into openly conflicting camps. One camp reads it as a test of whether someone is truly a passive investor. Another looks at state-law definitions and dual-role partners. This is a genuine circuit split that could land at the Supreme Court.

Until it’s resolved, Jeremy makes clear you can’t rely on the “limited partner” label in a K-1 or operating agreement. You have to evaluate what each partner actually does. Let’s walk through how courts define who counts as a partner, why the “limited partner as such” exception is so unclear, and how this circuit split affects your clients right now.

Who Actually Counts as a Partner?

Before we can figure out who owes self-employment tax, we need to answer a more basic question: who counts as a partner in the first place? The answer has always been rooted in substance over form, and that principle causes today’s self-employment tax disputes.

Jeremy opens with a scenario you’ve likely seen. Two individuals register an LLC, each listed as a member. Under the check-the-box regulations, that’s a partnership for federal tax purposes. One member works full time in the business, keeping it running. The other contributed startup capital, works elsewhere, and rarely touches the business. They’re a classic silent partner. With equal 50% interests, the Form 1065 and K-1s report a 50/50 income split.

But are these two partners truly equal under federal tax law? One earns income through labor, while the other just wrote a check. Should the tax code treat them the same?

When the Code Said Nothing

Before 1951, the Internal Revenue Code had no definition of “partner.” This silence created disputes that reached the Supreme Court. With no statute to guide them, the courts had to define it themselves and made a decision that still shapes practice today. They largely ignored state-law labels.

“Partner” can mean one thing under state law and something different under federal tax law. The courts focused on the parties’ stated and implied intent, examining partnership agreements, contributions of capital or services, and how they actually behaved once the business was running.

Tower Sets the Standard

The first landmark case was Tower v. Commissioner (1946). The Court asked whether the individuals truly intended to join together to carry on a business and share in profits and losses. The answer, they said, depends on multiple factors, none of them individually decisive. There’s no simple checklist that automatically makes someone a partner.

The Court said an individual may be a partner if she “either invests capital originating with her or substantially contributes to the control and management of the business, or otherwise performs vital additional services, or does all of these things.”

The backstory drives the point home. Mr. Tower, following tax advice, converted his corporation to a partnership and made his wife a partner purely to shift income to her lower tax bracket. But Mrs. Tower contributed no capital, provided no services, and exercised no control. The Court saw through it and taxed the income to Mr. Tower, who actually earned it.

Culbertson Clarifies the Mess

Three years later was Culbertson v. Commissioner (1949). The Tax Court had misread Tower, treating its list of factors as rigid requirements and denying partnership status left and right. The Supreme Court pushed back, saying the Tax Court “ignores what we said is the ultimate question for decision and makes decisive what we described as circumstances to be taken into consideration.”

The real test is subjective intent: whether the parties, in good faith and with a business purpose, intended to join together in the present conduct of the enterprise.

Congress Steps In for Family Partnerships

In 1951, Congress finally added a statutory definition, now in Section 761(b). A person is recognized as a partner if they own a capital interest in a partnership where capital is a material income-producing factor, whether acquired by purchase or gift.

Congress targeted family partnerships, in which high-earning patriarchs would gift interests to lower-earning relatives to spread income into lower tax brackets while retaining control. According to the Joint Committee’s Blue Book, Congress wasn’t overriding Tower and Culbertson; it was carving out a legitimate transaction, making clear the IRS couldn’t deny partner status just because an interest came from a family member.

The Capital Interest Test

Everything circles back to the concept of capital interest, or an interest in partnership assets that would be distributable upon withdrawal or liquidation. It’s different from a mere profits interest because just sharing in earnings doesn’t cut it.

Courts apply a hypothetical liquidation test. If the partnership shut down tomorrow and sold everything, would this person get a slice of the assets? If not, are they really a partner?

The pattern of economic reality, not paperwork, determines who is a partner. And this same substance-over-form logic becomes far more contentious when we turn to self-employment tax.

The Four Words Nobody Can Define

Now we reach the phrase causing all the trouble, where ambiguity stops being academic and starts costing real money.

First, Jeremy lays down the foundational rules. Partners are treated as self-employed for tax purposes, regardless of their role. This means partners cannot be employees of their own partnership. “You should never have a partner getting both a W-2 and a K-1 from the same partnership,” Jeremy emphasizes. While there are “exceedingly rare” exceptions, the rule holds: partners don’t go on payroll. If a partner wants a fixed income for services, it flows through as guaranteed payments, not wages.

The general partner rule is unforgiving. A general partner’s distributive share is subject to self-employment tax. It doesn’t matter if the interest is passive under Section 469. It doesn’t even matter if the partnership elected out of Subchapter K under Section 761(a). As Jeremy notes, that election only affects Subchapter K. It does nothing to shield general partners from self-employment tax.

The Exception and Its Giant Hole

IRC Section 1402(a)(13) creates an escape hatch by excluding “limited partners, as such” from self-employment tax on their distributive share. But even for limited partners, guaranteed payments for services are subject to self-employment tax.

The problem is Congress never defined “limited partner as such” anywhere.

In 1997, the Treasury proposed regulations to define the term for Section 1402 purposes. The controversy was so intense that Congress imposed a moratorium on any such regulation, and that moratorium was originally set to expire on July 1, 1998. “It’s now 28 years later, and neither Congress nor the Treasury has provided any sort of update on this question,” Jeremy says.

The LLC Problem

Making everything worse, Section 1402(a)(13) was written before LLCs existed. LLC members aren’t personally liable for entity debts. That’s the whole point of limited liability, making them look like limited partners. Yet those same members often actively manage the business and provide services, making them look like general partners.

So which are they for self-employment tax purposes? The statute offers no answer. Congress wrote a rule for a world of general and limited partnerships and never updated it for the entity that now dominates small business.

Courts Split on What “Limited Partner” Means

With no definition and no regulation, the courts filled the vacuum, and they didn’t all fill it the same way.

The Tax Court’s Passive Investor Test

The first approach comes from Renkemeyer, Campbell & Weaver v. Commissioner (2011), involving a law firm. The Tax Court examined the legislative history and concluded Congress intended to “ensure mere passive investors would not receive credits toward Social Security coverage.”

On this reading, “limited partner as such” means “passive investor.” The phrase “as such” signals the exemption applies to those who operate as limited partners. Once a partner participates in operations, they’re no longer a limited partner for federal tax purposes.

The Tax Court expanded this in Soroban Capital Partners (2023), applying its “functional analysis” test. The inquiry is, does the partner functionally participate or stay out? Notably, Soroban involved a state-law limited partnership, yet the court still held that a partner labeled “limited” who acts like a general partner owes self-employment tax. Soroban is currently on appeal in the Second Circuit.

The Fifth Circuit’s State-Law Approach

The competing view comes from Sirius Solutions LLP v. Commissioner. The Fifth Circuit, which Jeremy notes “tends to be different from a lot of the other appellate courts,” rejected the passive-investor approach entirely.

Instead, the court looked at how “limited partner” was defined in legal dictionaries and by the IRS and Social Security Administration when Section 1402 was written. The court’s logic ran three ways.

First, the guaranteed-payments carve-out shows Congress expected limited partners to provide services. As the court said, “the text of the exception itself contemplates that limited partners would provide actual services to the partnership.”

Second, Congress used “passive” terminology elsewhere in the code but not in Section 1402. It used “rendered no services” in Section 1402(a)(10) just a few paragraphs above, yet chose different language in (a)(13). Why different wording for the same concept?

Third, “as such” refers to dual-status partners, or people who act as general partners sometimes and as limited partners at others, clarifying that only their limited-partner income escapes tax.

A Geographic Lottery

These approaches directly conflict. When appellate courts interpret the same federal statute in opposite ways, the natural endpoint is the Supreme Court.

Meanwhile, Jeremy flags a practical complication from the Golsen rule. The Tax Court must follow the precedent of whichever appellate circuit would hear a given case. So a partnership in the Fifth Circuit gets one result while an identical partnership elsewhere gets another. The outcomes are driven purely by geography.

The Jurisdiction Question

Jeremy also discusses Denham Capital Management, on which the First Circuit heard oral arguments in early 2024. Rather than debate what “limited partner” means, the partners argue the Tax Court lacks jurisdiction to decide this in a partnership-level audit. Under TEFRA, net earnings from self-employment are a partner-level item, since individual partners calculate their own self-employment tax.

The wrinkle is partnerships must report self-employment earnings in Box 14 of the K-1. The IRS argues that the “characterization” of income makes it a partnership item. This could add another layer to an already complex issue.

What This Means for Your Practice

Let’s return to Jeremy’s opening scenario. The member working full time is almost certainly a partner whose income is subject to self-employment tax. The capital-only member likely holds a valid partnership interest too. But under the Tax Court’s current precedent, their income probably escapes self-employment tax if they genuinely stay out of the business.

That last part is crucial. Jeremy cites Howell v. Commissioner (2012), where a married couple treated the wife’s LLC earnings as exempt from self-employment tax. But her testimony revealed she occasionally provided managerial and marketing advice to her husband. That occasional participation was enough. The Tax Court held she wasn’t a “limited partner as such,” and her earnings were subject to self-employment tax.

Key Takeaways for Tax Professionals

Jeremy leaves us with clear lessons from this uncertainty:

  • Federal tax law determines partner status based on economic reality, not state-law labels. That’s the through-line from Tower and Culbertson.
  • The IRS and Tax Court currently apply a functional analysis to determine if a partner is “limited” for self-employment tax purposes. But recent developments cast doubt on this approach.
  • Look beyond the paperwork. The words “limited partner” on a K-1 or operating agreement won’t protect a client who functions like a general partner.
  • Never combine a W-2 and a K-1 from the same partnership. Partners are self-employed; fixed compensation comes through guaranteed payments.
  • Remember what’s always taxable. General partners’ distributive shares are subject to self-employment tax even if passive or if the partnership elected out of Subchapter K. Guaranteed payments to any partner for services remain subject to SE tax.
  • Document everything. Track each partner’s participation, services, and management role. As Howell shows, even occasional input can trigger self-employment tax.

Until the Supreme Court resolves this circuit split, you’re advising clients under real uncertainty. The prudent response isn’t to guess which approach will win. Build positions based on what every court agrees matters, which is what each partner actually does.

For Jeremy’s complete analysis of the cases, statutory history, and practical implications, plus previews of upcoming episodes on capital accounts and special allocations, listen to episode 32 of Tax in Action.

The IRS Answered Only 21% of Your Calls This Season, and It’s Getting Worse

· ·

During the 2026 filing season, the IRS received 48.1 million phone calls but answered just 9.9 million. That’s only 21%. As Blake Oliver put it on Episode 495 of The Accounting Podcast, “79% of the time when you call the IRS, you hang up before you get somebody because the wait times are that long.”

Blake and David Leary recorded this Independence Day episode on Friday, July 3rd, covering everything from the IRS’s service failures to Trump accounts going live on July 4th. They even shared a wild story about EY staff accessing Australia’s Prime Minister’s bank account. But it’s the IRS story that really captures where the profession stands right now, caught between a federal agency that can’t serve taxpayers and new AI tools that are changing how tax work gets done.

The IRS Report Card: Success and Failure at the Same Time

The National Taxpayer Advocate, Erin M. Collins, issued her midyear report with a positive-sounding headline: the IRS “largely succeeded” in the 2026 filing season. That’s actually impressive given that the agency faced a 27% staffing reduction, major tax law changes, and leadership turnover. Technology modernization helped keep things running.

But while the IRS kept the machinery working for routine returns, anyone needing individual help ran into serious problems. More than 14 million of the 139 million individual returns filed got suspended for additional review. Over a million taxpayers waited beyond normal processing times for refunds, with delays averaging about 5.5 weeks. Identity theft victims face an average of 20 months for case resolution, with over 500,000 cases still pending at the end of the filing season.

The Trump administration’s push to move federal agencies away from paper checks created its own mess. The IRS sent about 4 million notices to taxpayers whose returns lacked valid direct deposit information. The problem is, most of these taxpayers are unbanked, elderly, or living abroad, don’t have online accounts, and struggle to create them. The notices had poor instructions about requesting waivers, and as Blake pointed out, they didn’t even mention that taxpayers could request a paper check waiver by calling the 1040 phone line.

Speaking of that phone line, the numbers are getting worse, not better. The IRS answered 21% of calls this season with an average hold time of 14 minutes. Last season, they answered 25% of calls, with an average wait of eight minutes.

Every Door Is Broken

If you can’t get through on the phone, maybe you could walk into an IRS Taxpayer Assistance Center for in-person help? The Treasury Inspector General decided to find out, conducting 91 unannounced “secret shopping” visits at 82 different centers nationwide.

Of the 91 visits, 30 failed completely. Either the building was unexpectedly closed, security wouldn’t let them in, or they couldn’t get a real answer. Of the 61 “successful” visits in which someone actually spoke with an IRS employee, 28 received incorrect assistance. That’s nearly half.

“That’s like almost half the time if you go to an IRS Taxpayer Assistance Center, if you get in the door, you’re probably going to get the wrong answer,” David said. 

A review of the IRS’s expanding chatbot and live chat options found that 60% of live chat assistors were handling multiple chats at once. That’s normal for a call center, but one report claimed an assistor was handling 603 chats simultaneously. Both hosts found that number impossible to believe. The automated chatbot wasn’t much better, failing to provide enough information or recognize what taxpayers were typing in 29 responses and 44 keywords or questions.

Behind all this is another problem because the IRS can’t even track its own data. A new Inspector General report found the agency has about 1,124 data-sharing agreements with different states and agencies. Ohio alone has 42 separate agreements. But the kicker is, 30 of these agreements are completely unknown to the IRS’s own privacy office. As David explained, “There’s just IRS data going out to third parties, other government agencies that the IRS does not know is happening.”

AI Tools Fill the Void

“Hey, all of this means tax professionals will continue to be in demand,” Blake observed. And increasingly, those professionals turn to AI tools to handle the grunt work.

Blake described how he treats Claude as a coworker. Using Wispr Flow dictation software on his Mac, he can now just hold down the function key and speak to the AI. “It’s way faster than typing,” he said.

The hosts shared a listener example. Florida’s Board of Accountancy requires CPAs to enter each CPE course separately into its web portal. The listener had manually typed about 80 different courses last year. This year, he pointed Claude’s Cowork at a folder containing all his CPE certificates and had it create a consolidated Excel list, validate it against the PDFs, then log into the portal and enter everything automatically. The AI even caught and corrected its own duplicate entries without being told. “Cowork took care of this tedious task in the background while I caught up on the show Severance on Apple TV,” the listener shared. 

KPMG is taking this further with Tax Sim, an AI simulation tool that trains tax professionals through rapid scenarios, replacing the routine prep work that junior staff used to learn on. As Blake explained, it’s like a high-performance racing simulator where users encounter many scenarios quickly and improve through feedback.

Other Major Stories from the Episode

The hosts also covered several other significant developments:

  • Trump Accounts go live. These new savings accounts for children born between 2025 and 2028 began accepting contributions on July 4th, with the Treasury contributing $1,000 per child. The catch is children gain full control at age 18, and, unlike 529 plans, distributions are taxable. But there’s a strategy. You can convert it to a Roth IRA at 18 when the child is in a low tax bracket. According to one analysis, $200,000 in a Trump account could potentially grow to $9.6 million tax-free over 42 years after Roth conversion.
  • Australian Big Four scandals. Two EY graduates on an audit engagement at Commonwealth Bank accessed the accounts of the Prime Minister and an EY partner. They’ve been fired and, as David noted, “they’re never going to work in accounting again.” This is just the latest in a series of Australian Big Four scandals that have the government talking about breaking up the firms, splitting audit and consulting divisions, and requiring mandatory audit firm rotation every 20 years.
  • Coca-Cola’s $20 Billion tax fight. The company faces potential exposure of $20 billion in a transfer pricing dispute with the IRS, but has only reserved half a billion for the loss on its books. That’s a potentially nasty surprise for investors.

The Bigger Picture

The 2026 filing season tells two stories at once. The IRS survived a brutal year institutionally, but it’s failing the individual taxpayers who need help. For tax professionals, this creates an opportunity and a responsibility. Taxpayers need someone who can actually answer their questions and resolve their issues. The responsibility is hard to ignore. The people hit hardest by these failures are often those who can’t afford professional help.

As Blake and David make clear throughout the episode, pairing human expertise with AI tools that can handle the tedious compliance work will help firms thrive. The void the IRS leaves behind becomes a competitive advantage for the prepared firm.

Want to hear the full discussion, including more details on Trump accounts, the Australian scandals, and practical AI workflows? Listen to episode 495 of The Accounting Podcast. You can even earn free CPE for listening through Earmark.

Mel Brooks Accidentally Wrote the Perfect Fraud Triangle Case Study in 1967

· ·

What if the smartest fraud scheme you’ve ever studied wasn’t from a court filing or an SEC enforcement action, but from a 1967 Mel Brooks comedy?

In the latest Oh My Fraud episode, hosts Caleb Newquist and Zach Frank dissect The Producers with the same rigor they apply to actual fraud cases. This is their third movie analysis, following The Informant and The Accountant, and it might be their most revealing yet.

The scheme at the heart of Mel Brooks’s debut film is deceptively simple. A washed-up Broadway producer and his neurotic accountant partner raise far more money than a show costs, deliberately produce a guaranteed flop, and keep the excess cash. When the show fails, investors shrug off their losses as just another bad Broadway bet. No questions asked. No money trail to follow. Just a clean exit. It’s something Bernie Madoff never figured out and Rita Crundwell never had.

 

The $2,000 Gateway Drug

The fraud doesn’t start big. It never does.

When accountant Leo Bloom, played by Gene Wilder, arrives at the office of Max Bialystock, played by Zero Mostel, to do his books, he immediately spots a problem. Max raised $60,000 from elderly investors for a play that only cost $58,000. There’s $2,000 missing, or about $20,000 in today’s money.

“I am being stung by a society that demands success when all I can offer is failure,” Max pleads. “Bloom, I’m reaching out to you. Don’t send me to prison.”

Leo caves. He writes off the missing money as a “Turkish bath” production expense. That single compromise, the first small lie in the books, opens the door to everything that follows.

While covering up this minor fraud, Leo has his revelation. “Under the right circumstances, a producer could make more money with a flop than he could with a hit.”

Max’s eyes light up. “How?”

“It’s simply a matter of creative accounting.”

Broadway Economics Make It All Possible

The genius of the scheme relies on Broadway’s brutal economics. As Zach explains in the episode, only 20% of Broadway shows recoup their investment, and many of those don’t break even during their Broadway run. They have to slash costs, cut the band, and tour the country before investors see a dime.

In 1967, between 85 and 100 shows opened each year, compared to 40 to 45 today. Multiple investors buy percentage ownership stakes to finance productions. Producers raise all the capital before opening because, as the hosts note, “directors and actors aren’t working for free.”

Max and Leo exploit this system by raising $1 million for a show that costs $60,000. They find the worst possible play, Springtime for Hitler, a sincere love letter to the Third Reich written by a former German soldier. They hire the worst possible talent. The show bombs on opening night, and they pocket $940,000.

But they don’t just oversell the production. They obliterate any pretense of legitimate fundraising.

“Mrs. Sarah Catheart. She owns 50% of the profits,” Max explains to Leo, flipping through his investor cards. “Mrs. Virginia Resnick, she also owns 50% of the profits. Mrs. Eleanor Biddlecombe, she also owns 50% of the profits.”

Leo’s calculator starts smoking. “Max, you can only sell 100% of anything.”

“And how much of Springtime for Hitler have we sold?”

“25,000%.”

The Exit Strategy Every Real Fraudster Lacks

What makes this scheme brilliant is the built-in escape route.

“The play fails,” Zach explains. “They disappear. They have their money. It’s done.”

Compare that to real fraudsters the podcast has covered. Rita Crundwell, who embezzled $53 million from the City of Dixon, Illinois, got caught when she went on vacation and someone else had to access her accounts. Bernie Madoff’s exit plan, the hosts note, was essentially dying. He couldn’t stop recruiting new investors to pay off old ones.

“You can’t pretend like an entire fund just failed and lost everyone’s money,” Zach argues, “especially a diversified fund. But you absolutely can have a Broadway show bomb.”

The hosts draw a parallel to art dealer Inigo Philbrick, who sold more than 100% ownership stakes in paintings, just as Max sells multiple 100% stakes in his play. The critical difference is, “you can’t have a painting fail,” Zach points out. A painting keeps existing. People want their share. A flopped Broadway show simply vanishes.

When Trying Too Hard Backfires

The scheme had one fatal flaw: Max and Leo tried too hard to fail.

They didn’t just find a bad show. They found Springtime for Hitler. They cast a flamboyant director who saw it as high camp. They hired a hippie to play Hitler who showed up at the wrong audition. Fun fact from the episode: Dustin Hoffman was originally cast as the German writer, but Mel Brooks let him audition for The Graduate, thinking he’d never get it. He did.

When opening night arrives, Max tries to bribe a critic to anger him into writing a terrible one. The show opens with a production number that includes the terrible line, “Springtime for Hitler and Germany / Deutschland is happy and gay.”

The audience looks confused, disgusted, angry. Max and Leo slip out to celebrate at a bar across the street. They toast to failure.

Then intermission comes. Theater patrons flood the bar, all talking about the same show. “Who would have thought a show about Hitler would make me laugh?” one says. Another predicts it will “run for five years.”

Leo’s face goes white. He starts recalculating percentages on a napkin.

“If four out of five Broadway plays fail on their own,” Zach observes, “he probably could have just done anything and it most likely would have failed.”

By reaching for the most spectacularly awful production imaginable, they accidentally created something so over-the-top that audiences thought it was brilliant satire.

The Fraud Triangle Fits Like a Glove

Max Bialystock hits every point of the fraud triangle perfectly.

His pressure is crushing. He once had six shows running on Broadway simultaneously, and now he’s seducing elderly women for small checks in a decrepit office. His opportunity is a stream of lonely, wealthy widows who crave attention. His rationalization writes itself. These investors knew the risks, so who’s really hurt if a risky show fails?

Leo’s fraud triangle is weaker but more unsettling. He has no financial pressure, just existential resentment. “I’ve spent my life counting other people’s money,” he says. “I want my share.”

As the hosts observe, “It does not take much for him to be down with committing massive fraud.”

But what should worry every accounting professional is that Leo’s expertise makes the entire scheme possible. He sees the opportunity in Max’s messy books. He understands how to structure the fundraising. He knows how to make fraudulent numbers look legitimate.

The hosts connect this to real cases. Lou Pearlman studied accounting before running his Ponzi scheme. Nathan Mueller, a former podcast guest, was an accountant turned embezzler.

“It almost gives accountants an advantage to commit fraud compared to a layman,” Zach argues, “because they know how things are supposed to look.”

Do Fraudsters Ever Change?

The film’s final scene answers this question with dark comedy. After being found “incredibly guilty” (only Mel Brooks could write that verdict), Max and Leo land in prison.

Are they reformed? Are they reflecting on their crimes?

No, they’re producing Prisoners of Love and running the exact same scheme, selling ownership percentages to inmates and even the warden.

The hosts see parallels everywhere. Eiyahu Weinstein ran a Ponzi scheme, got pardoned by President Trump, and started another Ponzi scheme six months later. Barry Minkow committed multiple frauds across decades.

But the picture isn’t entirely bleak. Nathan Mueller and Jonathan Schwartz, both convicted fraudsters who appeared on the podcast, seem to have genuinely reformed.

The evidence leans toward skepticism about reform but doesn’t entirely close the door. Max and Leo’s answer is probably the most honest. They don’t change; they just find a new venue.

What Accounting Professionals Should Take Away

For a 1967 comedy, The Producers delivers a surprisingly sophisticated fraud lesson. The mechanics are sound, the psychology is real, and the parallels to actual cases make it essential viewing.

The most important lesson might be to ask, when examining any financial arrangement, “How does this end?” If there’s no plausible conclusion that doesn’t involve collapse, discovery, or death, you’re probably looking at fraud. Max and Leo had an answer. Most real fraudsters don’t.

Watch for that first compromise. A $2,000 discrepancy becomes 25,000% ownership sold in a single production. The massive fraud almost never starts massive. It starts with a small ask, a minor adjustment, or a favor for someone desperate.

Remember that accountants have unique power in fraud schemes, which means we carry a unique responsibility to prevent them. The person who understands the numbers can be the most dangerous person in the room or the most essential line of defense.

You can stream The Producers on Tubi for free (with ads). It’s a tight 90 minutes from when movies didn’t overstay their welcome. But for the full forensic breakdown, complete with Broadway economics, fraud triangle analysis, and connections to real cases, listen to the complete Oh My Fraud episode.

The Cryptoqueen Who Bought Her Own Forbes Cover and Vanished With Billions

· ·

It’s June 11, 2016, at London’s Wembley Arena. 11,500 people are on their feet. The lights go down. Alicia Keys blasts through the speakers. Fireballs shoot up from the stage as Dr. Ruja Ignatova walks out in a floor-length burgundy ball gown covered in black sequins. The crowd goes wild.

To them, she’s not just a founder. She’s the Cryptoqueen who built the next Bitcoin. And tonight she’s announcing OneCoin has become so successful they’re running out of coins. So she’s going to make more. A lot more.

Nobody in the room seems to hear a problem with that.

This scene comes from Episode 114 of Oh My Fraud, hosted by Caleb Newquist. And Ruja’s story shows how a $4 billion fraud needed no complex financial engineering, just a database, manufactured credibility, and victims who were too invested to ask the right questions.

The Woman Who Sold Herself

Ruja Ignatova was born in Ruse, Bulgaria, in 1980. Her father was a mechanical engineer, her mother a nursery school teacher. When Ruja was ten, shortly after the fall of the Iron Curtain, the family moved to a small town in Germany called Schramberg.

Ruja was exceptional from the start. She earned a doctorate in private international law from the University of Konstanz and completed a master’s in European law at Oxford. Her promotional materials also claimed a stint at McKinsey, though journalists haven’t been able to verify that one. But even without McKinsey, the rest checks out. She has a real doctorate and a real Oxford degree.

As Caleb puts it, “She wasn’t bluffing about the homework. She’d done the homework.” Ruja could speak with real authority on monetary policy and financial revolution because she’d actually studied the material. She showed up to meetings like someone who “decided to be the most credentialed person in the room out of pure spite.”

But Ruja wasn’t selling a cryptocurrency. She was selling herself. She was always “Doctor Ruja,” with the title and the gravitas.

The credentials mattered because they made everything else believable. In 2014, she was named Bulgaria’s Businesswoman of the Year. She spoke at an event organized by The Economist. And then there was her face on the cover of Forbes magazine, which she circulated at recruiting meetings and shared in WhatsApp groups. It looked like the establishment had personally signed off on her.

Except Forbes never did. The cover was a paid advertisement tied to the Bulgarian edition in May 2015. As Caleb notes, “She bought the credibility and handed it to herself, gift wrapped with a bow on it.” By the time anyone thought to check, the damage was done.

The Red Flags That Nobody Wanted to See

The warning signs weren’t hidden. In 2012, Ruja was convicted of fraud in Germany. She and her father had bought a struggling steelworks factory in Bavaria, promising to save jobs. The factory collapsed anyway, and a German court found the collapse to be criminal. She got a 14-month suspended sentence and moved on.

The next year, she turned up in something called BigCoin, a multi-level marketing scheme dressed up as a currency that functioned exactly like a Ponzi scheme and collapsed like one, too. Somehow, she walked away clean.

A fraud conviction one year. A failed fake cryptocurrency the next. So naturally, in 2014, she started another OneCoin.

She didn’t build it alone. Her co-founder was Karl Sebastian Greenwood, a Swedish MLM veteran who’d spent years perfecting the art of getting ordinary people to hand over money in exchange for promises. When BigCoin collapsed in 2013, Sebastian was there too. The two didn’t drop the idea; they just gutted it for parts, slapped on a new label, and relaunched.

Federal filings later identified Sebastian as OneCoin’s “Master Distributor 001,” and Ruja herself credited him as the architect of the entire MLM structure. She could fill an arena. He could make sure the arena kept refilling itself.

In a 2014 email, Ruja summed up their partnership bluntly, saying the whole thing would be “MLM meets the Bitch of Wall Street.”

And we know exactly what they thought of the operation because prosecutors later got their emails. Before launch, before a single package sold, Ruja wrote to Sebastian with the exit plan: “Take the money and run and blame somebody else for this.”

They’d already written the ending.

How the Machine Actually Worked

By 2014, Bitcoin had become a cultural phenomenon. Early adopters were sitting on fortunes. Everyone had a story about someone who bought in for a few hundred bucks and was now rich. And everyone who’d heard about it too late was nursing a very specific kind of regret.

Ruja handed that feeling a product. OneCoin was Bitcoin, but better. And it was for everyone, not just the tech bros. She called it “the Bitcoin killer.”

How it works was the whole joke. You didn’t buy OneCoin directly. That would have created securities problems. Instead, you bought “educational packages,” which were courses on cryptocurrency trading sold through One Academy. The packages had names like Starter, Trader, Pro Trader, Executive Trader, and Tycoon Trader. A Starter package costs about €100 and includes a PDF and some tokens. A Tycoon Trader costs €5,000. Eventually, they added tiers up to €118,000, because apparently someone, somewhere, was willing to pay six figures for a PDF.

The PDFs were largely plagiarized from free sources, including Wikipedia. Investors later discovered that thousands of euros’ worth of “proprietary financial education” was just copied and pasted from the internet. Nobody noticed because nobody was buying them for the content. The PDFs were, as Caleb calls them, “a legal costume.”

What you were actually buying was tokens. These got “mined” and converted into coins at a rate OneCoin set, and could change whenever it wanted. The coins showed up in your digital wallet, and you could watch the price tick upward on their internal exchange, xcoinx. The growth was steady and always up.

Think about that feeling for a second. You check your wallet and the number’s up again. Your friends see the same thing. You’re all in a WhatsApp group, sharing screenshots, talking about retiring early. It feels like you’re part of something real.

By the time it was over, OneCoin had taken in more than $4 billion from investors around the world.

Why Nobody Could Get Their Money Out

Being able to cash out is kind of important when you’re investing. But the xcoinx exchange had tight daily withdrawal limits calibrated to ensure only a trickle of cash could ever leave. You could request a wire transfer, but it was slow, frequently delayed, and often just didn’t go through.

Most people didn’t even try to cash out early. They were holding on for the moon, waiting for the public listing Ruja kept promising.

The real money was in recruitment. Bring in new people, and you earn commissions on their purchases, on the purchases of people they recruit, and so on down the chain. The aggressive early recruiters with big networks were making extraordinary sums in real currency.

This created a perfect loop. The people making the most money were the most devout believers, and their success was living proof to everyone below them that this was real. Why would you doubt the guy one rung up when you could see his commission checks clearing?

The community that formed called itself “One Life.” They had private WhatsApp groups, newsletters and motivational events in hotel ballrooms across continents. When regulators or journalists raised concerns, they had a script ready. These were attacks from the banking establishment, terrified of losing power. Anyone inside who asked uncomfortable questions got the same treatment. They were told they’re being negative, letting the team down, and to just trust the process.

By 2016, money was pouring in from China, Uganda, Pakistan, Brazil, Germany, Norway, Yemen, and dozens of other countries. It spread through churches, immigrant communities, professional networks, and families. As Caleb puts it, it went “wherever trust already existed. And then it burned that trust for fuel.”

The Moment It All Should Have Ended

Back to Wembley Arena, June 11, 2016. The entire fraud revealed itself, and the crowd cheered anyway.

To understand why this moment matters, you need to know one thing about cryptocurrency. In Bitcoin, the hard cap of 21 million coins is the whole point. It’s enforced by a decentralized network of thousands of computers that no single person controls. The scarcity is structural, built into the protocol.

OneCoin’s supply cap was different. It was, as Caleb describes it, “a number in a database in an office building in Sofia, Bulgaria, controlled entirely by Ruja. She could change it whenever she wanted.

So when she announced she was expanding the supply from 2.1 billion to 120 billion coins, multiplying it by nearly 60 with a few keystrokes, she was showing everyone exactly what OneCoin was. There was no protocol or blockchain. She could change it on a whim.

She sold it as a gift. For their support in “phase one,” she’d double the coins in everyone’s account.

The crowd cheered.

She had just told 11,500 people that their life savings were sitting in something she could multiply by 60 whenever she felt like it. And they cheered because by June 2016, most of them were too far in to hear what she’d actually said. They’d recruited their families and staked their credibility on this being real. The cost of hearing “the founder just proved the coin supply is completely made up” was too high to pay.

So they didn’t hear that. They heard, “I’m so confident I’m doubling your coins.”

The Collapse and the Getaway

By 2017, the walls were closing in. Multiple countries had enacted restrictions. Journalists kept publishing investigations. Prosecutors in Germany and New York were building cases.

Then came the clearest evidence yet. In early 2017, xcoinx went down “for maintenance” and never came back up. A real exchange doesn’t have a switch one person can flip. But xcoinx did, because it was never a market, just a number OneCoin employees updated on a ledger nobody else ever saw.

There was no blockchain underneath any of this. In an email prosecutors later obtained, Sebastian spelled it out: OneCoin was “not mining actually, but telling people shit.”

On October 12, 2017, a federal arrest warrant went out for Ruja on charges of wire fraud, securities fraud, and money laundering. She was scheduled to appear at an event in Lisbon shortly after. She never showed.

FBI documents revealed what actually happened. On October 25, 2017, she checked in at Sofia airport, boarded a Ryanair flight to Athens, landed, and disappeared. The FBI believes she likely had help.

She’d seen it coming. Prosecutors say she had bugged her American boyfriend’s apartment and discovered he was cooperating with the FBI. She was executing step one of her 2014 exit plan: “Take the money and run and blame somebody else.” 

The Human Cost in Three Stories

While Ruja vanished, real people were left holding the bag.

Jennifer McAdam, the daughter of a Scottish coal miner, got into OneCoin through a family member she trusted completely. She lost £15,000, the entire inheritance her father left her. She’s spent years trying to get it back, helping found a victim support group. As she put it, “The pain and suffering from losing all your finances, your home, your family and your loved ones come alongside with trusting these fraudsters.”

Igor Alberts, an experienced MLM professional from Amsterdam, made €90,000 in his first month. Within a year, he and his partner were clearing €2 million a month. They poured it straight back into more packages, doing the math on how many coins they’d need to become billionaires. They lost everything.

Daniel Lionheart, 22 years old in Uganda, sold three goats to buy a $250 starter package in 2017. By 2019, when BBC journalists visited, neither Daniel nor the woman who recruited him had told the other people they’d brought in that the money was gone. His recruiter told reporters, “I’m somehow hiding myself. I don’t want those people I introduced to OneCoin to see me moving around. They can easily kill me.”

The people running the scam said what they thought of these investors in private emails, calling the coin “trashy” and the investors “idiots” and “crazy.” Constantine, Ruja’s brother, who later ran the company and went to prison for it, texted Sebastian, “The network would not work with intelligent people.” Then he added a winking emoji.

Where Is She Now?

OneCoin somehow kept going after Ruja disappeared. Constantine stepped in as the new face. Events kept happening, and packages kept selling for almost two more years.

Eventually, the co-conspirators fell one by one. Karl Sebastian Greenwood was arrested in Thailand in 2018, pleaded guilty, and got 20 years in prison. He had to forfeit $300 million. Mark Scott, a lawyer who laundered $400 million through fake private equity funds, got 10 years. Constantine was arrested at LAX in 2019, cooperated with authorities, and served 34 months.

In June 2022, the FBI put Ruja on its Ten Most Wanted list. She’s currently the only woman on it and one of only 11 women ever to appear on it since 1950. The reward is up to $5 million. She still hasn’t been found.

The theories about where she is range from grim to exotic. One Bulgarian report claims she was murdered on a yacht and dumped in the Ionian Sea. German investigators think she’s living in Cape Town under a false identity. The strongest active lead points to South Africa. German documentary filmmaker Johann von Mirbach, who’s tracked Ruja for years, says she’s living in an upscale part of Cape Town under a false identity, based on information from South African security sources.

Another theory links her to Russia, where a journalist reported that Ruja was connected to Kremlin-linked interests through her former security adviser.

Meanwhile, the legal machinery keeps grinding on without her. In 2025, German prosecutors in Bielefeld filed charges specifically to stop the statute of limitations from running out on a woman they can’t find. In January 2026, the Royal Court of Guernsey seized more than £8.5 million from accounts tied to two Kensington flats Ruja bought through offshore shell companies, with the money now routed to Bielefeld for victim compensation. All told, over years of seizures in multiple countries, authorities have clawed back tens of millions of euros from the $4 billion invested.

The Lesson Underneath the Fraud

Strip away the arena, the ball gown, the Forbes cover, and the fugitive on the run, and OneCoin comes down to one sentence: every piece of evidence that it was real came from the people selling it. The price, the wallet balance, the market cap that supposedly beat every coin but Bitcoin, all of it was generated by the same company collecting the money. There was no ledger, auditor, or independent party confirming a single number on that screen.

What makes this case interesting is there was no exotic financial engineering or elaborate accounting tricks. Just timing, that Bitcoin FOMO hit right when Ruja needed it to. Just trust, since your recruiter was your aunt, your brother-in-law, or someone from your church. Doubting OneCoin meant doubting them. And by the time most investors had real doubts, they’d already recruited people and vouched for it personally. Admitting they were wrong meant admitting it to everyone they’d brought in.

The one question that would have protected every person in this story is, “Says who?”

There’s a lot more in the full episode that doesn’t fit in a blog post. Listen to Episode 114 of Oh My Fraud, and if you’re a CPA or work in accounting, you can earn free NASBA-approved CPE for listening through Earmark.