In episode 465 of The Accounting Podcast, hosts Blake Oliver and David Leary tackle one of the most bizarre unintended consequences of recent tax legislation: IRS agents may soon need to review OnlyFans content at work to determine if digital creators qualify for tax deductions. This absurd scenario perfectly captures the chaos unfolding as artificial intelligence and new regulations collide with traditional accounting practices.
The IRS’s Awkward New Job Requirement
The new “no tax on tips” deduction allows digital content creators to deduct up to $25,000 from their taxes. But conservative groups successfully lobbied to exclude “pornographic activity” from this benefit, leaving the IRS to determine what qualifies as pornography—a definition the Supreme Court has never clearly established.
“Are IRS agents going to have to sit in their offices at work and look at OnlyFans accounts and determine whether or not this content qualifies?” Blake asks. “Supreme Court Justice Potter Stewart famously said, ‘I know it when I see it.’ So that’s my question.”
The timing couldn’t be worse. The IRS just closed hardship telework requests, forcing employees back to the office while the agency faces a backlog of over 8,000 accommodation requests and has lost 25% of its workforce through voluntary separations this year.
David raises another complication: “If somebody did one video that got determined to be pornographic, do you lose the whole deduction or can you claim all the other days that you got tips?”
Tax professionals face their own dilemma. “Let’s say you get a client who says they want to claim the tips deduction, and they’re an online creator,” Blake explains. “Are you going to check out the content and decide whether it qualifies?”
When AI Meets Ethics—The KPMG Scandal
While the IRS grapples with content moderation, KPMG Australia is dealing with its own technology-related embarrassment. Multiple auditors were caught using AI and group chats to cheat on mandatory compliance training during 2023-2024. This happened after KPMG had already paid a $50 million fine for exam cheating from 2015-2020.
“AI is really good at taking these kinds of tests,” Blake notes. “Just copy paste all the questions into ChatGPT and you’ll pass in a heartbeat.”
The consequences were light: formal warnings for most, one verbal caution, and one person who left months later. The firm didn’t report the incident to regulators.
“They got fined $50 million for it before and then they just continued to do it,” David points out. “So the fines don’t work, obviously.”
The PCAOB is now warning it will closely scrutinize AI use in accounting firms. They’re particularly concerned about private equity-backed firms, fearing pressure for short-term results will compromise audit quality when combined with AI automation.
The Death of the Billable Hour
Beyond scandals, AI is reshaping how accounting firms operate and charge for their services. The billable hour, introduced in the early 1900s as a management tool and dominant since the 1960s, faces extinction.
“When AI can review thousands of contracts in minutes instead of weeks, charging for time spent becomes economically absurd,” writes Rita McGrath of Columbia Business School in the Wall Street Journal.
Blake experienced this transformation firsthand as a freelance bookkeeper. “I billed hourly for keying transactions into accounting software. I then figured out how to automate 90% of it. I had a choice: bill 80-90% fewer hours and lose all my revenue, or switch my clients to fixed fees and take ownership of the process.”
The efficiency gains are already here. Ramp has AI approvals handling 80-90% of transactions automatically. Xero’s new auto-reconcile feature uses AI to match transactions with high confidence. According to OpenAI’s survey of 9,000 workers, employees save an average of one hour daily using AI, with heavy users saving ten hours weekly.
But not every company succeeds at this transition. Pilot raised $118 million at a $1.2 billion valuation, betting it could automate bookkeeping and achieve software margins. Today, they have just 2,500 clients and recently launched a partner program to offload the labor they couldn’t eliminate.
“The fact that they’ve launched a partner program indicates they’re trying to push labor costs out of the company so they can be a software company,” Blake observes.
The irony isn’t lost on David. “They have this headline, ‘Tired of endless QuickBooks updates breaking your workflow.’ But the very first app they list in their integrations is QuickBooks. It’s built on QuickBooks.”
AI Writing Reports Nobody Trusts
Companies are racing to use AI for financial reporting even while harboring deep doubts about its reliability. Twenty-eight percent of financial executives already use generative AI for external reporting. ON Semiconductor’s AI writes entire sections of management discussion and analysis. Hewlett Packard Enterprise plans to use AI for first drafts of financial statements starting in January.
“Take financial statements, drop them into ChatGPT and ask for the narrative. It does a spectacular job,” Blake says. “Taking numbers and turning them into a story that non-accountants can understand, highlighting what’s important, it’s really good at that.”
Yet Harvard Business Review’s survey of 603 business leaders shows only 6% of companies trust AI for core business processes. Most limit AI to low-risk or supervised tasks.
“The work accountants do requires near 100% accuracy,” Blake explains. “Research shows AI achieves 80% accuracy at 30-minute tasks but 100% only for tasks taking a few minutes.”
Meanwhile, Meta’s creative accounting for its Hyperion data center—using complex structures to keep it off-balance sheet—shows human financial engineering still outpaces AI. As the Wall Street Journal called it, “Artificial intelligence, meet artificial accounting.”
What Comes Next
Interesting research is challenging assumptions about what drives audit quality. Studies show offices with less competition deliver better audits with fewer errors. “Competition pushes down fees, which incentivizes auditors to cut corners,” Blake explains.
Another study found audit teams with more women deliver higher quality at lower fees, but only in supportive environments with good work-life balance and female partners.
President Trump, meanwhile, claims tariff revenue will eliminate income tax entirely. “We’ve taken in literally trillions of dollars,” he stated, though actual tariff revenue was only $258 billion last year versus $2.7 trillion from income taxes.
“Doesn’t anybody prep him?” David wonders. “He just makes up numbers.”
The accounting profession is at a crossroads. Will accountants become the quality control layer ensuring AI meets professional standards? Or will they cling to outdated models until technology makes them irrelevant?
To hear Blake and David’s full discussion, including details about the new Trump IRA accounts for kids and Senator Jim Justice’s $5 million tax settlement, listen to episode 465 of The Accounting Podcast.