Earmark CPE

Earn CPE Anytime, Anywhere

Tax Compliance

Tax Law Rewards Professional Stagnation While Punishing Growth

· ·

A Tennessee accountant diligently studies for and passes the CPA exam. His day-to-day work remains virtually identical: same clients, same responsibilities, same desk. Yet when tax season arrives, those CPA exam costs aren’t deductible. Why? Because becoming a CPA qualified him for a “new trade or business,” even though he had no intention of changing careers, and his actual work didn’t change at all.

This real case from Glenn v. Commissioner perfectly captures the absurd reality facing today’s professionals: the very credentials and education that make you more valuable in your current role often become non-deductible under tax law. Jeremy Wells dissects this paradox in his latest Tax in Action podcast episode, where he reveals how our tax system has created a knowledge economy trap that punishes professional advancement.

While tax law theoretically supports professional development through education deductions, it systematically penalizes advanced degrees, professional certifications, and career-expanding skills by classifying them as “personal investments” rather than business necessities. This leaves tax professionals and their clients caught in a regulatory maze where maintaining your current skill level is rewarded, while pursuing excellence faces potential penalties.

The Knowledge Economy Reality Check

“For quite a while now, most of the U.S. economy has been based on not the ability of people to produce things or do things with their hands, but rather the value of what they’re able to accomplish with their minds,” Wells explains.

The financial sector, insurance industry, and professional services all depend on knowledge work. Yet our tax system treats developing those valuable mental capabilities as personal indulgence rather than business necessity.

The existing education tax breaks demonstrate this disconnect clearly. The 529 plans that parents use to save for college offer no federal tax deduction for contributions, though some states do allow deductions. Student loan interest deductions under IRC Section 221 phase out based on income, effectively penalizing successful professionals. Education credits like the American Opportunity Credit and Lifetime Learning Credit focus on traditional college expenses, not the specialized training that drives value in today’s economy.

As Wells notes, these benefits can be rather limited. The problem isn’t that tax law ignores education entirely. It’s that the benefits don’t match the reality of professional development needs.

This brings us to the question Wells hears constantly from business owners: “Can I pay for my own education and use my business to do that?” The answer reveals just how complex this landscape has become.

Educational Assistance Programs: Promise and Pitfalls

The IRC Section 127 educational assistance programs initially appear to offer hope. These programs allow employers to provide up to $5,250 annually in tax-free educational benefits, and the definition of qualifying education is surprisingly broad.

Wells explains that under these programs, “education includes any form of instruction or training that improves or develops the capabilities of an individual.” Even better, “education is not limited to courses that are job-related or part of a degree program.” This could potentially cover everything from technical training to wellness courses that make employees “better people, more productive, happier.”

The program can cover tuition and fees, books, supplies, and equipment, and even student loan repayments. The definition of “employee” is also broad, including “self-employed individuals or what we might refer to as independent contractors.”

But here’s where the system reveals its bias against small business owners.

The fatal flaw lies in the anti-discrimination rules. Any business owner with more than a 5% stake in their company cannot claim more than 5% of the total benefits paid out by the program. As Wells explains, “If you are self-employed, and you want to use this program for yourself, and you have other employees, you, as a more than 5% owner of that business, cannot claim more than 5% of the benefits paid out by that program.”

The math is brutal. If you want to claim the full $5,250 benefit for your own education, your business would need to pay out at least $105,000 in total educational benefits to all participants. For most small businesses, this makes the program impractical.

The discrimination rules add another layer of complexity. Programs cannot favor highly compensated employees: those earning over $160,000 in 2025, those with 5% or greater ownership stakes, or those in the top 20% of employees ranked by compensation.

Wells notes that for many small business owners, this means they either “don’t do this program at all” or “just exclude themselves from the program.” And there’s another catch. Unlike cafeteria plans under IRC Section 125, you can’t offer employees a choice between the education benefit and additional cash compensation.

The program also has strict substantiation requirements. Employees must provide documented proof that expenses qualify, and they can’t double-dip by receiving reimbursement and then claiming education credits on their personal returns. Wells warns this is particularly important because “it’s entirely possible that that employee would then turn around and report those educational costs on their tax return and claim an education credit.”

When Business Owners Go Direct: The Section 162 Minefield

When educational assistance programs fail small business owners, they turn to direct business deductions under IRC Section 162. This is where things get really tricky.

Treasury Regulation 1.162-5 allows education deductions if the education “maintains or improves required skills” or “meets legal or employment requirements to maintain his or her present salary, status or job.” This generally includes professional continuing education and refresher courses.

The regulation also covers education to meet an employer’s minimum requirements “if the requirements are imposed for a bona fide business purpose.” Wells gives the example of requiring employees to take spreadsheet training because “we use a lot of spreadsheets in my business, and my employees need to be able to effectively use those spreadsheets.”

Even travel for education can be deductible if “the travel is directly related to the duties of the individual in employment” and “the major portion of that business needs to include activities directly maintaining or improving required skills.” However, taxpayers must allocate personal activities during the trip separately.

But here’s where the Tax Court draws its line in the sand.

The Tax Court’s War on Professional Growth

Treasury Regulation 1.162-5(b) establishes two types of education that are explicitly non-deductible, and the Tax Court has interpreted these restrictions aggressively.

First, taxpayers cannot deduct education that meets “necessary minimum educational requirements.”  Second, and far more damaging, education that “will lead to qualifying an individual for a new trade or business” is automatically disqualified.

The logic, Wells explains, is that these expenses are “essentially personal or perhaps capital expenditures” where “you’re investing in yourself.” The Tax Court views this as an “inseparable aggregate of personal and capital expenditures” rather than ordinary business expenses.

The cases reveal a pattern of hostility toward professional advancement that spans decades. In the Glenn case, the accountant couldn’t deduct CPA exam costs even though his work remained identical. The Tax Court ruled that becoming a CPA granted “certain rights, responsibilities, privileges that weren’t there before.”

The pattern repeats across professions. In Robinson v. Commissioner (1982), a licensed practical nurse completed an RN program while maintaining virtually identical duties. The Tax Court ruled against her because registered nurses have different capabilities than LPNs.

Even IRS employees get caught in this trap. In Weiler v. Commissioner (1970) and Taubman v. Commissioner (1973), IRS revenue agents couldn’t deduct law school costs despite arguing that legal training enhanced their current tax research abilities.

Law degrees face particularly harsh treatment. Wells notes that “law degrees generally qualify for a new trade or business” regardless of the taxpayer’s current profession or intentions.

The MBA Split Decision

The MBA cases show just how arbitrary these determinations can become. In 2016’s Gora v. Commissioner, the Tax Court allowed a financial controller’s executive MBA costs because his continued work in “management and finance” didn’t represent new qualifications.

Just one year later, in Kray v. Commissioner (2017), a computer design consultant’s identical executive MBA was ruled non-deductible because it qualified her for “new tasks” like “financial analysis, managing a business, managing and overseeing a staff.”

Wells warns that “an MBA may or may not qualify” as deductible, making this area particularly risky for taxpayers.

The Practical Reality for Tax Professionals

This creates impossible situations for tax professionals advising clients. The Tax Court’s standard isn’t whether you actually change careers or even want different opportunities. As Wells emphasizes, the keyword is “potentially”—education that could potentially qualify you for different work is probably non-deductible.

The system forces taxpayers to choose between pursuing valuable education that enhances their business capabilities but facing potential audit challenges, or limiting themselves to narrow, maintenance-level training that clearly fits within existing job requirements.

Wells notes that taxpayers must be “established in a trade or business” before education expenses become deductible, and the Tax Court has ruled that “a relatively short or temporary tenure in a job before starting the education doesn’t establish the taxpayer in the trade or business.”

Even holding a position doesn’t guarantee you’ve met minimum educational requirements. University teaching assistants, for example, haven’t met the minimum requirements for permanent faculty positions until they actually have their PhD.

Navigating the Knowledge Economy Trap

Our tax system rewards professional stagnation while punishing the learning that drives economic value. Tax professionals’ continuing education to maintain existing credentials? Fully deductible. Are the same professionals pursuing advanced degrees to better serve clients? Potentially non-deductible because it might qualify them for “new” responsibilities.

For tax professionals, this creates compliance challenges and ethical questions. Do we advise clients toward valuable education that faces potential tax challenges, or recommend they limit learning to “safe” options that maintain the status quo?

Wells warns that employers and self-employed individuals “really need to be careful when they’re trying to deduct those work-related education costs.” The Tax Court “can be pretty strict about education either meeting those minimum requirements for a profession or even more often than that, qualifying the recipient of that education for a new trade or business.”

Understanding these limitations is about recognizing how tax policy shapes professional development decisions across the entire economy. The knowledge economy demands continuous adaptation and skill development, but our tax code remains anchored to an industrial mindset that views capability expansion as personal indulgence rather than business necessity.

Listen to the full episode of the Tax in Action podcast for Wells’ complete analysis and detailed guidance to help clients make informed decisions about their professional development investments. Don’t let the knowledge economy trap catch you or your clients unprepared.

The Lookback Period Mistake That Turns Valid Refunds Into Permanent Losses

· ·

Lenora Hamilton thought she had everything figured out. She filed her 2017 tax return in November 2021—late, but still claiming a $2,070 refund she believed was rightfully hers. The IRS immediately rejected her claim. She appealed, lost, and spent nearly a year fighting in federal court.

The final verdict in early 2025 delivered a crushing blow: the court ruled her claim was “timely filed,” but she couldn’t recover a single dollar. Not because the refund was wrong, but because she missed something called the “lookback period.” A technical timing rule had permanently erased her entire refund.

In a recent episode of the Tax in Action podcast, host Jeremy Wells used Hamilton’s story to explain the refund statute of limitations—a subject most tax professionals think they understand but actually don’t. The stakes are enormous: once these deadlines pass, Wells warns, “there’s virtually no going back.”

The Two-Step Framework That Trips Up Even Experienced Practitioners

Most tax professionals think the refund statute of limitations is straightforward. File within three years, get your refund. But Wells explains it’s a complex two-step process where each step has different rules and different consequences.

Step One: Can You File at All?

The first step determines whether you can file a refund claim. This “limitation period” is the later of either three years after the return was filed or two years after the tax was paid if no return was filed. Wells calls this the “refund statute end date,” and it’s your final deadline to file any claim.

Here’s the key detail that trips up practitioners: “The filing of an original return, not an amended return, begins the period of limitation,” Wells explains. This means if you amend a return filed years ago, you’re still working within the timeline set by that original filing date.

Step Two: How Much Can You Actually Get?

Even if you file a timely claim, step two determines how much you can recover through the “lookback period.” The rules change dramatically based on when you file:

  • File within three years: You can look back at the full three years
  • File after three years: Your lookback period shrinks to just two years

This is where Hamilton got trapped. The court found she filed a timely claim, satisfying step one. But because she filed her 2017 return so late—November 2021—her lookback period couldn’t reach back to her 2017 tax payments, which were deemed made on April 15, 2018.

As Wells puts it, “The court said she filed a timely claim for refund. However, for that timely claim, there was no refund available. What does that mean? How can that be?” To understand the answer, you have to know when the IRS considers payments “made” under tax law.

The Payment Timing Trap That Caught COVID-Era Taxpayers

The lookback period depends on when payments are “deemed made,” not when they actually happened. This creates counterintuitive situations that can permanently cost taxpayers money.

The Withholding Rule

Under IRC section 6513, all tax withheld from your paychecks during the year is deemed paid on April 15th of the following year. It doesn’t matter if the money was withheld in January or December—it’s all considered paid on April 15th.

For Hamilton, “Her 2018 withholding is deemed paid on April 15th, 2019, which is the 15th day of the fourth month following the close of that tax year.”

The COVID-19 Disaster

These timing rules created a perfect storm during the pandemic. The IRS postponed filing deadlines—2019 returns were due on July 15, 2020, and 2020 returns were due on May 17, 2021. But payments were still deemed made on April 15th of each year.

This trapped taxpayers who filed during the postponement periods. Someone who filed their 2019 return on July 15, 2020 (perfectly timely) might wait until July 15, 2023, to file a refund claim. Their three-year lookback would run from July 15, 202,3 back to July 15, 2020. But their 2019 payments were deemed made on April 15, 2020, which falls outside their lookback window.

Wells explains: “This left taxpayers who didn’t file extensions for those tax years stuck with potentially valid refund claims, yet they didn’t have any periods within the lookback period because those payments were still deemed filed as of April 15th.”

The IRS eventually provided relief through Notice 2021-21, but only after recognizing that its own timing rules created harsh consequences for taxpayers who did nothing wrong.

The Dangerous “Due Date” Myth Costing Taxpayers Money

A destructive misconception in refund statute law sounds perfectly reasonable: “You have three years from the due date to claim a refund.” 

But Wells makes it crystal clear that this perception isn’t accurate. “The end date is actually three years from the filing date or possibly two years from the payment date.” The due date might coincide with these periods for taxpayers who file on time, but it’s not what controls the deadline.

Why the Due Date Myth Fails

The due date myth crumbles in the exact situations where practitioners need precision most:

  • Late-filed returns: A taxpayer who files their 2020 return in September 2023 doesn’t have until April 15, 2024 to claim refunds. Their three-year period starts from September 2023.
  • Amended returns with post-deadline payments: Wells explains these create situations where “a valid refund claim made more than three years after the due date, could look back into those payments made after the deadline.”

The Hamilton case perfectly illustrates this. If you applied the due date myth, you’d think she was too late filing in November 2021 for a 2017 return. But the court found her claim was timely because the real rules don’t work that way.

The Professional Liability Risk

For tax professionals, relying on the due date myth creates serious liability exposure. When practitioners give advice based on this oversimplified rule, they risk costing clients money they can never recover.

Wells emphasizes the finality built into these rules: “Once that statute of limitations is up, once you have passed that refund statute end date, there is no going back with some very, very limited exceptions.”

Why These Rules Are So Unforgiving

The refund statute of limitations operates with mechanical precision, regardless of hardship or apparent unfairness. Courts consistently rule that these deadlines are clear and unambiguous, so there’s no room for equitable exceptions or reasonable cause relief.

The Finality Principle

Congress built finality into the tax code intentionally. As Wells explains: “There’s an implicit concept in the tax code that Congress has written into it. I tend to call it finality.” At some point, taxpayers should feel confident that old tax years are truly closed.

But this finality only works if practitioners understand the real rules. The Hamilton case, with its modest $2,070 refund that became a years-long legal battle, shows how even small amounts trigger the same unforgiving rules that govern million-dollar refunds.

The Stakes for Tax Professionals

These rules affect every practitioner who works with amended returns, late filers, or clients with potential refund claims. Understanding when the IRS deems payments made, how postponements interact with lookback periods, and when the due date myth doesn’t apply isn’t just technical knowledge—it’s client protection. And it can be the difference between recovering thousands of dollars and losing them forever.

When Time Runs Out, Money Disappears Forever

The refund statute of limitations represents tax law at its most technically demanding and unforgiving. The two-step framework of limitation periods and lookback periods creates a system where understanding timing rules can mean the difference between financial recovery and permanent loss.

For tax professionals, these rules represent the intersection of expertise and fiduciary responsibility. Relying on oversimplified rules or misunderstand the distinction between filing dates and due dates means risking giving advice that permanently costs clients money.

This finality places enormous responsibility on practitioners to understand and navigate these rules correctly.

Don’t let technical complexity cost your clients money they can never recover. Listen to Wells’ complete Tax in Action episode to master these critical timing rules and protect your clients’ interests and your professional reputation.

The R&D Credit Reality Check Every Tax Professional Should Understand

· ·

Picture this: A small business owner walks out of a networking event buzzing with excitement. Someone just told them about the Research and Development tax credit. They’re already mentally calculating how much they’ll save on the custom software they’ve been developing for their consulting practice.

This scenario happens all the time, and it shows the gap between what business owners expect and what the tax code actually delivers. In this episode of Tax in Action, host Jeremy Wells, EA, CPA, breaks down one of the most misunderstood areas of tax law: the Section 41 Research and Development Credit.

The Credit That Sounds Simple But Isn’t

When clients first hear about the R&D credit, they focus on that appealing 20% credit for increasing research activities. It sounds straightforward: spend money on research, get 20% back as a tax credit. But as Wells explains, this credit is much more complex.

“I work with a lot of small service-based businesses,” Wells says. “So it doesn’t come up a lot in my practice, but there have been some cases where we’ve had businesses qualify for the credit, and that’s always a little exciting for me.”

That excitement comes after navigating through layers of complexity that immediately separate hopeful applicants from actual recipients.

Section 41 actually has three different parts: qualified research expenses, basic research payments, and Energy Research Consortium credits. For most businesses, only the first part matters. The basic research component applies to research without specific business goals, which Wells dismisses for his small business clients. “If they don’t have a business goal, they probably are not going to be able to afford to pay me for very long.” The energy research component targets massive global energy companies, not typical clients for most tax professionals.

Here’s where the “20% credit” gets misleading. It’s not 20% of research expenses. It’s 20% of the excess of qualified research expenses over a “base amount.” This base amount calculation is complex, but for most businesses, it defaults to 50% of qualifying research expenses.

Wells breaks down the math: “In general, we’re looking at 50% of qualified research expenses and then we’re taking 20% of that.”

The result? What sounds like a 20% credit actually delivers roughly 10% of qualifying research expenses as an actual tax benefit.

But even this 10% assumes businesses can navigate the qualification requirements, which proves much harder than the math.

The Science Requirement That Trips Up Most Businesses

The real barriers come from qualification requirements that act like scientific gatekeepers. Wells identifies the core problem: “This is probably the strongest limitation on what qualifies for research relevant to my clients. The research has to involve a process of experimentation that relies on the principles of either the physical or biological sciences, engineering or computer science.”

This creates an immediate disconnect. When most business owners think about research and development, they think of any effort to improve their operations: better customer service, more efficient workflows, or custom software. But Section 41 demands genuine experimentation rooted in hard sciences.

The “process of experimentation” adds another hurdle. Wells explains that this process “evaluates one or more alternatives to develop or improve a business component where the result was uncertain.” This isn’t about having a clear goal and executing a known path—that’s implementation, not research. True qualifying research requires genuine uncertainty about whether proposed alternatives will work, plus systematic testing of multiple approaches.

This eliminates entire categories of business activities that feel innovative but don’t meet the technical standards. Market research, customer satisfaction studies, workflow optimization, and business process improvements all fall outside the boundaries. As Wells states, “If your research consists of trying to understand your customers better, that’s not going to qualify as research.”

Software development faces even tougher standards. Internal software must pass what Wells calls “a very high bar” through the high threshold of the innovation test. This test requires proof of “substantial and economically significant” improvements, backed by “significant economic risk” where the business commits “substantial resources” with genuine uncertainty about recovery.

The economic risk part proves particularly challenging for small businesses because it excludes what Wells calls “sweat equity.” He explains, “What doesn’t count here, is that sweat equity, or the time spent by the business owner, or the uncompensated work by their partners, or even their staff.”

This requirement for actual cash rather than time investment doesn’t align with how most small businesses operate. The solo consultant developing custom software or the manufacturing business owner optimizing processes typically invest primarily time and expertise rather than substantial cash. Under Section 41, this automatically disqualifies them.

Making It Work: Expenses, Strategies, and Professional Help

For businesses that navigate the scientific requirements, the wage allocation requirements immediately complicate things for any business hoping to qualify through employee efforts.

Wells explains the 80% rule: “If you’ve got some sort of support staff spending at least 80%, four out of five working days a week directly involved in that research project, then their wages qualify in full.” Anything less than 80% requires careful splitting between research and non-research activities.

This gets trickier with executives. Wells has seen businesses try to claim big portions of C-suite wages for research. However, even technical CEOs who contribute to research projects rarely abandon their executive duties entirely. Wells says practitioners must “look at bifurcating, if not entirely writing off, their wages and salaries as not related to the actual research project itself.”

For businesses without internal research capacity, contract research offers an alternative, though with percentage limitations that reduce the effective credit rate. The general rule allows only 65% of contractor payments to qualify, though this increases to 75% for qualified research consortia and 100% for eligible small businesses, universities, or federal laboratories.

Wells breaks down the math for businesses relying entirely on contractors. “If all the qualifying research expenditures are paid to contractors, then we only get about 6.5% of those expenditures in terms of the credit.”

Despite this reduced rate, Wells suggests the contractor route might be easier than internal allocation headaches. “It might also be more advantageous to pay contractors and be able to take 65% of what’s paid to contractors than to worry about taking existing staff and trying to allocate some of their work toward the research project.”

Wells also highlights the payroll tax election as a cash flow strategy for startups. Rather than waiting years to use R&D credits against income taxes, businesses can elect to apply credits against the employer’s 6.2% Social Security tax, creating immediate benefits.

Given all this complexity, Wells strongly recommends working with specialists. “Finding a good, reputable firm to work with or to recommend and refer your clients to. But in general, it’s important that you understand the basis and the basics of section 41.”

Busting Common Myths

Wells addresses two common misconceptions about the R&D credit.

First, that service businesses automatically don’t qualify. While most service businesses won’t qualify for traditional reasons, Wells suggests this shouldn’t lead to automatic dismissal. “It might be possible to advise them in such a way to help them qualify for it, at least in part.” This might involve outsourcing research to qualified contractors, developing products for eventual sale rather than purely internal use, or ensuring research projects involve genuine experimentation rather than predetermined paths.

Second, that payroll is required. Wells points out that contract research expenses can qualify, even if at reduced percentages. While the effective rate drops for businesses using only contractors, “that might be better than nothing,” and “better than thinking that it has to be payroll and therefore nothing qualifies.”

The Bottom Line for Tax Professionals

The Section 41 R&D credit shows how well-intentioned tax policy is accessible primarily to those with sophisticated professional guidance. What sounds like a straightforward “20% credit” turns into a technical challenge that eliminates most hopeful applicants.

For tax professionals, understanding complex credits isn’t just about technical knowledge; it’s about managing client relationships and setting appropriate expectations. The practitioner who dismissively tells clients they don’t qualify without understanding restructuring possibilities doesn’t serve the client well. But the advisor who raises false hopes by oversimplifying requirements creates bigger problems.

Listen to the full episode of the Tax in Action podcast for Wells’ full breakdown of Section 41. His practical approach helps practitioners distinguish between realistic opportunities and unrealistic expectations while serving clients’ best interests.

The R&D credit may be complicated, but understanding its complexities opens doors to legitimate opportunities.

Avalara Tax Research: The Answer to Your Clients’ Toughest Sales Tax Questions

· ·

“Is this service taxable?” It’s a seemingly simple client question that can send accountants down a rabbit hole of research, often leading to uncertain Google searches and hours navigating complex state websites.

“Google’s great for some things, but when it comes to figuring out the taxability of products, it is lacking,” explains Blake Oliver in a recent Earmark Expo webinar. “As anyone who has worked with sales tax questions knows, the answers are different by state and by local jurisdiction. It’s a giant mess.”

Sales tax isn’t something most CPAs learn in school, making these questions particularly challenging. Many accountants refer clients to specialists when they can’t find reliable answers quickly enough.

In the webinar, Luke Marlatt from Avalara demonstrated how their Tax Research tool helps accountants tackle these challenges confidently. Let’s explore what makes this solution work and how it could benefit your practice.

How Avalara Gathers and Organizes Tax Information

Behind Avalara’s platform is an impressive research operation that transforms chaotic multi-jurisdictional tax laws into accessible, actionable information.

“We employ a gigantic team of researchers who spend all day, every day going to find information,” Marlatt explains. “We’re scrubbing over 27,000 web pages every single day. That’s not just some poor intern in the basement clicking on web pages; they have web crawlers and all this kind of cool technology.”

What sets Avalara apart is what happens after data collection. Real human experts verify every piece of information, translate complex tax code into plain language, and track changes down to case law and local regulations.

The team’s commitment goes beyond passive monitoring. When necessary, they actively chase down information through direct outreach to tax authorities. Marlatt shared how one colleague spent 2.5 hours on the phone with tax authorities in Jackson, Wyoming, to confirm a customer’s tax rate question.

This thorough approach has earned such credibility that Colorado, Missouri, and the Alaska Municipal League actually use Avalara’s data to power their own public-facing websites. 

Key Features That Make Research Easier

The webinar demonstration highlighted several standout features designed to make sales tax research more efficient and user-friendly:

Simplified Nexus Determination

Rather than forcing users to interpret complex legal language, Avalara converts nexus requirements into straightforward yes/no questions.

“Instead of reading through the law trying to figure out what they mean—which in Washington, you’d have to read through five totally different parts of the revenue code—we just turn them into yes/no questions,” Marlatt explains.

This makes it easy to interview clients who might not understand tax terminology but can answer simple questions about their business activities.

Multi-State Comparison

With a single click of the “compare” button, users can apply a tax question across all states simultaneously, eliminating the need to research each jurisdiction individually.

“You hit the compare button and literally have your answer in every single state in the country,” Marlatt demonstrates. “Then you can hit this export button to dump it into Excel and start a workbook for a Nexus study.”

Customizable Tax Matrices

The Tax Matrix feature allows you to create customized, multi-state, multi-product matrices showing tax liability across different jurisdictions. You can save these matrices in the system and they’ll update automatically whenever relevant tax laws change.

“If you provide a tax matrix to your client, they’re going to want it updated. And traditionally that’s a difficult thing,” Marlatt explains. With Avalara, “The only thing you need to do is log in and hit the export button. And you’ve now got an updated tax matrix for your client.”

This creates an opportunity for subscription-based services, as Leary pointed out during the webinar: “And you build a quarterly tax research update into your fees.”

Precise Rate Lookups

The platform includes rooftop-level tax rate lookups, allowing users to find exact rates for specific addresses. The system shows the breakdown of rates by jurisdiction, essential for places like California where returns require this detail.

An interactive map displays the exact boundaries of taxing jurisdictions, making it easier to visualize where different rates apply.

Change Tracking and Updates

Users can toggle on a “highlight changes” feature that visually marks modified content with color indicators. This helps accountants quickly identify what’s changed since their last review.

The customizable email update system notifies you about tax changes daily, weekly, or monthly, filtered by content areas and specific states. These updates provide both an overview and detailed information about specific changes.

Marlatt shared how this helps catch significant changes: “The state of Kentucky defines SaaS as a service—they changed their law at the beginning of 2023. Because of that service law change, SaaS is now taxable in Kentucky as well.”

Expert Research Assistance

When questions arise that users can’t resolve through self-service research, the “Contact a Tax Expert” function connects them with Avalara’s team of expert researchers (mostly attorneys).

“Ninety four percent of the time, we beat our 24-hour mark and 71% of the time we actually beat the hour mark,” Marlatt notes regarding their response times. Last year, the team answered approximately 8,900 questions.

Avalara Tax Research also saves previous Q&A exchanges in a searchable repository, allowing users to benefit from questions other customers have asked.

Accessible for Firms of All Sizes

While these capabilities might seem designed for large firms, Avalara Tax Research serves accounting practices of all sizes.

“We have all the big four and most of the really big firms across the country using our tax research. We have mom and pop shops,” explains Marlatt. “Most of the demos I do are for single person operations with two or three people in a firm.”

For firms concerned about audit protection, Avalara offers an audit information guarantee. While they don’t provide direct tax advice or audit defense (leaving that advisory role to accounting partners), they stand behind their information’s accuracy.

“We will back up our information under audit directly with that auditor,” Marlatt explains. “We will go and defend that information with the auditor. We say, ‘Here’s all our research. Here’s how we got from A to B.'”

The platform also includes training resources to help firms maximize their return on investment. “There’s a team of trainers that make sure you get the most out of this tool,” Marlatt notes.

Adding a Valuable Service to Your Practice

Avalara Tax Research helps transform a persistent challenge into a strategic advantage. By providing authoritative answers to sales tax questions, firms can build service offerings around tax compliance while delivering more value to clients.

When clients receive clear, authoritative answers instead of tentative responses or referrals to specialists, it strengthens their trust in your firm. When you can proactively alert them to regulatory changes before they become compliance issues, you position yourself as a true advisor.

For practitioners who want to see these capabilities in action, watch the on-demand webinar. Tax complexity continues to increase, and having reliable resources to navigate this landscape is essential for serving clients effectively.

The Implementation Gap: Why Even Legitimate Tax Strategies Fail During Audits

· ·

What’s the biggest mistake tax professionals make? Great ideas that never get implemented. That’s according to Jasmine DiLucci, a tax attorney, CPA, and enrolled agent who has built an impressive following of nearly 500,000 YouTube subscribers by debunking viral tax myths on social media.

I sat down with Jasmine for a conversation on the Earmark Podcast. We kicked things off by discussing the issue of false information about taxes that spreads on social media. Jasmine also highlighted an even deeper concern: even legitimate tax strategies can face serious issues if implemented incorrectly.

Why Social Media Fuels Tax Misinformation

Jasmine says one reason so many “loopholes” and sketchy strategies go viral is that true tax expertise rarely gets posted online. Skilled professionals are busy running firms, while less experienced creators spread half-truths. This leads to flawed tips on topics like clothing deductions or marking up the inside of a shirt with a tiny business logo, all to claim a tax write-off.

The clothing deduction test is a great example. The test has existed for decades, complete with court rulings stating clothes are only deductible if they’re unsuitable for personal wear. But many influencers ignore this, telling people to slap a hidden logo on their regular clothes. As Jasmine points out, these strategies often fail in an audit. Taxpayers who rely on them risk penalties and extra scrutiny.

Implementation Over Theory: The Real Reason Plans Fail

For Jasmine, the greatest pitfall is the implementation gap—the space between hearing a tax idea, reporting it correctly on a return and documenting what was done. 

She highlights the short-term rental loophole as a perfect example. While the idea is legal, most filers never produce the logs, election statements, or rental agreements proving they qualify.

“If it’s not on the return that way,” Jasmine says, “then what did we just do? Nothing.”

Clients often pay thousands for big-picture “plans” but fail to handle bookkeeping or gather the right records. By the time they’re under audit, there’s no backup for the deduction. Those clients face costly disputes with the IRS, sometimes losing deductions they could have secured with basic documentation.

The Shift in Responsibility: Why Clients End Up Holding the Bag

Misinformation creates tension between clients and professionals. Many taxpayers see social media videos telling them they can write off anything. Then, when their tax expert says “no,” it causes conflict. Some preparers cave and let questionable deductions slide. Others keep warning clients but never clearly explain the “why.”

During an IRS audit, that defense of “my tax preparer said I could” means little. The IRS holds taxpayers responsible for their returns. Jasmine notes that low-level auditors sometimes miss legal details, so a wrong deduction might slip by. But if a client’s case goes to appeals or tax court, illusions fall apart without real support.

Bridging the Gap with an Integrated Service Model

Jasmine’s firm avoids the implementation gap by offering an integrated approach: tax planning, accounting, and preparation, all under one roof. She insists on year-round contact, keeping detailed records, and ensuring clients follow the steps for valid deductions. Her team also handles IRS resolutions, so she knows firsthand where taxpayers slip up.

Working with a single provider can prevent the “blame game.” Instead of paying one person for theory, another for the return, and a third for bookkeeping, Jasmine’s clients get everything in one place. This structure helps them stay organized, meet documentation rules, and rely on correct returns from the start.

Scaling Through Delegation and the Right Tools

While her integrated model works, Jasmine admits it wasn’t easy to build. She did almost everything herself early on—sales calls, tax returns, and marketing. Eventually, she found experts who could handle each function at a high level.

She also credits technology for streamlining processes:

  • Canopy for practice management
  • CCH for tax software
  • Calendly for scheduling
  • Slack for team communication
  • Superhuman for email management

For tax research, she recommends the Bradford Tax Institute because it clearly cites legal authority. She warns that AI chatbots sometimes invent court cases, so relying on them can be risky.

Join Jasmine’s Free Community

Jasmine welcomes taxpayers and fellow professionals to her free tax community at actualtaxlaw.com. There, she shares detailed answers about IRS notices, audits, and new tax updates. Users can post questions or upload documents for possible video reviews.

Earn Free CPE for Listening to the Episode

Tax ideas don’t save you money if you don’t implement them correctly. Closing the gap between theory and execution can shield taxpayers from costly audits and give professionals a clear advantage. Whether logging short-term rental days or documenting a true business expense, proper follow-through matters more than any buzzworthy trick.

If you’d like to hear the full interview and gain more insights on best practices, listen to the full episode of the Earmark Podcast. You can also earn free NASBA-approved CPE by registering for the course on the Earmark app and taking a quick quiz to verify your learning.