Tax Policy

Tax Accountants Need to Learn How to Read Code

With the rise of technology in public accounting, tax accountants of the future will need to learn how to read code - but not the code you might be thinking of.

If you’re thinking this article is going to be about tax accountants embracing technology and learning how to code then I’m sorry to say but you will be extremely disappointed. If anything, this article is written to encourage tax accountants to give up technology in favor of an outdated and archaic method of tax research.

If you’re not catching on yet don’t fret – I am talking about the Internal Revenue Code. Yes that’s right, I’m talking about Title 26 of the United States Code (UCC) aka The Internal Revenue Code (IRC). Now, before I bash an entire generation of accountants let me put a disclaimer on everything I’m about to write:

As a fellow millennial who had limited tax expertise I was desperately searching for a way to learn more about my profession. I mistakenly expected my superiors to teach me everything I needed to learn when that simply wasn’t the case. I wrongly assumed that webinars are tax updates would make me a more skilled tax professional. I even thought that preparing tax returns over the course of a 40 year career would give me the foundation I needed. But as you encounter more and more seasoned tax professionals you’ll find this just isn’t the case.

There is a clear distinction between someone who is equipped to fill out similar forms year after year and someone who is considered a trusted professional who can articulate the nuances of the tax code. The former is what you’ve probably encountered and the latter is what you should strive to be. Even more so, and this is where I win back the tech nerds I severely disappointed in the first paragraph, accountants who don’t know how to read code will be replaced by AI and robots who can prep complicated returns in a fraction of the time.

Why Millennial Tax Accountants Don’t Know Anything

As a generation we are quite fortunate to enter the profession in the technological era. It wasn’t too long ago when forms were filled out by hand and tax research was done using actual printed copies of the United States Code. If you work for a smaller CPA firm you’ve probably seen those massive brown books still lingering in a conference room which now serve as an ornamental relic.

Nowadays, the average tax staff accountant uses advanced tax research tools like Google and “this is what we did last year” over traditional tax research. But there is a legitimate reason for this drastic transition from reading straight from the code and understanding each form individually to simply plugging numbers into a tax software and hoping for the best.

With compressed budgets, increased complexity and an ever expanding workload, millennial tax accountants simply don’t have enough time to do tax research let alone figure out how these forms are actually calculating. You’re lucky if they enter all the data into the return before tapping out on the budget.

Now compare this to a time where forms were filled out by hand, your only source for tax research was a set of encyclopedia sized books that the entire office shared and the filing requirements weren’t as arduous. You would probably spend more time reading each line of the tax forms and have a better understanding on how numbers flowed from one form to another. If a client asked you a tax question you’d have no choice but to go to the source of all tax authority itself and come up with a clear answer.

Simply put, millennial tax accountants today don’t have enough time to understand the complexities of the tax code and rely heavily on tax software to fill out the forms correctly. But what happens when the robots take over and forms are filled out by an AI bot who knows the code better than a CPA?

The Robots Are Coming

We’ve all heard the stories – AI and machine learning will takeover the accounting industry and amazon will be prepping your return in the near future. This probably won’t be the case but it’s not entirely far fetched. With advancements in technology and more of a push for outsourced accounting and tax, already tight budgets will become tighter. So if data input is going to be a thing of the past what will first year tax accountants do?

Older generations of accountants had to know the forms inside and out to make sure the numbers were flowing correctly. Millennial accountants got a massive assist from advanced tax software that allowed them to increase their output while relying on the software to put the numbers on the right forms. But what about the next generation of accountants? Assuming the brunt of the leg work is going to fall on a robot you’d expect a first year staff to get a semi completed product without having to enter a single number into a tax software.

But how do we expect first year staff to be able to review returns if they themselves never prepped a return in their life? How can we expect someone coming out of school to have enough context to tell a complex tax program if the numbers are right or wrong? How can you expect to translate a language when you can’t read, write or even talk the language of the IRC. This is why tax accountants of the future need to learn how to read code.

The Basics – How to Read Code

The only way tax accountants of the future will stand a chance is if they learn how to read code – Internal Revenue Code that is. Every tax software you’ve ever used contains this very same code at it’s core. If you were to read the IRC you can even see that the way it’s written almost reads like an excel ‘IF’ function.

That’s because the IRC is built on logic and has to be clear to avoid ambiguity. The language of the IRC needs to be consistent so that it can be easily translated into rules that allow for some behavior while strictly prohibiting others. For example, the rules on charitable contributions under Section 170 clearly lay out who can deduct charitable contributions, the qualifications for a charitable contribution and the limitations on charitable contributions.

In fact, every code section follows a similar format:

  • General rule: Describes the general rule for the section i.e. charitable contributions are deductible if you meet certain criteria below.
  • General rule requirements: Typically words like ‘and’ or ‘or’ will be used to list out the requirements of the general rule. ‘And’ means all must be met while ‘or’ means only one has to be met.
  • Exceptions to the rules: Every rule has an exception to the rule which specifically allows or disallows someone from that general rule.
  • Definitions: The general rule and the exceptions to the rule will use specific vocabulary which can be defined in different ways. To avoid ambiguity the IRC will further define specific words or reference other code sections that further define those specific words relevant to that code section.
  • Reference to regulation prescribed by the secretary: Sometimes they can’t fit in all the nuances to the rules in the code itself so Congress will rely on the Treasury Secretary to write additional administrative rules. These rules are know as regulations and will give additional guidance to the code section – however, the IRC has more authority than the regs.

If you want to see how these code sections are written for yourself you can head over the free IRC at www.law.cornell.edu. You will mostly care about Subtitle A Chapter 1. This is where 99% of the tax law that you use on a daily basis is housed. For a more thorough lesson on how to do tax research and to read code you can checkout my expanded article here.

Why You Should Learn to Read Code

If you are an aspiring CPA or a first year tax accountant then you want to learn how to read code as soon as possible! With the fast moving advancements in technology the only accountants who will survive in the industry will be the ones who adapt to change. The reason why you want to read the tax laws and learn more about how they will impact your client is not to be the smartest in the room but instead to be the most helpful in the room.

If you understand the nuances of the complex tax code you can better advise your clients on how to save money and pay less in taxes. If you can understand various code sections you can advise a client before the end of the year to see how a specific transaction will impact their tax liability.

Client want to know what’s the best entity structure for their business, they want to know what hot new tax credits are out there and most importantly they want to know how they can pay less taxes. What clients don’t care about is how long it takes to prepare their return or how complicated the filing requirements are. Tax accountants of the future should be happy to know they will spend less time preparing returns and spending more time helping their clients build wealth and achieve their goals in the most tax advantageous ways.

Jeremias Ramos is a CPA working at a nationally recognized full-service accounting, tax, and consulting firm with offices conveniently located throughout the Northeast. Jeremias specializes in tax and business consulting with focus areas in real estate, professional service providers, medical practitioners, and eCommerce businesses.

2 comments on “Tax Accountants Need to Learn How to Read Code

  1. Matthew Swiontek

    Fantastic article. Rapidly approaching 40 and working in a small tax department for a private company, I can relate to many of your points. We’re very “old school” which has its pros and cons. It is easy to simply punch in the numbers on a tax form and forget how and why these numbers are calculated.

  2. “Client want to know what’s the best entity structure for their business, they want to know what hot new tax credits are out there and most importantly they want to know how they can pay less taxes. What clients don’t care about is how long it takes to prepare their return or how complicated the filing requirements are.”

    agree 10,000 times!

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