Why the Future of This Profession is Blockchain
I was very lucky that I was introduced to the Blockchain in 2013. This quote best describes what the Blockchain is: “The Blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
The best way to put this in layman’s terms is let’s say you are working on a Microsoft Word Document. You then pass that document on to someone else and while they are working on said document, you can’t make any changes.
Let’s say that you forgot to add something, you have to wait until the person making changes to the document is finished and they give it back to you. Blockchain is like an open source spreadsheet that can be replicated with things added all the time, without having to wait for someone to finish what they are doing. The spreadsheet, if you will, is both encrypted and cannot be manipulated.
Think about what we have today in our profession, we have the double entry accounting system. Let’s say that it is 15 years ago and we are given check stubs and bank statements. We would rely on the double entry method of accounting to reconcile the bank and accounts. Today, we mostly rely on programs such as QuickBooks Online or Xero, wherein the client makes certain entries, we adjust them and we are all set.
With Blockchain technology, it represents the next step for this profession. Instead of a company keeping separate records, they can now write their transactions directly into a joint register thereby creating a sort of interlocking accounting system of records. These records would be cryptographically sealed, therefore making them impossible to falsify or for them to be destroyed to conceal activity.
You may first think that Blockchain’s uses would be practical only for CPAs doing financial compilations, reviews or audits. However, I will present to you something that will be priceless.
Some days, I feel like a detective. Most of the time our clients aren’t always telling us the truth. They aren’t lying per say, however some details they give us aren’t always exact.
Imagine an accounting system that is based on Blockchain, wherein the client can’t fudge their numbers. It will all be there in black and white. The problem with accounting systems today is that clients can go back and change things. These changes can affect the outcome of an IRS audit or even the preparation of a tax return.
Another practical purpose for the accounting profession regarding Blockchain is tax software. I once had to represent a tax professional (and I use that term loosely) that the IRS was investigating for Criminal Investigation (CI).
What this unlicensed preparer was doing was stating their clients were doing household help. The tax preparation company was located in an affluent area in South Florida and this company was, sort of, the cheap place for people to get their returns done.
Obviously, pumping up earned income will produce a higher Earned Income Tax Credit (EITC). They did this for many years, until one year their tax software, made them report household help, correctly under wages, which was the preparer’s argument.
Forget for a second that as a “professional” you are supposed to already know that. However, some employers may not have professional advice letting them know that they need to produce a W-2 form for their household help.
I have always run an above the board practice, however I am not ignorant to the fact that tax can be a nasty business. When the collection of data was going on, the Revenue Agent (RA) and her manager explained to me how this shady side of the business works.
A client will come in and fill out a basic sheet. I saw the company’s due diligence sheet and it was less than suitable.
Long gone are the days that we as professionals can blame the client for the information they give us, we are required to do some sort of due diligence. The RA and managers told me that these shady “professionals” would do the return as the client sat there, turn the computer screen to the client and tell them “I can get more of a refund back for you, if I do X.” A tax program that would run on Blockchain would be able to nix that whole situation.
Banks are beginning to adopt Blockchain as well as the Healthcare industry. It is my belief that within 10 years our profession will be knee deep in Blockchain.
The reason why I say it will be so far away is the conservative nature of our business, I can’t wait to be the first to use this technology.
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Craig W. Smalley, MST, EA, has been in practice since 1994. He has been admitted to practice before the IRS as an enrolled agent and has a master's in taxation. He is well-versed in US tax law and US Tax Court cases. He specializes in taxation, entity structuring and restructuring, corporations, partnerships, and individual taxation, as well as...