Tax Coda Weekly Digest — December 14, 2025
This week, the technology moved faster than people. Incentives competed instead of aligning. Enforcement flexed where visibility was low. Guidance clarified rules that most taxpayers already misunderstood.
The pressure was not technical or legal. It was behavioral. Systems strained not because tools failed, but because humans hesitated, gamed, or misread the signals.
1. The Real Barrier to AI in Accounting Is Human, Not Technical
We argued that AI adoption in accounting is stalled by behavioral, not capability, constraints. The tools already exist. What slows progress is fear of error, loss of control, and institutional inertia. Real modernization happens through small, repeatable steps, not sweeping transformation plans.
Why It Matters:
Firms overestimate technical risk and underestimate cultural resistance.
Incremental adoption produces better compliance outcomes.
Waiting for perfect systems delays practical gains.
Takeaway:
Accounting will modernize one small habit at a time.
2. Trump Account or 529? How the Incentives Stack Up
We compared Trump Accounts and §529 plans by looking past defaults to actual incentives. Contribution rules, investment limits, and withdrawal mechanics shape outcomes more than labels. Families respond to how benefits compound, not how programs are marketed.
Why It Matters:
Defaults influence entry, but incentives drive long-term behavior.
Overlapping programs increase planning complexity.
Small structural differences create large outcome gaps.
Takeaway:
Incentives decide where families land, not where they start.
3. Raju Mukhi v. Commissioner
The IRS sought records from Gmail and Yahoo linked to alias email accounts used in an offshore tax investigation. The dispute centers on summons enforcement and whether the requests were overbroad. The case highlights how digital footprints factor into modern tax probes.
Why It Matters:
Shows increased reliance on third-party data in offshore cases.
Raises questions about scope and relevance in summons practice.
Signals continued focus on identity masking techniques.
Takeaway:
Alias accounts no longer shield offshore activity from scrutiny.
4. IRS Explains FDII Carve-Outs for IP and Asset Sale Gains
IRS Notice 2025-78 (Dec. 5, 2025)
The IRS clarified how §250 FDII rules exclude certain gains from intellectual property and asset sales. The notice explains when income qualifies for FDII treatment and when it falls outside FDII treatment. The guidance focuses on transactional structure and income characterization.
Why It Matters:
Clarifies treatment of IP-related exit transactions.
Narrows aggressive interpretations of FDII eligibility.
Helps taxpayers assess exposure before filing or amending.
Takeaway:
Not all IP gains fit inside FDII, even when tied to foreign income.
5. The IRS Looks Weak. That Is When Fraud Becomes Most Expensive.
We examined how periods of visible weakness inside the IRS tend to invite fraud. When enforcement appears uneven or distracted, bad actors move faster than controls can respond. The long-term cost shows up later, in audits, penalties, and lost trust.
Why It Matters:
Perceived enforcement gaps alter taxpayer behavior.
Fraud expands fastest during institutional instability.
Recovery costs exceed short-term compliance savings.
Takeaway:
Weak enforcement signals create the most expensive problems.
Overall Takeaway
The common thread was behavior. AI stalled because people hesitate. Incentives worked because people respond to structure. Fraud accelerated where oversight looked thin. Guidance mattered because assumptions filled the gaps.
The system did not fail this week. It revealed where humans still do.