TaxOps Partner Lindsay Haskell and Corporate Tax Advisor Dan DeLau discuss what CFOs and Controllers Should Be Asking About Audited Financial Statements

Auditor Independence in the Age of Private Equity Roll-Ups

A CFO sits across from a longtime audit partner. The engagement letter on the table bundles audit, tax provision work, and a 401(k) audit into a single fee. It looks efficient. It feels reasonable. And it quietly hands a piece of management’s own responsibility back to the firm that is supposed to be checking the work. That scenario, increasingly common in private and private-equity-backed companies, is exactly the kind of arrangement Lindsay Haskell and Dan DeLau, partners at TaxOps, want finance leaders to interrogate.

In a recent episode of Tax Intelligence with TaxOps, Haskell and DeLau took on auditor independence: what it means, why it eroded, and why the rise of private equity inside the CPA industry itself is forcing CFOs to ask harder questions than they have in two decades.

A Brief History: Why Sarbanes-Oxley Still Matters

Auditor independence is not an abstraction. It was forged in scandal. Enron, WorldCom, and Tyco produced the Sarbanes-Oxley Act of 2002 and, with it, hard limits on what an audit firm could do for its public-company clients. The central principle was simple: an auditor cannot audit its own work.

Before SOX, the same firm routinely prepared a company’s tax provision and then audited the financial statements that contained it. As DeLau described from personal experience, “the audit team would come in, and from what I saw to a large extent, it was like, well, we already had the professionals that are familiar with this, the tax team, they’ve already prepared it. So we’re just going to incorporate those numbers into the financial statements.”

SOX put a hard stop to that for public companies. For a stretch of years, many private companies voluntarily held themselves to similar standards, particularly those positioning for an IPO. “IPO readiness” became shorthand for adopting public-company discipline regardless of current filing status.

Then the market shifted.

The Private Equity Shift And Why It Changed The Conversation

As private equity has rolled up companies across nearly every sector, the IPO-readiness mindset has faded. Fewer private companies are preparing themselves to live under SEC scrutiny, and the implicit pressure to mirror public-company controls has weakened. Haskell put it plainly: the conversation about auditor independence “doesn’t feel like it’s talked about during the audit process itself, even.”

That drift might be tolerable if the audit industry itself were standing still. It is not.

Private equity has now moved into the CPA profession. Because audit practices must remain CPA-owned, firms have restructured: the audit business stays under licensed ownership, while non-audit lines such as tax, advisory, and consulting absorb the private equity capital. Baker Tilly’s acquisition of Moss Adams, backed in part by private equity, is one widely reported example. DeLau noted that he recently received an email from a partner at a firm taking on private equity funding, and the signature line identified the company as “not a CPA firm.”

The implications deserve attention. Private equity exists to generate returns. When an audit firm’s adjacent service lines are owned by investors whose primary mandate is profit, the question DeLau raised is unavoidable: “Are they really looking out for my best interest in everything that happens?”

The Tax Provision Problem

This is where the conversation gets concrete and where finance leaders most often miss the risk.

The income tax provision is a footnote to the audited financial statements. Preparing it, including the journal entries, the rate reconciliation, and the footnote itself, is management’s responsibility. The audit firm’s job is to audit that work, not perform it.

And yet Haskell described a pattern she is seeing repeatedly: companies switching audit firms to reduce cost, and the new firm bundling tax provision work, tax compliance, and even 401(k) audits into a single engagement. “They bundled all the fees together,” she said, “and basically said, here’s the fee for your audit, which included tax, 401k audit.”

On the surface, it reads as a cost win. Underneath, the company has just agreed to let its auditor prepare a material component of its own financial statements, then audit it. For a public company, that arrangement is prohibited. For a private company, it is permitted but it is still management’s responsibility, and the risk has not gone away.

Haskell described one CFO who saw it instantly. New to his role, he reviewed the proposed engagement letter, struck the tax provision scope, and told the firm he would sign for the audit only. He took the tax work elsewhere. That instinct, Haskell and DeLau argue, should be more common than it is.

ASU 2023-09: Why The Footnote Just Got More Visible

The stakes around the provision are about to rise. FASB’s ASU 2023-09 took effect for public companies in 2025 and applies to private companies in 2026. The standard requires expanded income tax disclosures, including a more granular rate reconciliation in both dollars and percentages, and detail on income taxes paid by jurisdiction.

Critically, it puts public and private companies on roughly the same disclosure footing. Private companies that historically published thinner tax footnotes will now disclose information they may never have surfaced before. The underlying calculations should already exist inside a well-run provision. The footnote simply makes more of that work visible to readers, lenders, investors, and acquirers.

That visibility is one more reason management should own the provision rather than outsource it to the firm auditing it.

What CFOs And Controllers Should Be Asking Now

Haskell and DeLau are not declaring that every bundled engagement is improper. They are arguing that finance leaders should be asking questions that, for the most part, have stopped being asked. Among them:

● Is our audit firm independent in fact, not just in form?

● Who actually prepares our tax provision, and who reviews it?

● If our audit firm is private-equity-backed on the non-audit side, how does that influence the services they recommend?

● Are bundled fee proposals genuinely cost-saving, or are they trading independence for convenience?

● Do we have the internal capability, or an independent third party, to own the provision as management is required to?

As DeLau put it, “What does that relationship look like? What do I want it to look like? And what is in the best interest of the company that I’m serving?”

Those are the questions Sarbanes-Oxley forced into boardrooms a generation ago. They are worth asking again.

Listen to the Full Episode

Hear the full conversation between Lindsay Haskell and Dan DeLau on Tax Intelligence with TaxOps for a deeper look at auditor independence, the private equity shift inside the CPA profession, and what ASU 2023-09 means for your next provision cycle. Visit https://taxops.com/ to listen and to explore how TaxOps supports CFOs, controllers, and tax leaders with independent provision and advisory work.

About the Hosts

Lindsay Haskell — Partner, Corporate Tax. Lindsay Haskell has more than 15 years of experience in both public and private accounting, with a focus on corporate income tax provision and compliance, as well as international and state and local tax. She serves as a primary point of contact for clients,  leading workflows and managing relationships for dynamic companies worldwide. 

Dan DeLau — Corporate Tax Adviser. Daniel DeLau is a co-founder of TaxOps and a boomerang to the business tax advisory mission at TaxOps. Following a promotion to partner at Ernst & Young, Dan co-founded TaxOps to bring all the best of the big firm knowledge to businesses without the bureaucracy. Dan gained significant experience in international and domestic accounting and tax transactions within a U.S. corporate environment working for international accounting firms, and as tax director of multiple public and private companies, each with extensive and complex operations throughout the United States and internationally. 

Listen to the full conversation on Tax Intelligence, available now.

Tax Intelligence with TaxOps

This is the podcast where experienced tax professionals share clear, practical insight on today’s most complex tax issues–from SALT and federal tax strategy to ASC 740, tax minimization, and investment fun considerations. Each month, our experts break down what matters, what’s changing, and how to think strategically about tax–so you can make informed decisions with confidence. Listen today!

About TaxOps

At TaxOps, business tax is all we do. Our teams have the knowledge and focus to solve tax problems with practical tax answers. By hiring our Big Four-veteran leaders and experienced teams, you get tax strategists on your side supporting your strategy wherever business takes you. We deliver the strength, experience, and resources of a national tax brand with the hands-on client engagement of a boutique firm in federal, corporate, state and local and international tax as well as tax minimization strategies for businesses. For an introductory call, visit TaxOps.com/contact.

Read more

• Auditor Independence in the Age of Private Equity: What CFOs Need to Know
• R&D Credits for Software Companies: Scrum Teams, Qualifiers, and Section 174 After OBBBA
• Section 174 Decoupling: What Tax Pros Need To Know State By State
• TaxOps Welcomes Sean Espy as Partner, Tax Minimization
• Your Tax Footprint Is Probably Bigger Than You Think: What Finance Leaders Need to Know About State Nexus

The post Auditor Independence in the Age of Private Equity: What CFOs Need to Know first appeared on TaxOps.

TaxOps Partners Jamie Overberg and Sean Espy share their expertise on R&D Credits for Software Companies in this live webinar.

R&D Credits for Software Companies

Online Only | 2.0 Credits

Tuesday, June 9 | 11:00 AM MT, 1:00 PM ET

Register

Big Changes for Software Developers: Navigating R&D Credits in the OBBBA Era

TaxOps Partners Jamie Overberg and Sean Espy will provide businesses and their tax advisers with a practical discussion of how the R&D tax credit applies to software development activities. Topics covered include Section 41 criteria for R&D credits, credit requirements for non-internal-use software vs. internal-use software (IUS), and review new Section 174 considerations for software companies in light of the OBBBA (One Big Beautiful Bill Act).

Description

The R&D credit offers valuable benefits to all companies; however, software developers must meet specific requirements to qualify. All software must satisfy a four-part test to be eligible for the R&D credit under IRC Section 41. In addition to the four-part test for software, IUS must also satisfy a three-part high-threshold innovation test under Treasury Regulation Section 1.41-4(c)(6). For IUS, a taxpayer must establish that:

(1) The software is innovative;

(2) The software development involves significant economic risk; and

(3) The software is not commercially available for use by the taxpayer in that the software cannot be purchased, leased, or licensed and used for the intended purpose without modifications… .

Tax practitioners and software companies must also consider the OBBBA revisions to Section 174 expenses. Formerly, TCJA removed the ability to expense R&D costs and required amortization of these expenditures. Most software companies, having historically expensed these costs, were significantly impacted by this legislation. Recently, the OBBBA restored the ability to expense R&D costs. However, transitioning from the old rules to the new requirements can be complicated. Recouping these lost deductions requires deducting prior unamortized costs over 1-2 years, amending tax returns, or expensing these deductions retroactively.

Additionally, many states have decoupled from OBBBA, adding another layer of complexity to these determinations. Software developers and their tax advisers need to understand the nuances of the R&D credit and Section 174 changes to take advantage of these tax-saving opportunities. 

Listen as our knowledgeable federal tax experts breaks down the requirements for the R&D credit and Section 174 expenses for software developers and their advisers.

They will cover these and other critical issues:

• The impact of OBBBA on Section 174 deductions
• Software development activities that qualify for the R&D credit
• R&D tax credit computation methods: what to consider and the history of each approach
• Preparing and collecting documentation for audit readiness

After the presentation, there will be a live question and answer session with participants to answer your questions about these important issues directly.

Instructors:

Jamie Overberg
Partner, TaxOps Minimization

With over 20 years of Research & Development (R&D) credit experience, Jamie specializes in executing and managing all aspects of the R&D tax credit as well as a wide range of tax minimization strategies and financial reporting requirements under ASC 730, ASC 740 and Fin 48. Jamie also works with Section 263A and Section 382 analysis, calculations, and reporting. She works primarily with clients in the automotive, engineering, manufacturing, software, biotech and oil and gas sectors, and has worked on numerous R&D tax controversy engagements.

Sean Espy
Partner, TaxOps Minimization

Sean brings more than 25 years of consulting experience spanning public accounting, legal, and industry settings to complex tax minimization engagements. With his experience at top tier public accounting firms, Sean brings a rare combination of technical depth and practical insight to research credit studies.

Sean specializes in the identification and implementation of Research Credit Consulting. He has successfully implemented studies across a wide range of industries, including software, manufacturing, financial services, aerospace, software, food sciences, mining, medical devices, oil and gas refining, restaurant and retail, and renewal energies.

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The post R&D Credits for Software Companies: Scrum Teams, Qualifiers, and Section 174 After OBBBA first appeared on TaxOps.

TaxOps Partners Jamie Overberg and Sean Espy navigate the State By State Decoupling from Federal Section 174 Capitalization Rules

Section 174 Decoupling: What Every Tax Professional Needs to Know

If you are filing state tax returns this spring and assuming the rules around Section 174 capitalization are settled, think again. The landscape is shifting so fast that even state departments of revenue cannot keep up. That is the central warning from a new episode of the TaxOps podcast, where partners Jamie Overberg and Sean Espy unpack the state-by-state chaos surrounding 174 decoupling.

The result is a candid, deeply informed conversation that every tax professional, CFO, and controller navigating multi-state compliance needs to hear.

The Research Problem No One Is Talking About

Here is the uncomfortable truth: no two sources agree on how many states have decoupled from federal Section 174 capitalization rules. Jamie Overberg puts it bluntly during the episode: “Google, GPT will tell you one answer. I’ve listened to a presentation from Deloitte and they had a map. I’ve seen a map of states that have decoupled from PwC and it doesn’t match what we had.”

The count hovers somewhere between 20 and 30 states, but the number keeps moving. States have been issuing guidance late, reversing positions, and in some cases, their own departments of revenue lack clarity on where things stand. “We’ve found sometimes if you contact the DOR that says, ‘Are you guys doing this?’ They don’t even know,” Overberg notes.

For practitioners filing returns right now, this means the only reliable approach is going directly to each state’s website for the most current guidance, and even then, exercising extreme caution.

The District of Columbia Standoff

Perhaps the most dramatic example of the current volatility involves the District of Columbia. DC passed a law decoupling from both individual and corporate provisions under OBBA, a move that hit particularly hard given its concentration of tipped and overtime workers. The federal government responded by telling DC it could not opt out of OBBA. DC fired back with a lawsuit.

“I honestly don’t even know where that stands,” Overberg admits. It is a telling moment: when a seasoned tax professional cannot pin down the status of a major jurisdiction’s conformity, you know the terrain is genuinely unstable.

Arizona: A Case Study in Legislative Whiplash

Arizona offers a textbook example of how quickly things can change. The governor initially issued an executive order decoupling from both individual and corporate provisions. The legislature then wrote a bill to conform. The governor vetoed it. Negotiations followed, resulting in a compromise: decouple from corporate provisions, but conform on the individual side.

This kind of back-and-forth is playing out across the country, and it underscores why tax professionals cannot rely on a single snapshot in time.

Why States Are Decoupling (and Why Some Are Not)

The pattern is largely fiscal. “It’s kind of been the states that have the worst budget crunches that are the ones that are decoupling,” Overberg explains. States need revenue, and requiring companies to capitalize research expenditures at the state level, even when federal rules no longer demand it, generates taxable income.

Colorado offers a notable exception. Despite facing a billion-dollar budget shortfall, the state chose not to decouple. Overberg attributes this to the governor’s centrist approach and willingness to ease the burden on taxpayers, particularly lower-wage earners affected by tip and overtime taxation.

The 174 Compliance Trap

Sean Espy raises a critical point that many companies overlook: Section 174 applies wherever technical uncertainty exists, which can be anywhere. Unlike the R&D tax credit, which requires qualified research expenditures in a specific state, 174 captures a broader universe of costs, especially after 174A expanded the definition to include all software development expenses.

“The states are certainly allowing, or requiring rather, any activities outside of the state to be included in your 174,” Espy explains. For companies with operations spanning multiple jurisdictions, this creates a compliance obligation that cannot be ignored simply because they would prefer not to claim R&D.

The silver lining: now that federal capitalization is no longer required, companies are more willing to embrace R&D claims. As Overberg observes, “If they only have a 5% apportionment in Arizona, it’s not going to hurt them as much.”

State Credit Changes Worth Watching

Beyond 174 decoupling, the episode covers several significant state-level credit changes:

● California has finally adopted the Alternative Simplified Credit, though at lower rates (3% with a three-year base, 1.3% without). One catch: switching back to the regular credit method requires a formal methods change, unlike the federal election which can shift year to year.

● Michigan has restored its research credit, but with tight deadlines (April 1 this year, moving to March 15 next year) and a calendar-year-only requirement that creates complications for fiscal year filers. The state’s $100 million budget will be divided proportionally among applicants.

● Oklahoma has launched a “research rebate” that appears to be refundable, with a budget of approximately $30 million and a first-come, first-served application window of just one week.

● Texas has increased its credit rate from 5% to 8.6% and eliminated the outdated discovery test, updating its static conformity date to January 1, 2025.

● Minnesota now offers a partially refundable credit, creating potential cash benefits for companies with losses.

● Iowa has re-included supplies and lease computer costs in its credit, but now requires pre-application and certification before claiming.

The International Wrinkle

As the conversation wraps up, Espy delivers one final reminder that is easy to overlook amid the domestic chaos: Section 174 capitalization for international R&D activities still applies. Companies conducting research overseas must still account for those costs on their returns, regardless of what has changed domestically.

What This Means for Your Filing Strategy

The message from Overberg and Espy is clear: do your research, verify it against the most current state guidance, and have your numbers ready. Modeling calculations across multiple scenarios, particularly when considering interactions with AMT, FDII, and NOL limitations, is not optional. It is essential.

“We live in a wild, wild west era right now,” Overberg says. She is not exaggerating.

Listen to the full episode of the TaxOps podcast for the complete conversation between partners Jamie Overberg and Sean Espy, including detailed examples and practical guidance for navigating this unprecedented compliance landscape.

About the Hosts

Jamie Overberg — Partner, TaxOps Minimization. Jamie has more than 20 years of R&D tax credit experience, with deep expertise in credit execution, tax minimization strategies, and ASC 730/740 and FIN 48 reporting. She previously spent 13 years at Ernst & Young, including a national role in E&Y’s Washington, D.C. R&D practice.

Sean Espy — Partner, TaxOps Minimization. Sean brings more than 25 years of consulting experience across public accounting, legal, and industry, specializing in Research Credit consulting. He has represented clients before the IRS and state tax authorities in nine states and is admitted to the U.S. Tax Court and the Supreme Court of the United States.

Listen to the full conversation on Tax Intelligence, available now.

Tax Intelligence with TaxOps

This is the podcast where experienced tax professionals share clear, practical insight on today’s most complex tax issues–from SALT and federal tax strategy to ASC 740, tax minimization, and investment fun considerations. Each month, our experts break down what matters, what’s changing, and how to think strategically about tax–so you can make informed decisions with confidence. Listen today!

About TaxOps

At TaxOps, business tax is all we do. Our teams have the knowledge and focus to solve tax problems with practical tax answers. By hiring our Big Four-veteran leaders and experienced teams, you get tax strategists on your side supporting your strategy wherever business takes you. We deliver the strength, experience, and resources of a national tax brand with the hands-on client engagement of a boutique firm in federal, corporate, state and local and international tax as well as tax minimization strategies for businesses. For an introductory call, visit TaxOps.com/contact.

Read more

• Auditor Independence in the Age of Private Equity: What CFOs Need to Know
• R&D Credits for Software Companies: Scrum Teams, Qualifiers, and Section 174 After OBBBA
• Section 174 Decoupling: What Tax Pros Need To Know State By State
• TaxOps Welcomes Sean Espy as Partner, Tax Minimization
• Your Tax Footprint Is Probably Bigger Than You Think: What Finance Leaders Need to Know About State Nexus

The post Section 174 Decoupling: What Tax Pros Need To Know State By State first appeared on TaxOps.