Accounting Today - June 2011

thin. Every new tax provision added to the Internal Revenue Code requires both service and enforcement resources for successful implementation,” the report stated.

Moreover, mandatory e-filing and tax preparer registration issues added complexity to the season.

Overall, the IRS processed 123.8 million individual returns through April 29, a 4. 9 percent increase over last year. Nearly 105 million of these were e-filed, an increase of 12. 3 percent over last year.

“Mandatory e-filing caused us to make significant changes in our internal process and be much more proactive in educating and communicating requirements to our clients,” revealed Jodi Robinson, director at the Kansas City, Mo., office of CBIZ MHM.

Beginning Jan. 1, 2011, paid preparers who anticipated filing 100 or more Forms 1040, 1040A, 1040EZ and 1041 during the year were required to use IRS e-file. The requirement also applies to firms, which must compute the number of returns prepared by their members in the aggregate.

“A lot of our clients didn’t really understand
the current requirements,” Robinson said.
“Even though our office has been increasing
the number of e-filed returns each year, the
requirement more than doubled the amount
of e-filed returns that we submitted this tax
season. We had one person who managed
that entire process. It worked out well, but
there are always clients that don’t open up
their tax package until the very last day. Even
as proactive as we are in managing the pro-
cess, we were still trying to get them in the
door at the last day so we could get them to
sign the Form 8879 [IRS e-file signature au-
thorization]. We’ve already met as a group
to debrief what we learned and improve that
process going for ward.”
“Part of the answer,” she said, “is to be more
active in communicating with clients what
the expectations are up front, and then mak-
ing sure we have the people in place through-
out the office, whether an administrative as-
sistant or people at the front desk, to follow
up with the client. Since this was the first year,
there were a lot of questions from clients who
in the past were just used to signing the return
and dropping it in the mail.”
Robinson credits a push to transition to-
ward a paperless environment for generat-
ing efficiencies during the tax season. “Our
national tax office wants everyone to operate
in a paperless mode during the next couple of
years, but it’s up to the local offices to imple-
ment,” she said. “We decided to do it as close
as possible to 100 percent this year. The young
professionals are completely on board, but it

Lessons
FROM PAGE 1

has taken a little longer to get managers and directors at the same point.”

INFLUX OF ERROR NOTICES

The late legislation from Congress and shortened tax season may be to blame for the erroneous error notices sent out by the IRS, opined Cindy Hockenberry, supervisor at the National Association of Tax Professionals’ Tax Knowledge Center.

“There were a lot of strange error notices being sent,” she said. “For example, in one case a wife had a sole proprietorship, and her husband owned an S corporation. The S corporation had health insurance for the employees, including the shareholder-husband. Premiums were reported on his W- 2 as wages, and he took an adjustment on the front page of Form 1040. The IRS was adjusting the wife’s Schedule C business self-employment

‘The professional
preparer is not
losing out to the
consumer.’

tax by the health insurance adjustment taken
on the front page. This is incorrect because
health insurance was correctly reported on
the Form 1120 of her spouse.”
“The biggest burden was trying to explain
to the IRS that what was done was correct, and
it was a processing issue on the IRS end,” she
continued. “Early in the tax season, notices
were sent out for a variety of reasons rejecting
the First-Time Homebuyer Credit. They told
the taxpayer that they needed to repay the
credit when they may already have repaid it,
or when they did not have to repay it. The fact
that the tax season was delayed in the first
place may have caused some of this, since the
late legislation had a snowball effect.”

IRA CONVERSIONS

Last year was the first in which there were no income restrictions on converting from a traditional IRA to a Roth IRA, noted Bob Scharin, senior tax analyst for the Tax & Accounting business of Thomson Reuters.

“A complication to this was that people who
converted in 2010 could have it all taxed or
have it treated as converted half in 2011 and
half in 2012, which deferred their tax liability,”
he said. “That’s good news, but the people
who made their conversions might want to
adjust their withholding in 2011 so that they
are not hit with a big tax bill next April based
on their 2010 conversion.”
“Moreover,” he said, “there is the added in-
centive of paying in their state income tax on
the conversion amount during 2011, rather
than waiting until next year when they file
their return, because that would give them a
2011 state income tax deduction.”

PORTAL POWER AND DIY’ERS

The benefits of client portals were apparent during tax season, said Bob Dias, vice president of tax product management at CCH, a Wolters Kluwer business.

“The concept of having a portal as a con-
nection point between the CPA and client
has become obvious,” he said. “We’ve seen
an explosion of usage. It’s encouraging to
see the level of adoption. Any firm that’s not
deploying a portal already or doesn’t have a
short-term strategy to deploy one should step
back and take a look at the advantages.”
Dias said that CCH transmitted over 8 mil-
lion e-filed returns, up 20 percent over last
year in total volume. The focus on catching
errors on the front end resulted in an accep-
tance rate well over the industry average, he
indicated.

For Jesse Lipson, chief executive of file
transfer concern ShareFile, the most inter-
esting trend was how accountants used client
portal tools during tax season. “It’s used both
for the one-off, large file transfer such as a
large QuickBooks file, where the amount of
information is too large to be e-mailed,” he
said. “Then there’s the need for security with
especially sensitive information. Accountants
need a secure way to send and receive infor-
mation from a client. Every year we’ve seen
far less faxing and mailing and a lot more e-
mail and portal use.”
“Do-it-yourself” taxpayer trends have con-
tinued at the same level, indicated Jorge Olav-
arrieta, group product manager for Intuit.

This season’s increase in prepared returns was almost equally divided between professionals and do-it-yourselfers: tax professionals e-filed 67.1 million returns, an increase of 12. 2 percent over last year, while 37. 9 million self-prepared returns were e-filed, an increase of 12. 4 percent from the year-ago period.

“The growth in both the DIY and professional preparation spaces is the same,” he said. “The professional preparer is not losing out to the consumer. There’s a very intrinsic value that the accountant provides that can’t be mirrored in an application. It’s a lot more than just data entry and submitting something through the wire to the IRS.”

PRE-CRASH STAFFING LEVELS

The economic downturn of the last two to three years has opened up slots for accounting professionals as a result of firms cutting staff at the outset of the recession.