Will there be new, low cost tax prep software?

[Black Bart]

Say Jack,

Actually, this debate will probably be moot in the not-too-distant future. Everson, having correctly concluded that smaller-firm CPAs and their complex-return clients haven't the slightest interest in efile, will take off the gloves and simply mandate it for any professional doing over 100 returns; followed by phased-in reductions to zero.

If this does come about, it might be your chance to cut back on caseload and still make a killing. If you've got those clients sufficiently buttered-up that they can't live without your expert assistance, then you could make an announcement like Toyota with their energy credit limit of 60,000 customers. Just mail out a notice that you'll be doing only 100 clients next year -- first come, first served -- and your minimum fee is $500 or $1,000 or whatever you think the traffic will bear.

[Mike Mac]

$5.00 charge

In MN, if you don't e-file a return that met all the qualification that would allow you to e-file it, the tax pro is subject to a $5.00 charge per paper-filed return. The tax pro is responsible to keep track of each of these events and fill out the proper documents at season's-end along with a check to cover the total times this happened. I am not sure what percent of the folks actually send any money to MN for this and at tax seminars even the Dept of Revenue folks snicker when talking about the surcharges.

I, like many others, did not initially like the thought of using e-filing but now I actually really hate the extra work involved with paper filing. I'd never go back.

[OldJack]

If this does come about, it might be your chance to cut back on caseload and still make a killing. If you've got those clients sufficiently buttered-up that they can't live without your expert assistance, then you could make an announcement like Toyota with their energy credit limit of 60,000 customers. Just mail out a notice that you'll be doing only 100 clients next year -- first come, first served -- and your minimum fee is $500 or $1,000 or whatever you think the traffic will bear.

I'm already in the mode you mention and all my clients are mostly older than me (and I am older than dirt). They would not dare go to someone else for their tax return preparation since I know everything there is to know about their taxes. I have always charged what the traffic will bear, if the taxpayer is wealthy (s)he gets my wealthy rate. I expect I will be dead by the time the IRS demands I efile.

[Anarchrist]

Would you care to elaborate on this observation?

Efilers are subject to revenue dept audits of their procedures and practices. During such an audit the ERO would have to open up his client files for the auditor's inspection.

[Joe Btfsplk]

Death and taxes

. I expect I will be dead by the time the IRS demands I efile.

I may not be dead but I'll be retired by the time the IRS demands that I efile all returns.

I keep thinking I will retire 'next year' but when next year arrives, I decide to continue one more year, but avoid taking on new clients for the most part.

[Bees Knees]

Efilers are subject to revenue dept audits of their procedures and practices. During such an audit the ERO would have to open up his client files for the auditor's inspection.

Your client’s return is already subject to inspection. Its called an IRS audit. And I here it is a lot worse than an ERO inspection.

In reality, the client is less scrutinized e-filing than by filing a paper return. A human being has to look at every paper return. E-file returns are processed directly by IRS computers with no human in between, other than the ERO.

Plus, in some states such as MN, if you try to do a paper return and pay your $5 penalty, the state will hang on to the refund an extra couple of weeks just to punish the taxpayer for not e-filing.

[OldJack]

A human being has to look at every paper return. E-file returns are processed directly by IRS computers with no human in between, other than the ERO.

I consider an IRS human looking at the paper return a good thing as the looker can also see the attachment details that explain the deduction and therefore pass it without it falling into the audit because of statistics or amount basket. If an efiled return is selected by the computer there are no explanations of anything for the auditor other than to conduct a full audit. d-amm-ed if you do and d-amm-ed if you don't, sooner or later the IRS is gona get you.

[jainen]

We mustn't think

>>If an efiled return is selected by the computer there are no explanations of anything for the auditor other than to conduct a full audit<<

We mustn't think that e-file is a parallel system for filing. E-file is the standard, and has been for several years. Obviously the IRS has changed to accommodate that, vastly reducing the routine data entry function. Now anything that is not the basic W-2/short form is probably looked at in more detail than you would normally want.

The first question is probably, why is this return NOT being e-filed in the standard way? The next question would be, why is the TP so quick to justify his position when we haven't even challenged it, as if the regs themselves don't support it?

Eventually of course it will be typed up (correctly, we hope) where it will still be subjected to the same "statistics or amount basket."

[OldJack]

E-file is the standard, and has been for several years.

Well Jainen... you must be looking at different IRS statistics than I am if you call efile the standard. I would say 52% efile compared to 48% paper is hardly a standard especially when you see a large numbers included in efile figures were actually online and telefile that is not exactly what we normally think of as efile. Take online out of the picture or telefile and the percentages change dramatically or even flip. True.. efile will increase each year because that is what is being pushed and advertised.

Paper Returns, Total 63,811,993
Electronically Filed Returns, Total 68,463,837
Standard Electronic Filings 65,170,161
Practitioner 48,085,438
On-Line 17,084,723
Telefile 3,293,676

edit: On the other hand paper filing percentage may increase as software companies start charging higher amounts for efile. (ie: ATX now charging for efile.) Politics from practitioner organizations may force the IRS to back off on its demands for efiling.

[erchess]

Interesting

It's interesting that some of us seem to think that e-filing causes more bother for the preparer and more trouble down the road for the client than paper filing, and others think that the reverse statements are true. I can't explain the difference on what happens to the client, but I think that I may understand the difference on what is easiest for the professional..

We all know that a paper return has much less than all the information we used in preparing the return.. I was taught that whether or not I am going to file electronically, the record on my computer should contain as much information as possible. For example, in the interview I might ask the client how much he spent on out of pocket medical expenses. If he tells me a number, I enter that directly on Schedule A. But if he gives me more detailed information, I click something to bring up a list and I record everything. When first instructed to do this, I objected that this inflated the fee for no benefit I could discern to the client. Until this point I had scrupulously entered only information I understood to be required. (I don't know that I had thought much about who required it or why.) I was told that there were three benefits to this seeming overload of information. Number one, if there is later a question about whether his payments to his gastroenterologist made it onto the return or did we need to add them, possibly by an amended return, it's easy to find out. Number two, if he loses his records, we have an electronic copy. (A good third of the times when I looked for paper files on clients I could not find them but I was rarely unable to find electronic copies. There were daily and weekly backups and copies of each were retained in the office and elsewhere.) Number three, if the return is electronically filed, it is less likely to be audited if most applicable numbers have lists backing them up and most of the lists seem reasonable. The latter was particularly important to this firm because we did not charge for audit assistance unless someone fairly high in the structure determined that the problem was due to the client providing us with wrong or incomplete information.

Now I have two questions.

1. Is there anyone who thinks paper filing is easier than e-filing if you are going to key into every return as much client data as your software will take?

2. What do people think of this "information overload" strategy?

[Bees Knees]

I consider an IRS human looking at the paper return a good thing as the looker can also see the attachment details that explain the deduction and therefore pass it without it falling into the audit because of statistics or amount basket. If an efiled return is selected by the computer there are no explanations of anything for the auditor other than to conduct a full audit. d-amm-ed if you do and d-amm-ed if you don't, sooner or later the IRS is gona get you.

Human beings entering the data from the paper return often throw away anything that is not an official government form. Your attachments get thrown into the garbage, even if they are legit.

I have yet to go through an audit where the auditor actually had the tax return sent in by the taxpayer. They only have the data that was entered into the IRS computer, and data entry people at IRS do not enter data from attachments.

[rosieea]

Now I have two questions.

1. Is there anyone who thinks paper filing is easier than e-filing if you are going to key into every return as much client data as your software will take?

2. What do people think of this "information overload" strategy?

I could go into various scenarios, but for the solo practitioner with little or no office help, there's no question that e-filing involves extra work: getting signatures on the 8879, e-filing the return, retrieving the ack, sending the confirmation letter. Paper filing: show 'em where to sign, get your payment, finito.

[Bees Knees]

I could go into various scenarios, but for the solo practitioner with little or no office help, there's no question that e-filing involves extra work: getting signatures on the 8879, e-filing the return, retrieving the ack, sending the confirmation letter. Paper filing: show 'em where to sign, get your payment, finito.

Printing out 2 extra return copies for federal and state, attaching the W-2s, marking where to sign, attaching envelopes takes extra time, extra paper, extra toner, and extra postage for those of us who mail the finished return back to clients.

[JohnH]

E filing has many benefits

and I am persuaded that it is more efficient in some ways. But it depends upon your overall practice & how you manage it. The focus of my practice is to keep my clients out of my office so I can get my work done.

I have face-to-face contact with no more than 20-25% of my clients in a given year. The majority either mail me their info, email it to me, or drop it in a night drop at my office. There's nothing to sign, review, or ponder together. If I have questions during the prep, I call or email them.

When the return is ready, I mail it back to them to sign and send in to IRS & the state(s). I don't have any further responsibility to get forms signed, transmit within 24 hrs, check for ACKS, retransmit when there are errors, or keep any special records in anticipation of a special e-file audit (or whatever it's called). I maintain a hard copy of their return with back-up info, as well as a pdf. There's rarely a need for any of this info after the fact unless an audit ensues or a CP-2000 comes out because the client forgot to give me something AND I failed to ask for it..

I like the simplicity of that system and the fact that when I'm done with a return I'm really done. If there is any follow-up required, it's chargeable time.

I'm also not persuaded by the argument that paperwork storage is such a big deal. Printing 2-up and shrinking copies of back-up info makes compact files, and it's nice to have the info at hand on those rare occasions when follow-up of some sort is needed. Also, I've never seen a piece of paper rendered unusable by a scratch.

I understand why many practitioners like efile, and I'll go to efile IF the IRS or the state forces me to do so, but not until then.

Just my 2 cents worth.

[George Boutwell]

If you can't trust the government, who can you trust?

>>Your client’s return is already subject to inspection. Its called an IRS audit. And I here [sic] it is a lot worse than an ERO inspection.<<

For those of us who make money after April 15 in a profession that demands client files with privileged information be kept confidential, it would be an ethical violation for me to allow an IRS gumshoe to inspect files (and it would be impractical to separate tax and nontax information into separate files for every client all the time).

>>A human being has to look at every paper return. E-file returns are processed directly by IRS computers with no human in between, other than the ERO.<<

I think what you mean is that an IRS employee has to look at every paper return. Well, close enough. At least IRS isn't outsourcing that work (yet) and the people who do it are hired based on keypunch productivity, not financial analysis. What you overlook is that most e-filed returns pass through a third-party server, and who knows how many humans have hacked into that data?

>>Plus, in some states such as MN, if you try to do a paper return and pay your $5 penalty, the state will hang on to the refund an extra couple of weeks just to punish the taxpayer for not e-filing.<<

There are two types of clients: Those who can't wait another couple weeks for a state refund that resulted, usually, from their compulsion to use the system as a bank account paying no interest; and, all the rest. You can have the first group, I'll take the second.