CPA's Challenging Environment for Tax Season & Technology
- Written by Steel Rose
Professional accountants continued to deal with practice-related, economic, social, and tax law changes resulting from the global pandemic during the 2022 busy season, as well as a continuation and worsening of issues from 2021. IRS staff shortages contributed to long waits to reach IRS helplines and a ballooning backlog of unprocessed returns, which created a challenging environment for practitioners. CPAs kept up with tax law and pandemic-related changes, and they developed expertise in newer areas such as cryptocurrency to assist clients. Many participants in this year’s survey have adopted new practice management tools in response to remote or virtual office operations, such as document drop-off procedures and virtual meetings with clients. Accounting professionals are facing significant practice management challenges–including attracting and retaining sufficient staff to meet client demands–that exacerbate the pressures associated with remote work. Not only must CPAs design and manage their own remote work structure, but many are assisting clients with remote work issues. The practice management tools that facilitate remote work have required professionals to add new cybersecurity resources to prevent phishing and malware attacks. All of these trials contribute to an environment in which CPAs must constantly reassess the best way to deploy talent and manage resources.
Survey respondents relied on technology tools to help them with tax compliance and research activities. They expressed satisfaction with the features of tax preparation and research software used to meet client needs for compliance and planning, with modest increases in almost all ratings relative to the previous year. Most survey respondents use the IRS and New York State tax department websites, as well as a variety of other free online resources, to assist in tax research, but ratings for these products generally declined slightly. Although some comments from respondents reflected concerns with commercial software customer service, other remarks offered insights on big picture issues such as tax policy and the impact of complexity on practitioners. New York CPAs have endeavored to serve their clients in challenging circumstances, and have once again provided valuable practice information to their fellow professionals in responding to this survey.
The 2022 tax season revealed itself to be a continuation of an extremely difficult practice environment, as CPAs experienced numerous challenges, from firm staff shortages to difficulties in connecting with the IRS—all leading to increased stress on accounting professionals. For the most part, professionals have adapted to a continuing remote work environments and a scarcity of qualified personnel by relying more on technology options and increasing online security. However, there are unresolved problems brewing under the surface with the slow pace of paper-filed tax return processing, erroneous IRS letters to filers, and poor customer service at the IRS, systemic issues that need to be addressed in the immediate future—perhaps with strong consideration of the best practices employed by many of the respondents to this annual survey.
The IRS resumed a more typical tax return processing schedule and began accepting individual tax returns on January 24, 2022. Because the prior filing season did not begin until February 12, 2021, data on tax returns received and processed for the beginning of spring 2022 was more comparable to the beginning of spring 2020, before COVID-19 slowed everything down. Between the coronavirus impact on 2020 and the postponement of processing to allow the IRS to try to catch up on a large backlog at the beginning of 2021, however, it is more sensible to look at weekly filings for 2022 in comparison to 2019. The heavy spring 2022 workload undertaken by accounting professionals and taxpayers alike is evidenced in the IRS weekly filing statistics (https://www.irs.gov/newsroom/filing-season-statistics-by-year). The total number of individual tax returns received and processed as of April 22, 2022 slightly exceeded the data reported as of April 19, 2019, attributable to a 13% increase in self-prepared returns. By late October 2022, approximately 10 million more individual returns had been filed than for the comparable period in 2019; 56% of the e-filed returns were submitted by tax professionals, similar to recent years.
Tax practitioners received a small break from having to absorb substantial tax law changes during tax season, as Congress gave the IRS an opportunity to catch up on its processing backlog, without having to also implement many tax updates. Some provisions in the already enacted tax legislation, however, made 2021 tax returns more complicated. For example, the American Rescue Plan Act of March 2021 temporarily expanded child-related tax credits. Interestingly, 60% of survey participants reported minor or significant problems in assisting clients with advance child tax credits. A third round of direct stimulus payments was provided as advance refunds of 2021 taxes, and taxpayers who did not receive their full eligible amount may have been required to claim the Recovery Rebate Credit on their 2021 tax returns. Additional taxpayer record keeping was required, perhaps after the fact, for a non-itemizer charitable contribution deduction and a 100% deduction for restaurant-provided business meals.
The IRS launched a new tax season alerts webpage on January 24, 2022, for taxpayers and tax professionals (https://www.irs.gov/newsroom/help-for-taxpayers-and-tax-professionals), which provides brief guidance and reminders, as well as information on IRS processing activities. For some reason, the new alerts page does not include a very important notice, IR-2022-31, from February 9, 2022, regarding the temporary suspension of collection and other notices, many of which were caused by a lack of data from unprocessed returns. A large majority of survey respondents indicated minor or significant problems with erroneous or incorrect IRS notices (88%) and IRS automated collection notices (82%). One participant summed up the situation: “Please, please, put pressure on the Congress to increase funding for more IRS support. Our firm is wasting thousands of professional hours each year dealing with incorrect tax notices and rejected tax returns, which is very difficult for us to get paid even 20 cents on the dollar. It is also taking a heavy mental health toll on our tax people.”
The Treasury Inspector General for Tax Administration (TIGTA) report “Interim Results of the 2022 Filing Season” (2022-40-035, May 2, 2022) addressed the large backlog of prior-year paper-filed tax returns that were still waiting to be processed at the end of December 2021, which was 4.7 million, compared to 3.5 million for 2020; there were only 183,000 for 2019 (https://bit.ly/3iLlWRK). For amended returns, the unprocessed inventory was 2.4 million as of December 2021, and 1.5 million for 2020; for 2019, only 100,000 were unprocessed. On a related note, the IRS claimed that there were no negative taxpayer consequences as a result of the 2021 destruction of 30 million information returns; however, 34% of survey participants indicated minor or significant problems as a result.
National Taxpayer Advocate (NTA) Publication 4054 “Objectives Report to Congress: Fiscal Year 2023” (June 2022) provided more information on the processing backlog (https://taxpayeradvocate.irs.gov). Although the IRS was able to improve some of its activities, 21.3 million individual and business tax returns awaited required human processing as of May 27, 2022, compared to 20 million as of May 22, 2021. The report does not state this, but more tax returns had actually been filed by May 2021 than by 2022, so the backlog issue might be larger than it appeared. The backlog problem is partially responsible for the poor 2022 telephone assistance performance, as personnel who would normally be answering the phone were also processing tax returns. The spring 2022 IRS telephone call volume was half that of the previous year, and only 10% of callers were able to reach an assistor after an average 29-minute hold time.
The TIGTA report “Interim Results of the 2022 Filing Season” emphasized the IRS website as its primary customer assistance tool. Interestingly, the number of visits for the 2022 tax season declined almost 36% from the prior year. No explanation was given, but this may be due to fewer tax law changes.
The percentage of participants in the 2022 survey indicating substantial problems from the length of time waiting to talk to an IRS representative increased again, with 85% reporting significant problems in 2022, compared to 72% in 2021 and 57% in 2020. Similarly, 34% of respondents related having significant problems obtaining assistance from New York State or City representatives in 2022, an increase over 29% in 2021, but close to the 33% reported in 2020. Based on March 2022 data reported by TIGTA, it appears that less than 10% of telephone calls were answered; of those, 75% were automated assistance. The NTA reported that the hold time increased from 20 minutes in 2021 to 29 minutes in 2022. One survey participant stated: “Issues with the IRS not answering phones and not timely responding to correspondence appears to be a continuing issue that tremendously affects the tax practice.” Given the response issues reported by TIGTA and the NTA, it is not surprising that survey participants reported increased difficulties in reaching tax authority personnel.
The 21st annual practice management and tax practice survey for 2022 was conducted on a similar schedule to that used in recent years, somewhat later than the timing in earlier years in an effort to adapt to ongoing challenges associated with the business environment after COVID. Many New York State tax practitioners shared their insights with readers of The CPA Journal, although the number of total responses was somewhat less than in recent years (157, compared with 174 last year). Survey invitations were e-mailed by the New York State Society of CPAs to practitioners from the Society’s database of members with an indicated interest in tax. The survey link was highlighted on several “e-zine” newsletters, including one targeted to all members, as well as an “Exchange” discussion forum, to reach interested members missed by the e-mail distribution. Many thanks are extended to the respondent who commented, “I find these annual tax practice surveys to be very important to complete so that the surveys have as many practitioners providing feedback as possible.” Survey participants represented firms with a wide range of practice sizes, reflective of national demographics for tax professionals, although New York State practitioners do not necessarily report the same views as those presented on national survey results.
The 2022 survey included the tax software ratings questions and provided a write-in option to rate a package not listed. In addition to evaluating tax preparation and research resources, respondents answered new questions about practice management, as well as questions about firm practices such as use of client portals, pay-per-return (PPR) pricing, and workflow management. Similar to last year, questions on the impact of COVID-19 were included. Finally, the list of possible tax season and practice management issues was updated to include topics that were identified through news articles and discussion forums during and after the tax season.
Exhibit 1 presents a profile of the 2022 survey respondents, and demonstrates that survey participants included representatives from small, mid-sized, and large practices, and are generally similar to prior years, although the mean number of both individual and entity returns were higher than usual, due to outliers on both measures (as seen in the maximum numbers reported). The mean number of full-time tax practitioners was also somewhat higher; for all demographic measures, however, the median values reported were identical or similar to previous years. Consistent with prior years, the respondents were very experienced tax preparers, with 86% reporting that they had more than 20 years of experience as tax professionals and only 1% reporting that they had been tax professionals for 5 years or less.
Profile of Survey Respondents
A Few Highlights
Wolters Kluwer (CCH), Intuit, and Thomson Reuters maintained their dominance in the tax software market, with each of the “Big Three” offering multiple tax preparation and/or tax research products designed to serve different sizes of tax professional firms. Ratings for these vendors’ tax preparation products represented 128 (75%) of the 170 tax preparation software ratings received in 2022. The ratings for CCH, Intuit, and Thomson Reuters tax preparation products represented 32%, 28%, and 15% of the total, respectively. With 21% of the ratings, Drake Software was the only tax preparation package rated by a significant number of users that did not fall under the umbrella of one of the Big Three.
CCH and Thomson Reuters products represented 61 (52%) of the 116 ratings of commercial tax research software packages in the 2022 survey. With 34 and 27 ratings, respectively, CCH and Thomson Reuters received 29% and 23% of the total ratings, respectively. Three other tax research products received 10 or more user ratings, with the Tax Book, Bloomberg Tax, and Parker Tax Pro receiving 17%, 16%, and 9% of the commercial tax research package ratings, respectively.
Free websites for tax research continue to be widely used and rated. The IRS web-site, state tax websites, Google searches, and other Internet sources received 70% of the total tax research ratings in 2022. The breakdown between commercial package and free resource ratings was essentially unchanged from 2021.
Although value for cost continues to be one of the lowest rated features of tax preparation software, for the fourth year in a row, the mean rating for customer support was lower than the value for cost rating. Customer support was also the lowest rated feature for commercial tax research software. Ratings for ease of use are also below those for value for cost; some respondent comments suggest that tax research software has become increasingly difficult to use, as the tax law has become more complex.
Tax Preparation Software
The survey listed 12 of the most commonly used commercial tax return software vendors and gave respondents the option of writing in the name of a package not listed. Similar to the prior year, 142 of the respondents (90%) rated at least one tax preparation software package. A total of 28 respondents (18%) rated two or more products, compared with 40 (23%) in 2021 and 47 (27%) in 2020. Respondents reported using all but one of the listed tax preparation products; fewer than 10 ratings were received for four other products. Altogether, 170 ratings were analyzed (Exhibit 2).
Ratings of Tax Preparation Software
Survey participants rated each tax preparation software package on six factors: value for cost, ease of use, customer support, availability of forms, accuracy (low error rate), and overall rating. These are the same features surveyed since 2015. Each factor was rated on a scale of 1 (very dissatisfied) to 5 (very satisfied). Respondents also provided an overall rating for the products using the same scale. The average overall rating of 4.04 in 2022 represented a modest increase from 3.98 in 2021, and was the highest overall rating for many years.
Exhibit 2 provides the 2022 ratings of the tax preparation software packages and compares averages to the previous three years. Seven products received more than 10 ratings: Drake Software (35 ratings), CCH ProSystem fx and Lacerte Tax (26), UltraTax CS (23), and ATX, CCH Axcess Tax and Intuit ProSeries (14). Together, the ratings for these packages represent 89% of the total ratings received. The discussion that follows is limited to these providers, as the results for those receiving fewer than 10 ratings may not be representative of a broader survey of the software users. All product ratings, however, are included in Exhibit 2 for completeness.
Of the seven packages with at least 10 ratings, the overall ratings were between 3.77 and 4.46—a narrower range than 2021, but still similar to what has been reported in recent years. Drake Software received an overall rating of 4.46, a decrease from 4.63 in 2021, but still high enough to be the top-rated tax preparation package and in line with recent years; except for 2016, Drake Software has received the highest overall rating every year since 2010. Drake Software also received the highest rating on value for cost and customer support. The second-highest overall rating of 4.04 was earned by Lacerte Tax, which also received the highest rating for ease of use. The overall ratings for the remaining products were relatively close, with both Intuit ProSeries and CCH Axcess Tax receiving overall ratings of 4.00, followed by CCH ProSystem fx (3.85), UltraTax CS (3.83), and ATX (3.77). The overall ratings decreased for Drake Software, ATX, and CCH ProSystem fx, while increasing for the other four products. None of the changes, however, were dramatic.
A comparison of the weighted average rating for each feature in 2022 with the rating for that same feature in 2021 showed increases in the average overall ratings, as well as the average ratings for every feature except availability of forms, which showed a small decrease in average rating.
The value for cost rating increased slightly from 3.62 in 2021 to 3.79 in 2022, the highest rating reported for this feature in many years. Although a few survey participants expressed concerns about the cost of software, there were fewer such comments on this year’s survey. Respondents ranked cost as the third most important feature for tax preparation software; consistent with past years, Drake Software had the highest average rating for value for cost (4.80). Just as in past years, no other package received an average rating over 4.0; this appears to be a major contributor to Drake Software’s high overall rating each year.
The average rating of 4.00 for ease of use is generally in line with the ratings for this feature for the past decade, but it has inched up to the highest rating since 2011. Respondents rated ease of use as the second most important feature for tax preparation software, and the package with the highest ease-of-use rating (Lacerte Tax) received the second highest overall rating.
For the fourth year in a row, customer support was the lowest-rated feature. Similar to last year, open-ended comments from respondents reflected frustration with customer support for specific products, and it is evident in Exhibit 2 that there is quite a variance in the ratings across individual providers, with ratings ranging from 2.73 to 4.71. Drake Software’s average rating of 4.71 is much better than the next highest-ranked product (Lacerte Tax) at 3.61. As noted previously, Drake was the top-rated software package, followed by Lacerte Tax; thus, although customer service is ranked as the sixth most important feature, it appears to affect overall ratings. Following Lacerte Tax, customer support ratings for the other providers ranged from 2.73 to 3.33.
Accuracy and availability of forms were the highest-rated individual features, with average ratings of 4.35 and 4.21, respectively. Both had average ratings of 4.29 in 2021; thus, there was a modest increase from last year’s average ratings for accuracy and a modest decrease for availability of forms. Accuracy was ranked by respondents as the most important feature in a tax preparation software package, while availability of forms was ranked as the fourth-most important feature. One respondent stated, “Tax software is a must, as the tax rules have become more complicated. The software, however, does not always keep up, leaving the practitioner in a lurch. The same can be said for research software.” It is notable that every provider received a rating for accuracy of over 4.00, and all but one received a rating of over 4.00 for availability of forms. CCH Axcess Tax had the highest rating on both accuracy (4.57) and availability of forms (4.50). This probably contributed to its overall ranking of third (with an overall rating almost equal to second-ranked Lacerte Tax).
Since 2015, the average ratings of all of the individual features for the tax preparation software packages were higher than 3.5 (out of 5) and have been relatively steady. This may reflect survey participants’ familiarity with tax preparation software. Respondents were asked to indicate how long they had been using the software packages that they rated. As shown in Exhibit 2, all packages had been used an average of five or more years; thus, most respondents would be characterized as experienced users of the software that they rated.
Exhibit 3 provides descriptive information about the tax preparation software users for the packages rated by 10 or more participants. The size of the firms utilizing these vendors was generally similar to what has been reported in previous years. Overall, respondents rating CCH Axcess Tax and CCH ProSystem fx represented a cross-section of firm size categories, including the larger practices, as well as more mid-sized firms. ATX, Drake Software, and Intuit ProSeries were used primarily by smaller firms. The other products had users of all sizes, but were used primarily by firms preparing fewer returns, with fewer full-time tax preparers, and with 50% or more of their practice in tax.
Tax Preparation Software Usage
Tax Research Software
Survey participants were asked to rate the eight most commonly used commercial tax research software products, based on a review of print and electronic media. They also had the option to write in a package to review, as well as to rate free resources such as the IRS and state tax websites. A slight majority (51%) of the respondents rated at least one commercial tax research software package or resource, while 16% rated more than one. The percentage of respondents rating a commercial tax research package decreased somewhat as compared with last year, as the shift toward greater reliance on free tax research resources continued. Similar to last year, 68% of respondents rated at least one free resource, and 55% rated two or more free research resources. In total, 71% of participants rated at least one commercial or free tax research product and 62% rated more than one commercial or free resource. Although the ratings for the commercial products are higher than those for the free options, tax practitioners find value in both. The ratings for the tax research products are summarized in Exhibit 4, with the free resource ratings shown after those for the commercial software.
Ratings of Tax Research Software
Altogether, 116 ratings were submitted for commercial tax research software packages, and an additional 269 ratings were submitted for free tax research resources. Of 10 write-in ratings submitted, six of these were for free products; the other four were for three different products. Six commercial tax research products received 10 or more ratings: Checkpoint (27 ratings), CCH IntelliConnect (23), The Tax Book (20), Bloomberg Tax (18), CCH AnswerConnect (11), and Parker Tax Pro (10). These packages represent 94% of the ratings submitted for commercial tax research software.
Of the free tax research resources, the IRS website had the most ratings at 99, followed by state tax department websites (82), Google searches (76), and other Internet searches (12). This is very similar to past years.
The average overall rating of 3.90 for commercial tax research software reflects an increase from 3.69 and 3.85 in 2021 and 2020, respectively. Of the six packages with at least 10 ratings, all but one experienced increases in the overall rating. Notably, the one exception was the Tax Book, which was still the second-highest rated package overall. The most significant increases in overall ratings were for Bloomberg Tax (2.92 to 3.88) and Parker Tax Pro (3.33 to 4.33).
The range of overall ratings for commercial packages was narrower than observed in previous years, with individual overall software ratings ranging from 3.57 to 4.33 for 2022. Similar to previous years, the range of overall ratings for free products in 2022 was relatively narrow, from 3.17 to 3.32. The overall rating of all products (commercial plus free Internet resources) was 3.46 in 2022, as compared to 3.48 in 2021 and 3.52 in 2020, respectively.
Respondents ranked the overall performance and five features of the tax research software packages on a scale of 1 (very dissatisfied) to 5 (very satisfied). Parker Tax Pro earned the highest overall rating as well as the highest rating for every feature except timely updates, for which CCH AnswerConnect earned the highest rating. Just as the average overall rating for commercial packages increased in 2022, the average ratings for every individual feature, except timely updates, increased. The average rating for timely updates was unchanged from last year.
The average rating for value for cost was 3.80, the highest rating in over a decade. As the second most important feature, this is significant because there are many free alternatives available.
The average rating for ease of use was 3.73, almost equal to the 2020 rating prior to a significant decrease in 2021. This feature is especially important given that respondents rate ease of use as the most important feature of a tax research software package.
The average rating for customer support was 3.47, a modest increase from last year and in line with recent years. The average rating for timely updates was unchanged at 3.94. This is the third most important feature for tax research software and has trended somewhat lower in recent years. The average company reliability rating was 4.23, an increase relative to 2021, and toward the upper end of the ratings for this feature in the last decade.
Parker Tax Pro had the highest value for cost rating (4.60), followed by the Tax Book (4.35), CCH AnswerConnect (3.91), Bloomberg Tax (3.72), Checkpoint (3.52), and CCH IntelliConnect (3.39). Of the six commercial tax research packages with 10 or more ratings, four had an increase in the average value for cost rating in 2022 as compared to 2021: Bloomberg Tax had the largest increase, from 2.57 to 3.72. Parker Tax Pro’s rating increased from 4.11 to 4.60, CCH AnswerConnect had an increase from 3.64 to 3.91, and Checkpoint’s value for cost rating improved from 3.33 to 3.52. The Tax Book had a decrease in its 2022 value for cost rating from 4.56 to 4.35, while the value for cost rating for CCH IntelliConnect was essentially unchanged, from 3.44 in 2021 to 3.39 in 2022.
Parker Tax Pro earned the highest ease of use rating (4.10), followed closely by the Tax Book (4.05) in 2022. These ratings reflected an increase for Parker Tax Pro and a decrease for the Tax Book as compared to last year. CCH AnswerConnect earned the third highest ease of use rating (3.82) and also had an increase from the prior year. This was followed by Checkpoint (3.73), Bloomberg Tax (3.53), and CCH IntelliConnect (3.42), all of which had increases relative to last year. Because ease of use and value for cost are ranked as the two most important features for research software, these ratings take on particular importance.
Parker Tax Pro also had the highest ranking for customer support with a rating of 3.89, followed by the Tax Book (3.67), Bloomberg Tax (3.50), CCH AnswerConnect (3.44), Checkpoint (3.32), and CCH IntelliConnect (3.24). These ratings represent increases for all packages except Checkpoint and CCH AnswerConnect.
CCH AnswerConnect earned the highest rating for timely updates (4.13), an increase from its 3.93 rating in 2021. With a rating of 4.10, Parker Tax Pro had a rating that increased from 3.63 in 2021 and ranked second among the packages. The two highest rated packages on timely updates were followed by Checkpoint (4.04, a decrease from 4.46 last year), CCH IntelliConnect (3.90, as compared to 3.57 in 2021), The Tax Book (3.85, a modest increase from 3.69 last year) and Bloomberg Tax (3.81, a decrease from 4.00 in 2021). Respondents rated timely updates as the third most important feature of tax research software, meaning these ratings have an important impact on overall ratings. Given that the rating range from just 3.81 to 4.13, there is not much difference across packages.
Finally, the average company reliability rating of 4.23 was an increase from 4.03 in 2021. Parker Tax Pro earned the highest company reliability rating (4.40), closely followed by the remaining five packages, which ranged from 4.30 to 4.11. These ratings represented increases from 2021 for all providers except the Tax Book and Checkpoint.
All of the commercial tax research software packages for which at least 10 ratings were received have been used by the respondents for five years or more, suggesting that the survey participants are relatively experienced users.
Free tax websites.
Just as in the past several years, the number of ratings received for free tax websites far exceeded those received for commercial tax research packages. The overall ratings for all of the free resources decreased slightly since 2021, but are comparable to previous years, with an overall rating of 3.31 for the IRS website, 3.17 for state tax websites, 3.32 for Google searches, and 3.25 for other Internet searches.
The IRS website once again received the most ratings (99) of all commercial and free research tools, but it was closely followed by ratings of state tax websites (82 ratings) and Google searches (76). Consistent with previous years, other Internet searches received relatively few ratings (12). As the survey has found each year, value for cost is the most highly rated feature, and customer support is the lowest rated feature for all of the free tax research resources. The ratings for all features showed only nominal changes from 2021, and have been very stable since this survey first included free tax research resources.
With the exception of company reliability ratings, which are generally higher for the IRS and state tax websites, ratings for the different features are similar for all free resources. Interestingly, the IRS and state tax website ratings for reliability have decreased somewhat over time, while the ratings for google searches and other Internet searches have increased. This probably reflects increased comfort with these other resources.
Exhibit 5 provides descriptive detail on the tax research software users. Similar to past years, Bloomberg Tax, both CCH products, and Checkpoint have users across all firm sizes, while the Tax Book and Parker Tax Pro are used almost exclusively by small firms. The IRS website, state tax department websites, and other internet resources were used across all firm sizes, but are used disproportionately by smaller firms with large tax practices. This is similar to what has been reported in previous years.
Tax Research Software Usage
Other Technology Issues
The top-ranked software by feature (Exhibit 6) shows that, among the tax preparation software packages, Drake Software received the best overall rating and the highest ratings for value for cost and customer support. CCH Axcess Tax received the highest ratings for availability of forms and accuracy, while Lacerte Tax earned the highest rating for ease of use.
Providers with Highest Ratings
Parker Tax Pro dominated the ratings for tax research software this year, earning the top overall rating and the top rating for all features except timely updates, which went to CCH AnswerConnect. The rankings of tax research software have not been as consistent from year to year as those for tax preparation software.
Which tax software features do practitioners consider the most important? Exhibit 7 provides participants’ averaged preferences. For tax preparation software, accuracy and ease of use have consistently been the two most important features, although they have switched between first and second place in some years. In 2022, accuracy was rated most important, followed by ease of use. These features were followed by cost, availability of forms, availability of states, customer support, familiarity, company reliability, and data security, in third to ninth place in order of importance. The feature rankings have been fairly consistent in recent years. The continued low ranking of data security is interesting, but rather than an indication that this doesn’t matter, it may be that data security is assumed to be at an appropriate level for all packages and is important enough to be covered by other practices within the firm.
Important Software Features
For tax research products, ease of use, cost, and timely updates were the top three most important features to the 2022 survey respondents; these same three features have typically ranked as the most important in past surveys. For tax research software, there is a sizable gap between the top three and the remaining features. In 2022, the next most important features were company reliability, familiarity, customer support, and availability of state information. The order is somewhat different than last year, but the rankings of the tax research software features have tended to be inconsistent after the top three, so it is difficult to interpret this change.
Exhibit 8 summarizes responses with respect to other technology issues. Most vendors offer online versions of their software: In 2022, 51% of respondents used the online version of tax software, as compared to 44% in 2021, 45% in 2020, 38% in 2019 and 2018, and 31% in 2017. Although it appeared that the use of online versions had leveled out last year, 10% of respondents who did not currently use the online version were considering it. This year, 9% of respondents reported they are considering moving to an online version of tax software, indicating that there may be further growth in this practice. The use of portals for clients to upload tax data documents among survey respondents was steady at 55% in 2022, the same as 2021, and an increase from 48% in 2020, 51% in 2019, 46% in 2018 and 40% in 2017. Another 15% of respondents indicated that they were considering adopting this practice, the same percentage as in 2021.
To assess the extent to which practitioners have adopted new practices in response to pandemic-inspired remote or virtual office operations, the survey asked whether respondents use document drop-off procedures (contactless service) or Internet-based (e.g., Zoom) meetings with clients. Participants reported that 68% use document drop-off procedures and another 5% are considering this for the future. Similarly, 66% use Internet-based meetings with clients whereas another 6% do not currently, but are considering it. As a new question for 2022, historical responses are obviously not available. It is interesting to note, however, that two-thirds of survey participants took advantage of technology to interface with clients.
Software companies promote the use of PPR pricing as a way to reduce tax return preparation costs, with 39% of survey respondents reporting the use of PPR. This is reversal of the trend seen the past several years, with only 25% of survey respondents using PPR pricing in 2021 (compared to 28% in 2020 and 35% in 2019). In the history of this survey, use of PPR has sufficiently fluctuated to prevent drawing any obvious conclusions. It may be, however, that uncertainties in the current environment have made it more attractive.
Several industry publications predicted an increase in outsourcing tax preparation activity due to the remote working environment. It was not common among respondents, however, with only 7% reporting that they outsourced some tax preparation activity, compared with 6% in both 2021 and 2020. Outsourcing has not been popular with survey respondents and has remained near 6% over time, with those not currently using outsourcing but considering it ranging at 2–6%. In 2022, 9% of respondents indicated that they are considering outsourcing routine tax preparation activity.
Several of the tax preparation software packages rated by respondents allow adopters to integrate practice management software or other applications with tax preparation software. In 2022, 26% of participants indicated that they currently use integrated applications, and another 15% are considering it, a nominal change from 25% and 14% in 2021. More than 37% of respondents reported that the integration of office workflow and client data management software with their tax or other software was important to their practice. This was consistent with responses to the same question in 2021 and 2020.
A new question in the 2022 survey asked respondents whether software providers gave assistance in managing remote work activities. Although the majority of respondents did not request assistance and others did not work remotely, most who had requested assistance were satisfied with the response (65%), while the remainder did not receive assistance (5%) or did not receive enough help (30%). Although customer support during tax season has suffered in recent years, perhaps there are ways that providers can assist with practice management readiness outside of busy season to lessen tax season problems.
Another new question asked whether respondents added new cybersecurity resources to address security concerns regarding remote work activities. Most respondents added resources and considered themselves sufficiently protected (37%), or added measures but were still considering more (24%), or were currently considering adding cybersecurity resources (9%). The remainder had not added new cybersecurity resources because did not deem it necessary (14%) or they did not work remotely (16%).
Contact with vendors’ customer support was broadly similar to previous years. Telephone assistance was the most commonly used option, with 45% of participants using telephone assistance often or frequently and 47% of participants using it occasionally. E-mail contact was used a little more often than in past years, accessed often or frequently by 26% of survey respondents, and occasionally by 46%. Similar to 2021, in 2022 online assistance was used often or frequently by 27% of respondents and occasionally by 51%. Live chat usage was also increased compared to 2021, with 17% using it often or frequently, and 44% using it occasionally.
‘Busy Season’ Challenges
Although the COVID-19 environment continues to have an impact, there was some evidence that accounting practices are beginning to return to the office. During Spring 2022, 37% of respondents indicated that more than 75% of their professionals were working from home (compared with 45% in spring 2021), and an additional 7% (8% in 2021) reported that over 50% of their tax professionals were working from home. Furthermore, the percentage of respondents indicating that none of the firm’s professionals worked from home increased from 23% in 2021 to 32% in 2022. Nevertheless, 26% of 2022 respondents (compared with 42% in 2021) indicated that they anticipate future challenges with software/hardware due to staff working remotely. The percentage of respondents predicting software/hardware problems due to clients working remotely declined to 19% in 2022, from 25% in 2021. Combined, these results suggest that remote work is here to stay, even if it is now at lower levels than during the peak of the pandemic.
In light of concerns in the profession about attracting and retaining staff, a new question on the 2022 survey asked participants about personnel pressures. One respondent commented: “The greatest challenge the tax profession faces is finding well trained talent. All colleges are experiencing a decline in enrollment, particularly in accounting.” Although 38% of respondents are sole practitioners, the question asking if survey participants have sufficient personnel to meet client service demands was relevant to the others. The results were mixed: 9% answered no, whereas another 13% said no, they were able to currently meet client needs, presumably through overtime, temporary staff, and other measures, and 18% indicated that they currently have sufficient personnel, but are concerned about having sufficient personnel in the near future. Finally, 22% reported having sufficient personnel resources to meet client service demands.
Concerns about cybersecurity attacks were somewhat greater in 2022, with 67% of respondents anticipating an increase in cybersecurity attacks on CPA firms and personnel, as compared with 60% in 2021. Fewer respondents, however, reported apprehension about increases in cybersecurity attacks on clients, decreasing to 39% in 2022 from 48% in 2021.
The percentage of survey participants reporting concerns about working with software providers increased somewhat, to 23% in 2022 from 18% in 2021. Keeping up with tax changes and pandemic-related problems remained a significant concern for many practitioners, with 64% of respondents expecting this to be a challenge for the profession, as compared with 63% last year.
In addition to the unique trials posed by the COVID-19 environment, the survey asked respondents about the extent to which several other matters created problems for them during the 2022 tax season, which are summarized in Exhibit 9A (issues related to tax law or tax authorities) and Exhibit 9B (issues related to tax practice or clients). The potential concerns included in the survey were identified from news articles and discussion boards monitored during the busy season.
Issues Related to Tax Law or Tax Authorities
Issues Related to Tax Practice and Clients
As shown in Exhibit 9A, a large majority of respondents experienced problems arising from waiting to speak with an IRS representative, with 92% reporting minor or significant problems, an increase from the 89% reporting these problems in 2021. Of even greater concern, 85% of respondents reported significant problems in 2022, compared with 72% in 2021 and 57% in 2020. Although the percentage of respondents who had problems obtaining assistance from a New York State or City representative was not as high, it also increased from last year. Of this year’s survey participants, 74% reported minor or significant issues with this process, compared with 67% in 2021. Furthermore, 34% of respondents had significant problems obtaining assistance from New York State or City representatives in 2022, an increase over 29% in 2021, but close to the rate of 33% in 2020. Erroneous or incorrect IRS notices caused minor problems for 50% of respondents and significant problems for 38%. This was clearly a major issue for practitioners in the 2022 tax season. IRS automated collection notices were almost equally problematic, creating minor problems for 44% of survey participants and significant problems for 38%. IRS destruction of paper-filed information return documents was less problematic but still concerning, with 23% reporting minor problems and 11% reporting significant problems with this issue. Only 7% of respondents reported significant problems with rejection of e-filed returns due to identity theft, but minor problems were experienced by 55%, as compared to 43% in 2021. Finally, assisting clients with advance child tax credits paid out during the last half of 2021 was another challenge for survey respondents, causing minor problems for 45% and significant problems for 15%.
Exhibit 9B summarizes “busy season” problems related to practice and client issues. Of the 2022 respondents, 69% indicated that they experienced minor or significant problems due to phishing or malware e-mails, up from 50% in 2021 and 40% in 2020. However, most characterized the problems as minor. Clients notifying tax professionals of phishing or malware e-mails related to tax caused minor or significant (mostly minor) problems for 65% of survey participants, compared with 44% last year. Assisting clients with managing issues related to clients or their employees working remotely caused minor problems for 33% of respondents and significant problems for 3%. Lastly, assisting clients with cryptocurrency issues resulted in minor problems for 37% of survey participants and major problems for 5%.
The IRS Dirty Dozen tax scams (COVID Tax Tip 2022-99) are organized into five categories for 2022: potentially abusive arrangements, pandemic-related scams, suspicious communications, and spear-fishing attacks, and a new one for 2022—offer in compromise mills. The 2022 “Annual Report” for IRS Criminal Investigations (IRS CI) summarizes the number of investigations it pursued in the three most-recent years (https://www.irs.gov/pub/irs-pdf/p3583.pdf). Although there is not a separate reporting category for COVID-19 related tax fraud, IRS CI cases under “abusive tax schemes” increased in 2022, money laundering cases decreased, and “questionable refund program” cases stayed constant. In a press release dated March 23, 2022, IRS CI reported that it has conducted more than 660 investigations of alleged COVID-19 related fraud and money laundering cases, with a cumulative fraud total of more than $1.8 billion. It is interesting to note, per the IRS CI Annual Report, the number of identity theft cases substantially declined in 2022. Although not explained in the report, this is possibly due to a low number identified from 2020 returns.
The TIGTA report “Interim Results of the 2022 Filing Season” (Ref. No. 2022-40-035, May 2, 2022) indicated that the number of potentially fraudulent returns identified increased from an unusual low of 2,323 in 2021 to a more robust 76,814 in 2022 (https://www.tigta.gov/reports/audit/interim-results-2022-filing-season). The explanations for the increase were the progress made in processing the backlog inventory, and the additional time taken to identify fraudulent returns with the earlier start to tax season.
The 2022 TIGTA report indicated that the IRS increased the number of fraud filters that it uses to detect identity theft, which tagged nearly 1.2 million tax returns reporting total refunds due of $6.5 million. The IRS was actually able to confirm and stop processing on 9,626 identity theft returns in 2022, compared to 2,499 in 2021.
The National Taxpayer Advocate (NTA) Publication 4054 “Objectives Report to Congress: Fiscal Year 2023” (June 2022) connects the identity theft and tax return backlog problems (https://www.taxpayeradvocate.irs.gov/). The number of unresolved identity theft claims filed by taxpayers ballooned from 26,000 in 2020, to over 227,000 in 2021, then to 336,000 in 2022. Not only do affected individuals face severe legal issues due to identity theft, but they are also forced to file paper returns and wait up to 10 months for their refunds.
The Cost of Tax Software
For many of the commercial packages discussed in this article, the cost of tax software options is not publicly available, and is often tailored to specific customer preferences and the number of users. The pricing structures for tax preparation software vary widely across products, with some offering a flat fee for unlimited returns and others using PPR pricing. In addition, some software prices include both individual and entity returns, while others are available separately. Many vendors prefer to discuss this information on a customized basis with potential customers. A hyperlink to an unofficial listing of prices (as of October 2022) for products covered in this survey will be available at https://www.cpajournal.com.
Accounting professionals faced many challenges during the 2022 filing season, and they have adopted new practice management tools geared to remote office operations, such as document drop-off procedures and virtual meetings with clients. Most survey respondents did not request assistance from software providers in managing remote work activities, but many who had reached out were satisfied with the result. Although customer support during tax season has suffered in recent years, perhaps there are ways that providers can assist with practice management readiness outside of “busy season” that might lessen tax season problems. Additionally, staffing is difficult, with many survey respondents indicating that they are either currently understaffed or anticipating difficulties meeting staffing needs in the near future.
Online security problems continue to create challenges for the accounting profession. Many participants reported that they and their clients received phishing/malware emails, an experience that has increased over the last several years. Survey participants indicated that they have approached this trend proactively by increasing resources to address cyber-security threats. To read more click here.
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