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Written by: T. Steel Rose, CPA, ACS Editor

Published: 13 July 2015

A great migration for CPA firm software is beginning again. It’s reminiscent of the first major migration when stand-alone tax software took over the desktop in 1991 revolutionizing professional tax preparation. By 1999 QuickBooks was described as a modern business miracle ushering in the operating system migration to Windows with or without our favorite tax software. A number of vendors decided not to make the technology investment and sold out.

The latest migration has the attention of CPA technologists who have been forecasting the coming of the cloud for the last five years. The cloud is not the only migration; a transition is also occurring which dramatically reduces the cost of tax software. The combination of stronger capability and lower price has created a great migration to affordable tax software. Small firm owners who have used several tax software packages over the years are now considering the cloud for tax prep. After several tax seasons they found their tax software solution acquired by a larger competitor. This provided a more robust tax prep feature set in most cases and, over time, a more robust price tag.

I talked with two CPA firm owners at the 2015 California Accounting & Business Show and Conference in Los Angeles who confirmed they had made the switch to tax software which cost them $1,100 a year versus the $16,000 they were paying annually. Both CPAs confirmed their prior vendor offered substantial discounts to retain them as customers but it was not enough to keep them from making the switch. Both said the support during tax season was a major improvement with the new software. Research revealed 10 more practitioners making the switch.

Concerns about making the change focused on the learning curve. After several staff members grow accustomed to the way the legacy tax prep software package works, they may be loath to making a change. “For 12 complicated returns, I still use my prior package on a per return basis,” one Woodland Hills CPA said.

The rhetoric to move to the cloud is no longer just a paperless promise. Most CPAs absorb that software as a service (SaaS) is another way of saying, “you can never own this software; you can only rent it.” Nevertheless the cloud model is catching on. It would be hard to find a CPA who doesn’t utilize cloud-based payroll. The cool thing about payroll is the evolution of price and services. Heffy Provost, the new vice president of product operations at CCH, recommended attendees of his presentation at the California Accounting Show visit the ZenPayroll exhibit. Provost suggested ZenPayroll commoditized payroll and believes tax prep could also be commoditized. To save you time, ZenPayroll offers very easy to use payroll at half the cost. I was intrigued by ZenPayroll’s price, but not enough to switch to it after seeing the job posting and HR functions in ADP.

While all accounting functions may not move to the cloud because of security, there are advantages of gaining functionality that was once unavailable. AppRiver permits Office 365 Plus use on a per month basis. Gravity Software provides the use of Microsoft Dynamics on a per month cloud delivery method. Early cloud pioneers seem to come from San Diego, take Cloud9 Real Time, and Abacus Data Systems for example. The original incentive was a way to cloud-host the desktop version of QuickBooks before Intuit crafted a desirable cloud-based QuickBooks system of their own. Companies like Gravity and Abacus Data offer robust accounting packages. Abacus Data Systems has battle tested their cloud based accounting and time and billing in law office practice management.

Potential migrations were also predicted at the California Accounting Show by technology futurist Rick Richardson, CPA during his keynote presentation. Richardson said, “by 2020 there will be no more checkbooks or CDs and 25% of payments will be made with ApplePay.”

Richardson spoke about Tableau Software and said it is better than Excel. Any tool better than Excel should be music to an accountant’s ears. Tableau is a tool for Excel which displays data more graphically.

When contemplating migrating to the cloud consider the independent www.technologythisweek.net by Richardson and www.asaresearch.com by J. Carlton Collins, CPA. When it comes to migrating tax prep software and saving $14,900 a year consider the words of the Woodland Hills CPA who said, “What are you waiting for?”

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Written by: T. Steel Rose, CPA, ACS Editor

Published: 13 July 2015

The recent 2015 California Accounting & Business Show and Conference featured presentations covering new developments and best practices from leading accounting professionals. One particularly profound presentation was made by Chris Frederikson, CPA of 2020 Group USA and Frederikson-Crawford CPAs about new technology including outsourcing tax returns to increase revenue. Frederiksen has been engaged in public accounting for over 50 years and as CEO of 2020 Group USA has spread his knowledge with seminars and consulting.

Over the course of his presentation, Frederiksen made several points about becoming more efficient as a CPA saying one of the biggest mistakes CPAs make is “not investing in technology.” As an example he described how each desk in his firm uses four monitors. I felt the real game-changing information for many CPAs was about how all of the tax return preparation in his firm is outsourced. Frederiksen mentioned two companies which handle outsourcing: SurePrep and Xpitax.

SurePrep is based out of Irvine, California and Xpitax is out of Braintree, Massachusetts. A third firm, Pransform, is based in Chicago. SurePrep and Xpitax outsource returns to tax preparers in India. Pransform utilizes tax preparers based in Thailand. This outsourcing raises the issue of data security. Pransform’s Chief Operating Officer, Hitendra R. Patil, addressed the subject for Pransform’s solutions stating, “We do not keep any client data on our office servers overseas. We simply securely remote login to our clients' tax software to prepare the returns. In other words, the data always remains with the CPA firms.”

Thomas E. Huckabee, CPA has been in practice for 35 years and outsources returns using Pransform. Based out of San Diego, Huckabee’s specialty includes trusts, and counseling small businesses. Huckabee feels the pressure all tax accountants do because tax returns all come due at the same time.

“Technology helped until 2013, when previous technology applications failed. During tax season 2013 we had to produce returns on a manual basis,” said Huckabee. The system was not working to produce accurate stock transactions, W-2s and 1099s. His clients have a lot of stock transactions, but in 2013 it did not populate correctly. His tax provider suggested solutions but could not correct it. For two years it worked well, but did not in 2013. “The scanning in process was not working. Admin time was spent on Adobe, and our network, and our computers, but it was still not close to accurate,” said Huckabee.

Whether it was the computers, the network, or the software, technology did not solve the problem turning tax season into a nightmare. To solve the problem Huckabee decided to work with humans, rather than just depend on technology. Huckabee asked his IT people to check the systems and security of Pransform. “Most of the accountants are in Thailand,” noted Huckabee. “They work while I sleep.” Each day his CPA firm reviews the returns and gets them ready for delivery.

Huckabee’s firm uses a standardized method to organize and turn source documents into pdfs and deliver them to Pransform. They have limited access to Huckabee’s network for his tax program and QuickBooks to compile the tax return. Pransform provides core proficiencies to produce 1120s, 1065s, 1040s and 1041s and perform QuickBooks work, highlighting open issues in a memo.

“We provide a consent notice to clients to meet IRS requirements,” Huckabee said. “A larger notice for 1040s and a smaller one for business clients explaining we are sending the data off shore. It is a signed consent form.”

“The experience has been only positive,” Huckabee continued. “In 2012 all the admin time produced no results from technology.  Communications with Pransform continue to enhance results. The other benefit is I don’t have to train them. I had the best tax season in terms of hours and profitability.”

Huckabee can actually talk to the person working on the return but often does not need to. “We can all go home at 6 p.m., while the Thai accountants begin their work day,” Huckabee reported. When complications did occur, Huckabee noted their response. The 2014 tax season was especially tough because his mother entered hospice. Pransform’s production was not working as well as he hoped and he needed more from them. He called and Pransform responded positively. The result was “more production, more sleep and more money,” Huckabee said.

Huckabee’s advice for other CPAs concerning offshore work is to vet the tax prep outsource vendor and ensure top notch data security. There is a normal reluctance to change, but as Frederiksen advised in his presentation, when a solution is this obvious, “get over it and get on with it.”

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Written by: Robert E. McKenzie, JD

Published: 08 May 2015

As the political season enters a fever pitch, some misguided candidates are calling for the abolishment of the IRS. Although the political rhetoric draws applause it ignores one uncontested fact: the U.S. government needs revenue to provide services to the public. Someone has to pay for our national defense, Social Security, Medicare and our highways. In a recent speech John Koskinen, Commissioner of IRS, affirmed that logic by stating, “Somebody has to collect the money and somebody has to make sure when you fill in the small card that you filled in the right numbers. You can call them something other than the I.R.S. if it’ll make you feel better.”1

Whether the U.S. continues its current system or adopts a flat tax or national sales tax, some agency must assure the integrity of returns filed by taxpayers and pursue the non-compliant. Although about 83% of Americans fully comply with the current tax system, 17% of the public chooses not to comply. In the past a vigorous IRS enforcement regime created an environment that has kept the U.S. compliance rate among the highest in the world. One only needs to look to Greece, a country with a corrupt tax enforcement agency and a populace that views compliance with tax laws as voluntary not mandatory, to understand the impact of lax tax regimes. As all the world knows, Greece is on the brink of bankruptcy caused in no small part by the refusal of its populace to pay their taxes. In the current environment where politicians use the IRS as a whipping boy one must project at some point this country may become a failed country like Greece because it chose not to adequately fund its tax agency and enforce its tax laws.

Congress has cut the IRS budget by more than $1 billion dollars over the past five years. That represents a 20% reduction in its budget in inflation-adjusted dollars and seriously imperils our U.S. tax system. The Treasury Inspector General reports less than 40% of taxpayers calling the IRS for advice during the 2015 tax season were able to speak to an IRS representative for tax advice. The IRS has also announced it is only able to answer routine tax questions and not difficult questions. It no longer provides any tax preparation assistance to taxpayers.

In the enforcement area the budget cuts have had direct impact on the number of tax returns audited by the IRS. The 2014 audit rate was about .8% down from over 1% just five years ago. There has also been a 20% reduction in IRS criminal investigations in the last year; and the rate at which the IRS is able to levy assets of taxpayers who chose not to pay their taxes is now at 50% of the rate three years ago. A Washington Post article recently reported the Dallas IRS office could not pursue individual taxpayers owing less than $1 million because of lack of sufficient revenue officer staffing. It should be noted however the IRS continues to pursue taxpayers with smaller tax obligations via its computerized Automated Collection System.

Many commentators have noted the IRS enforcement activities in examinations, collection and criminal enforcement produce $6 for every dollar spent. In other words Congress misguided IRS budget cuts have only served to increase the federal deficit. Tax cheats and scofflaws now have 20% less chance the IRS will discover their non-compliance. Those who choose not to pay their taxes know the IRS is much less likely to levy their wages or bank accounts. Many have noted at the very least the current IRS budget crisis results in a tax cut for the most dishonest Americans while the honest majority must shoulder more of the cost of our society. No one can even project the future cost of the budget cuts as more taxpayers choose to play the audit lottery or simply do not pay their taxes because of lax enforcement.

Once again this year the administration has asked Congress to partially restore the IRS budget to assure our tax system will not suffer the fate of lax tax regimes in other countries. The proposal has been derided by many in Congress. It may be many in Congress are sympathetic to tax cheats. As Mark Twain once said “The only native American criminal class is Congress.” Another great American, John Adams, our second president once said, “In my many years I have come to a conclusion that one useless man is a shame, two is a law firm and three or more is a Congress.” It is time for Congress to suspend its political vendetta against the IRS and provide adequate funding so honest Americans can feel they are not fools for choosing to comply with our tax laws.

Robert E. McKenzie is a tax partner in the firm of Arnstein & Lehr LLP of Chicago.

1. Reported by Alan Rappeport, New York Times, 3-31-15

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Written by: Prof. Steven V. Melnik, LLM(Tax), J.D., CPA

Published: 01 May 2015

It is important that you know your rights during an audit so you do not become intimidated by the IRS representative, or divulge more information than necessary. The IRS is required to apprise the taxpayer of the taxpayer’s rights when dealing with the IRS. In order to comply with this requirement, the IRS has created updated versions of Publication 1, Your Rights as a Taxpayer; Publication 5, Appeal Rights and Preparation of Protests for Unagreed Cases; Publication 556, Examination of Returns, Appeal Rights and Claims for Refund; Publication 594, The IRS Collection Process; and Publication 1660, Collection Appeal Rights. Publication 1 should be included with the initial correspondence sent to the taxpayer. Publication 5 should be included with the 30-Day Letter.

If you are selected for an audit, you have the right to know why the IRS is asking for information. You also have the right to know how the IRS will use the information you have provided, and what will occur if you refuse to provide the requested information. During an audit, you should try to be as cooperative as possible. The IRS is likely to have access to information that you may feel is privileged, and your failure to provide that information will not deter the IRS from using other means to obtain the information by obtaining a summons or subpoena from a court of law.

• You have the right to have representation by an authorized representative.

• You have the right to have your information kept private and confidential.

• You also have the right to appeal any disagreements concerning the audit either within the various departments of the IRS, or in a court of law.

• You are entitled to receive professional and courteous treatment from IRS

employees.

If you believe that you were not provided with professional and courteous service, you should request to speak to the manager of the IRS representative, or seek the assistance of the Taxpayer Advocate (TPA).

Commonly Overlooked Deductions and Credits

Business Use of Home: One of the most abused deductions, as well as one of the most over-looked deductions is the use of a portion of your home for business. It is also one that can trigger an audit. That doesn’t mean that you shouldn’t take the deduction—it means that you must have it documented. If an audit occurs, you must have proof that the space is used for business.

This deduction applies to both self-employed individuals and W-2 employees. You may be able to deduct certain expenses incurred for business use of your home if one of the following applies:

• Your home was used exclusively and regularly as your principal place of business or used as a place to do managerial/record keeping-type tasks and there is no other fixed place where such tasks are performed.
• Your home was used exclusively and regularly as a place where you meet and deal with your clients or customers.
• You have a separate structure that is used for your place of business that is not attached to your home.
• You use your home on a regular basis for storage use.
• You use your home as a rental.
• You operate your home as a daycare facility.

You cannot deduct business expenses for any part of your home that you use for both business and personal purposes. Generally, your home must be the place where most of your time is spent in order to operate your business.

A W-2 employee may only deduct this expense when a part of the home was used exclusively and regularly to complete tasks related to their employment and for the employer’s convenience.

Deductible expenses for business use of your home includes: mortgage interest, real estate taxes, rent, casualty losses, insurance, utilities, maintenance and repairs, and depreciation. The amount you determine should be based on what percentage of the home is used for business purposes.

You cannot claim the full expenses if the entire home was not used for business purposes.

Be smart. Measure what portion is used. Take a picture of it. If there are utilities—gas, electricity, cable, etc.—then have those bills, along with the percentage calculation in reference to total square footage of your residence. Working out of the home is something that millions of Americans do on a daily basis—document what is used for tax purposes. In 2014, taxpayers may claim a standard deduction of $5 per square foot up to amaximum of 300 feet for the area used as a home office for a maximum deduction of $1,500.

This is an excerpt from Tax Relief and Resolution by Steven Melnick, CPA. Melnick is a licensed attorney, LLM in Taxation. He is also a professor of tax law, and a Chairman of Continuing Education Programs for Tax Professionals at the City University of New York.