Magazine article The CPA Journal

Swimming against the Tide: The Hidden Costs of Offshoring

Magazine article The CPA Journal

Swimming against the Tide: The Hidden Costs of Offshoring

Article excerpt

Advances in technology have meant that many of the services once performed as personal professional services, including tax preparation, can now be electronically exported via the Internet to lower-cost workers in emerging-market countries. According to Forrester Research, 3.3 million professional positions, mostly in information technology and financial services, will move offshore by 2015.

An Off shoring Primer

To its proponents, offshoring offers tangible benefits: Routine, labor-intensive tasks can be performed at a much lower cost in developing countries. U.S. manufacturers began relocating production facilities to low-wage countries decades ago, but until recently, white-collar workers were relatively insulated from the quest to reduce labor costs. The Internet has paved the way for the export of professional services to lower-cost environments. India is an especially appealing location because of its relatively well educated and Englishspeaking workforce, favorable cost structure, and a time difference that allows workflows to continue around the clock. Advocates of offshoring claim that the overall demand for U.S. goods and services will increase with the rising incomes of consumers in developing countries. Proponents also contend that highly skilled tasks, such as analyzing reports and rendering consulting services, will continue to be performed by domestic workers.

While the largest accounting firms have always maintained overseas offices to service multinational clients, recent reports in the financial press suggest that firms of all sizes now offshore tax-preparation services to processing centers in India. In many cases this fact is not shared with the client; nor does it necessarily translate into a lower fee for tax services rendered. Firms engaged in this practice have a U.S. partner review the return and provide the tax-planning advice.

According to the New York Times, an estimated 100,000 returns were prepared overseas during the 2004 filing season. While this is a tiny slice of the overall market for tax-preparation services, the number was virtually nonexistent jusl three years ago.

Are Clients' Best Interests Served?

As someone who has engaged in taxpreparation services, I know that there is simply no substitute for face-to-face contact with the client. Important, tax-saving information can be transmitted between the client and tax preparer during a live interview. I recall the following incident from a tax season years ago: While completing the return of an elderly widow, I asked her in passing what she did in her spare time. She laughed and said she had little spare time because, in addition to holding down a part-time job, she kept house for her son, daughter-in-law, and three grandchildren (who lived in her home). The new information she disclosed changed her filing status from single to head-of-household. Aside from meeting the other requirements, her unmiirried granddaughter was a "qualifying person" for purposes of determining head-of-household status. Not only was I able to use this information for the current year, I filed amended returns for the prior three years, reaping her several thousand dollars in tax refunds.

That anecdote, only one of do/.ens I could recount, highlights how live tax interviews can provide real added value to the taxpayer.

Is There a Substitute for Experience?

To exercise appropriate due diligence, tax preparers must be able to extract from their clients relevant information solicited in plain language. For example, it is imperative for tax preparers to understand what constitutes ordinary and necessary expenses for a wide range of businesses; someone unfamiliar with American culture may be unable to make the distinction. A well-seasoned tax professional combines extensive knowledge of the tax code, well-honed interpersonal skills, and good business sense.

One acquires such skills from years of professional experience. …

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