Magazine article The CPA Journal

Offshore Outsourcing of Tax-Return Preparation

Magazine article The CPA Journal

Offshore Outsourcing of Tax-Return Preparation

Article excerpt

Promising Business Opportunities and Professional Standards

Outsourcing business processes overseas is increasingly common in the banking, financial services, retailing, insurance, and telecommunications sectors. Economists and accounting professionals expect this trend to accelerate; Deloitte Consulting LLP expects two million financial services industry jobs to relocate overseas during the next few years. Many large CPA firms have begun shifting tax-compliance work overseas, through outsourcing facilitators, to Chartered Accountants (CA) in India.

Outsourcing tax-compliance work overseas can enable CPAs to focus on highermargin services such as tax consulting, to reduce labor costs, and to increase the speed of tax-return processing. With such potential benefits, CPA firms will likely join other segments in increasingly outsourcing tax-compliance services.

Some argue that outsourcing U.S. jobs overseas is un-American. Others rightfully point out that some overseas labor markets can be exploitative and contrary to American sensibilities-to the extent of exploiting indentured workers or child labor. On the other hand, some economists argue that outsourcing jobs overseas improves world labor market efficiency and U.S. labor productivity, and also reduces both world and U.S. inflation. CPAs that outsource appropriate work overseas can contribute to the economic efficiency of the United States and the world economy, and aid in the economic development of developing countries with high rates of poverty.

Offshore Outsourcing for Tax-Compliance Services

Outsourcing tax-return preparation offshore involves partnering with an outsourcing facilitator that provides the Internet interface and the access to overseas expertise, such as CAs in India, needed for offshore outsourcing. Four prominent facilitators are Commerce Clearing House (CCH), Outsource Partners International (OPI), SurePrep, and Xpitax (see Exhibit 1).

The basic process of tax outsourcing involves six steps (see Exhibit 2):

* The outsourcer gathers the client's tax information and scans it into electronic files.

* The outsourcer uploads these files to the facilitator's website.

* The facilitator encrypts the files and makes them available to the outsourcing partner in India.

* The outsourcing partner prepares and reviews the return, and then posts the return, workpapers, notes, and reconciliations to the facilitator's website.

* The outsourcer downloads the completed return and documents from the facilitator's website.

* The outsourcer reviews and signs the return, and forwards it to the client for filing.

Outsourcing in Practice

The largest CPA firms pioneered outsourcing tax preparation and other accounting services. Economists expect smaller CPA firms to follow their example. Mergers and consolidations of CPA firms will also likely increase outsourcing as firm size and client market shares increase. Businesses in the outsourcing industry also forecast significant growth of outsourcing. According to Robert W. Scott, Carry Lombarde, and Richard McCausland, in "Is the Sun Setting on Desktop-Based Tax Preparation?" (Tax Software Special Focus, The Practical Accountant, December 2003), Mike Sabbatis, vice president of business at CCH, predicted that about 100,000 tax returns would be outsourced in 2004, and David WyIe, president of SurePrep, predicted 200,000.

Tax-return-preparation outsourcing offers several potential benefits to CPA firms. It frees tax professionals' time from performing perfunctory duties such as form filing and data entry; that time savings can be used more productively in tax and estate planning. Tax outsourcing lessens the need for temporary professional staff during the busy season. Labor rates provide a cost advantage to outsourcing tax services overseas. For example, a staff accountant earning an annual salary of $45,000 (plus 20% of salary in benefits) costs a firm about $39 per billable hour (assuming 1,400 billable hours per year). …

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