2015 Tax Software Update

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Despite the additional complexities of tax preparation, the trend toward do-it-yourself tax preparation continued to expand this past filing season. Returns filed professionally saw a 0.2 percent increase as of May 15, 2015, over the previous year, while self-prepared returns grew a whopping 5.8 percent. Overall, 49,195,000, or more than 40 percent of the total of 120,612,000 e-filed returns, were filed by taxpayers who prepared the returns themselves. Yet most observers believe the complexity of the Tax Code will continue to drive taxpayers to professional preparers.

Although the surge in DIY is seemingly counterintuitive, the reason may be simply that more people entered the tax system this past season as a result of additional requirements, according to Timur Taluy, chief executive of ProTaxPro and fileyourtaxes.com and a board member of the Council on Electronic Revenue Communications Advancement. “They might just be trying to claim the premium tax credit, or just trying to get a refund; otherwise they might not have a filing requirement at all,” he said.

“Some of those returns were extremely simple. To become eligible or to receive benefits under the [Affordable Care Act], it created a group of taxpayers that wouldn’t traditionally file a return but needed to reconcile their health care benefits. Basically, we still saw growth in the paid preparer market.”

Time was when every year the industry consolidated to a degree, resulting from the acquisition of smaller companies by the dominant manufacturers. This year there have been no large acquisitions, and the total number of software developers remains the same.

Although the industry is considered by some to be mature, today’s tax software developers continue not only to bring out yearly “bells and whistles” updates, but to leverage new technology to assist preparers. Virtually every manufacturer has added features to make tax preparation more efficient, less open to fraud, and safer in terms of data storage.

“There were a number of things that posed an unexpected challenge,” said Jordan Kleinsmith, tax product manager for the CS Professional Suite of Thomson Reuters. “The tangible property regulations and the elections and filings were a big unexpected blow for a lot of firms. The volume of e-filed extension requests for business returns in our software was up by over 40 percent. We think quite a few people were broadsided by the regs and had to push off much of their busy season into the extension season.”

“With that, a lot were still reeling from the ACA,” he added. “A lot of preparers are looked at as advisors by their clients. We see this as a continuing challenge into next year. We’re trying to ease the burden for preparers by providing greater detail and support around the ACA calculations.”

“One of the big issues that a lot of our clients are facing is how to deal with people who have marketplace insurance and are getting premium benefits,” he continued. “Often they are a factor of income — the income goes up and they fail to notify the marketplace and keep on getting subsidies. If they get too much in benefits, they have to pay them back. We are trying to limit confusion around that and add greater clarity, by helping some of our customers better inform their own clients.”

In addition, there has been an exponential explosion in fraudulently filed returns, Kleinsmith observed. “Where a fraudster has already stolen the identity of the client, the preparer is left with the question of how to notify the IRS and take the paper file and make sure it is considered to be the authentic one. It has eaten into the profession’s market because accountants are doing it on a non-billable basis. We’re working along with the IRS to try and come up with a plan to make sure we do as much as possible as software vendors to prevent our software from being used for fraudulent purposes.”

There are also more cases where accounting firms are being hacked directly, according to Kleinsmith. “There’s a misconception in the profession that data is safer in offices than in big data centers,” he said. “But it’s a lot less likely to have a data center hacked, where you have an entire staff monitoring it. We’re going to see more and more of these examples where a firm gets hacked directly, and realize that it’s a false hope to think the data is safer on its own machine.”

For next filing season, Ultra Tax is expanding its e-file capability, adding state returns, and has added support for the excise tax return on IRS Form 2290 for heavy vehicle highway use. “The hope is that many firms that had to do this manually in the past or make their clients file the form will be able to take on the engagement, or if they were doing it before, do it a lot more efficiently,” he said. “We’re also looking at other areas we can add, such as Form 706 for state filings. We now support more state forms than any other product.”

“GoSystem, a Web-based product since 1997, traditionally required a small client installation that allowed it to contact our servers,” said Kleinsmith. “This coming year the 1040 will be available without using the installer piece, with a zero footprint. The payoff is a huge relief of time for the IT procedure. It will simplify the process of getting it up and running, and maintaining it.”



The software industry players face the same main challenges, observed Kerri Gibson, vice president and general manager of small professionals at Wolters Kluwer, CCH Small Firm Services. “There is still the complexity of the tax law, and the employer mandate for the ACA is rolling out. While many think that the employer mandate will affect mainly those on the employer side, in reality Form 1040 taxpayers will be affected just as well. The reason is that they’re the ones who receive the Forms 1095. Last year there were seven and one-half million Forms 1095-A, and next year there will be millions more of the 1095-Bs and Cs. So there will be still new documents to wait for and the question of, ‘What do I do with it?’”

“There’s also still a lot of confusion around the repair regs,” she noted. “There were a large amount of returns on extension this year while preparers figured out what to do with them. And there’s always the question of extenders. There is some movement possible, and with any luck they will pass earlier this year, but it’s a factor we have to watch. On top of everything, of course, is the continued and increasing complexity of the code.”

“Reporting requirements and source documents are getting more complex, and the season itself is getting compressed — there’s a lot more to do in a shorter period of time,” she said. “There’s also competitive pressure from their fellow small firms and the do-it-yourselfers. Those three things — code complexity, the compression of the tax season, and the desire to grow in a competitive landscape, all mean that preparers need to have a strong value proposition as a small firm. Their value is their tax and accounting knowledge, and that’s what they have to focus on keeping up to date. To have the time to do that, they need to focus on leveraging the technology that’s available to them.”

The goal of Wolters Kluwer is to make workflow simpler and more efficient for practitioners, according to John Barnes, director of workflow solutions for Wolters Kluwer Tax & Accounting. “We’re trying to find ways to support and move boundaries, so that firms can share information within the organization and with their clients,” he said. “Essentially, it’s a collaboration with their clients. The big challenge is around the areas of sharing information around multiple applications, portal or workflow solutions.”

“Another challenge is the ability to integrate with third parties, to share common information. All these are challenges firms are facing, as well as the basic cost of ownership for all of the different technology platforms,” he added.

Barnes cited the CCH Axcess platform as a way to address the need to manage and improve workflow: “The platform is specifically built for the cloud. It gives the firm the ability to manage its operations through a common core database which includes client data, staff data and other data they would use to manage their process, such as permissions to access specific information. Giving them a central way to manage those processes through one platform adds to efficiency and addresses the challenges of sharing applications.”

Client collaboration is another area that is enhanced with new technology, noted Barnes. CCH Client Axcess works on any browser or mobile device, and provides the basic functionality available in Portal — the ability to download from the accountant, or upload to the accountant.

“CCH Client Axcess provides functionality between the firm and the client, and the ability to access not only from the desktop but also mobile devices. It’s a way to share information,” he explained. “The accountant can share files with the taxpayer and also with third parties. It’s another way to improve collaboration and also have efficient integration with third parties.”



For Drake Software, the integration of new technology is a constant. “It’s cyclical. The industry applies new technology as it comes out,” said vice president of strategic development John Sapp. “The last still being implemented is the cloud, being able to have products from anywhere. There are challenges that go with the cloud.”

“We have several products that take advantage of that. We have a full version of desktop that runs through a Web browser. It feels just as though it was running on your server even though it’s running on our server,” he said. “It’s almost like outsourcing your IT department. We keep the software and the operating system up to date. That’s one of the biggest things we hear from a lot of customers — they like to know where their data is. We have it all here, in Franklin, North Carolina, in redundant data centers.”

Drake’s acquisition of GruntWorx several years ago provided its customers with a Web-based application that automates the tasks of organizing and entering client tax data into the tax preparation software. “It’s a great way to organize workpapers,” said Sapp. “It can scan a huge amount of documents, send them to our data center and within an hour the preparer gets back a PDF. For a few dollars per return they don’t have to worry about organizing their files — we do that for them. Some will scan their files in before they leave their office at night, and when they come in the next morning their files have been scanned and keyed in. They can spend their time doing what is the most valuable for their clients.”

“The expansion of cloud computing is still in its early stages,” according to Jorge Olavarrieta, group product manager for Intuit. “Technology has evolved in such a way that the way people collaborate today is very different than the way they collaborated 10 years ago. Much of it is enabled by digital capabilities.”

For example, he indicated, tax organizers are an area in which there hasn’t been a lot of focus in leveraging new technology to solve problems better: “Tax organizers have been the tool of choice, first built in the mid-1980s to enable the collection of information for tax preparers. Many of the players in the industry have thought of different ways to distribute the organizer. We can now do it in a PDF and send it to a portal, but that’s just scratching the surface.”

Last year Intuit launched Intuit Link, which sends the tax organizer from Intuit Tax Online that is based on the prior-year tax return. “The basic difference between Link and an organizer is that Link takes all things preciously delivered on paper and turns it into a digital request for the taxpayer,” he explained. “Before there might have been 50 questions; now each question is an individual request that, when the taxpayer responds, instantly gives feedback to the CPA. That also sets the stage for enabling the direct download of financial data from financial institutions. If the accountants’ statement says ‘I need data from Solomon,’ the taxpayer has the ability to log in and download the information from the financial institution. Now it’s in a digital format, which ensures accuracy. The taxpayer has provided data back to the accountant in digital fashion.”

“It’s really the advent of leveraging the capabilities to solve the problem of collaboration better than ever before,” he continued. “It also allows us to solve another piece of the puzzle, which is data entry. It reduces the amount of time spent manually entering data, so the accountants can spend their time doing what they went to school for. Data collection and entry take up roughly 65 percent of the time in preparing the return.”

Link, which began on Intuit Tax Online, is now also integrated into Lacerte, and will be available in ProSeries for the coming tax season.

“The mission is to save accountants time. Everything is about the investment to save time, because that’s the most valuable asset that the accountant has, and that they have the least control over,” said Olavarrieta. “We will succeed when our customer succeeds.”



ProTaxPro’s Taluy said that combating fraud and ID theft is a growing concern for next tax season. “The IRS commissioner reached out to the CEOs of the major tax software companies in March [2015] and brought us in to talk about [stolen identity return fraud],” he said. “When the criminals start in January or February and file a fake return, the CPA’s filing gets rejected and the CPAs have to spend all their time trying to prove to the IRS that they are the real person to get the return filed. We hope to stop this in the beginning and create more protection so that the real taxpayers don’t have to spend months remediating their tax account. When people go to file their taxes, whether through a preparer or self-file, they should expect to do a little more than in the past to prove their identity. So that’s one of the big developments this year — to create industry standards and solutions that will protect the American taxpayer.”

“The ACA continues to be a question mark for a lot of preparers,” remarked John Amaya, director of marketing for Pet’s CrossLink Professional Tax Software. “People are slowly adjusting to it. We did everything we could to educate our preparers, but last tax season there were still a lot who weren’t sure of it. This year EROs were a little more comfortable with it.”

“Our customers are asking for a desktop product in the cloud,” he added. “That has some inherent challenges in it, including security concerns. We’re continuing to work on that. Data security is a big issue — we’ve never had a security issue, and we don’t intend to.” 

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