A View from the Trenches

Despite a brief halt in return processing, and the return of some of the more common seasonal issues, the early days of tax season passed relatively smoothly — and gave some CPAs a chance to share how they make the most of the season and the opportunities it presents to serve clients.

Last year, the Internal Revenue Service attempted to do less with less, as decreased funding took its toll on the agency’s ability to handle basic customer services. In fact, taxpayer service last year hit a historic low, as measured in the percentage of taxpayer and tax preparer telephone calls answered and in-person contacts they had, according to Jeremy Scott, editor-in-chief of commentary and analysis at Tax Analysts.

But this year things are different, he observed. “This filing season marks the first time the IRS has received additional funding since the GOP took Congress back in 2010. They had been steadily cutting the IRS budget leading into last year, but this year they received an extra $290 million specifically for better service and better fraud detection,” he said.

“The exempt organization scandal and Affordable Care Act implementation has made the IRS a target for House Republicans, and the way [the agency] dealt with the EO scandal has not won them many friends on the Hill. So the Republicans were able to put spending cuts into omnibus budget bills and the Democrats didn’t fight very hard to put the money back in,” said Scott.

“They noted that it is unwise to cut budgets during a time of deficits, and that a dollar spent on enforcement brings in seven dollars of revenue,” he said. “Although they didn’t get off to the best start with a software glitch that stopped return processing for three days, the commissioner and other officials are talking about doing better this filing season with the extra money available.”



Typical filing season issues continue to plague preparers, according to Emilio Escandon, principal-in-charge of national operations for the Tax and Accounting Department of Top 100 Firm MBAF. “Forms 1099-B were scheduled to come in by January 31, but typically there tend to be corrected forms from brokerage firms later on,” he said. “That generates anxiety and affects the ability to complete the work on time. The same applies to Forms 1095-C, reporting by employers that have more than 50 employees. There’s information on them that has to be reported on Form 1040.”

“It’s not so much that they come in late, but that they’re somewhat involved,” he explained. “It’s not a matter of time compression — it’s the complexity in dealing with them. So more and more, the profession has moved toward getting clients comfortable with the notion of extending. Even if the return is 99 percent done and all the information is in, but the last piece of information came in on April 11, instead of pushing to get it done and filed by April 15, we advise them to extend and give them an estimate of what they owe. They still have to sign to authorize us to extend, but it’s not a rush because it still has to go through a second level of review.”

The firm walks a fine line in the last weeks of filing season to manage its workflow, according to Escandon. “We want to be kind to our clients and also be kind to our people,” he said. “We go out of our way to spread projects and assignments around and not overburden anyone from staff to partner. We get together on a weekly basis and go through every one of our schedules from associate through manager and identify where someone who is overburdened can use some help. We try to manage a reasonable workload and still get the job done.”

For Cory Van Deusen, a tax partner at Buffalo, N.Y.-based firm Lumsden & McCormick, tax season is a challenge that he looks forward to. “But if you ask me on April 14, I might sing a different tune,” he said. “That’s because by then I won’t have seen my family for the entire season.”

“I’ve learned to exercise more during tax season than outside of it, to help relieve stress,” he said. “And I try to leave work by 5 p.m. or 6 p.m. two nights a week.”

Many employers will be unprepared to face ACA reporting requirements, Van Deusen noted. “Last year, Form 1095 was optional. This year, employers have to do it, and they need payroll and health insurance data that may not all be in the same place. Some companies offered to do it as part of a package, but stopped accepting engagements to prepare the forms. We’ve had clients that asked us to prepare them. We’re asking clients if they have developed a plan for it. A lot have already talked to a payroll company or insurance broker, but it’s too late now to get payroll companies to take it on. We’ll be doing some of that for our clients.”



While tax season is a time to nudge clients to do tax planning, David McManus, co-managing partner at Massachusetts-based AAFCPAs, believes that now is the time to educate them to engage in year-round tax planning. “We’ve always had the philosophy of working with clients throughout the year and constantly running projections and getting a picture of where they are,” he said. “We’re not looking solely at the compliance process at the end of the year. Our objective is to work with them throughout the year and to get a real sense of who they are, how their business relates to their personal situation if they have a business. We’re not giving clients any valuable service if we just meet with them at year’s end to figure out what they’ll owe in April.”

Among issues that might be addressed, said McManus, are how their business relates to their personal situation. “For example, in a family situation there may be a potential succession event that might happen three or four years down the road,” he observed. “It’s better to start them thinking on that, rather than to simply tell them, ‘Here’s what you owe, we’ll see you next year.’ Some personal clients might not have a business aspect, but the CPA should still take the whole picture into consideration when looking at the tax situation. If there is any change during the year, we want to know so that we can provide a better advisory service to them.”

It might not always focus on tax, he indicated. “If an inheritance is coming up, there are different ways to approach it. Gift planning and trust and estate considerations are best mapped out over the course of many years. Owner can gift company stock, tax free, over time in order to transition the business without requiring the successor to pay for share outright,” he said.

That improves the outlook on two fronts, according to McManus: “It alleviates the tax and managerial burdens on the owners while keeping working capital in the company.”

It may or may not be in the client’s best interest to maximize tax savings in the current year, McManus pointed out. “If the client is looking to sell the business three or four years down the road, it may be better to clean up the financial statements so when potential buyers come in the value is there.”

One of the hardest things for CPAs to do is discuss their fees with their clients, according to Tom Wheelwright, founder of accounting firm ProVision. “They’re not good at talking about money with their clients,” he said. “Most of them are scared to death at discussing fees. We talk about fees early and often. The first time we talk about fees is when a client becomes a client. The next time is when we give an estimate of fees in an engagement letter. It’s about training clients and setting expectations. When we give an estimate, we make sure that the top end of the estimate is more than we could ever conceive it would cost, so the actual bill will always come under the estimate. And we look at the estimate and figure out ways to reduce it.”

For example, he said, the clients may give you their information and their bookkeeping is a mess. “They have a choice of having us do the bookkeeping, or they can have the bookkeeper fix it. Usually it’s cheaper for them to have their bookkeeper, or any bookkeeper, do it, rather than have a CPA do it. The job of a CPA is to increase a client’s bottom line, and one way is to reduce their tax preparation and accounting fees.”

Wheelwright charges a retainer fee with his engagement letter. “It’s usually about 50 percent of what we think it will take to do the return. We charge them upfront before we ever do the return. That does two things: It improves our cash flow, and for the client it breaks the fees into two payments so they don’t get a big bill with the return. Another goal is to reduce their stress, and we do that by giving them no surprises, and no stress of owing a big chunk of money when the return gets filed.”

“If we don’t set the expectations, the client will,” said Wheelwright. “But there are ways you can charge extra fees and have the client be happy to pay them. For example, we had a client with repair regs issues. We called ahead and said, ‘We have the opportunity to reduce your taxes, but it will take time to go through the mechanics and come up with the tax savings; are you OK with that?’ We did the work and saved the client $40,000. Naturally, when we called them up and told them, they were thrilled.”

The other way of doing it, by doing the work, sending the client the bill and trying to collect it, completely changes the dynamics and gives both the CPA and the client high blood pressure, observed Wheelwright: “So get their buy-in ahead of time, and you’ll be a hero.”

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