Tax software manufacturers predict that the impending election will fuel the tax prep market, as both presidential candidates propose significant changes to the Tax Code."The tax side of business will be brisk across the board regardless of the space they're playing in, because whoever becomes president will try to change the Tax Code, and change means more business," said Gene Goldenberg, senior vice president of marketing for CCH Small Firms Services, makers of ATX and TaxWise.
"When there's no significant change in the tax law from year to year, tax professionals will tell you that business dips a little. But as soon as there's a change, everybody rushes back to the professional," he said. "We're looking at a series of significant changes in the tax law during the next 12 to 18 months."
Although recent consolidation in the industry has slowed down, there is still room for more, according to observers.
"There are not that many players out there anymore," said Jorge Olavarrieta, group product manager for Intuit's Lacerte. "The trend was heavy a few years ago, but it slowed down as major independent firms were acquired. There's room for continued consolidation as it relates to the smaller players, but the trend has slowed."
John Vora, chief executive of TaxSimple, agreed. "It is still highly competitive. The first casualty will be e-file. Eventually no one will charge for it. Other things will follow. When consolidation leaves only a few companies left, at that point the price might go up."
In fact, the IRS recently announced that H&R Block and Intuit have decided to eliminate separate fees for e-file products and services (see page 10).
John Sapp, vice president of sales and marketing for Franklin, N.C.-based Drake Software, sees some further consolidation. "All of us committed to the industry are interested in acquiring more economies of scale," he said.
"It's a mature industry, and the only way to grow is to steal from competitors," said Ton Yazici, director of product management for IntelliTax. "You must have real differentiators to do this. You have to anticipate the long-term evolution of the industry, rather than fight over little enhancements."
Nearly all software manufactures said that they were focused on helping practitioners grow their business through time-saving efficiencies and connecting with their customers.
"We've introduced AutoFlow Technology to our Scan product," said Jo Ann Cummings, product manager for CCH ProSystem fx, and its ASP version, Global fx, "which will allow preparers to import scanned data directly into the tax application via optical character recognition. It scans the data on major documents - W-2, 1098, 1098-T, and 1099 DIV, INT and MISC forms - and takes you through a validation set-up. When you open the return, the data is waiting for you. If the data is correct, you push a button and it's imported."
"This is where the industry is trending," she said. "You're going to see the industry look at more ways to electronically import data. It's more error-free, so you'll see less transcription errors, and it allows more of the preparer's tasks to be performed by administrative staff."
Thomson Reuters has also been involved in developing scanning technology, according to Teresa Mackintosh, senior vice president for the Dexter, Mich.-based CS Professional Suite. "We have an integration between FileCabinet CS and UltraTax that allows the professional to read source documents using the OCR process," she said. "The return is a shell waiting to get input with this year's numbers. After the document is scanned into the FileCabinet Source Document modules, the data that came through the OCR process can be reviewed and validated, and then accepted directly into the return."
"It's just one quick way of getting into the return," she said. "We're focusing on multiple ways to get information into the return, including digitally through portals, and organizers, 2-D barcode technology, and spreadsheet imports directly from a broker for active traders."
OCR scanning is meant to benefit firms that use an upfront scanning process, which is only about 12 percent of firms nationwide, according to Mackintosh. "If the firm uses an interview style, it will find other ways to be more efficient," she said.
GoSystem RS, like its sister Thomson product Ultra Tax, also utilizes source document automation. "In addition to GoFileRoom [a Thomson product], we integrate with two third-party vendors, Copanion and SurePrep," she said. And for firms that outsource overseas, there are a number of enhancements to ensure compliance with Code Section 7216, which requires the redaction of Social Security numbers when the preparer is outside the United States.
The basic strategy of Intuit is to solve the preparer's most important tasks, according to Lacerte's Jorge Olavarrieta and ProSeries group product manager Kathy Kirkendall.
"Their growth is constrained by how much they have on their plate," said Olavarrieta. "With greater efficiency, they have more time to invest in growing the number and types of services they offer."
Intuit, which files more than 30 percent of all e-filed returns, continues to invest heavily in the technology, according to Olavarrieta, who believes that although OCR scanning is not for everyone, it is a technology that will prove advantageous to many firms. "A large majority of accountants are already taking source documents and organizing them," he said.
Lacerte is also pursuing taking tax applications to the Web. "We're investing heavily in connected services to understand what advantages the Web can bring regarding tax applications," he said. "I believe it's much more than simply taking desktop to the Web. We want to provide a tax application on the Web as a true Web solution for tax preparers, and will be ready to roll out a product soon."
Both ProSeries and Lacerte have developed Live Community, according to Kirkendall. "It will allow preparers to get live advice from their peers related to a particular worksheet."
"Live Community is context-sensitive, provided right in the tax product at the point of need," she emphasized. "It will be a huge time-saver, allowing accountants to network with their peers across the country."
For Drake's Sapp, scanning is still a temporary fix. "There's no mass movement toward it," he said. "If anything, we know that preparing tax returns has to be 100 percent accurate or it's nothing, and scanning is still not at 100 percent."
For 2009, Drake still includes its entire suite as part of its totally integrated tax software package, including Tax Planner, Document Manager with paperless office features, and Client Write-Up. "We haven't raised our prices for 17 years," Sapp noted. "We used to be expensive, but now everyone else has caught up to us and passed us."
Drake has added live payroll to its Client Write-Up, and a direct import capability from W-2 eXpress.
CCH's ATX and TaxWise continue to be separate entities with separate codes and different user interfaces, according to Goldenberg.
"We have expanded Audit Shield coverage to everyone," said Bo Brown, product manager for ATX and TaxWise. "Originally it was only for bank products. We've also developed an Easy Interview that does a question-based return. It lets anyone on your staff enter the information needed for every client. It generates the necessary tax forms, so they're already loaded when you start the return."
For multiple-office firms, InterviewPlus Online allows data to be transmitted over a secure connection to the main office, where it is automatically imported into the tax program.
ATX has added 4,000 additional forms, and now has nearly 14,000 forms, according to Brown. "Beyond that, we've addressed the top five reasons for customer service calls, and address that via the software. For example, we have made acknowledgments more easily accessible within the module."
Scan&Fill scanning technology is available for both ATX and TaxWise.
"It's been a summer of regulation," said Chuck Petz, vice president of software development for Tracy, Calif.-based Petz Enterprises Inc. "Next tax season will put pressure on the preparer community to gather more information and spend more time with taxpayers in the preparation process as a result of the disclosure requirements."
Petz offers its desktop product, CrossLink, for high-volume retail tax offices, with its Web-based V-Tax aimed at multiple offices and service bureau models. For 2009, Petz has added TextLink, a text messaging service built into its CrossLink product so that preparers can communicate with individual taxpayers or broadcast to groups of customers, according to Petz.
Petz teamed up with Topaz Systems to produce a digital signature pad, which captures the preparers' and taxpayers' signatures electronically. "The software makes sure you have the taxpayer's and spouse's signature in all the right places before they leave," said Petz.
A new internal audit-checking feature gives warning messages and percentage thresholds that the preparer can establish to achieve a minimum level of quality control in the office, according to Petz - for example, setting off a warning if a taxpayer claims an unusually large amount of unreimbursed business expenses on Schedule A.
IntelliTax intends to continue its goal of helping preparers grow their business in the face of increasing pressures from banks, Free File and other competitors, according to Yazici. "This year we added a dashboard, to provide a single interface to see the state of work and operations - how many returns are pending, how many checks are ready to print, which ones were denied, and the status of currently pending acceptances for e-file."
"We're making sure the preparer is aware of the Section 7216 requirements - they need explicit consent from the taxpayer to sell goods and services beyond the tax return," he said.
TaxSimple's Vora held users' meetings over the summer and asked preparers to note what other software packages had that they wanted. "They couldn't come up with anything that we don't already have," he said.
For the 2009 season, TaxSimple has enhanced its Web and e-mail functions. Users can e-mail returns to clients securely, and target certain groups of clients. "The majority of our customers are desktop, but the consumer end, over the Internet, is expanding rapidly," noted Vora.
H&R Block-owned TaxWorks, based in Kaysville, Utah, has added automatic upgrades of its program via the company's Web site, according to vice president Kelly Peterson, CPA. Upgrades are added each time the preparer logs on. The Client Selection screen has been optimized to run more efficiently. In addition, the Revision's History, located in the Secure Area of the Web site, details each update to the program, as well as explaining how it affected the program.
Greatland's Great Tax software also has the automatic update feature, and has added additional security functionality, according to product manager Cathy LaViolette. In addition, Greatland offers integrated e-filing and refund anticipation loan processing, and has enhanced its information and reporting capabilities.
Although many of the traditional tax prep software makers offer Spanish language forms and instructions, none are as complete as Latino Tax Software's offering, according to chief executive Manuel Alvarez. "The Latino tax preparation market is underserved and ripe for aggressive growth, especially serving the millions of undocumented workers that have never filed taxes," he said.
The company's product, MultiTax, allows users to input basic taxpayer and dependent information once and use it for multiple years. This is especially geared toward a customer base that may not have filed prior-year taxes.
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