Tips for a better tax season

As CPA tax professionals gear up to prepare clients’ 2023 tax returns, they will have to address recent changes in tax laws and rules, as they do every year. In addition to technical issues, to best prepare for the upcoming tax season’s pressures and deadlines, practitioners should assess the management of their tax practices to identify areas for potential improvement.

Although tax professionals will not have to face as many significant tax law changes with broad impacts as they had to contend with in recent years, there are a number of technical areas to consider for 2023 returns. These include:

In addition, Mark Gallegos, CPA, partner at Porte Brown LLC and a member of the AICPA Tax Practice Management Committee, highlighted the following recent tax law changes and concerns that are on his radar:

Although the IRS has added staff, made significant progress on its backlog and become more reachable by phone, not everything is smooth sailing. “Practitioners and clients are still consistently dealing with a number of issues dating back to operations during the COVID-19 pandemic because mail was never opened, like lost tax payment checks from prior years that were never cashed and responses to tax notices that were never read,” said Michael Whitmore, CPA, shareholder at HMA CPA, PS, and vice chair of the AICPA Tax Practice Management Committee. “We’ve advised our clients to only transmit payments electronically and stop making payments by check.”

TAX PRACTICE MANAGEMENT

In addition to technical issues, tax professionals should evaluate the management of their tax practices to determine how to complete tasks most efficiently and ensure their teams and clients work well together. This exam should take place year-round, but firms can fine-tune operations in the few weeks left before tax season officially opens.

Following are common tax practice management issues CPA tax practitioners may encounter and suggestions on how to address them.

DEALING WITH LIMITED RESOURCES

“The biggest challenge for the industry in the past three to four years was having to do more with less, as there was a steady decline in the number of qualified staff, especially experienced tax professionals, along with the move to remote work as a result of the pandemic,” said Brandon Lagarde, CPA, J.D., partner at EisnerAmper, and chair of the AICPA Tax Practice Management Committee. Lagarde was a partner at Postlethwaite & Netterville prior to its acquisition by EisnerAmper in 2023. “As the workforce has gotten smaller and there are fewer qualified candidates, we had to train people on managing the workload, smooth work hours across the year, and manage client expectations in a short timeframe.”

One way firms address limited resources is using interns. “Colleges here do not offer many tax classes, so we have an intern program that gives students a way to learn if they want to choose tax as a career before they enter the workforce,” Lagarde said.

Gallegos agrees. “Every year, we have a great pipeline into universities to get interns to work for us in the summer and tax season,” he said. “We train them like other employees, see how they work and interact and communicate, and then we offer some of them full-time jobs at graduation.” He recommended firms look beyond big universities and consider students from smaller colleges.

Using administrative staff can take some of the strain off tax professionals. “Some firms do not view them as important, which is a mistake, but we make them part of the process,” Gallegos said. “They interact with clients, work on electronic forms and extensions, and participate in staff meetings.”

Whitmore’s firm also turns to administrative staff for getting and organizing client information, using scanning technology to populate tax returns, and coordinating tax return reviews by staff and managers. “We assigned one admin whose entire job is to be the ‘client concierge,’ ” he said. “She helps clients with electronic transmission, handles simple questions, holds clients’ hands, and also holds tax partners accountable. You need to identify the right person for this, with a good personality, that clients like.”

OPTIMIZING WORKFLOW AND PROCESSES

Although tax year 2023 is relatively stable in terms of new or radically different provisions, tax professionals have learned to be wary about the prospect of changes in law or administrative guidance implemented during tax season for the just-ended tax year, because they sometimes require not only altering their procedures going forward but also reviewing and perhaps recalculating returns already in process. Such retroactive changes also can delay the date on which the IRS will accept returns while it implements them.

“When there are changes in laws or guidance from the IRS or Congress or state authorities, or they provide guidance or forms late, it causes compression and pushes back the tax return processing start date; this puts a tremendous burden on preparers that are just trying to report income and expenses from events that have occurred the best they can,” Lagarde said. “Tax returns get backed up while preparers are waiting, and clients may not understand this and do not want extensions.”

And, because tax season is taxing enough even at the best of times, firms often look for ways to optimize their time and resources.

“Our firm is process- and procedures-driven all year,” Gallegos said. “We create workflows, ways to streamline things, to make it simpler for everyone, including preparation of financial statements and returns, training people, delegating, and having proper reviews and checks and balances.”

His tax team worked hard from January through April to complete as many returns as possible before the March 15 and April 15 deadlines.

“August and September can be very stressful,” Gallegos said. “Extensions require more time and can be inefficient because you have to revisit what you did earlier. You also have to look at the whole picture, because S corp extensions flow through to [Form] 1040s, and you don’t want to miss quarterly estimated tax deadlines.”

Whitmore’s firm, HMA CPA, ran a big initiative the past two years assessing both processes and personnel. Part of that project involved identifying work done by tax professionals that could be done instead by paraprofessionals or administrative staff.

“We are using the client accounting services (CAS) group to take client trial balance data and adjust it, reconcile accounts, and make sure account roll-forwards work and amounts are classified correctly,” he said. “This is more efficient, because it enables the tax staff to have a clean trial balance to work with and spend more time consulting and doing value-added work for clients.”

INCREASING EFFICIENCY WITH TECHNOLOGY

Tax preparation can require a lot of manual processing, but having clients use software (like QuickBooks), moving more activities to the cloud, and outsourcing work to third parties with automation capabilities are all ways firms can use technology to ease the burden on staff.

Client portals are being used more, and some provide for two-way communication. “Before COVID, we didn’t have any method of electronic communication with clients other than emails,” Lagarde said. “We had file sharing, but it was clunky for individuals, and we did not have a client portal that was seamlessly integrated.

“In the past year, we used an electronic organizer, a fillable PDF, but this still requires a lot of manual effort. Some clients still like their paper organizers and don’t like electronic organizers and tax forms.”

Many firms and their clients use portal services, such as TaxCaddy connected to SurePrep, to upload information faster and more securely.

“I’ve found that while some clients take longer than others, the more you educate your clients, the more they learn your process for sharing information, the better the relationship,” Gallegos said.

In the past year, Whitmore’s firm has looked at how it transmits information with clients. “We are using automation to free up time for value-add consulting,” Whitmore said.

To do that, the firm has increased the use of secure links to transmit documents to clients and upload their information, scan returns, and for electronic signatures and payments to the IRS and the firm. “We have much less paperwork and have saved postage cost and staff and administrative time in prepping documents (printing, stapling, binding) for mailing,” he said. “Last year, 20% of our tax returns were transmitted to clients electronically. This year, the goal is 50%, and we are excited about that.”

About the author

Maria L. Murphy, CPA, is a senior content management consultant, accounting and auditing products, for Wolters Kluwer Tax & Accounting North America, and a freelance writer based in North Carolina. To comment on this article or to suggest an idea for another article, contact Paul Bonner at paul.bonner@aicpa-cima.com.

LEARNING RESOURCES

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AICPA & CIMA RESOURCES

Articles

“COVID-19 Changes Allowing E-Signatures Made Permanent,” JofA online, Oct. 25, 2023

“As If They Were Never Filed’: IRS Outlines Steps to Withdraw ERC Claims,” JofA online, Oct. 19, 2023

“How to Go Easier on Staff During Busy Season,” JofA, October 2022

“Prepare for Next Tax Season by Looking in the Rearview Mirror,” The Tax Adviser, March 2020

Website

Tax Season resources landing page from AICPA & CIMA and the AICPA’s Tax Section.

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KC’s ferries report: What questions remain?

By BBC Disclosure BBC Scotland

The construction of two CalMac ferries at the Ferguson shipyard in Port Glasgow has become one of the worst public procurement disasters of the devolution era.

Six years late, massively overbudget and still not completed, it has blown the ferry renewal programme off course and left island communities at the mercy of an increasingly unreliable fleet.

Initially seen as a huge boost for the shipyard, the order has been a disaster, leaving the workforce embarrassed by events beyond their control and a proud 120-year reputation tarnished.

Two parliamentary questions and an Audit Scotland investigation have tried to get to the bottom of what's gone wrong.

A year ago a BBC Disclosure documentary, The Great Ferries Scandal, presented new evidence gleaned from hundreds of leaked documents that suggested the procurement may have been rigged.

The bid by FMEL, a new company led by businessman Jim McColl, was the most expensive.

But it beat off competition from some of Europe's leading shipyards with a design, according to ferries government-owned procurement agency CMAL, that was more detailed and developed than the rest.

The design of these vessels is at the centre of many of the delays and cost overruns that have followed.

CMAL responded to the BBC documentary by appointing a lawyer to conduct an investigation into whether the allegations amounted to fraud.

The BBC had not published allegations of fraud.

Barry Smith KC's 40-page report, published last month, found no evidence that fraud was committed, while adding this was "not the same as saying that the procurement process was conducted perfectly".

However, some questions remain.

CMAL's former procurement manager George McGregor - whose job it was to ensure the process was conducted fairly - has come forward, saying he gave evidence to Mr Smith's inquiry that he raised serious concerns at the time.

And BBC Disclosure can report that the leaked dossier contains evidence which has either not been made available to Mr Smith, or does not feature in his report.

FMEL was allowed to pass through the qualifying stage of the tender, despite being the only shipyard unable to supply a letter from a bank to prove they could provide a refund guarantee, which was a mandatory requirement.

This relates to question 44 in the Pre Qualifying Questionnaire (PQQ).

Barry Smith's investigation found that both the BBC and the Auditor General had misunderstood the "poorly-worded" questionnaire sent out by CMAL to prospective bidders.

He concludes that while refund guarantees were a "minimum mandatory requirement" to be in place before the work started, there was no mandatory requirement to provide a letter at this stage as evidence of a firm's ability to provide these financial safeguards.

The BBC has seen previously unpublished evidence that suggests providing the bank letter was always intended to be mandatory.

In an email discussion between CMAL executives and a lawyer on 23/24 September 2014, the lawyer began:

"when you are launching tenders for new vessels, it occurs to me that it would be sensible for you to require written confirmation from each tenderer's bank that it will provide a refund guarantee in the required form as part of your tender process.

"If you impose this requirement when you go out to the market, and either score it or make it pass/fail, it will be very difficult for a yard to be appointed as preferred tenderer and then say that they can't provide one."

The procurement manager replied that she was satisfied the proposed wording of Q44 already did this, and added:

"We would expect to reject any PQQ responder unable to provide the letter"

The formal contract notice was published three weeks later and is still available to view online.

Under Conditions for Participation it states: All candidates will be required to provide a reference from their bank

These points were not reflected in Mr Smith's report. He did not address specific questions from the BBC over whether he had been provided with this information.

In a statement he said: "If the BBC believe there is new information that I have not seen, then please share all relevant information with me and I will carefully consider it."

FMEL had exclusive access to a key document, CalMac's Specification of Operational and Technical Requirements (SOTR), which gave it an unfair advantage over other bidders.

This was a 424-page document produced by CalMac setting out its needs for the ferries. It was given to CMAL, who then used a design firm to distil this into a 130-page document which was sent to all the bidders.

The BBC discovered that FMEL had exclusively obtained the longer original document, and used it as the basis for its own technical schedule. About 90% of it was cut and pasted.

Did that help FMEL? The KC's investigation concluded that all the "critical information" from the SOTR was also contained in the shorter document made available to all bidders and FMEL gained no advantage.

Internal CMAL documents seen by the BBC suggest FMEL did gain a significant advantage, and that other bidders were marked down for failing to expand on the shorter document.

On its technical specification submission, which carried 10% of the total score, the FMEL design scored the highest, with 8.5 (out of 10).

After FMEL was announced as preferred bidder, the second placed yard - Poland's Remontowa - wrote a letter querying its low scores (it scored four out of 10 for this section).

CMAL's vessels director wrote back: "The LMG [Remontowa] technical specification was evaluated as poor. The LMG submission was with the exception of a few items identical to the tender technical specification. The LMG submission did not expand in any great detail from the buyer's tender technical specification."

He went on to explain that FMEL's technical document - the one that was almost entirely copied from CalMac's SOTR - scored higher because it was longer and had more detail.

"The winning submission was a fuller developed technical specification containing 351 pages with full details of the scope of supply included," he wrote

This document had been referenced in the BBC documentary. Mr Smith's report makes no mention of this exchange.

FMEL was allowed to materially alter its design almost two months after the deadline for submissions, swapping its original Model 20 design for a lighter ship, known as Model 10. As a consequence it was able to reduce its tender price by almost £10m.

The KC's report accepts that FMEL was allowed to revise its bid. He says this was bound to have had "some effect" on the evaluation of the bids but cannot say that it changed the outcome.

He found no evidence of fraudulent intent and said the evaluation by the CMAL team was done "professionally and properly".

The BBC has seen evidence, apparently not supplied to Mr Smith, that suggests this change of design, in effect, won FMEL the contract.

Mr Smith accepts assurances from a CMAL official who was involved at the time that they genuinely believed two design variants were being offered in FMEL's original bid submitted by the 31 March deadline.

Documents seen by the BBC show that the details of the bid - deck height, engine size, the general arrangement drawings and the price proposal - all related solely to Model 20.

Model 10 is only briefly mentioned in the original submission and does not appear to be presented as an alternative design.

FMEL was asked for more details on Model 10 in May after a naval architect, who reviewed the bids for CMAL, observed that Model 20 was heavy and overpowered.

Barry Smith says he did not see FMEL's response to CMAL's request for more information on Model 10. The BBC has a copy and it contains some crucial information.

It shows how the switch to Model 10, because it was lighter and required fewer materials, allowed FMEL to significantly reduce its price proposal from £109.8m to £100.5m (it would later be reduced again to £97m).

CMAL then scored FMEL on this revised design.

The BBC has calculated that this reduction in price, submitted nearly eight weeks after the deadline for bid submissions, gained FMEL an extra 5.8 points in the overall exam.

At point of award, the difference between FMEL and the second-placed design (Remontowa LMG) was 2.9 points.

The BBC asked Barry Smith about all the points listed above.

He responded: "I set out in my report the terms of reference I was given; and the methodology I followed in carrying out a thorough and independent investigation.

"I have clearly explained the basis of my findings and conclusions, including under reference to the documents I was provided with, or ingathered during the investigation.

"My investigation was instructed by CMAL pursuant to their duties under the SPFM [Scottish Public Service Manual] to investigate allegations of fraud. If the BBC believe there is new information that I have not seen, then please share all relevant information with me and I will carefully consider it."

CMAL said in a statement: "We are not aware of any concerns raised by George McGregor to any member of the CMAL team in relation to the procurement process of 801 and 802 [Glen Sannox and Glen Rosa]

"We can confirm that all relevant information in our possession was provided to Barry Smith KC during his investigation."

Reporting team: Mark Daly, Calum Watson, Kevin Anderson

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