- Written by T. Steel Rose, CPA, ACS Editor
As part of the ongoing series to learn more about the faces of the IRS, CPA Magazine Editor T. Steel Rose sat down with the IRS Commissioner of the Small Business and Self-Employed Division, Faris Fink. Rose spent time finding out more about the challenges facing the man holding the most senior position affecting small business in America.
Rose: I heard you speak in DC at the AICPA Tax event and appreciate your candor. Can you tell us a little about yourself and your tax experiences?
Fink: I graduated from the University of Akron and took the bar in Ohio, which is now inactive. I started as a Revenue Officer in collections.
Rose: What is your biggest challenge?
Fink: Identifying tax schemes from the simple such as those using false documents which are more widespread to the more complex tax schemes using structured trusts and partnerships. The other challenge is the economic situation has us walking in the shoes of the taxpayer during collection and examination; maintaining a balance between compliance and the need to recognize the impact of the current economic environment.
Rose: How can tax practitioners help?
Fink: A threshold of clear expectations on the part of practitioner (and the IRS), establishing open and clear communications, staying current with policies so they can better advocate for their clients. If a problem exists I encourage that you elevate the situation. We may disagree on positions and interpretations of law, but that should never be a barrier to being professional.
Unquestionably, the vast majority of taxpayers want to comply with the tax law. I firmly believe that we need to provide necessary information, tools and knowledge to taxpayers and practitioners. Education has long been a key component for successful compliance.
Rose: I understand the current audit coverage is the highest in years. How long do you expect the current level of audit activity to continue?
Fink: We will continue the high income/ high wealth group, but cannot neglect or over-emphasize any audit category. We have balanced coverage or auditing through entities. We continually try to meet or exceed prior year audit closures. This fiscal year, and potentially next fiscal year, we will have large hiring initiatives. For collections and examinations 2009-2010 was our largest for hiring, and is now limited.
We will have to pull our senior auditors off-line to assist with training and on-the-job instruction which will impact closures. As we get our new hires on-line, they will start producing closures. During this period, there may be changes in the mix of work, but we will strive to minimize any impact on overall level of audit activity. Ultimately, this hiring initiative will increase audit activity assuming our hiring can outpace attrition.
Rose: What is the success rate of these audits?
Fink: We have a completion plan on a broad range of returns based on filing status and points of risk, like 1065 partnership return schemes. So we focus more attention on possible filtering of income through partnerships from individuals.
There are many measures of success. The ultimate goal is to cut the tax gap, which can be done through compliance initiatives, and outreach and education. We audit high tax gap groups. We need to ensure we position ourselves for the future which includes: Identifying emerging issues including those involving the global economy; keeping up with technology in both our compliance activities and communicating with our internal and external customers, and building an innovative, empowered, and engaged workforce. We must ensure our taxpayers, those that want to comply, have the tools and knowledge to comply. Reducing burden is key to making people want to comply.
Rose: How do you measure success?
Fink: We have many traditional methods we use to measure our success such as:
Case closure rates, ensuring we maintain the appropriate level of coverage, and “no change” audit rates to ensure we are addressing the non-compliant taxpayers. As a federal administrator if we commit resources and find a high, “no change” audit rate, we reassess our classification methodology.
Other measures of success are: customer satisfaction surveys which we can then use to target process changes or training opportunities for our employees; employee satisfaction surveys to better understand how we can improve employee engagement and quality reviews of our case work to again target training opportunities for our employees.
We believe engagement and partnering with practitioners is also key. We have relationships with many practitioner organizations that provide us feedback on how we are doing and where we can improve. We have used practitioner surveys and focus group interviews of practitioners to identify improvement areas or best practices. We also have advisory groups such as the Information Reporting Program Advisory Committee (IRPAC) and the Internal Revenue Service Advisory Council (IRSAC) that work with us on issues.
Our practitioners also help us target outreach and education to our taxpayers, their clients; leveraging the practitioners to assist taxpayers is a great resource for us with high impact. There is also the on-going National Research Project (NPR) to monitor our impact on the tax gap.
Rose: What have been the results of the NRP audits?
Fink: The NRP systemic problem results reflect that, for 1040s the schedule C filers were putting information in the wrong location on the return instead of egregious non-compliance or fraud. The NRP for 1040s is an annual project. The others outside of 1040s are limited. The employment tax NRP is limited to three years. Although the final results are not complete, the 941s are in high compliance. Rather than question the sample taken, I believe this indicates employment tax is an area of high filing compliance.
Rose: What should tax practitioners know to expedite audits of their clients?
Fink: 1) Have supportive documentation available and in good order. 2) Provide documentation timely. 3) If a field audit, work with the examiner in the initial meeting on setting Mutual Commitment Dates (MCD) which provide response timeframes for both the examiner and the practitioner, and 4) Provide the requested information to the appropriate person/address especially when responding to Campus notices.
Rose: Are there other dispute resolution forums in addition to the IRS Nationwide Tax Forums?
Fink: Avenues for dispute may depend on the issue or where you are in the process. For instance: If you are working with an employee on a proposed assessment or collection action, and you do not feel your issue is being appropriately considered, you should ask to speak to the employee’s manager. There is also our administrative appeals process.
If normal procedures are not working or responses are not timely, our Taxpayer Advocate Service may be able to assist. We have also held some ad hoc problem solving days and are working on expanding that concept.
Rose: How is the hiring and training process for new SB/SE auditors going?
Fink: The hiring is going well. We are doing it in phases throughout the fiscal year to ease some of the stress. We have also begun working towards a service-wide approach to promote consistency in recruiting and retaining employees. This approach will also reduce the resource drain on any one Operating Division or geographical area. As part of this service-wide effort, we are looking at a corporate approach to our Revenue Agent Training. The Revenue Agent position is one that is used in most of the Operating Divisions (OD)s. SB/SE is often used as a “farm team” for the other ODs; so this concept will ensure equal commitment for the development of our Agents across all ODs.
Rose: Will the Form 8867, Paid Preparer’s Earned Income Credit Checklist, be filed with the return? Is the Form 8867 in final format? Can other formats with the same questions be used?
Rose: What happens when the IRS circumvents a filed power of attorney and goes directly to the taxpayer by-passing the tax practitioner?
Fink: We train on respecting power of attorneys. If an IRS agent is going directly to a client we want to know about it. It would be extremely rare. You should go to the group manager or taxpayer advocate office if you are not being treated with respect.
Rose: What do you do with your time away from the office?
Fink: I am a very big sports fanatic. I am an Ohio State fan because my kid goes there. I am a big boxing fan. I was a boxer. Boxing gives you confidence and self-reliance. It helps your self-esteem as well as your fitness.
Rose: I boxed when I was a kid and my arms were never more tired in my life after three rounds.
Fink: That is because of the weight of the gloves. The younger you are the heavier the gloves and the headgear to provide more protection.
Rose: Do you have any final advice for small firm CPAs and Tax Practitioners?
Fink: Most practitioners do a good job and perform their due diligence. Without the efforts of practitioners, our job would be much more difficult. But a suggestion for even doing better would be to ensure you educate your taxpayer (client). I believe most taxpayers want to comply, if they know how. Explaining rules specific to the taxpayer’s situation may assist them in providing the correct facts or documents to properly prepare the return. Questioning statements or worksheets that “just don’t seem right” may be necessary.
Ensuring they know upfront what documents will be needed in preparing their return and then which to keep (and for how long), in case the return is audited, will ease the process. In an audit setting, ensuring the taxpayer knows why a particular issue is being raised may speed receipt of the correct supporting documentation and thereby speed the audit.
Practitioners should ensure they stay up-to-date on recent law changes. Where practitioners see complexities or confusion, they should let us know to ensure we can assist in keeping them compliant.
Rose: Do you have any final remarks for tax practitioners?
Fink: I would ask the practitioner to understand, that like you said when we started; we are all in this together, working in tax administration together because we believe in this tax system.
- Written by T. Steel Rose, CPA, and Jasmine Temares
Tax season is high time for almost all main street CPA firms. It is the most productive time of the year. Gearing up for tax season is a matter of having all the right personnel in place as well as flex time and tax season-only professionals and para-professionals to assist with the heavy volume of traffic. 2011 will be significant as it will be the focal point for the landslide of tax changes in 2010, along with the onslaught of problems with expiring provisions in 2011 and the Health Care Act changes needed to comply in 2013.
Tax season tips include becoming more efficient before and during tax season. The age-old tax organizers are only one tax aid to streamline tax season with the right technology tools and processes to increase throughput from the interview of new clients to meeting with existing clients, acquiring all necessary data, preparing documentation to delivery and receiving payment for the return.
Accepting credit card payments or electronic checks at the time the return is presented to the client will save a lot of headaches later. The value of the return is never as high as when it is presented. Now is the time to make sure you can swipe a card or enter the credit card number into PayPal or accept checks with immediate verification of funds. Tax season is also a perfect time to use the 1040 as a roadmap to financial planning. As Sidney Kess remarked recently, “All CPAs do financial planning, for some, it’s just called tax planning.”
To get the best tried and true tips, we turn to CPAs in public practice who have earned their stripes managing and preparing tax returns through several tax seasons. Depending on the size of the firm, the following questions are provided to get you thinking about the myriad of different ways you can make tax season more efficient.
This issue, Douglas Farrington, partner-in-charge at Marcum LLP in Boston, MA; David E. Taylor, CPA, tax partner at Anton Collins Mitchell LLP (ACM) in Denver, CO; and Philip Drudy Esq., CPA, partner at Smolin Lupin in Fairfield, NJ, offer tips on how to make this the best tax season ever.
CPA Magazine: How long have you been involved in tax, what got you into it in the first place and what do you like best about it?
Drudy: I have been involved in tax for about 28 years, and I find it to be much more interesting than auditing. There is more client consultation and more creativity involved in dealing with tax issues than financial reporting and auditing.
Farrington: I have been practicing tax since I interned as a college junior in 1981. During my sophomore year, I was interviewed by a tax partner from one of the Big 4 (Big 8 at the time) firms for a Connecticut Society of CPA’s scholarship. The following summer, I received a call from that same partner and to my surprise he was not calling about the scholarship but to offer me an internship during the upcoming tax filing season. I gladly accepted the internship and have been addicted to the tax season rush ever since.
There are many aspects of tax practice that have kept me engaged. First and foremost, the satisfaction of helping a client achieve their objectives or solve a problem is second to none. The term “trusted advisor” is probably over used but being that for a client is a great feeling. The other side of the equation is the camaraderie of a tax group who works many long hours in the trenches together. Anyone who has done this for a while knows what it feels like to work together as a team to get through the busiest of times. I have been fortunate to work with a lot of great tax people over the last nearly 30 years.
Taylor: When I started working with a small CPA firm 27 years ago, we did a little bit of everything; auditing, tax and general accounting. Then the 1986 Tax Act happened, drastic changes occurred within our profession and I became fully engaged.
With all the rules changing there were amazing opportunities for accountants who desired to become experts in the new Internal Revenue Code. Advancement possibilities were more readily available and the new regulations hastened the departure of some that were approaching retirement. There was tremendous value in understanding the old regulations and becoming an expert in the new Act.
I enjoy the diversity of tax work. On Monday morning I can be working tax planning for a partnership, international tax in the afternoon and on to state and local tax issues over morning coffee on Tuesday.
CPA Magazine: What else do you use, such as tax organizers, to help clients gather all their tax data so the return can be prepared without several requests for information?
Drudy: Normally we provide individuals with tax organizers to gather their information. We then meet with them in person or over the phone to go through their information from the previous year and ensure that we capture everything. We get a handle on what’s changed to make sure there are no new transactions or information missing.
Farrington: Organizers are obviously the most effective tool for this purpose, but they are only as good as the client’s willingness to use them. All clients are encouraged to complete them and many do. We have begun to have some success with an electronic organizer. Because so many people are tracking their information electronically these days, this alternative can be attractive. For those who do not complete the organizer, the key is to work with the client to find what does work for them and go with it.
Taylor: Like most firms, we use tax organizers. ACM also has a portal that allows clients to securely send information. Everyone is very involved in client work and we will also send someone out (be it a paraprofessional or a partner) to help clients make sure they have their information together.
CPA Magazine: How do you streamline documentation and work papers for notes for subsequent years’ tax prep?
Drudy: We have a process where we roll forward general information from the prior year. We also have a permanent file where we keep the documents and records we think we’ll need for a subsequent period.
Farrington: We have had success with the use of an electronic file storage vehicle called GoFileRoom or “GFR.” By scanning and storing tax workpapers, they remain easily accessible for any subsequent need. Once again, any product like this is only as effective as its users. We have adopted very specific policies and procedures for use which make this a very effective tool.
Taylor: We maintain a separate Caseware file for each client that contains everything; meeting notes, past returns, perm file items, e-mails and workpapers. This keeps all the information in one place from year to year.
CPA Magazine: Do you use multiple screens or data entry personnel or other time saving processes or technologies? Which do you use and why?
Drudy: We are moving toward a paperless environment and in that platform we are using multiple screens. The majority of our tax preparers have at least two screens and some of the review staff have three screens. We use a paperless tracking system for tax returns and projects. We also use electronic data storage systems and data storage binders.
Farrington: There are a number of practices we have adopted that have definitely streamlined our processes and increased efficiencies. The use of dual monitors is certainly one. The ability to have workpapers and preparation software on screen at the same time increases efficiencies for both preparers and reviewers.
While we do not utilize data entry personnel, we have had great success with the use of scanning software. We have used a variety of programs and most recently have used a program called GruntWorx which allows us to scan and bookmark workpapers and in some cases, begin to populate return software.
We have also achieved efficiencies by using a feature of GFR called Firm Flow to route returns around the office electronically. This feature allows everyone in the firm to quickly and easily get their respective arms around what is “at their desk” by simply monitoring everything online. You no longer have people running around the office looking for files as they can be located immediately with the push of a button.
We have also found this to be extremely helpful in a multi-office environment by enabling us to route files electronically from office to office for preparation or review. Once again, this can be a big time saver as well as a great way to maximize the use of staff resources.
Taylor: We use multiple screens to increase productivity. We use a scan software for individual tax returns that organizes the data in the same order as it appears on the tax returns.
CPA Magazine: Tell us an interesting tax season story without naming names.
Drudy: I’ve had situations where the IRS has come to a client who didn’t pay their payroll taxes or some other significant tax and wanted to close the company down. We’ve had to address those kind of emergency issues the first couple weeks in April. With some standard audit and response notices we’re normally allowed an extension of time to address those issues.
Farrington: One of the keys to a successful tax season is knowing your client’s whereabouts at all times as the deadline approaches. I learned this the hard way about four years ago with one of my favorite clients. I met with Mr. and Mrs. M in late February, as I typically did to gather their information and start their return preparation. When I obtained an estimate for one of their K-1s in early April, it had significant unanticipated income.
We computed an amount due, and I placed a call to my clients to apprise of the pending payment. After a couple of days of no response from Mr. & Mrs. M or their family, I finally reached out to their investment advisor. He knew exactly where they were! Mr. & Mrs. M were on a golf trip and were not expected to return before the filing date.
I began to sweat as a payment was due, and I couldn’t let my clients end up in a penalty position. The next day, I got a call from Mr. & Mrs. M’s daughter who gave me the hotel information, and I was able to connect with them. They had completely forgotten about their tax return filings. With a day or two to spare, the clients, their investment advisor and I worked together to get the payment made and disaster was averted. After that experience, I absolutely make it my business to know where my clients are as deadlines approach.
Taylor: One of my hardest tax seasons ever was when we merged firms, moved offices and installed a new computer and phone system on February 1st. The computer system was the worst part because the tax prep software didn’t like the new operating system. Pro Systems crashed multiple times each day until finally, on April 10th, it crashed for three days. I used this time to recalibrate my attitude by visiting a client in Las Vegas but it made for a brutal busy season.
CPA Magazine: What have you utilized to assist data capture like the document management or tax software that captures 1040 and 1099 information?
Drudy: We try to make our process as paperless as possible. We have a program that allows us to scan information for individual tax returns, W-2s, 1099s and then review it to make sure it is accurate. The program can directly populate a tax return without having an individual key-punch the information. On larger projects and larger returns, we achieve more efficiency this way.
CPA Magazine: What do you think about using off-shore tax prep outsourcing services?
Drudy: I’m not an advocate of using off-shore tax preparation and I don’t believe it’s in the best interest of the profession. Junior staffers aren’t able to learn how to prepare and it is hard for them to become tax professionals if they’re not given access to returns.
Farrington: While we had used off-shore outsourcing in the past, we do not currently utilize such services. We have found that by utilizing many of the tools noted in the responses to earlier questions, that we can effectively manage the tax preparation process within the confines of our offices. We have also found that by doing so, it is a positive factor in the training and development of our staff.
Taylor: ACM’s philosophies on client service and career growth dictate that tax prep be handled in house. ACM’s business model demands a very high level of client service. Our clients know they have multiple points of contacts if they need quick answers. Our staff is trained to work with clients and identify needs and opportunities that will benefit the client. It is critical that our people are trained in all aspects of tax prep in order to fully understand the process and have the skills to become the managers of the future.
CPA Magazine: How do you manage accepting payment for tax services efficiently?
Drudy: In dealing with clients that we feel are credit-worthy, we extend them credit and expect them to pay us within a reasonable time. With clients that are less credit-worthy, we work off of retainers.
Farrington: Managing the payment of fees for tax services continues to be a challenge facing practitioners, particularly in trying economic times. We have adopted several practices in order to facilitate this process and provide flexibility to clients. One such practice is the acceptance of credit card payments. This method is often attractive to clients for a variety of reasons.
We have also instituted a practice of collecting a portion of the fees up front in the form of a retainer. This benefits the client by enabling to spread the payment of their fees over time and benefits the firm by enabling us to collect fees while the work is being done as opposed to waiting until after all the work is complete.
Taylor: We accept multiple forms of payment and scan checks to the bank eliminating time consuming bank trips.
CPA Magazine: Do you provide tax planning and financial planning with clients during tax season? If so, what is the most common advice, such as a Roth IRA conversion, and what is the most esoteric, such as Generation Skipping Trusts, for example?
Drudy: We do planning throughout the year for our clients, especially our high net worth individuals. Tax return preparation is a window into a client’s financial situation, and it gives us an opportunity to evaluate what their needs are.
For example, this could take the shape of a succession planning process, estate planning process, or an evaluation of their retirement plans to make sure that they’re on the right track. There are some areas that are outside our expertise because we are accountants, but we do work with investment advisors and financial planners to make sure that our clients are being serviced properly.
Farrington: For our tax clients, tax planning is a continuous process, before, during and after tax season. During the season, planning opportunities often center on the use of retirement vehicles such as IRAs and SEPs. Roth conversions are obviously a hot topic now as well. The other hot planning topic right now is helping clients manage the impact of the changing regulatory landscape that is ahead. With the certain change in tax rates, clients need to closely examine both the income and expense side of their affairs to determine what opportunities exist.
Taylor: Tax season is a great opportunity to meet with clients because they are focused on their finances and discussing tax saving opportunities. During tax season we work with clients and offer sound fundamental financial planning guidance. This may include discussions on funding 529 plans, funding IRAs, recognizing the possibility of R&D credits or making an impromptu introduction to our wealth management group.
If issues are not time sensitive, we will schedule time to fully understand the client’s needs and goals. Some planning issues that require more time and focus to accomplish are estate planning, business succession structuring and non-qualified plans for highly compensated individuals.