Tax outsourcing – benefit or bust?


The tax preparer shortage is starting to look like a long-term drought with continued rise in workload and decline in accounting graduates. It has become harder and harder to find tax focused and experienced individuals and an increasingly more complex tax code isn’t helping. The frustrations felt during the pandemic with an almost non-responsive IRS left many preparers longing for a change in career.

Outsourcing is becoming increasingly popular amongst firms who either can’t find the experienced staff they need and/or are not looking for full-time year-round help. In both scenarios outsourcing can provide a viable solution to getting the work done.

But is the quality and compliance really there?

In a whitepaper released by Taxfyle, the results suggest domestic outsourcing provide firms with a strong benefit while overseas outsourcing was a bust. The critical component of outsourcing outside the US is security concerns.

To address these concerns, tax firms who choose to outsource overseas and/or employee preparers outside the US are required to comply with strict standards in terms of getting client permission. Tax firms are not allowed to outsource the preparation of any return without the express, written consent of the taxpayer, and it can’t just get buried in your engagement letter.

Foreign outsourcing has to be clearly presented to your clients and you have to provide them with the opportunity to opt out if they don’t want their personal information sent outside the US. Just the consent process alone can be incredibly time consuming, and you may still end up with a small percentage of consent forms, not resulting in the efficiency gains you were hoping for.

If you’re going to consider outsourcing, regardless of domestic or foreign, you should have some due diligence steps you follow before choosing a provider. Choose only an established provider, this is true both of foreign and domestic providers but especially important when it comes to foreign data security.

You want an established organization that is going to adhere to strict safety standards when it comes to protecting data. It doesn’t hurt to ask about their security measures and their liability coverage if you’re going to send over your client information.

Also consider asking about the average experience level of the outsource team, and what are their review procedures prior to returning a draft of the return to you. Who is responsible for changes in the event that you find issues or errors with the returns?

Making sure you fully understand this process is important before choosing an outsourced solution. Again, established organizations will have an experienced staff and a well-organized process to collect client data efficiently and effectively to minimize errors and reduce your time spent on returns.

Don’t forget about cost. Domestic outsourcing does tend to be more expensive. One of the benefits of foreign outsourcing organizations is their ability to pay lower wages and lower your preparation costs. Unless you find the right outsourced preparer though, the benefits may not outweigh the savings.

In my experience, many preparers shy away from outsourcing tax prep because they believe the myths of inferior quality, or too many returns issues, etc. The truth is that the right partner will be able to save you both time and money while also allowing you to create more capacity for more clients.

If you are considering an outsourced partner this tax season, start your interviews now and establish the relationship as well as a detailed workflow before the busy season hits.

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