ready for a paperless tax season?

clients, staff still like the look and feel of real paper.

by rick telberg
at large

e-filing may be a locomotive in motion, but practitioners at small tax-prep offices see some big barriers on the track leading to 100 percent paperless.

according to the irs, more than 56 percent of all the filings it received last tax season were filed electronically, which is up from 52 percent the year before. meanwhile, the number of e-filings made by tax professionals increased to 45 million from 43.2 million. while tax professionals by and large are confident that totally paperless is the way to go, resistance by clients and to a lesser extent by staff, means that totally paperless is somewhere down the pike.

companies with $10 million or more in total assets and that file 250 or more returns – which includes the annual tax forms given employees and independent contractors – will be required to submit their forms for the 2006 tax year using the government’s electronic filing system. until this year, only corporations with $50 million or more in assets and 250 or more returns were required to e-file.
of course, you don’t need to go totally paperless to handle e-filing. so, for the foreseeable future, the prep business will be an evolving hybrid of paper and electronic systems.

“we’re heading toward more paperless, but still feel most clients want a paper copy,” the president of a small prep practice told us in a recent survey. “i like having clients provide information by e-mail because it allows me to keep proper documentation without having to copy or scan.”

while some tax preparers are easing into the all-electronic caboose, others are setting deadlines for their offices to go 100 percent paperless and to have their clients follow. as another firm president said, “we now offer clients the option of e-mail, cd or hard copy for tax returns with the knowledge that as of 2008 we will be going exclusively to cd or e-mail, and that hard copy will bear an additional cost.”

although we’re six years into the new millennium, the 20th century attachment to paper is hard to shake. a senior staff cpa at a small practice told us that he is interested in learning more about truly paperless tax prep, but cautioned, “i am old school and like to look at the paper results.” so does a small firm owner, who declared, “i will not use the electronic organizer. i think it cheapens our work and might cause more work for us without any perceived value from the client.”

a mid-level staffer added, “call it old-fashioned, even though i am relatively young, but i personally like having hard copies of original information in the 1099s, 1098s, w-2s and other files.” and even if you’re comfortable with all electronic documentation, there is some concern about staff mishandling the technology; “you have to watch what gets scanned or the professional needs to do it themselves,” said one practice owner.

some practitioners don’t necessarily see a need for totally paperless. “i am probably moving towards using fully electronic files for 1040 clients, but actually don’t see much to gain with delivering electronic copies to clients,” one owner told us. “i still have to send paper electronic consents and return source documents.”

others worry about the inconvenience and impracticality of taking a paperless system live during a hectic busy season. “i’m afraid of the logistics during busy season,” another sole practitioner noted, “making sure the signature pages get scanned and stored appropriately.”

the biggest concern about 100 percent paperless is client acceptance. a large portion of the tax practitioners we contacted said their clients will still seem to want paper, and several noted that their clients don’t even have pcs or are otherwise not technology savvy. “i have no problem with providing a client the electronic alternative, but many older clients aged 55 and up will have nothing to do with it; most still want a document in their hands,” observed one sole practitioner

[first published by the aicpa]

posted on october 8, 2006