how to review tax returns: updated & expanded

stop the problem before it starts

by ed mendlowitz
preface to the 3rd edition

since publishing this handbook’s first and second editions, i have received much feedback from readers and attendees of my webinars.

while reviewing returns is a very important function, the overall quality is not improving except for those who get my message. i know what i am suggesting works because readers have called me to say so.

my message is quite simple: to have the reviewers do the type of job that is needed for them, you need to improve the quality of the preparers, train better, be steadfast in adhering to the system, and make compliance with the system and quality standards your main concern. you must also create effective and efficient review systems that utilize the reviewer’s top skills.

we have smart people preparing tax returns, almost all being college graduates and many with advanced degrees and cpa certificates.

yet error rates by preparers in many firms are greater than 50 percent and reach close to 100 percent in some.

this seems unnecessary and idiotic to me. it means that we cannot seem to get error-free work from our staff as a profession. does that make any sense? not to me. why isn’t this changing?

one reason the quality hasn’t improved is the adoption of modern and cliché systems that institute procedures that thwart improvement. these systems lose sight of ways to make money by preparing tax returns, yet they promote their methods as the way to make more money. essentially, these systems continually push work forward, never backward, so that there is no duplication of efforts, lost time, or repeat touches or handling.

that sounds great on some level – thanks to expensive training courses brainwashing their customers, these systems create raving fans who return to their practices as converts to these new methods. but there’s an inherent problem: the quality is not improved at the first level of tax preparation: the preparers.

any reader who disagrees with this is welcome to call me and either tell me i’m crazy or ask me to explain why one of these particular methods isn’t working for them.

the bigger issue of preparer quality is recognized in this handbook, and easy quality improvement methods are described, explained, and illustrated. preparer quality improvement is the first step in improving the reviewer’s role making their job easier and more fun, and making them better able to provide a superior product and service to clients.

training reviewers to do better work is what this handbook is about. however, the main thrust of the initiatives described in this handbook is to put the reviewers in charge of preparer training and enforce absolute respect and adherence to the system, meanwhile recognizing that reviewers’ time is more valuable and costly than preparers’ time and that reviewers should use their brains, not their eyes. all of this is covered thoroughly in later chapters.

i enjoy sharing these methods because i know that they are successful. however, i recognize that they contradict some expensive “new” practice management methods, and i welcome feedback from readers, especially those who disagree with my suggestion. i always feel good about compliments, but i learn from complainers, so please complain.

a final word: i believe the logic of what this book recommends is crystal clear. if you agree, don’t you owe it to yourself to try these methods?

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table of contents

updated and expanded

chapter 1 – the nature of tax return preparation

chapter 2 – tax return preparation could be a commodity or a professional service

chapter 3 – why you should want to improve your review process

chapter 4 – review procedures = quality control

chapter 5 – establishing a system

chapter 6 – why checklists are critical

chapter 7 – logistical issues

chapter 8 – types of reviews

chapter 9 – the preliminary cursory review

chapter 10 – the content review

chapter 11 – the issues review

chapter 12 – review procedures between april 1 and april 15

chapter 13 – the get-it-out-the-door method

chapter 14 – the topside review

chapter 15 – the trying-to-get-a-new-client method

chapter 16 – final review by a partner before signing the return

chapter 17 – two added steps for the reviewer, regardless of the method used

chapter 18 – recommended method for the reviewer

chapter 19 – the effectiveness and purpose of reviewing

chapter 20 – don’t use your eyes, use your brain!

chapter 21 – questions to ask preparers—and yourself

chapter 22 – reviewer’s checklists

• reviewer’s procedural checklist for individual tax returns
• reviewer’s procedural checklist for business tax returns

chapter 23 – the top 12 tax return errors

chapter 24 – tax payments and deduction schedule

• tax payments and state tax deduction worksheet

chapter 25 – follow-up worksheets

• reviewer’s review notes
• tax season follow-up form

chapter 26 – the preparer’s responsibility for technical issues

chapter 27 – good preparer procedures will reduce review time

• preparer’s work process and procedures checklist

chapter 28 – effective self-reviews improve efficiency

chapter 29 – reviewing outsourced returns

chapter 30 – when returns should be submitted to a reviewer

chapter 31 – reviewing complicated transactions

chapter 32 – training and assigning reviewers

chapter 33 – the big picture

chapter 34 – accountability

• form to measure tax return quality and performance
• production for a reviewer during tax season

chapter 35 – reviewer advancement

chapter 36 – administrative procedures

chapter 37 – the reviewers’ last thing

chapter 38 – partner review when signing

chapter 39 – post-tax season assessment and follow-up

• tax season follow-up sheet

chapter 40 – ed’s 17-step review method

chapter 41 – tax comparison schedules and worksheets

chapter 42 – ed’s versions of tax comparison worksheets

1. sample excel® worksheets
2. tax comparison schedule from tax preparation
3. software for a simple tax return, example 1
4. tax comparison from preparation software for a more complicated return, example 2
5. tax comparison worksheet for a more complicated return, example 3
6. tax comparison worksheet for a more complicated return, example 4
7. tax comparison worksheet for a more complicated return, example 5
8. tax comparison worksheet for a more complicated return, example 6
9. interest income reconciliation worksheet
10. dividend income reconciliation worksheet
11. k-1 reconciliation worksheet
12. schedule c comparison worksheet
13. schedule e comparison worksheet
14. worksheet to reconcile forms 1099-b and 1099-s

chapter 43 – the biggest problems with tax comparison worksheets

chapter 44 – methods to reduce review time

chapter 45 – a story about my father

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why every tax pro needs this handbook

reviewers are not born complete and ready to go.
they must be developed.

part of the problem has been that there has been no information or training specifically for reviewers, until now.

learn how to speed workflows, eliminate bottlenecks, find and train the best person for the job, distinguish between content and issues reviews, and identify specific trouble spots.

produce better returns, smarter staffers, happier clients, and more profit.

“reviewing tax returns is a key part of tax preparation. it also is an area vulnerable to major bottlenecks and backlogs. inevitably, firms have more preparers than reviewers. the latter are highly skilled professionals who are more difficult to train or find. therefore, you must consider ways to reduce review time, even at the expense of adding preparer time.”

– ed mendlowitz, author

“in this book ed is offering original ideas and sage advice about the entire tax return process. read it closely and adapt it to your practice. you will be happier, more relaxed and richer for doing so.”

– peter a. weitsen, cpa, pfs, partner, withumsmith+brown

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why this handbook: 10 facts and the conclusions

1. fact: there are more preparers than reviewers.
2. fact: most preparers are at a lower level of expertise than reviewers.
3. fact: if a bottleneck is going to develop it will be at the reviewer level.
4. fact: if a new procedure can be introduced that would decrease the reviewer’s time while adding a greater amount to the preparer’s time, it should be considered and likely will make the reviewers more effective and improve overall firmwide tax season performance.
5. fact: tax season is usually much busier than the rest of the year and can be very hectic.
6. fact: processes that will create uniformity of work need to be established.
7. fact: the right procedures and processes will improve preparation quality.
8. fact: the better the quality of the return’s preparation, the less time it will take to review it.
9. fact: any improvement method of the review process has to start with the preparer.
10. fact: the reviewer is the guardian of the tax returns’ quality.

conclusions: the firm needs to put procedures in place that will improve preparation quality so that review time will be reduced while maintaining or improving quality, even if it means increasing the time of the preparers.

to do so, the firm must become sensitive to the role of the reviewers and the important part they play in assuring that the best tax returns are delivered to the clients.

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about the authors

edward mendlowitz, cpa, abv, pfs, is a partner at withumsmith+brown, pc and is one of accounting today’s 100 most influential people.  ed is the author of 27 books and has written over 1500 articles and blogs and developed and presented over 300 professional speeches, cpe programs, and webinars. ed won the lawler award for the best article in 2001 in the journal of accountancy, the eddie award in 2018 from folio magazine for his art of accounting series in accounting today, and the 2019 innovation in accounting history education award by the american accounting association’s accounting historians section.  his practice management techniques are posted weekly at www.g005e.com, accountingtoday.com and have been reported on in the wall street journal, the journal of accountancy and many other publications.

andrew mendlowitz is an award-winning journalist and author of the book ireland’s professional amateurs. he is a graduate of the university of maryland with a degree in journalism. he started his career as a college student with over 250 freelance articles appearing in the washington post. presently, he works for gannett newspapers as a sports reporter and on contract writing assignments.