{"id":67755,"date":"2019-10-25t12:00:57","date_gmt":"2019-10-25t16:00:57","guid":{"rendered":"https:\/\/48e130086c.nxcli.net\/?p=67755"},"modified":"2023-10-05t09:19:39","modified_gmt":"2023-10-05t13:19:39","slug":"how-to-thrive-as-a-21st-century-firm","status":"publish","type":"post","link":"\/\/www.g005e.com\/2019\/10\/25\/how-to-thrive-as-a-21st-century-firm\/","title":{"rendered":"how to thrive as a 21st-century firm"},"content":{"rendered":"

\"computer<\/a>“professional staff without higher-level skills will be out of the business.”<\/strong><\/p>\n

by frank stitely<\/i>
\nthe relentless cpa<\/i><\/a><\/p>\n

if you believe accounting industry pundits, artificial intelligence and blockchain will decimate accounting firms the way an asteroid killed off the dinosaurs. but paleontologists don\u2019t think dinosaurs really went extinct. they survived as today\u2019s birds. in the next 10 years, or sooner, accounting and tax firms will evolve from offices full of employees dutifully typing data into workstations to organizers of terabytes of accounting data for our clients.<\/p>\n

more:<\/b> 7 steps to effective project management<\/a> | how many tax preparers do you need?<\/a> | how the annual tax meeting died<\/a> | how to be the chief communicator<\/a> | 4 steps to take before next tax season<\/a>
\n\"goprocpa.com\"exclusively for pro members. <\/span><\/strong>log in here<\/a> or 2022世界杯足球排名 today<\/a>.<\/span><\/p><\/blockquote>\n

the pundits are wrong about our extinction. effective project management will prepare your firm to thrive in the 21st century. i’ll take you there in a bit of a roundabout way via the coming of blockchain to the irs.
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\nexplaining basic blockchain technology is best accomplished via a very simple example. let’s assume i have hired you to perform a service for me, and now i am ready to pay you. a blockchain makes this transaction secure and easy.<\/p>\n

as the first step, we agree on the terms of the transaction. we agree on the service to be provided and the amount of the transaction. once you perform the service, i send you a record of the proposed payment i intend to make to you. if you agree on the terms of the transaction, you send me an acknowledgment of the agreement and i pay you.<\/p>\n

here’s where blockchain technology creates a secure and credible transaction. our communications contain a key unique to our transaction that is usable only for this transaction. someone who intercepts the key will find it useless. thus, the transaction is secure.<\/p>\n

this technology is already a part of payment systems such as apple pay and google wallet. this prevents the type of fraud that victimized target, in which someone intercepted payment data from their point of sale system. with blockchain technology, they can intercept all the data they want. they can do nothing with it.<\/p>\n

blockchain technology makes the transaction credible by recording it in a third-party ledger or database that neither of us can change. this is how bitcoin works. once we have agreed on the terms of the transaction and you have been paid, the transaction is unalterable history. modifying the transaction requires that we agree to create a new transaction and add it to the blockchain.<\/p>\n

not only is the blockchain ledger kept by an independent third party, it is also duplicated across multiple databases to ensure that if one database is compromised, the other databases can act to reject any unauthorized modifications. cool so far?<\/p>\n

an example: 1099s<\/h3>\n

now let’s look at the present process of creating 1099 forms and recording them with the irs. let’s go back to our transaction. i pay you for the service you provided and enter the data into my accounting system. you receive the payment and record it in your accounting system.<\/p>\n

after year end, i create a 1099 form summarizing my year’s worth of payments to you and send one copy to the irs and one copy to you. at the end of the year, you total all the 1099s you received, including mine, and file a tax return showing all of your income.<\/p>\n

the irs then compares all of the 1099s it has received for you to your tax return total revenue. if the totals match, woohoo! if your tax return total is higher than the irs total, no problem. the irs doesn’t care if you overreport revenue. if your tax return total is less than what you reported on your tax return, you get a nasty irs bill.<\/p>\n

what could possibly go wrong with this process?<\/p>\n

pretty much everything.<\/p>\n

first, we have at least three possible sources of data entry errors: my accounting system, your accounting system and the irs 1099 database. what are the odds all three systems will agree?<\/p>\n

what’s the error rate on 1099s issued by vendors? that’s a hard number to pin down. the irs certainly has no interest in finding out, because it treats 1099s as handed down on the stone tablets received by moses. i’m about to represent a client in a tax court case because of a 1099 that was merely a half million dollars off. in my experience, the error rate on 1099s is substantial, and correcting all of the errors is nearly impossible.<\/p>\n

the irs sometimes fat-fingers 1099s. electronic transmission of 1099 forms cuts down on errors, but a lot of 1099 forms are still submitted on paper.<\/p>\n

second, how often do vendors send a 1099 to the irs but not to the customer? how often do 1099s get lost in the mail?<\/p>\n

third, the vendors and the customer may not agree on the necessity for a 1099 at all or might disagree on the proper box to be checked on the 1099.<\/p>\n

finally, anyone with your federal tax id number can create a bogus 1099 form. ask federal prosecutors and judges. they get 1099s all the time from the fine people for whom the prosecutors and judges have generously provided free accommodations in one of our finer federal penitentiaries.<\/p>\n

let’s look at the fundamental stupidity behind the process. the vendor takes analog data, check and payment information, and converts it into digital data in the vendor’s accounting system only to convert it back to analog data in the form of a paper 1099.<\/p>\n

the customer takes the analog payment information and digitizes it into his accounting system. then the customer takes the analog 1099 form received from the vendor and gives it to us to prepare a tax return. we take the analog 1099 form and convert it into digital form in our tax software, which then produces analog and digital versions of a tax return. the customer gets the analog version, and the irs gets the digital version by way of the e-filing system.<\/p>\n

how many times does the analog-to-digital conversion have to happen? can it get any more stupid than this? if you’re angry about this, send your congressman a 1099.<\/p>\n

here’s how blockchain technology will fix this process. first, before the payment happens, the customer and the vendor must agree on the terms of the transaction. that includes the amount and the nature of the transaction, such as whether the transaction is rent or non-employee compensation. no agreement, no transaction.<\/p>\n

second, once payment occurs, the transaction is recorded in a third-party ledger that neither side controls. three parties have access to this independently recorded data: the vendor, the customer and the irs. everyone is reading one set of digital data. there are no opportunities for data entry errors. there are no analog-to-digital conversions. there are no bogus 1099s.<\/p>\n

at tax return time, the customer gives his tax preparer access to the third-party ledger data. the tax preparer sucks this data directly into the tax preparation software with the knowledge that the irs has exactly the same data. no more cp2000 letters. this gets me all choked up.<\/p>\n

how close are we to this nirvana? i have no idea. our country’s record with adopting large-scale digital financial systems is spotty. on one hand, the sec has had moderate success with its edgar financial reporting system. on the other hand, large-scale electronic interfaces between vendors and customers haven’t caught on very well. some companies, like walmart, require vendors to use proprietary electronic payment systems. proprietary is exactly what we don’t need.<\/p>\n

i suspect that a number of private blockchain exchanges will arise and eventually merge into a national network. or, the irs could create its own blockchain ledger. congress would have to appropriate money for the irs effort, and the irs would actually have to succeed with a major computer system installation. we all know how successful they have been in the past. they’re currently weighing the pros and cons of 3.5″ diskette drives.<\/p>\n

the irs is spending its time fighting bitcoin instead of adopting the underlying technology. of course, money from congress would help. so, send another 1099 to your congressman. make certain there’s se tax on this one.<\/p>\n

nonetheless, blockchain technology is coming to tax reporting. why does that matter to you? because your internal systems will have to change along with the financial and tax reporting systems. let’s look at a very high level at how cpa and accounting firms work<\/p>\n

regardless of the type of service you provide, you<\/p>\n