Preparing for the 1996 Tax Season

By Robert J. Ranweiler

There are a number of areas that should be addressed in planning for the upcoming tax season. Personnel, hardware and software, staff training, communication with staff and clients, and providing proactive client services are just a few. The author provides advice on these and other areas on how to get ready.

If you haven't already done so, now is the time to prepare for tax season. Planning steps should be completed now to allow efficient and profitable preparation of tax returns during the upcoming tax season.

You are probably not alone if you missed the staff follow-up meeting immediately after last April 15. However, you still have an opportunity to gather staff and attempt to put together some thoughts and ideas for the upcoming year.

Ideally, everyone in your firm should meet immediately after April 15 to review the past tax season and discuss changes in procedure and recommendations for the next tax season. This discussion should focus on personnel matters, automation issues, client matters, checklists, and worksheets, etc. Many of you may have completed this all-important meeting, and if so, you should review the action steps required prior to the upcoming tax season. For those of you who did not complete this discussion, gather staff as soon as possible and have them tap their memory (remember April 15 was a long time ago) to come up with concerns and recommendations on which you can still take action.

Planning Areas

There are a number of specific areas where planning is imperative. The past performance in each of these areas should be analyzed in detail, with corrective action completed immediately.

Personnel Planning. If you have not already done so, you should complete a 1996 tax season workload projection. This is easily accomplished by reviewing your actual hours during the 1995 tax season.

Break down the required hours by steps involved in the tax return process (e.g., interview, preparation, review, etc.), and don't forget to budget for administrative and other projects within the office. Once your actual results from this past year have been gathered, project anticipated growth in each of the same areas to determine your staffing needs. Then compare the projected needed hours to the available hours of your personnel. Such a process identifies not only the needed additional hours, but also specific personnel skills required.

Next decide whether you are going to address any shortfall in hours through hiring of additional full-time personnel or whether seasonal personnel will be employed. If full-time staff are needed, you should immediately start your search for the right candidates. Similarly, if you elect to use additional seasonal help, start to seek out such help now. This might be accomplished through client newsletters, advertisements in newspapers and publications, contact with area colleges, discussion with retired professionals, or general contact with other professionals in the area such as bankers and attorneys.

Equipment and Supplies. Analyze your equipment needs and determine if additional equipment is required. This involves both hardware and software capabilities, and other equipment needs, such as copiers, printers, and peripheral equipment.

Determine from your software providers whether any new equipment is needed for the upcoming tax season, or if any new unique requirements have been added. Don't get caught with inadequate computer memory or incompatible interface software during the busy time. Identify the requirements now, and respond accordingly.

Similarly, analyze your supplies inventory, and make arrangements now to obtain adequate supplies. Many firms have a need for huge volumes of paper for laser-printed returns. Also, folders to hold client copies of tax returns and other materials should be ordered now, as should instruction sheets, envelopes, and so forth.

Checklists and Questionnaires. Pull all of the checklists, questionnaires, and other materials used last year, and update them accordingly. Don't wait until the busy season has begun to bring these materials up to date.

Checklists should be reviewed for new requirements (e.g., passive loss rules associated with real estate professionals, third installment of 1993 deferred tax, etc.). Unused or unimportant information should be deleted, and in general, everything should be made current. If your firm uses organizers, now is the time to order the organizers, so they can be forwarded to clients at an early date. If they are internally generated, or if organizers are used only for selective clients, be sure to determine which clients are to receive the organizers and get them printed soon.

Financial Considerations. Analyze areas such as billing rates and collection procedures and write down approval procedures prior to busy season. If adjustments are needed to billing rates, determine the adjusted amounts now, and determine the effective date of implementing the new rates. Similarly, if problems existed in last year's collection activities, or in areas such as billing writedowns, determine the necessary changes now and implement them prior to the start of busy season. Many firms find that with the huge volume of work occurring during the tax filing season, billing rates set too low or writedown procedures too lenient can have a huge impact on overall profitability of the firm.

Similarly, determine if changes are required to the minimum fee structure, if any, that exists within your firm. What about actual payment procedures? Are tax returns paid for when picked up, does billing occur later, etc.? Be sure to analyze your firm's billing procedure for data processing and other processing charges. Should changes be made to the method of pricing data processing charges? Again, with the huge volume of work occurring during a very short period of time, be certain your pricing computation for data processing charges is adequate and reasonable.

Automation Issues. There are a number of automation issues that also should be analyzed immediately. First, give some thought to the actual tax return preparation process in your firm. Are input sheets still being used? Should direct entry into the computer occur? What does this mean for areas such as tax preparation review if direct entry occurs? In general, analyze the preparation process in your firm and determine whether technological or other advances allow more efficient preparation steps. If so, give sufficient thought to how the process might be changed and what advantages might occur from such changes. Naturally, this could have an impact on other planning areas, such as personnel, equipment needs, and so forth.

Similarly, determine if any automated interfaces can be used to add efficiency to the tax preparation process. As an example, can trial balance information be imported directly from Accountant's Trial Balance or other similar software? What about importing information from tax planning software into tax preparation software? To the extent such automated interfaces can be used, redefine the process now and adequately discuss the new procedures with all staff.

Finally, determine your present method of completing tax research and whether new opportunities exist. Has your firm already moved to CD-ROM research? What staff training needs or equipment needs might be required for these new research methods? Obviously, significant efficiencies can be achieved by the firm, but only if adequate planning exists prior to
implementation.

Disaster Planning. If there is any one area most of us ignore, it's the issue of disaster planning. None of us want to think about the headaches and heartaches that would occur should fire, flood, etc. render our firm inoperable. However, with just a little bit of thought now, we can go a long way toward being ready for such disasters, should one occur. How quickly could you obtain replacement hardware and software? What about client file information and backups of program and data files? While recovery from a disaster is never easy, giving at least some thought to such an unfortunate happening now could pay huge dividends should a disaster occur during the busy season.

Staff Training

Identify needed staff training and determine how this can be addressed prior to tax season. Examples might include training in the passive loss area, UNICAP rules, update on recently released regulations and rulings, etc.

Staff Identification of Training Needs. One method is to have staff identify where additional training might be required. An easy way to do this is to set up a data base that staff can access and enter topics on which additional training is needed. You can then informally address the needed training prior to the busy season.

Another avenue to pursue is to go back and determine reasons for reruns of tax returns during the last filing season. Are there specific areas where additional training might be required? As an example, if there were a great number of reruns dealing with Form 2106 (Employee Business Expenses), the passive area, etc., training should occur in these areas prior to the start of the 1996 tax season.

Policies and Procedures. Review your tax department policies and procedures manual, and bring everything up to date. Then schedule some time with the tax staff to review the policies and procedures manual to be sure everyone is familiar with the contents.

Similarly, any requirements contained in your tax department quality control document should be reviewed and completed. Don't just let these documents gather dust on the shelves! It is imperative that they be updated and reviewed with all tax department staff.

Software Training. Staff must be adequately trained on the use of the tax planning software, tax preparation software, etc. that will be used by your firm. Now is the time to complete the training, and to identify any problem areas. Again, solicit the input of staff in terms of areas in which they might identify as being particularly weak.

Contact the computer software companies and determine what changes have occurred and where new training might be required. Coordinate your software training needs with the companies supplying the software.

Interview and Preparation Techniques. If face-to-face meetings occur with clients, hold a training session for staff on interview techniques. Review the procedure for analyzing client worksheets and organizers, and discuss the required documentation to be recorded for the file. Also, review the manner in which checklists are completed and files routed. Discuss the types of topics to be reviewed with clients during the interview so as to assure proactive client service results. Similarly, hold training sessions with staff on the computer preparation of tax returns and, in general, discuss the efficient techniques that result in a high-quality tax return, while providing the best profitability to the firm.

Staff Communication

There is probably no more important factor in developing and retaining high morale in staff than keeping them informed as to what is happening. Solicit their input as changes are being proposed for the filing season, and keep them informed as to matters that impact them directly.

If you are not already doing so, establish a set time on a weekly or biweekly basis for staff meetings during the busy season. Use these staff meetings to discuss the status of work being completed, technical issues impacting returns, tips associated with the data processing system, etc. Many firms find such staff meetings an ideal forum for maximizing communication among staff members.

If you are unable to hold staff meetings, encourage communication either formally or through informal gatherings. Often, staff will stumble upon efficiency techniques for the computer system, or identify an area where a large number of technical or computer input problems may occur. Because of the volume of tax returns moving through the office during the busy season, it is imperative these tips and warnings be communicated to everyone in the firm as soon as possible. Delay in communication may result in literally hundreds of tax returns being worked on before a chance for full staff communication occurs. Staff should be encouraged to communicate these tips and warnings through short memorandums, e-mail, and other techniques that alert a large number of people in a short period of time. Perhaps a weekly internal newsletter would be helpful in communicating to the staff about problems to watch for or tricks learned to improve efficiency.

Give some consideration now to special events during the filing season that might enhance staff morale. As an example, some firms allow (or even require) staff to take at least one long weekend off during the filing season (e.g., from Friday noon to Sunday evening or Monday noon). Some firms even partially cover the cost of hotel and meal charges for these "busy season weekends away." Alternatively, you might want to give some consideration to staff "gatherings" during the busy season, such as an evening pizza party or similar outing. Such informal events go a long way in letting staff know their efforts are appreciated, while also providing some much needed relief from the stress of long hours. At a minimum, bring in bagels, send out for pizza, or do other little things that can make the long hours more tolerable for your staff.

Client Communication

Now is the time to work on your newsletter and get information out to clients regarding year-end planning matters. Similarly, be sure year-end planning sessions have been scheduled with all appropriate clients, and that any required actions are completed prior to year end.

The firm's newsletter can be used either to communicate general information or to identify some specific actions required prior to year end. Give the clients enough information to generate interest, but not so much as to believe they can solve problems on their own.

Proactive Client Services

Communicate a firm commitment to provide proactive client service. Construct a "follow-up form" to be used during the tax preparation process that can be used to identify additional potential work opportunities for the client.

Review the list of services provided by your firm and ask whether clients are aware of these services. Do clients see you simply as a tax compliance firm? Checklists can be used during the filing season to identify additional work opportunities for summer follow-up. This not only results in the best service for clients, but also provides your firm with off-season projects.

Other Preparation Issues

If your firm preschedules tax appointments, now is the time to review last year's appointment list, and to reassign some clients to different professionals within your firm. Be sure client contact occurs at the proper level--experienced personnel are meeting with higher income and more complex clients while less complex clients are assigned to less experienced personnel.

Also determine whether any changes are required to last year's appointment schedule. That is, did some appointments run longer than anticipated or others shorter? By reviewing scheduling now, the data base associated with prescheduling of tax appointments can be updated prior to the end of the year.

Review your policy on engagement letters, and determine whether the content of the engagement letter needs to be updated.

Legislative Matters

Retroactive Provisions. When completing the 1995 tax return, be sure to review the 1994 return for any potential amended returns associated with the 25% self-employed health insurance deduction. Similarly, as of the time of writing this article, certain provisions (e.g., targeted jobs tax credit, research credit) have expired. These provisions could potentially be extended retroactively prior to the upcoming filing tax season. Returns should be properly reviewed for these items.

Pending Legislation. Much has been written about pending legislation in Congress and the possible effective dates of that legislation. Keep tuned for any major developments impacting the filing season.

As an example, if Congress reinstates the 50% capital gains deduction, such a change would have a major impact on many returns. The implementation of such a provision suddenly impacts questions of entity selection (e.g., might C corporations now be more advantageous than S corporations or vice versa?), questions on the impact of the alternative minimum tax, and so forth.

Similarly, changes such as in the estate area (e.g., increase of $600,000 exemption and potential changes for nontaxability of small business interests) would warrant discussion with many clients.

Keep yourself up-to-date as to what develops in Congress over the next several months.

Voluntary Tax Practice Review

Some of you may have conducted a voluntary tax practice review (VTPR) since last tax season. In some cases, this may have been accomplished with an outside reviewer, while in others it may have been accomplished through internal self-assessment. Review the reports of any tax-practice reviews and see that the recommendations are implemented prior to getting into the busy season.

For those of you that have not undertaken a formal VTPR, you might want to consider using the VTPR materials for a self-assessment of your tax practice. The materials are available from the AICPA Tax Division in Washington, D.C. Checklists and procedures are provided in the materials, allowing an internal self-assessment of your tax preparation procedures. Properly completed, a VTPR or other review, whether completed by an external reviewer or through internal self-assessment, can identify a number of areas for improvement, resulting in significant efficiencies to your firm (and the resultant profit increases), while also enhancing the quality of the product provided to the client. *

Robert J. Ranweiler, CPA, is managing partner of Biebl, Ranweiler & Company, Chartered in New Ulm, Minnesota. Ranweiler has authored a number of technical publications and is a frequent lecturer on tax issues at seminars and conferences nationally. He is co-author of the AICPA book, Tax Practice Management.

DECEMBER 1995 / THE CPA JOURNAL