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Nov 1989

Corporate tax microcomputer software: concepts, features, and products. (The Practitioner & the Computer) (evaluation)

by Gellis, Harold C.

    Abstract- Corporate tax microcomputer systems should: generate IRS Form 1120, Schedule D, and all supporting statements; automatically import ending trial balance amounts from the program into the corporate tax system; place the ledger book balances on the appropriate Form 1120 lines; allow for the reclassification of general ledger accounts; and reconcile taxable income with book income for Schedule M-1. Four corporate tax microcomputer systems are: Arthur Andersen A-plus Tax's Corporate Tax Preparation Program, which generates Form 1120 summary reports, two-year comparative reports, and returns; BNA Corporate Tax Spreadsheet, a comprehensive, user-friendly system that is able to project corporate tax for 12 years; Computer Language Research Fast-Tax's GoSystem 1120, a powerful, state-of-the art system that allows for the hierarchical presentation of tax information in minute detail; and Price Waterhouse's Tax Management System, a powerful program that calculates taxes for current and deferred taxes, generates reports, and performs both federal and state tax calculations.

Corporate tax microcomputer software products can be divided into three categories: preparation, planning, and microcomputer systems.

Corporate tax preparation programs prepare the 1120 return and its related schedules, but do not perform tax projections. A corporate tax planning program projects a corporation's tax into future years but does not prepare the return. The third category is corporate tax microcomputer systems. They differ from corporate tax preparation and tax planning programs in a number of significant areas.

Discussed herein are four corporate tax microcomputer software products which are representative of what is available: 1) Arthur Andersen A-plusTax's Corporate Tax Preparation Program; 2) BNA Corporate Tax Spreadsheet; 3) Computer Language Research Fast-Tax's GoSystem 1120; and 4) Price Waterhouse's Tax Management System.

General Consideration in Selecting

Corporate Tax Software

There are many different types of corporate tax software products, some of which are designed for the corporate tax department of a Fortune 500 corporation where complex tax calculations and workpapers are required. Tax Management System is best suited for such an environment. Similarly, GoSystem 1120, is appropriate for a tax department of a large public accounting firm.

Other products are designed for the small tax practice; for example, Corporate Tax Spreadsheet and Tax Relief 1120.

Concepts of a Corporate Tax


One main function of a corporate tax software product is to generate pages 1 through 4 of IRS Form 1120 as well as Schedule D and all required supporting statements for an individual corporation or a consolidated group of corporations. The items of income, deductions, and payments on page 1 of Form 1120, as well as the balance sheet items on page 4, Schedule L, are derived from the corporation's ending trial balance.

In many corporations, an accounting or spreadsheet program is used to summarize the corporation's accounting transactions. The ending balances in the coporation's adjusted trial balance must then be transferred into the corporate tax system in order to generate Form 1120 and compute the corporate tax.

It would be possible to enter the ending account balances manually from the trial balance into the corporate tax system. This, however, would be time-consuming, and wasteful. Instead of requiring manual entry of the accounts, a corporate tax system should allow for the automatic "importing" of a corporation's ending trial balance amounts from the accounting or spreadsheet program into the corporate tax system.

A corporate tax system has to deal with a second problem. The corporate chart of accounts imported into the corporate tax system is used for financial and not tax reporting. Accordingly, the "book" account balances and descriptions may not correspond to the tax line itmes of income or deductions, or to the balance sheet items on Form 1120.

Alternatively, there may be many general ledger accounts which must be combined into one total amount for Form 1120. For example, different types of "book" income must be combined as one total on line 10, other income. A second function of a corporate tax system, therefore, is to ensure that general ledger "book" balances are placed on the appropriate lines of Form 1120.

Athird function of a corporate tax system is to allow general ledger accounts to be reclassified, and adjusting entries prepared to reconcile book income with taxable income for Schedule M-1.

Features of a Corporate Tax


The user should first determine what his or her tax needs are. To prepare Form 1120, a corporate tax preparation program will suffice. If complicated corporate tax planning is contemplated, or if tax provision or tax return workpapers must be prepared, then a corporate tax system will prove invaluable. Such a system should have a centralized database into which tax information and other data are entered once and then used for all subsequent computations, reports, and tax returns.

Administrative features should allow for the backup of tax data, the deletion of tax files that are no longer needed, and the installation of updates and new modules. Other utilities should provide for transferring tax reports or workpapers to word processing or spreadsheet programs. Security features should ensure that only authorized users have access to the system.

Arthur Andersen A-plusTax's

Corporate Tax Preparation Program

The full benefit of automating the corporate tax function can best be obtained by integrating A-plusTax's Corporation Tax Preparation Program (CTP) with another A-plusTax program, Electronic Filing Workpapers (EFW), which must be purchased separately. The EFW imports general ledger data from a general ledger or spreadsheet software package, converts the data into a tax format, and then exports the data to the CTP's where the 1120 return and its related forms and shedules are generated.

Each general ledger book account is assigned a tax destination code to route it to a specific line on the 1120 return. Several general ledger accounts can also be combined into one line item on Form 1120. Adjustments can then be made to the book balances of accounts for Schedule L and Schedule M-1.

Amounts are transferred electronically from the EFW onto the appropriate "guides" on the CTP. Guides are data input screens organized by Form 1120 categories.

After all the tax data for a client has been entered on the guides, it is necessary to edit the corporate data before tax calculations and printing of the return can commence. The edit operation generates error messages such as identifying fields in which there is missing or incorrect data that will produce incorrect tax results.

The program can generate a Form 1120 summary report, a two-year comparative report, as well as the actual return. These reports can be displayed or printed.

BNA Corporate Tax Spreadsheet

Although called a spreadsheet, Corporate Tax Spreadsheet (CTS) is not just a Lotus 1-2-3 template but, rather, a comprehensive, full-blown tax planning program that projects a corporation's tax for up to 12 years into the future. The program comes with an easy-to-follow, step-by-step tutorial complete with illustrations of all data entry screens and computer-generated reports. The program is user-friendly. On-screen help messages provide assistance for all tax items. A display at the bottom of each screen lists all the processing options available.

Tax data is entered onto worksheet screens. The initial worksheet screen that appears is the "main worksheet." This is a one-page summary listing of line item totals for corporate income, capital gains and losses, contributions, deductions, the net operating loss, taxable income, and federal and state tax.

Worksheets are arranged in hierarchical order. Each line item on a worksheet is derived from an underlying worksheet. Data is entered at the lowest worksheet level and then flows upward to the worksheet above and ultimately to the main worksheet.

Calculations are instantaneous. There are 68 separate "output" screens which show the detail behind all calculations. For example, the first output screen, federal total tax, displays the way the tax is calculated. The second output screen, federal taxable income, shows how taxable income is calculated. Numerous tax reports can also be printed. Both worksheets and output screens can be printed as formal reports.

Computer Language Research Fast-Tax's

GoSystem 1120

GoSystem 1120 (GS) is a corporate tax microcomputer system that uses state-of-the-art technology in the form of a network control center to provide mainframe processing power on desktop. Housed in a single cabinet only four feet high, it is a complete package containing all the components of a local area network--including the file and commmunication servers, the workstation links, modems, and software. GS's "one-stop" approach to providing an integrated hardware and software local area network eliminates a frequently encountered problem- -equipment and software that are incompatible with the network architecture.

GS provides a common user interface and menu selection screens, thus enabling a user familiar with GoSystem 1040, the individual tax prepation system, to quickly master the procedures used in GS. The system contains two components: 1120 Bridge and 1120 Tax Analysis. 1120 Bridge is used to transfer a corporation's trial balance from an audit, general ledger, or spreadsheet software package into the GS. 1120 Tax Analysis is used to review, compute, and print the Form 1120 tax return.

Due to its comprehensiveness, the entire GS is delivered from Computer Language Research on CD-ROM, and must be loaded onto the user's hard disk with a CD-ROM player.

A six-character identifier, called a "locator," is assigned by Fast- Tax to each corporate client. This locator is downloaded from the Fast- Tax mainframe to the user's workstation and is used to store the client's data. Each client's data must have its own locator.

After the locator has been down-loaded, the client's trial balance is transferred electronically from spreadsheets (e.g., Lotus 1-2-3), databases (e.g., dBase III), audit packages (e.g., FAST, PRE-AUDIT), client write-up packages (e.g., AMI DataWrite), and general ledger system (e.g., AC-CPAC PLUS) into the 1120 Bridge. This process is called "tax sourcing."

Once transferred into the 1120 Bridge, the general ledger accounts of the trial balance have to be assigned tax return codes. These codes are used to route general ledger account balances to specific lines on the 1120 return.

After the tax return codes have been assigned, adjusting journal entries may be made to the general ledger accounts of the trial balance. "Book adjustments" are used to re-state book balances that will appear on Schedule L. "Tax reclassifications" reclassify balances for tax purposes.

GS's display of tax data is unique. Its screens are facsimiles of tax forms and show tax information from the highest to the lowest level of detail. This hierarchical presentation provides an audit trail even if this leads to another form. If changes are made at any level, the entire return is immediately recomputed and the effect of the changes can be seen at all levels.

Price Waterhouse's Tax

Management System

Tax Management System (TMS) is a comprehensive corporate tax system that can automate an entire corporate tax department. TMS prepares Form 1120 and, in addition, computes the provision for income taxes for financial reporting, calculates quarterly estimated tax liability, and prepares workpapers for corporate tax returns.

The system contains four components: Domestic Tax Management; State Tax Management; Insternational Tax Management; and Fixed Assets Management. The Domestic Tax Management System is the component used for all federal analyses and calculations of all the states subject to corporate tax.

Initially, a TMS database is set up with information which will be used to prepare the tax provision, the tax workpapers, and the tax return. Information entered in this database is also shared between the Domestic and the State Tax Management Systems. Repetitive data entry is thereby eliminated.

In the database, the organization structure, chart of accounts, and cross referencing relationships must be defined. The corporation's trial balance amounts must also be entered into the database.

An organization for TMS purposes consists of a group of related corporations such as parent corporation and its two subsidiary corporations. TMS performs all tax computations and produces reports and tax returns for the consolidated "group" defined in the organizational structure.

Alternative "groups" can be created with different, hypothetical configurations of entities, for example, the parent coporation with only one of its subsidiary corporations, or the parent corporation with its two subsidiaries and an additional subsidiary. "What if" planning analyses can be performed on each group separately, thereby showing the tax implications of disposing of a subsidiary or acquiring a new subsidiary.

After the organization structure (groups and entities) has been defined, the chart of accounts must be defined and cross referenced. A "summary" chart of accounts is then created to condense the chart of accounts into a smaller set of accounts corresponding to the line items on Form 1120. The "summary" is cross-referenced to the chart of accounts.

Once the TMS database has been established, it is then possible to enter the Domestic Tax Management System (DTMS) component to prepare tax workpapers and generate reports. The first thing done in DTMS is to identify the differences between book and taxable income and create the Schedule M database which is used to identify timing and permanent differences for purposes of computing the tax provision and preparing Schedule M-1.

DTMS can calculate the SFAS 96 income tax provision for current and deffered taxes and generate workpapers and reports showing the balance sheet deferred tax analysis and the cumulative balance sheet gross temporary difference analysis.

DTMS performs federal income tax calculations for the provision, estimated tax, and for the return. It also prints the return. Calculations are done for all the workpapers for a particular purpose have been completed. Tax calculations can be produced for the group, and for each entity comprising the group. Tax rates, tax brackets, and other tax values can also be changed to examine the impact of changes in the tax law.

The Senate Tax Management System computes state tax calculations for book and tax purposes. For each state, a standard state tax calculation formula is provided, but each component of the formula can be varied to analyze the impact of state tax law changes. The entities defined in the database as a "group" can also be reconfigured so that a given entity is subjected to a particular state tax. This will show the tax effects of relocating an entity within the group, a subsidiary or a division, for example, to a particular state.


The systems described are designed for different types and sizes of tax practices. The purpose of this article was not to select the best alternative, but, rather, to allow the reader to focus on the kinds and range of soft-ware packages available.

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