Tax Preparation Outsourcing for CPA Firms

What Outsourcing Return Preparation Moves, and What It Cannot

“Outsourcing tax preparation” is a broad phrase for a narrow change. What moves is the preparation: source documents get organized, book-to-tax adjustments get worked through, the return gets entered, the workpapers get built, and the open questions get written down where a reviewer will actually see them.

The workflow defines who reviews, signs, files and handles any representation, based on the engagement and applicable authorization and professional requirements. Where a paid preparer is involved, the applicable PTIN, signing-preparer and e-file requirements also need to be addressed. The outsourcing workflow should make the responsible person, required consents and review points clear before the return moves forward.

That boundary decides where your season’s constraint ends up. A firm that outsources preparation still has exactly as many people who can sign. If review was already the bottleneck, returns arriving faster just makes the queue longer — unless they arrive in a state your reviewer can work with rather than rebuild. Which is why the useful question in a first conversation is not how many returns can be taken, but what the reviewers currently spend their time fixing.

Confirm §7216 Requirements Before Sharing Return Information

Section 7216 and Treasury Regulation §301.7216-2 restrict the use and disclosure of tax return information. Where a regulatory exception does not authorize the disclosure, the preparer generally must obtain the taxpayer’s prior written consent under §301.7216-3 before sharing the information with an offshore preparer. The consent requirements include identifying the recipient, the purpose and the information to be disclosed, and satisfying the applicable signature, date and disclosure-language rules.

The required consent format depends on the return type. For Form 1040-series returns, Rev. Proc. 2013-14, as modified by Rev. Proc. 2013-19, provides prescribed consent language. The IRS explains the Form 1040-series consent requirements in its Section 7216 questions and answers. For returns outside the Form 1040 series, the regulations allow other formats, including an engagement letter, when the required information and consent elements are included. For Form 1040-series taxpayer information, a U.S.-based preparer generally may not obtain consent to disclose the taxpayer’s Social Security number to an offshore preparer. A narrow regulatory exception applies only where specified adequate data-protection safeguards are used; absent confirmation that the exception applies, the SSN should be masked or redacted.

Which Returns, and Which Software

Form 1040 with the schedules that usually travel with it, 1065 with the K-1 detail behind it, 1120 and 1120-S, and the state returns that follow from them. Multi-state preparation where the apportionment data already exists in the books — and a clear note back to you where it does not, rather than a guess.

Supported tax software includes Drake Tax and CCH Axcess. If your firm runs a different package, the software can be reviewed at the start of the engagement. Whether it can be supported depends on the license seats and the access your firm is able to provide, and that is much better established in November than in February. The work runs inside the setup the firm already runs; tax software implementation and configuration are outside the service.

Tax preparation support for CPA firms

Organize Each Return Around Its Source Documents and Open Items

A tax preparation file is easier to review when source documents, prior-year information, book-to-tax schedules and unresolved questions are organized together. Each file should show which records were received, which preparation steps were completed and what the responsible tax professional still needs to decide.