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Tax & AccountingJune 22, 2020

2020 Tax Season in Data: 06/15/2020

Being the fan of cliché’s and motivation quotes that I am, I’ve provided you a few throughout this blog series. In that spirit, here is a turn of phrase we’ve all used at some point, I’m sure, and coincidentally one that inspired Ben Franklin to come up with the quote I offered in my last blog. “There is no time like the present; a thousand unforeseen circumstances may interrupt you at a future time.”

Welcome back to our fifth installment of the tax season in data (for the period ending 06/15/20). It’s been just shy of a month since our last update (for the period ending 05/20/20), and less than a month until the extended filing deadline. On our last update, I said that we were seeing a mixed bag of reviews, including a concern that the partnership segment was losing steam. I did not write a 06/01 update in large part due to the lack of movement in the numbers – the post would have mostly consisted of “no significant change.” I am pleased to say that over the last month, we have seen gains.

For this installment’s segment spotlight, I’ve highlighted a subset of the partnership segment, those who utilize outsourcing as part of their tax strategy. This strategy may very well be paying dividends beyond those envisioned at the time the decision was made.  

As always, I hope that this information helps you make data-driven decisions.

Our Data Source

Before we start, I want to share what data drives the Tax Season in Data. These reports are the results of millions of unique tasks processed through the XCMworkflow system annually. We leverage the resulting data points to obtain insight into the pace of filing seasons. Our customers, who receive these types of analytics during the tax filing season, have told us that one of the more significant benefits they receive from the data is when they compare their firm against the pace of the national average or similar-sized firms.

Utilizing XCManalytics, I have compiled this years’ data for 1040, 1065, and 1120-C returns, benchmarked against 2019 returns to provide the tax community with insights into the pace of the 2020 tax season.

Individual Tax Returns (1040)

In the past month, individual returns have slightly picked up the filing pace, with an almost 5% drop in returns not started and a corresponding almost 5% increase in completed returns. However, there is a concern that, at the current pace, firms will see the same workload compression in late June and early July usually seen around the April deadline.

To reduce late-season compression now is the time to review your inventory. Make sure that your inventory list is accurate, forecast the remaining work, and process bulk update any issues or points with relevant planning topics. These usual late-season actions are even more critical, with the pace of individual returns consistently behind previous seasons. If your firm hasn’t started reviewing your inventory, here are a few tips:

  • Ensuring your inventory list is accurate
    • Run your searches in XCM (or other workflow solution) to identify the “No Info In” status tasks
    • Consider if any are no longer active customers and remove them from your data set
    • Search on all of your in-process extensions and close them out
  • Forecasting the remaining work
    • Import budgets into your preparer and review task roles
    • Update projected start dates with the dates you anticipate working these returns
    • Run your lists by staff to see who is over-allocated or underutilized
  • Updating in bulk the issues and points with relevant planning notes
    • Note discussions with customers
    • Note instructions or obstacles for your preparers
    • Run open issues and points reports for your open inventory and work the jobs

As we know, when the IRS extended the 2020 filing deadline to July 15th, they also extended the first two estimated tax payments for 2020 to July 15th. My home state of Massachusetts has adopted the federal guidelines, and most states have done the same, adopting some version of the guidelines. This delay has created an opportunity for you, and your clients who usually owe estimated tax payments, to review this year’s activity and adjust estimates as necessary. Discussing 2020 income projections is a perfect opportunity to reach out and touch base with your “no info in” clients.

Regardless of the reason, now is the time to act.

Partnership Returns (1065)

Partnership (1065) returns are continuing to hold pace with prior years. We believe this is primarily due to the majority of work being done pre-coronavirus – we saw this even as far back as the 04/01/2020 update.  Based on this, we expect that late busy-season compression won’t be an issue for this segment. However, don’t be too heavy-handed in your actions against this data trend. Complete the work. Finish strong.

Corporation Returns (1120 C)

The pace for corporate (1120C) returns gap is beginning to close, with returns not starting dropping from an 8% to 6.6% difference between current and prior years. As markets open, communities return to the workplace, and people become more comfortable with their new work options, this is a logical progression. As we pass the July 15th deadline, it will be interesting to see if the corporate pace and upcoming extension season is ahead of schedule.

My assumption is that returns usually filed in September and October may have been focused on early, utilizing resources that may have otherwise been idle as they awaited other return types to gain momentum. Alternatively, firms who tracked their pace and focused on catching up may have experienced early success and are now ahead of the sluggish pace created in March and April. Whatever the reason, a welcomed buffer may have been created.

Firms have shown tremendous growth between my first post on 04/01, and today. If my optimistic assumptions are correct, it may be a welcome influx of resource availability for those firms who have cross-trained staff to work on business and individual returns, as the individual return segment continues to be sluggish in its progress.

In the interest of identifying possible avenues of improvement in current and future tax seasons, I’m highlighting a particular subset of the partnership return segment. The chart above shows our XCMworkflow customers who utilize outsourcing as part of their tax strategy and have an integrated outsourcing solution within their workflow. These customers are not only processing partnership returns in-house but have also leveraged outsourcing partners to complete work. This strategy has paid dividends because these firms are ahead of both the 2019 and 2020 national average filing pace.

For firms consistently battling busy season workload compression, outsourcing could be a valuable strategy to reduce the pressure.

Concluding Thoughts

As we approach the end of the 2020 filing season, as well as the three-month mark for many of the stay-at-home and shelter-in-place orders that upended the season, I remain optimistic about the filing pace. In both partnership returns and 1120C corporate returns, we see gains in the current year filing pace, with partnership returns pulling close to even. I hope to see significant gains in the 1040 return filing pace over the next month. We know that between 20-25% of individuals wait until the last two weeks to file their returns, why should an extraordinary filing season be any different?

Until the 06/30 update, stay safe, healthy, and productive.

Mark McAndrew
Author at Tax & Accounting

As the Director of Project Management for Firm Management (FM) at Wolters Kluwer, Mark focuses on the vision and strategy of all FM products and delivering customer and shareholder outcomes within the FM solutions set. Mark has extensive experience within both the Fortune 1000 and large public accounting firm spaces. He is a frequent speaker on business process management and workflow advisory consulting, tax and accounting outsourcing, and productivity enablement software deployments.

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