The Myths and Facts About International Tax Outsourcing
Xpitax® has been handling international tax outsourcing for accounting firms for over 18 years. We've heard almost every question, myth, and outrageous rumor you can think of when it comes to international tax outsourcing. After answering thousands of questions throughout the years, we thought it was time to set the record straight and separate the myths and facts of international tax outsourcing.
Read on to learn the truth behind the top myths of international tax outsourcing, myths, and don't forget about the 7216!
Myth: If I outsource tax returns offshore, my client's data won't be secure.
Fact: A top-tier tax outsourcing provider will have robust client data protections and protocols in place to prevent data breaches.
In the past, client data protection was the first question for firms when discussing tax outsourcing services. However, as firms and staff become more comfortable with cloud accounting and security, and clients trust the firm to protect their data, these concerns have decreased. Clients expect that the firm has done its due diligence during the vetting process and choose a tax outsourcing provider who will protect their information against external and internal risks.
As part of this due diligence, make sure to vet potential outsourcing providers properly. Make sure they have a plan in place to protect information, whether in office or remote. Ask what security protocols they have in place to protect confidential and sensitive information. Are they SOC2 compliant? Do their employees sign a non-disclosure agreement? What about sign-in authentication? How secure is their remote and in-office environment?
Xpitax® has maintained SOC2 certifications with significant investments in building state of the art secure infrastructure for our outsourcing operations. This investment has ensured that our clients have the highest level of reliability, performance, and security available. Our facilities were designed expressly for outsourcing tax and accounting compliance work, with stringent physical and network security measures to safeguard sensitive client data, with a fully redundant network infrastructure at a secure US datacenter.
Myth: Outsourced returns are of inferior quality; my staff will waste time fixing the returns.
Fact: Returns prepared by an experienced tax outsourcing provider will be of the same or higher quality than returns prepared by the firm's existing staff.
In a recent Xpitax survey, 24% of respondents named quality of work as the most significant deterrent to utilizing tax outsourcing services. It's a valid concern – what's the point of outsourcing work if in-house staff will spend significant amounts of time reviewing and correcting outsourced returns?
Xpitax clients have no such issues. In post-tax-season surveys, we hear from existing clients that the work done by our outsourcing staff is the same (or better) quality as their in-house staff. However, not every outsourcing provider has the same stringent education, experience, and training requirements.
To avoid receiving low quality or error-filled returns, work with an experienced outsourcing provider who hires qualified and skilled professionals who are highly trained to meet or exceed the quality of preparation done in the "back office" of most CPA firms. Ask about staff experience and continuing education, including how often the staff receives training on U.S. tax laws and regulations.
Keep in mind that tax knowledge isn't the only factor in return quality. Many firms prefer to have returns and workpapers completed and compiled in a specific manner. Look for a tax outsourcing provider that offers initial and/or yearly training for firms to discuss firm-specific requirements, as well as how to send returns, what information is required, and what the final output will look like.
Don't forget to ask about the review process. Does your tax outsourcing partner have an experienced tax manager performing a first-level review of the return before it is sent to the firm? They should be.
Myth: I won't know the status of my client or their return.
Fact: Control and visibility into the return's status and expected delivery dates can be accessed on-demand when firms and vendors utilize a workflow solution.
Loss of control and visibility into the status of a return is almost always part of the discussion for accounting firms when deciding whether or not to utilize tax outsourcing as part of their overall tax strategy. When a tax outsourcing provider partners with the firm's workflow platform, the firm has consistent visibility into the return's status and expected delivery dates, which means they know exactly where the return is in the process.
Xpitax recognized the need for clear visibility into the work being done and where it was in the process in 2003. This need was the impetus that launched XCMWorkflow® for CPA firms. With a workflow solution, every return can be tracked and managed. Both the firm and the outsource provider know the status of that return and the expected delivery date.
Myth: My client will have tons of questions I can't answer; they'll never let me outsource their return.
Fact: While some clients express concerns, most clients don't question if or why their return is being outsourced.
There is a perception that every client the firm is considering for outsourcing will have lists of questions and want every detail about the process. The truth is, most clients don't even ask about why their return is being outsourced. You are their trusted advisor. Most clients trust that you have done your due diligence in vetting a tax outsourcing provider. If you're ok with it, then they are, too.
For those few clients who do want more information about outsourcing / have concerns about their information being outsourced, be prepared to answer such questions as:
- Who is (the outsourcing provider)?
- Is my information safe?
- Who will be responsible for my tax return?
- Are the overseas accountants knowledgeable about U.S. tax laws?
- How does the process work?
- Why does your firm use a third-party vendor to work on tax returns?
An experienced tax outsourcing provider should provide your firm with an FAQ to help answer client questions like these. If, after answering their questions, the client still has concerns about their return being outsourced, offer them the option to continue to have their return done in-house.
Myth: My staff will be replaced if the firm uses tax outsourcing.
Fact: Tax outsourcing is not designed to replace existing staff; it's designed to reduce stress and late-night hours amongst staff during busy season and other peak times of the year.
When outsourcing discussions occur within a firm, the initial reaction of many staff members – especially first- and second-level preparers – is concern about job security. While we cannot speak for other tax outsourcing providers, to the best of our knowledge, no staff person has lost their job due to a firm's decision to outsource with Xpitax. Firms generally choose to outsource tax preparation to create efficiencies within the tax department and have a more streamlined process during peak seasons.
Tax outsourcing allows staff to perform detailed reviews and creates time savings for managers and partners to perform value-added reviews and services. Other benefits seen by staff at all levels include:
- Reduced time in office (and busy season stress)
- Increased opportunity for personal and professional growth
- Improved training opportunities
- Reduction in review time
- Better overall client service
With an experienced tax outsourcing provider, the firm can gain efficiencies by moving to a more "standard" office with a streamlined preparation and review process. This process will address the backlog of work during the preparation and review cycle while decreasing the turnaround time to complete tax returns.
Don't Forget About the 7216 Consent Form!
Treasury Regulation section 301.7216, a provision enacted by Congress in 1971, directly impacts the clients a firm can outsource. The AICPA goes into detail here (and has several sample consent forms available for download as a benefit of membership). In general, if your firm wants to outsource, it needs a 7216 consent form.
Even if the person preparing the return is an employee of the firm, any 1040-series tax returns prepared outside the United States require a 7216 consent form signed by the client. Although the regulation does impact entity returns, there is no requirement for an IRS-approved consent form to be used. Many firms notify business clients as part of their standard engagement letters. However, we recommend that you consult with legal counsel with experience in the offshore processing of entity returns to make sure that all bases are covered.
Don't allow the 7216 consent form to become a barrier to outsourcing. Whenever possible, utilize a digital signature process - our experience is that firms who use a digital process are highly successful in getting the needed signatures. And while you're at it, consider making the consent form valid for up to ten years to eliminate obtaining consent every year.
Working with a tax outsourcing provider such as Xpitax gives you the ability to get the work done with minimal time and effort from your staff, managers, and partners. There is no need to spend time hiring, training, or managing these workers - simply send the work and get back a completed and reviewed tax return. And because your tax OS provider handles turnover, you won't have to concern yourself about potential retention issues even in the middle of tax season.