Outsourcing Tax Return Preparation and Its Implications

The trend of outsourcing preparation of income tax returns overseas, particularly to India, began about five years ago and shows no signs of abating. Its popularity has grown as tax practitioners have come to appreciate its advantages.

The reason for this growing trend is threefold. First, there is an economic basis. Outsourced tax returns can be prepared in an cost-efficient manner by a highly skilled workforce. Moreover, outsourcing obviates the need for U.S. accounting firms to hire temporary staff during the busy tax season months of February, March, and April, and pay concomitant expenses (e.g., healthcare costs and unemployment insurance). Although U.S. accounting firms' experiences have varied, many have enjoyed tremendous labor-cost savings, often 50% or more per return.

The second reason is the practical efficiency associated with using an overseas workforce coupled with the advent of secure websites that enable information to be transferred across the globe in seconds. Because of time-zone differences, U.S. accounting firms often can delegate work to overseas accountants before they leave work at night and find the work done when they return in the morning, effectively creating 24-hour operations.

Finally, accounting firms want to maintain their competitive edge. They fear that if competitors use outsourcing and they do not, they may ultimately price themselves out of the marketplace.

Outsourcing is not an unalloyed blessing. U.S. accounting firms should consider several issues if they have already jumped on the outsourcing bandwagon or are considering doing so.

How to Outsource

Outsourcing income tax return preparation work can …