Nothing keeps firms, employees, and clients happier than a smooth, successful tax season. To accomplish that, it takes planning, especially in a year after momentous tax reform and the significant Supreme Court decision in South Dakota v. Wayfair. To discuss how you can ensure that your firm’s tax season goes off with minimal hitches, we talked to Debbie Rood, risk control consulting director with CNA Insurance in Chicago.

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By: Bill Hayes, Pennsylvania CPA Journal Managing Editor

Podcast Transcript

A seamless tax season is a major part of any CPA firm’s recipe for success. Planning for it obviously should not be taken lightly. To figure out what aspects should be a part of that advance plan, the timing for when you should start getting your checklist together, and the effect tax reform will have on tax season planning going forward, today we are talking to Debbie Rood, risk control consulting director with CNA Insurance in Chicago.

How important would you say it is for firms to have a detailed advance plan around how they're going to operate around tax season? And what can go wrong if that plan isn't thought out properly.

[Rood] I think planning for tax season is extremely important. You know the old saying: "Those who fail to plan plan to fail." The good news is I think most firms do some planning; however, if the firm doesn't have a complete plan or a thoroughly thought out plan, surprises may occur in the middle of the season and have to be addressed when the CPAs can least afford to spend that additional time.

For instance, let's say you don't have a good plan. There might be an unanticipated bottleneck that occurs, typically near a deadline. In my experience, these bottlenecks usually occur in the review process. If the firm plans on these bottlenecks occurring, they can proactively come up with a plan to address the bottleneck if and when it occurs. Some firms in my experience may train junior staff to do tick-and-tie reviews, whereas others may hire temporary help to assist when things get busy, but that's just one example of how, if you don't properly plan, tax season could be more challenging.

What would you say the positive aspects would be that are brought about by this type of planning? Whether they be personal for employees or professionally for the firm itself, or a little bit of both?

[Rood] There's a ton of positive aspects, but I think I'm going to concentrate on building morale. One of the things we advocate is a pre-tax-season staff meeting and that has a ton of benefits. First of all, from the business's standpoint, it updates the firm and the staff on technical changes, such as Tax Cuts and Jobs Act reform and Wayfair, and it can also update or give reminders about firm policies, such as engagement letter use and client acceptance. And, in my experience, if it's done correctly it's a team-building event, and building staff morale and camaraderie at the beginning of tax season is always really important.

How far off from when tax season really starts hopping do you think it's wise to start compiling this plan and pulling it together and finally having it in place?

[Rood] It's never too early to start planning. For instance, right now you can be planning and acting on the plan. It's a great time to make sure the firm and preparers are registered with the IRS. It's a good time to review the firm’s e-filing processes, and it's a great time to update engagement letters.

Another thing you can do right now is see if changes are needed to the firm’s client and engagement acceptance process, and you can review client lists to see if there are any clients who are no longer a good fit for the firm, and should be terminated. So those are some things that you can do right now, but, like I said, it's never too early to start planning.

Now here we are in December: What can CPAs be doing right now to help clients prepare for their tax-filing season? What do you think is something really important they can be doing?

[Rood] It's always tough to get your clients prepared, but one thing CPAs can do is let the clients know about significant changes in tax law, and I've already mentioned TCJA and the Wayfair decision.

We recommend CPAs send out a newsletter – it can be electronic or paper – just to inform them of these changes. In that communication, the CPA firm should ask the client to contact the CPA firm if they have questions specific to their tax situation. Changes in the partnership audit rules and choosing a partnership representative are another area where CPA firms should be speaking with clients.

Another thing CPAs can do to help clients prepare is contact those procrastinators, the people who get their information in at the last minute, and encourage them to get their information in early. Some of them just might need a gentle reminder, or some of them maybe need a bigger push, like a financial incentive. I know I had a few clients that I would give a discount from last year if they got their information in in February rather than April. So those are a couple of things CPAs can do to prepare their clients for busy season.

You mentioned the Tax Cuts and Jobs Act there. How much of a wrinkle do you think the Tax Cuts and Jobs Act throws into advance planning this year and how important does it make it?

[Rood] I think addressing the Tax Cuts and Jobs Act, and I'm going to add the Wayfair decision, is going to be really important. First of all, I think that's something that the pre-tax-season planning meeting is going to need to address.

Informing clients about the changes just like I mentioned, and then the firm needs to be trained, and, depending on when guidance is released, training may need to occur several times during busy season. But one nontechnical aspect of the Tax Cuts and Jobs Act that I think is often overlooked and that staff should be trained on is what to do when there isn't a clear answer, and I think both of us can agree that there are going to be a lot of areas where there aren't clear answers.

When that happens and there isn't clear guidance, the CPA should bring the issue to the client's attention, share the available options with the client and the potential outcomes of each option, and while the CPA can provide a recommendation, here's what I would do: It really needs to be the client's decision with regards to which option to take, and when that process occurs it needs to be documented, including the client's decision, because if it isn't written down defense counsel will say it didn't happen.

The documentation is evidence of the client's decision, and I mention this with regards to the Tax Cuts and Jobs Act but it applies to everything. When there isn't clear guidance, explain the issue and option to the clients, and let the client make the decision on which option to take.

When a firm's planning for tax season, how important is it to resist the urge to do the “same as last year” approach, especially when we're talking about the Tax Cuts and Jobs Act?

[Rood] Even if last year's tax season was the best ever, there's always room for improvement, right? And this year, as you mentioned, we're going to need to address some new concerns: Tax Cuts and Jobs Act and Wayfair, and engagement letters should always be updated every year for new developments, and I know the AICPA and many professional liability insurers have examples of engagement letters, and those are updated every year for the new changes in law standards and also things that have developed during the year from a professional liability standpoint. So updating engagement letters, that's always something that can be done during planning.

In addition, one of the things we recommend is having a post-tax season staff meeting to address what went well last busy season, what could've gone better, and that's really ... I could even argue that that's the start of your planning process, because that's telling you what you need to change for the next year. So incorporating those suggestions from that meeting into the current plan really helps.

You mentioned earlier a pre-tax-season staff meeting, so I have an idea of where you might go with this, but you never know. What's the best way for firms to update their staff on new developments? Should there be a face-to-face like the pre-tax-season staff meeting you're talking about or is it an email? Other mass communications? Is that more suitable? What do you think the best practices are?

[Rood] While I would love to be able to say face-to-face is the right way to do everything because I'm a big face-to-face person, I really think it depends on the firm.

So if you're a smaller firm with one location, a face-to-face meeting is probably most effective, but if you're a large firm with more than one office or large percentage of staff working remotely, maybe conference calls or Skype meetings or emails ... there might be a more effective way.

I don't think there's any one way to address it. I really think that depends on the firm.

What's a step that people don't often think of that can ensure a successful tax season for a firm, and hopefully relieve some peoples' stress along the way?

[Rood] Thinking about what we see during busy season, CNA claim data indicates that data security incidents are more likely to occur, or at least be identified and reported to us, during busy season.

Now some of those I suspect occurred long before busy season and just didn't get realized until firms started e-filing returns, and other incidents I think occur because people are a little bit more distracted during busy season and not paying as much attention as they do at other times of the year to phishing emails. So I really think training on what confidential client information is, how to identify phishing emails, and what to do if a client requests that you send a tax return to somebody should all be part of a firm's pre-tax-season information and the pre-tax-season training.

Training could also include reminders on how to follow the firm's policies on protecting confidential data, such as using the VPN when working remotely, not forwarding work information to a personal computer, and keeping personal and business social media presences separate. So I really think looking at cybersecurity is an important thing to do.