Time for a tax practice tune-up

Now that tax season is over, many CPA firms can take a breath and give their staff a well-deserved break. But this time of year still presents work challenges and opportunities. Along with completing returns on extension before fall due dates, it is never too early to start preparing for the next tax busy season, using lessons learned from the season just finished, including having a plan for staff and client training and retention.

TAX SEASON POSTMORTEM

“Post–tax season is a great opportunity to sit down with our people while things are fresh in our minds to go through new things we implemented, how they worked, how does everybody feel about it, which clients were good or bad, and how we can improve things,” said Brandon Lagarde, CPA, J.D., partner at EisnerAmper, and chair of the AICPA Tax Practice Management Committee. “We started this during COVID and have done it for the last several years.”

Porte Brown LLC also holds meetings after busy season, said Mark Gallegos, CPA, partner at Porte Brown and a member of the AICPA Tax Practice Management Committee.

“After busy season, we come together and talk with each department — tax, audit, accounting — and get their ideas about what did or did not go well, what the struggles were (personal, client, and business), and what we need to work on,” he said. “Then we have a team from various parts of the firm that meets once a month starting by June to talk about how we can keep evaluating and changing things to make them better. Maybe by the time we get to the end of the year and are heading into January again, we will have a better process for handling certain things.”

Gallegos said his firm is process- and procedures-driven. “We have almost an engineering mindset and look at how we can tinker with things to try to make them the best we can for ourselves,” he said. “Nothing is perfect, but at the end of the day, if we are not trying to make our lives easier and give the best value to our clients, then we are not helping anybody in the process.”

MANAGING EXTENSIONS

Part of the tax season postmortem is evaluating tax returns on extension. Although firms want to get as many returns filed on time as they can during busy season, some circumstances cannot be controlled, including late or missing information or complex issues to resolve.

“Extensions require more time and can be inefficient because you have to revisit what you did earlier,” Gallegos said. “A lot of work goes into getting to an extension. Although you think you will get the return done in May, you don’t get going on it until the summer because of other internal matters, and next thing you know, vacations are over and it’s the end of August and you have all these extensions to do,” he said. “By that time, you don’t remember what you looked at — whether it’s the preparer, the reviewer, or the partner — so you end up going through the entire process again, including double-checking your work to make sure the return is correct, and you end up putting in double the number of hours.”

Planning this additional work can help keep the momentum going without adding stress.

“The biggest challenge is to get people reengaged and not let months pass, because a lot of clients may be OK with going on extension, but they don’t want their returns extended until September if they don’t have to,” Lagarde said. “We have a postmortem debrief to recap the returns that we extended to make sure we identify which ones can be done in May, June, and July.”

Gallegos agrees and recommends firms budget time and schedule their staff to get extensions done as early as May. “It’s about scheduling and making sure you communicate within your team to say, ‘I want to get this done; is it possible?’ and then they have time set aside to get extensions done within normal hours.”

REVIEWING DATA SECURITY AND OTHER BEST PRACTICES

After busy season is also an ideal time for firms to assess the strength of their security measures against such threats as data theft. The IRS’s ongoing “Protect Your Clients; Protect Yourself ” campaign, part of the Security Summit collaboration of the Service, state tax agencies, and the tax profession, highlights these concerns. One specific task firms may want to schedule during this period is the required annual evaluation of their written information security plan (WISP; see the sidebar, “Reviewing the WISP”).

DETERMINING WHETHER CLIENTS ARE THE RIGHT FIT

In the past few years, Lagarde and EisnerAmper have taken a hard look at the clients they served and how they provided that service. To determine if each client was a good fit, firm partners had to answer several questions: Did the firm have the resources and talent to meet the client’s needs?

Did the firm have other clients and a level of expertise in the client’s industry? Was the client’s business size compatible with the firm’s goals and processes? The firm partners also assessed whether the client met deadlines, paid bills on time, was responsive as well as cooperative, and was not argumentative or verbally abusive.

“We were trying to manage with limited resources without causing disruption to client relationships or personnel, so the first step was client identification,” Lagarde said. “We identified clients where there was not a good match anymore or where we did not have the capacity.

“It was hard because we have had many of our clients for many years, but we cut 5 to 10% of our client base, and [fee revenue fell] by only 1%,” Lagarde said. EisnerAmper involved staff in the evaluation, and he recommends firms go through this process regularly.

Gallegos’s firm also uses a client evaluation process. “In the last two years, we got a lot of work referred in, but you can’t say yes to everything,” he said. “We use a scorecard based on weighted factors we develop to evaluate our current clients and weigh good versus bad clients, not just based on the fees they paid but also based on hours, realization, and how easy they are to work with — are they timely or last-minute, are they rude to our staff or our admins, do they cause us stress, or are they amazing to work with?”

Gallegos notes that there is no one right answer to what an ideal client is, and it varies from partner to partner. “At the end of the day, we want to work with people that value our time and the service we’re providing and know we are doing our best for them; at the same time, we all have lives too, and they have to respect that.”

EDUCATING CLIENTS

Besides evaluating clients, EisnerAmper also works to make them aware of what the firm needs from them, Lagarde said. “We set expectations with clients early in the process and communicate how we will operate,” he said. “The days where clients could come in on April 14, drop their stuff off, and expect a tax return to be done by April 15 are long gone. We did that for many years and only recently started to push back on clients to say we don’t work that way and need a four-week timeline to do the tax return well.”

Clients need to understand the timing and process flows. “Up until a couple of years ago, certain clients had inertia and brought us their information last minute, so we went through the same lateness and rush every year just to provide the best client service,” Lagarde said. “This puts too much pressure on staff, and they should not have to work 80 hours a week to meet deadlines. We had to train our clients about our rules of engagement, set deadlines for submitting information, spread the work out so the tax season is not so compressed, and work as a team with clients so they get the best service.” Lagarde notes that it has been a long and challenging process, but clients are responding.

“Sometimes it’s a negative response and they decide to go somewhere else, but others understand the issues and staffing challenges in our industry require us to act differently and that they also have to act differently.”

IMPROVING STAFF PERFORMANCE

Training and development

In the changing tax environment, there is always something new to learn, which is a challenge in more ways than one.

“It is hard to force people to learn, and staff must be open to learning more about tax issues and technology,” Lagarde said. “It is difficult for a small practice to stay up to date and train its staff, and it may have to create a lot of its own training content internally, while larger firms have more resources and can provide more extensive training.”

Gallegos’s firm has tailored its training to staff members’ functions and experience levels. “We have different types of internal training for different levels of staff — new, experienced, managers — on processes and procedures, roles, workstreams, how to process client records into tax returns, and basic tax concepts like what is depreciation,” he said.

Gallegos noted they spend a lot of time on people development so that everyone has a consistent approach. With support and training, staff members develop pride in their work and know there is always someone who can answer their questions.

“We hire college graduates every year. They have been taught a lot at college and may have studied a lot for the CPA Exam, but training them about various aspects of what they are going to do is vital to their success,” he said.

His firm spends a significant amount of nonchargeable time on staff training and development, including both classroom time and monthly staff meeting days. “We have four offices, but we come together as a firm in one location, including interns all the way up to senior partners and even admins, and spend the day talking about what’s working in the firm, HR updates, clients, marketing, and what people need to know about accounting, tax, and new regulations. The idea is everyone gets to learn and grow together.” Training also includes outside seminars and webcasts.

In addition, a mentor and manager for every employee help develop young talent to be successful. “A manager checks in usually a minimum of twice a month to see how things are going and whether they need help, and a mentor usually meets quarterly to do a little more than a check-in,” Gallegos said.

Motivating employees

In an environment of stress and pressure to work long hours during tax season, firms need to find ways to motivate and incentivize tax staff.

“As a firm, we don’t work a lot of hours compared to other firms,” Gallegos said. “We require staff to work a maximum of 54 hours a week during tax season because everyone has a life, family, friends, and everyone needs rest and to be healthy.”

Gallegos noted that because of the changes in employee recruitment and retention in the profession, people will not stay if firms are grinding them to get more and more work done. “More people need to see that, at the end of busy season, if you manage things properly, you can get a little bit of a break. If partners and managers are feeling an amazing amount of exhaustion, their negative talk and behavior filters down to staff, who will say, ‘Why in the world would I ever want to be a partner?’ As a firm, we have to balance this.”

Remote work possibilities also present engagement and motivation challenges. Firms may struggle defining hybrid workplace expectations or pay structures before finding the options that work.

“Employee engagement is difficult when people are working from home using Teams or Zoom meetings to communicate and new staff and interns are starting,” Lagarde said. “When our firm went from having people working at home five days a week to requiring them to come back to the office, several quit.”

The firm has tried to find ways to encourage people to come to the office, like providing meals and other incentives. “We used to have bonuses based on chargeable hours three years ago, but that stopped,” Lagarde said. “We have struggled to figure out discretionary bonus plans that are motivating.”

As firms evaluate what works or doesn’t, they may find existing practices hold up well. Then they can add alternatives that further enhance the employee experience.

“Pre-pandemic, we invested in the cloud and implemented a ‘work smart policy,’ so people could work at home, in the office, at the client — wherever it makes sense,” Gallegos said. “We treated people like professionals and assumed they would get their work done.” After the pandemic, the firm maintained a hybrid policy because the staff likes the flexibility. “Some prefer to work at client locations so they can ask them questions and work with them face-to-face. We try to do what is best for our staff and our clients.”

Gallegos’s firm offers competitive base salaries and pays overtime during tax season that staff can take as cash or paid time off. The firm also holds monthly employee appreciation events — like golf and mini-golf outings — and holiday parties. No matter the event, they provide lots of food.

TUNING UP AND MOVING FORWARD

Firms should think of the busy season postmortem as a time for a tune-up. “Tax practices need to manage their work to smooth out tax busy season to be less of a stressful period from January to April,” Lagarde said. “I think we have to keep a foot on the gas pedal, but maybe it’s not at 70 miles per hour down the interstate but at 50 miles an hour. We don’t want to get behind, because fall busy season can be just as brutal as spring busy season.”

Reviewing the WISP

After tax season could be a good time for firms to review their tax practice data security, including a new legal requirement to have and maintain a written information security plan (WISP). The WISP is meant to protect the firm and its clients and includes a mandatory review of the plan and its implementation. The Gramm-Leach-Bliley Act requires financial services institutions, which include tax preparers and accounting professionals, regardless of their size, to have a WISP that describes how the firm will safeguard and protect customer data, including personally identifiable information (PII), in paper, electronic, or other forms. The Federal Trade Commission updated the Safeguards Rule in December 2022 to include a requirement to implement a WISP.

See “Complying With the Safeguards Rule for Information Security,” The Tax Adviser (May 2023), for a summary of the legal requirements and the nine elements that must be included in a WISP. IRS Publication 5708, Creating a Written Information Security Plan for Your Tax & Accounting Practice, includes considerations for complying with the law. One of the required elements is periodic evaluations, and the duties of a firm’s “identified responsible official” include a review of “the scope of the security measures in the WISP at least annually or whenever there is a material change in … business practices that affect the security or integrity of records containing PII.”

Firms need to put measures in place and monitor them because noncompliance can lead to serious issues, including penalties, fines, and lawsuits. Data breaches can result in losing clients and can affect the firm’s ability to prepare and file returns.

About the author

Maria L. Murphy, CPA, is a senior content management consultant, accounting and auditing products, for Wolters Kluwer Tax & Accounting North America, and a freelance writer based in North Carolina. To comment on this article or to suggest an idea for another article, contact Jeff Drew at Jeff.Drew@aicpa-cima.com.

AICPA & CIMA RESOURCES

Article

“Tips for a Better Tax Season,” JofA, Jan. 1, 2024

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“Recruit, Retain and Repeat,” Tax Section Odyssey, July 25, 2023

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Resource Center: Gramm-Leach-Bliley Act (GLBA) and the FTC Safeguards Rule

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