Tax Season Checklists — Part Two

 – December 18, 2018
Tax Season Checklists — Part Two

Tax season is busy, so preparing for it now will reduce the stress experienced January through April and help reduce exposure to professional liability risk. Pre-tax season training of personnel and proactive review of administrative procedures will improve efficiency through April 15 and beyond.

What To Do During Busy Season

  • Schedule a pre-tax season staff meeting:
    • Review procedures revised after last year’s post-tax season wrap-up meeting.
    • Review changes to the organizers, particularly those related to Tax Reform, Wayfair, FBAR and FATCA filing obligations, and the sharing economy.
    • Review applicable professional standards including:
      • the AICPA Statements on Standards for Tax Services,
      • the AICPA Code of Professional Conduct, and
      • U.S. Treasury Department Circular No. 230 (Rev. 6-2014),
    • Review the firm’s tax practice quality control manual.
    • Review tax preparation process and procedures.
    • Review firm privacy and security policies including how to respond if a “phishing” email is received.
    • Review engagement letter usage, including usage for tax planning, consulting and tax audit representation services.
    • Review e-filing procedures.
    • Review penalties applicable to taxpayers and preparers.
    • Review the most frequent errors found by reviewers on prior year individual and business income tax returns. Remind preparers to exercise due diligence in compiling and assembling tax information, and to communicate clearly with clients about any concerns, and
    • Emphasize the importance of documenting discussions with clients.
  • Use a control log, common docketing system or tax return tracking software to help avoid missed deadlines.
    • Include all tax returns and related forms, such as estate tax returns, those related to minor children, unfunded trusts, foreign financial accounts, foreign earned income, and state filings, even if the client falls below the filing threshold in the current year.
    • Update the control log for responsible client parties.
    • Memorialize the following information in the control log:
      • Original due date and extended filing due dates for each tax return,
      • Information receipt date,
      • Date(s) additional information is requested or questions asked,
      • Date(s) of client response(s) to additional information requested,
      • Completion dates by preparers and reviewers,
      • Approvals by the firm and client, and
      • Assembly, delivery, mailing, filing and acceptance dates.
  • Test new or updated tax software to ensure that it is working properly and test integration with other applications.
    • Check the software website for updates and downloads throughout the tax season. Determine if any programming errors noted last year or earlier in the tax season have been corrected.
    • Restrict and monitor access to tax software and client tax returns to defined, authorized users.
    • Review new forms issued by the IRS and instructions concerning how to enter information in the software for the accurate completion of the forms.
    • Train all tax professionals on the use of the software, new capabilities and the most efficient way to use the programs.
  • Assign clients/tax returns to preparers and reviewers based upon their experience and training. Consider having each preparer:
    • Review the prior year workpaper file and permanent file for each client.
    • Set up the current year file, update client profiles, and check data transferred from last year's data files.
    • Organize workpaper files with an index, checklists, and applicable notes from last year's files, including net operating loss information, credits, carryovers, and so forth.
    • Check tax form instructions for changes in tax laws or regulations, changes to tax forms, and additional forms to file.
    • Check descriptions, formats, and formulas in document templates created from support schedules for the prior year and update them for necessary changes. Notably, professional liability claims may arise from mathematical errors due to incorrectly updated spreadsheets.
    • Identify clients that have undergone significant change (e.g., client’s altering terms of debt may result in cancellation of debt income) or that will be significantly affected by Tax Reform and other tax law changes implemented or expiring in 2018. Schedule a meeting with the assigned partner/manager to discuss the impact of the change (e.g., application of Internal Revenue Code §199A, changed filing status, preparation of returns declaring foreign or out-of-state income).
  • Review client data promptly when received, making inquiries if any information appears to be incorrect, incomplete, or inconsistent, and document discussions with clients. Awkward situations may arise when information that the CPA has had for months is not reviewed until close to the deadline, and either required information is missing or additional information is requested.
  • Use IRS e-services to verify estimated tax payments made by clients in past and current years by submitting transcript requests via the IRS Transcript Delivery System. Many states provide firms with a similar ability to verify state payments.
  • If a procedure is not working, change it. Procedures were designed to accomplish certain tasks in an efficient manner. If such efficiency is not being achieved and a better idea has been proposed, try it.
  • Plan for tax deadlines. As deadlines approach, firm members may become overwhelmed and proper reviews may not be performed. Consider the following:
    • Train staff to perform “tick and tie” reviews of simple returns during the busy season;
    • Review information from the client upon receipt and follow up with the client in writing if information is missing or incomplete;
    • If the final information required to complete the return is minor and will not be received until close to the deadline, consider preparing an initial draft return, including review and filing for an extension early; and
    • Be prepared for phishing emails. When CPAs are tired and stressed, they are more likely to click on an infected link or open an attachment that contains a virus.
  • Survive!

All tax work should be routinely monitored to help prevent errors, and in turn, professional liability claims. Most tax-related professional liability claims arise from inadequate review of client data and completed returns, rather than inadequate training.


This article was reprinted with permission from the AICPA.