Outsourcing Income Tax Returns to India: Legal, Ethical, and Professional Issues

The CPA Journal
By Richard G. Brody, Mary J. Miller, and Michael J. Rolleri

Outsourcing has been seen in various areas of the accounting profession, especially tax preparation. While much of this work is outsourced within the United States, the trend is to outsource to companies that themselves subcontract work—increasingly, to companies abroad, especially India. It is estimated that 25,000 tax returns were completed by accountants in India in 2002 and that almost four times that amount were processed in 2003. Current-year estimates are as high as 200,000 returns.

Outsourcing Benefits

The major benefit to outsourcing is lower costs. Because the standard of living and the wage base in India are much lower than in the United States, the labor cost for accounting professionals is also much lower. This allows the outsourcing vendor to charge much less for each tax return than a CPA firm would incur itself. One provider, Prosystem FX, structures its price list based on return complexity, which is determined according to the number of source documents provided. The cost ($50–$150 per return) is substantially less than the cost of hiring, paying, and maintaining qualified staff within the CPA firm. This translates into the elimination of seasonal staff and overtime, more productivity from the core staff, movement toward a paperless digital environment, and faster return-preparation turnaround times. Other benefits include improved processes and workflow, and the ability to focus on the tax planning and review process.

Outsourcing Costs

Attractive benefits notwithstanding, the issues that arise from outsourcing deserve careful consideration. First and foremost is the confidentiality of client information. The process of uploading client data to the secure server relies on secure connections and proprietary software. The assumption is that the security for this would be in the hands of the outsourcing vendor, the company with whom the CPA firm has contracted to perform this service, and the hosting facility. The data are then accessed by the firm located in India, input into the tax preparation software, and retained at the secure hosting facility where the return will be uploaded to the CPA firm’s server. Again, all of this is done via the Internet and secure connections. FULL STORY