More firms send tax returns to
Critics warn that outsourcing costs jobs and risks identity theft
BY RACHEL KONRAD The Associated Press: Feb. 23, 2004
SAN JOSE, Calif. - Twelve-hour shifts and seven-day workweeks
exhausted accountants at Rucci, Bardaro & Barrett. But most painful
for Chris Barrett was the annual “Easter parade” - layoffs of seasonal
workers and interns after April, 15.
So Barrett, a partner in the firm in Malden, Mass., will send
about 150 of his 600 clients' tax returns this year to India, where
recent college graduates will prepare Americans' 1040s. Barrett won't
hire - or fire any extra employees, and the average turnaround time for
completing returns is shrinking.
“We're always looking for ways to reduce the pressure," Barrett
said. "It frees us up to provide financial and estate planning, which
we didn't have time for when we were too busy filling out returns."
Tax experts say Indian chartered accountants - the
subcontinent's version of certified professional accountants - will
prepare 150,000 to 200,000 returns this year, up from about 20,000 in
2003 and 1,000 in 2002.
Critics say outsourcing short-shrifts U.S. accountants and
exposes unwitting Americans to identity theft, which the Federal Trade
Commission ranks as one of the country's fastest-growing crimes.
On Thursday, U.S. Sen. Dianne Feinstein urged major U.S.
financial services and accounting firms to be cautious about
outsourcing sensitive work such as tax preparation.
"I am gravely concerned that consumer data is being sent
overseas without proper safeguards," the California Democrat wrote to
chief executives of Citigroup, Bank of America, Ernst & Young,
Equifax and TransUnion.
But executives argue that they can't afford to ignore the trend.
accountant in India makes $250 to $300 per month, compared with $3,000
to $4,000 in the United States. Many firms say they'll use the
savings to undercut competitors or add premium services such as
retirement planning. They also say Indian workers will be needed to
replace droves of retiring baby boomer accountants.
“It's going to change the paradigm in which professionals
prepare taxes, maybe even more than the way TurboTax (software) changed
the way individuals did their taxes,” said Dave Wyle, head of Newport
Beach, Calif.-based SurePrep, a software and consulting service with
300 Indian accountants in Mumbai (formerly Bombay) and, Ahmedabad.
In the late 1990s, the nation's biggest accounting firms; began
sending bits and pieces of tax work to India - lists of itemized
deductions or schedules of profit and loss primarily for multinational
companies and U.S. citizens living abroad, said L. Gary Boomer, a
consultant for accounting firms.
But in the past year, they've sent thousands of individual
returns to India, where colleges graduate about 50,000 accounting
majors each year.
Ernst & Young, which employs more than 1,000 workers in
Bangalore, will prepare 15,000 of 100,000 tax returns abroad. Most, are
corporate returns. About 4,000 will be for U.S. citizens living abroad,
and about 1,000 for U.S. residents, spokesman Ken Kerrigan said.
Although firms have yet to report identity theft or fraud that
stemmed from outsourcing, privacy advocates cringe at the notion of
scanning and transmitting W-2 forms - with the Social Security numbers
and salary information on them - across a dozen time zones.
Democratic presidential frontrunner John Kerry wants overseas
call centers to disclose their location - the New Economy version of
the "made in America" label. Some consumer groups and privacy advocates
say accountants should do the same.
"If we believe in the ideas of customer choice and the market,
disclosure should be the starting point," said Chris Jay Hoofnagle,
associate director of the Electronic Privacy Information Center. "From
there we could explore whether the outsourcing nations have adequate
Ernst & Young customers must sign a document acknowledging
that a foreign accountant may work on their returns. But most firms;
don't make such disclosures.
Accountants outsource by scanning clients' W-2s, 1099s, K1s and
other records and sending them to Indian workers through strongly
encrypted e--mail or private networks.
Indian workers complete forms obtained from IRS Web sites and
transmit them to U.S. accountants, who review, print and sign the
documents, thus assuming legal liability.
To protect privacy, tax consulting firms in India - SurePrep,
Datamatics, Xpitax, Outsource Partners International and other firms -
usually have armed guards outside offices. Entry is restricted by
microchip-embedded swipe cards.
Bruce Carlin, managing partner at Carlin, Charron & Rosen,
based in Worcester, Mass., plans to outsource about 2,000 returns -
twice as many as last year and a third of this year's totals. Unless
the client asks, the firm does not disclose that it outsources with
Datamatics, Carlin said.
“The vast majority of people understand what's going on,” he
A 1040 prepared in India can cost as little as $75 - including
labor, software and hardware costs. In the United States, it probably
would cost as much as $150, Carlin said.