Tax Software in the Ongoing Pandemic Environment
20th Anniversary/2021 Annual Survey of New York State Practitioners
By Susan B. Anders, PhD, CPA/CGMA and Carol M. Fischer, PhD, CPA, CGMA
CPAs continued to deal with a global pandemic during the 2021 tax season, requiring many tax practitioners to work from home, often while balancing other responsibilities. In addition to the persistent coronavirus (COVID-19) environment, tax professionals faced a continuation of the challenges from the 2020 tax season, plus more late tax law changes, filing deadline extensions, increased reliance on technology, and backlogged tax authorities. Survey respondents expressed satisfaction with the tax preparation and research software used to meet client needs for compliance and planning, but their ratings and comments reflected concerns with customer service and cost. In addition to commercial products, most survey respondents use the IRS and New York State tax department websites, as well as a variety of other helpful free online resources to assist in tax research. New York CPAs have once again provided valuable practice information in responding to this survey.
The 2021 tax season was called a “perfect storm” by the National Taxpayer Advocate, but that description does not fully encompass a filing season that started late, featured delayed tax return processing, an initial deadline extension for all individual taxpayers, a further extension for taxpayers affected by winter weather, and final deadline extensions for certain taxpayers in the path of tropical storms. Although these issues would have created sufficient problems on their own, due to COVID-19 many tax practitioners also dealt with continuing remote work environments that required more reliance on technology. Additionally, many new tax law changes had to be implemented, including those passed in late December 2020 and in March 2021.
On January 15, 2021, the IRS announced that it would begin accepting and processing individual tax returns on February 12, 2021, to allow the agency sufficient time to update and test its systems to handle another round of Economic Impact Payments and late December tax law changes. The Protecting Americans from Tax Hikes (PATH) Act of 2015 already restricted the IRS from issuing Earned Income Tax Credit and Additional Child Tax Credit refunds before mid-February, but for 2021, those refunds were not expected to begin until early March. The weekly IRS tax season filing statistics (https://www.irs.gov/newsroom/filing-season-statistics-by-year) show a surprising result for 2021 in comparison to 2020. Self-prepared tax returns for 2021 did not catch up with 2020 statistics until late March, and then actually lagged behind 2020 until the May 17 due date. The number of tax professional-filed returns ran behind 2020 until about April 15, and then surged ahead and continued with a strong performance through the last data published in June. As of mid-June 2021, tax professional-filed returns represented 54% of total returns filed, in comparison with 51% for that same period in 2020.
Tax practitioners continued to absorb and apply tax law changes while in the midst of assisting their clients with compliance activities. In March 2020, Congress passed the Families First Coronavirus Response Act, which provided tax relief in the form of tax credits, and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which included advance refunds of credits against 2020 taxes and other provisions affecting 2020 tax returns. Late December 2020 legislation, including the COVID-19–Related Tax Relief Act and the Taxpayer Certainty and Disaster Relief Act, extended some of the March 2020 provisions, as well as offered new COVID-targeted tax benefits. The American Rescue Plan Act of March 2021 contained extensions and expansions of tax credits, and a third round of direct stimulus payments as advance refunds of 2021 taxes.
The Treasury Inspector General for Tax Administration (TIGTA) report “Interim Results of the 2021 Filing Season” (2021-40-038, May 6, 2021) addressed the large backlog of 2019 tax returns that were still waiting to be processed at the end of December 2020—more than 3.5 million returns, compared with fewer than 200,000 unprocessed returns at the end of December 2019 (https://bit.ly/3GHfXow). This large inventory led to the initial late start to the spring 2021 tax season, the continued slow processing during filing season, and the eventual, if not begrudging, extension of the April 15 deadline to May 17. Much of the IRS staff continued to work remotely; processing center activities, however, cannot be conducted virtually. Although processing centers were open, they were not able to operate at regular capacity due to social distancing requirements. Even more concerning, processing facilities lacked needed supplies and equipment, and were storing unprocessed documents in tractor trailers.
The National Taxpayer Advocate (NTA) Publication 4054 “Objectives Report to Congress: Fiscal Year 2022” (June 2021) provided more information on the processing backlog (https://taxpayeradvocate.irs.gov/reports). Although progress was made during filing season, 35 million individual and business tax returns awaited required human processing as of the May 17 deadline. The spring 2021 IRS telephone call volume was four times that of the previous year, and only 7% of callers reached an assistor after an average 20-minute hold time. Taxpayers who were required to call the IRS Taxpayer Protection Phoneline because their return was flagged for possible fraud had only a 19% success rate in reaching IRS personnel.
The percentage of participants in the 2021 survey indicating substantial problems from the length of time waiting to talk to an IRS representative increased notably, with 89% reporting minor or significant problems in 2021, compared to 78% in 2020. Similarly, 67% of respondents related having minor or significant problems obtaining assistance from New York State or City representatives in 2021, which was an increase over 60% in 2020. Those reporting significant problems in reaching the IRS have steadily increased from 44% in 2019 to 57% in 2020 and 72% in 2021. In contrast, participants reported significant problems obtaining help from New York State or New York City representatives has fluctuated, showing a slight decrease to 29% in 2021, as compared to 33% in 2020 and 20% in 2019. Given the dire tax compliance processing and telephone response issues reported by the TIGTA and the NTA, it is not surprising that survey participants reported increased difficulties in reaching tax authority personnel.
The 20th annual tax software survey in 2021 was conducted on a similar schedule to that used in 2020, somewhat later than the timing in earlier years to accommodate COVID-environment delays. Many New York State tax practitioners shared their insights with readers of The CPA Journal, with the number of total responses comparable to recent years. Survey invitations were e-mailed by the NYSSCPA to members with an indicated interest in tax. The survey link was highlighted on several e-zine newsletters, including one targeted to all members, as well as an “Exchange” discussion forum, to reach interested members missed by the e-mail distribution. The number of responses received was 174, compared with 177 last year. The number of ratings and profiles of respondents were generally consistent with prior years, although the mean number of entity returns and mean number of tax practitioners were somewhat lower than typical, continuing a trend of fewer respondents from large firms. Nevertheless, survey participants represented firms with a wide range of practice sizes, reflective of national demographics of tax professionals, although New York State practitioners don’t necessarily report the same views as those in national survey results.
The 2021 survey included the tax software ratings questions and provided a write-in option to rate a package not listed. In addition to evaluating tax preparation and research resources, respondents answered questions about firm practices, such as the use of client portals, payper-return pricing, and workflow management. An expanded special section on COVID-19 included new questions about the impact of the pandemic on tax practitioners. Finally, the list of possible tax season issues was updated to include topics that were identified through news articles and discussion forums during and after the tax season.
Exhibit 1 presents a profile of the 2021 survey respondents, which were generally similar to prior years. Both the mean and median number of full-time tax practitioners were lower than that reported in previous years, suggesting that fewer respondents from very large firms participated in the survey. Finally, the percentage of practice in tax of 67% for 2021 was actually a decrease toward the mid-60s average over the last several years before 2020, suggesting that 2021 respondents spend a substantial portion of their efforts in tax practice, similar to the most recent years of this survey. Similar to past years, the respondents were very experienced tax preparers, with 86% reporting that they had more than 20 years of experience as tax professionals and only 2% reporting 5 years’ or less experience.
Exhibit 1: Profile of Survey Respondents
A Few Highlights
Wolters Kluwer (CCH), Intuit, and Thomson Reuters maintain their dominance in the tax software market, with each offering multiple tax preparation or tax research products designed to serve firms of all sizes. Ratings for these vendors’ tax preparation products represented 162 (78%) of the 209 tax preparation software ratings received in 2021. The ratings for CCH, Intuit, and Thomson Reuters’ tax preparation products represented 36%, 25%, and 17% of the total, respectively. With 20% of the ratings, Drake Software was the only tax preparation package rated by a significant number of users that did not come from one of these “big three” vendors.
CCH and Thomson Reuters products represented 92 (65%) of the 142 ratings of commercial tax research software packages in the 2021 survey. With 50 and 42 ratings, respectively, CCH and Thomson Reuters received 35% and 30% of the total ratings. Two other tax research products received more than 10 user ratings, with the Tax Book and Bloomberg Tax receiving 13% and 10% of the commercial tax research package ratings, respectively.
Free websites for tax research continue to be widely used. The IRS website, state tax websites, Google searches and other Internet sources received 69% of the total tax research ratings in 2021. The breakdown between commercial package and free resource ratings was essentially unchanged from 2020.
Value for cost continues to be one of the lowest rated features of tax preparation software, and many of the survey comments reflected such concerns. For the third consecutive year, the mean rating for customer support was lower than the value for cost rating. Customer support was also the lowest rated feature for commercial tax research software. Comments from respondents suggest the pandemic has exacerbated customer service issues, as illustrated by one statement: “The current state of affairs for software support has become absolutely terrible.”
Tax Preparation Software
The survey listed 12 of the most commonly used commercial tax return software vendors and gave respondents the option of writing in the name of a package not listed. Similar to the prior year, 160 of the respondents (92%) rated at least one tax preparation software package, and 40 (23%) evaluated two or more products. Respondents reported using all but one of the listed tax preparation products; fewer than 10 ratings were received for four other products. All 209 ratings were analyzed, and these are summarized in Exhibit 2.
Exhibit 2: Ratings of Tax Preparation Software
Survey participants rated each tax preparation software package on six factors: value for cost, ease of use, customer support, availability of forms, accuracy (low error rate), and overall rating. These are the same features considered in the survey since 2015. Each factor was rated on a scale of 1 (very dissatisfied) to 5 (very satisfied). Respondents also provided an overall rating using the same scale. The average overall rating of 3.98 in 2021 represented an increase from 3.79 in 2020, and was the highest overall rating for many years, which has ranged from 3.79 to 3.95 over the last decade.
Exhibit 2 provides the 2021 ratings of the tax preparation software packages and compares averages to the previous three years. Five products received more than 25 ratings and accounted for 82% of the ratings: CCH Axcess Tax (26 ratings), CCH ProSystem fx (36 ratings), Lacerte Tax (34 ratings), UltraTax CS (34 ratings) and Drake Software (41 ratings). Two other packages were rated by at least 10 respondents: ATX (11 ratings) and Intuit ProSeries (10). Together, these seven products represented 92% of the total ratings received. The discussion that follows is limited to these providers, as the results for those receiving fewer than 10 ratings may not be representative of a broader survey of the software users. All product ratings, however, are included in Exhibit 2 for completeness.
Of the seven packages with at least 10 ratings, the overall ratings were between 3.61 and 4.63, a narrower range than observed in 2020, but similar to other recent years. Drake Software received an overall rating of 4.63, a slight decline from 4.70 in 2020, but comparable with the rating of 4.61 in 2019, and higher than the ratings of 4.37 and 4.24 in 2018 and 2017, respectively. Except for 2016, Drake Software has received the highest overall rating every year since 2010. Drake Software also received the highest rating on every individual feature except availability of forms. The second-highest overall rating of 3.94 was earned by CCH ProSystem fx, but the overall ratings for the products ranked after Drake Software were relatively close, with Intuit ProSeries ranked third (3.91), followed by ATX (3.89), Lacerte Tax (3.85), CCH Axcess Tax (3.76), and UltraTax CS (3.61). UltraTax CS was the third ranked product in each of the last two years, but has seen a decline that appears to be driven by below-average ratings for value for cost, ease of use, and customer support. The overall ratings reflected increases for CCH Axcess Tax, CCH ProSystem fx, Intuit ProSeries, and Lacerte Tax compared with 2020. The overall rating for ATX was unchanged, while Drake Software and UltraTax CS experienced decreases in the overall ratings compared to 2020.
A comparison of the weighted average rating for each feature in 2021, as compared with the rating for that same feature in 2020, shows increases in the average overall ratings as well as the average ratings for ease of use, availability of forms, and accuracy. There was a small decrease in the average rating for value for cost, and no change in the average rating for customer support.
The value for cost rating decreased slightly from 3.66 in 2020 to 3.62 in 2021. Although this is still among the highest this rating has been since this survey began in 2002, survey participants continued to express concerns about the cost of software. Respondents ranked value for cost as the third most important feature for tax preparation software; consistent with past years, Drake Software had the highest average rating for value for cost (4.78). No other package received an average rating over 4.0; this may be a major contributor to Drake Software’s high overall ratings each year.
The average rating of 3.96 for ease of use is in line with the ratings for this feature for the last decade. Respondents once again rated ease of use as the most important feature for tax preparation software, and the package with the highest ease of use rating (Drake Software) also received the highest overall rating.
For the third consecutive year, customer support was the lowest rated feature. Similar to last year, open-ended comments from respondents reflected frustration with customer support for specific products, and it is evident from Exhibit 2 that there is wide variation in the ratings across individual providers, with ratings ranging from 3.10 to 4.70. Drake Software’s average rating of 4.70 was much better than the next highest-ranked product (ATX) at 3.73. Excluding Drake Software, customer support ratings for the other providers ranged from 3.10 to 3.73, which may provide a more realistic picture of respondents’ experiences. Customer support was ranked as the 5th most important feature (out of 9 options), so although it is important, customer support is less important than several other features.
Availability of forms and accuracy were the highest ranked individual features, both with an average rating of 4.29, a modest increase from last year. Most packages were rated high on both of these features (average rating over 4). CCH Axcess Tax had the highest rating on availability of forms (4.73), while Drake Software had the highest rating on accuracy (4.54). Availability of forms was ranked by respondents as the 4th most important feature, while accuracy was ranked as the 2nd most important feature.
Consistent with previous years, the average ratings of all of the features for the tax preparation software packages were higher than 3.5 (out of 5) and have been relatively steady in recent years. This may reflect survey participants’ familiarity with tax preparation software. Respondents were asked to indicate how long they had been using the software packages that they rated. As shown in Exhibit 2, with the exception of CCH Axcess Tax, all packages had been used an average of five or more years by the respondents providing the rankings. Thus, most of the respondents would be characterized as experienced users of the software that they rated.
Exhibit 3 provides descriptive information about the tax preparation software users (for those packages rated by 10 or more participants). The sizes of the firms utilizing these vendors were generally similar to previous years. Overall, respondents rating CCH Axcess Tax and CCH ProSystem fx represented a cross-section of firm size categories, including larger firms, as well as mid-sized firms. ATX, Drake Software, and Intuit ProSeries were used primarily by smaller firms. The other products had users of all sizes, but were used primarily by firms preparing fewer returns, with fewer full-time tax preparers, and with 50% or more of their practice in tax.
Exhibit 3: Tax Preparation Software Usage
Tax Research Software
Survey participants were asked to rate the eight most commonly used commercial tax research software products, based on a review of print and electronic media. They also had the option to write in a package, as well as to rate free resources such as the IRS and state tax websites. A majority (59%) of respondents rated at least one commercial tax research software package or resource, whereas 18% rated more than one. The percentage of respondents rating a commercial tax research package increased somewhat compared with last year, but the shift toward greater reliance on free tax research resources continued in 2021. Similar to last year, 68% of respondents rated at least one free resource, and 58% rated two or more. In total, 74% of respondents rated at least one commercial or free tax research product, and 65% rated more than one. The ratings for the commercial products are higher than those for the free options, but tax practitioners clearly find value in both. The ratings for the tax research products are summarized in Exhibit 4.
Exhibit 4: Ratings of Tax Research Software
Altogether, 142 ratings were submitted for commercial tax research software packages, and an additional 309 ratings were submitted for free tax research resources. Seven write-in ratings were submitted, but most did not identify the product. Two products received 35 or more ratings: Checkpoint (42) and CCH IntelliConnect (36), accounting for 55% of the commercial ratings. Three other products received 10 or more ratings: The Tax Book (18), Bloomberg Tax (14), and CCH AnswerConnect (14). When including these three packages, the analysis covers 87% of the ratings submitted for commercial tax research software. Unlike previous years, Parker Tax Pro received fewer than 10 ratings, and was therefore excluded from the formal analysis.
Of the free tax research resources, the IRS website had the most ratings (109), followed by state tax department websites (95), Google searches (91) and other Internet searches (14). This is similar to past years.
The average overall rating of 3.69 for commercial tax research software reflects a decrease from 3.85 and 3.82 in 2020 and 2019, respectively. Of the five packages with more than 10 ratings, two products experienced an increase in their overall rating, but these were packages that received fewer ratings in general. CCH AnswerConnect increased from 3.43 to 3.87, while the Tax Book increased from 4.00 to 4.29. Checkpoint’s overall rating of 3.77 was essentially unchanged from its 3.78 in 2020. Bloomberg Tax had a sizable decrease in overall rating from 3.67 to 2.92, while the overall rating for CCH IntelliConnect decreased from 3.82 to 3.48.
The range of overall ratings for commercial packages was broader than observed in previous years, with individual overall software ratings ranging from 2.92 to 4.29 for 2021. The range of overall ratings for free products in 2021 was relatively narrow, from 3.27 to 3.56. The overall rating of all products (commercial plus free internet resources) was 3.48 in 2021, as compared to 3.52 in 2020 and 3.47 in 2019, respectively.
Respondents ranked the overall performance and five features of the tax research software packages on a scale of 1 (very dissatisfied) to 5 (very satisfied). Just as the average overall rating decreased in 2021, the average ratings for every individual feature decreased. The average rating for value for cost was 3.55, compared with 3.68 in 2020, continuing a declining trend over the past several years. The average rating for ease of use decreased notably from 3.75 to 3.38, reversing a trend of increasing ease of use ratings. This feature was rated even lower than value for cost in 2021, and the low rating is especially concerning given that respondents rate ease of use as the most important feature of a tax research software package.
The average rating of customer support also decreased, from 3.59 in 2020 to 3.29 in 2021. Customer support ratings had increased at a modest rate in each of the last several years, and this feature is the lowest rated feature for commercial tax research software. The average ratings for both timely updates and company reliability decreased relative to 2020. Although the ratings for timely updates were below historical averages, company reliability ratings are generally in line with past ratings.
The Tax Book had the highest value for cost rating (4.56), followed by CCH AnswerConnect (3.64), CCH IntelliConnect (3.44), Checkpoint (3.33), and Bloomberg Tax (2.57). Of the five commercial tax research packages with more than 10 ratings, two had an increase in the average value for cost rating in 2021, compared with 2020: CCH AnswerConnect rose from 3.43 to 3.64, and the Tax Book rose from 4.24 to 4.56. The value for cost rating for CCH IntelliConnect was essentially unchanged from 3.45 in 2020 to 3.44 in 2021. Compared with 2020, Checkpoint had a moderate decrease in its rating (from 3.56 to 3.33), and Bloomberg Tax had a larger decrease (from 2.94 to 2.57).
The Tax Book earned the highest ease of use rating for the fourth consecutive year (4.44) in 2021, an increase from 4.30 in 2020. CCH AnswerConnect earned the second highest ease of use rating (3.36), and was the only other package that rose this year (from 3.21 in 2020). This was followed by Checkpoint (3.26, vs. 3.54), CCH IntelliConnect (3.22, vs. 3.61), and Bloomberg Tax (2.79, vs. 3.69). It is interesting to note that the package with the highest value for cost rating also received the highest ease-of-use rating. Because ease of use and value for cost are ranked as the two of the three most important features for research software, these ratings take on particular importance.
Checkpoint earned the highest ranking for customer support with a rating of 3.63, close to its 3.68 rating in 2020. The second highest ranking for customer support was 3.50, earned by both CCH AnswerConnect (an increase from 3.31 in 2020) and the Tax Book (a decrease from 3.95). Next were Bloomberg Tax (3.21, vs. 3.40 in 2020) and CCH IntelliConnect (3.06, vs. 3.30 in 2020). Given that most customer support ratings declined in 2021, it is not surprising that respondents expressed concerns about customer support.
Checkpoint earned the highest rating for timely updates for the second consecutive year, with a rating of 4.46, an increase from 4.37 in 2020. With a rating of 4.00, second-ranked Bloomberg Tax earned a timely updates rating that was similar to its 2020 rating of 4.07. The two highest rated packages on timely updates were followed by CCH AnswerConnect (3.93), The Tax Book (3.69), and CCH IntelliConnect (3.57). Compared to 2020, these ratings represented an increase for CCH AnswerConnect and decreases for both The Tax Book and CCH IntelliConnect. Respondents rated timely updates as the second most important feature of tax research software, meaning these ratings have an important impact on overall ratings.
Finally, the company reliability ratings decreased overall from an average of 4.15 in 2020 to 4.03 in 2021, close to the average of 4.01 in 2019. The Tax Book earned the highest company reliability rating (4.38), followed by Checkpoint (4.30), CCH AnswerConnect (4.13), Bloomberg Tax (3.92), and CCH IntelliConnect (3.62). Compared to 2020, the average company reliability ratings increased for The Tax Book and CCH AnswerConnect, was stable for Checkpoint, and decreased for Bloomberg and CCH IntelliConnect.
All of the commercial tax research software packages for which more than 10 ratings were received have been used by respondents for five years or more, suggesting participants are relatively experienced users.
Just as in the past several years, the number of ratings received for the free tax websites far exceeded those received for commercial tax research packages, as they have become a more popular source of tax research material for tax professionals. Except for Google searches, the overall ratings for all of the free resources decreased modestly from 2020, but are at essentially comparable levels to previous years, at 3.32 for the IRS website, 3.32 for state tax websites, 3.56 for Google searches, and 3.27 for other Internet searches.
The IRS website once again received the most ratings (109) of all commercial and free research tools, but it was closely followed by ratings of state tax websites (95 ratings) and Google searches (91 ratings). Other Internet searches received a comparatively small number of ratings (14). As in past years, value for cost is the most highly rated feature and customer support is the lowest rated feature for all of the free tax research resources. The value for cost ratings for all four free resources increased from 2020, perhaps reflecting an improved comfort level with free resources combined with frustration with the cost of commercial resources. Ease-of-use ratings decreased somewhat for both the IRS and state tax websites, while increasing somewhat for both Google and other Internet searches. Customer support ratings decreased across the board, but because all of these free resources offer limited to no customer support, the ratings tend to be below 2 (on a scale of 1 to 5). Timely updates ratings decreased for all free resources except Google searches. Company reliability increased for both the IRS and state tax websites and is at a somewhat higher level than that of Google and other Internet searches, both of which had decreases in company reliability ratings compared with 2020.
The ratings for the free resources have moved toward a relatively steady level, and for some features the ratings do not vary significantly from one free resource to another. All of the values for cost and customer service ratings are similar. Ratings for timely updates and company reliability are generally higher for the IRS and state tax websites, although not substantially so. Although survey respondents found Google and other Internet searches to be a helpful tool, they appear to recognize that the official IRS and state tax department websites are more reliable for obtaining and confirming technical tax guidance.
Exhibit 5 provides descriptive detail on the tax research software users. Similar to past years, Bloomberg Tax, both CCH products, and Checkpoint have users across all firm sizes, whereas the Tax Book is used almost exclusively by smaller firms. The IRS website, state tax department websites, and other Internet resources were used across all firm sizes, but have a disproportionate amount of usage by smaller firms with large tax practices; this is similar to previous years.
Exhibit 5: Tax Research Software Usage
Other Technology Issues
The top-rated software by feature, summarized in Exhibit 6, shows that Drake Software dominated the ratings for tax preparation packages in 2021, with the top overall rating and the top rating for every feature except availability of forms, which went to CCH Axcess Tax.
Exhibit 6: Providers with Highest Ratings
There has been less consistency over time in the ratings for tax research software. The Tax Book earned the highest overall rating for the third time in four years and the top rating for value for cost, ease of use, and company reliability. Checkpoint earned the highest ratings in customer support and timely updates.
Which tax software features do practitioners consider the most important? Exhibit 7 reveals participants’ averaged preferences. For tax preparation software, accuracy and ease of use have consistently been the two most important features, although they have switched between first and second place in some years. In 2021, ease of use was rated most important, followed by accuracy. These features were followed by cost, availability of forms, customer support, availability of states, familiarity, data security and company reliability, in third to ninth place in order of importance. After accuracy and ease of use, the ranking of the remaining features has been fairly consistent in prior years, until 2021 when there was a noticeable shift in the order. The continued low ranking of data security is interesting, but not because this doesn’t matter; perhaps data security is assumed to be at an appropriate level for all packages and is important enough to be covered by other practices within firms.
Exhibit 7: Important Software Features
For tax research products, ease of use, timely updates, and cost were the top three most important features to 2021 respondents. These same three features have typically ranked as the most important in past surveys. Notably, the most important tax research features show a sizable gap between the top three and the remaining qualities. In 2021, the next most important features for tax research software were company reliability, availability of state information, familiarity, and customer support. The order is somewhat different than last year, but the rankings of features have tended to be inconsistent after the top three, so it is difficult to interpret this change.
In 2021, the Tax Book had the highest rating for two of the three most important tax research features, ease of use and value for cost. Checkpoint held the highest ranking for the second most important feature, timely updates.
Exhibit 8 summarizes responses with respect to other technology issues. Most vendors offer online versions of their software. In 2021, 44% of respondents used the online version of tax software, as compared to 45% in 2020, 38% in 2019 and 2018, and 31% in 2017. This may indicate that the use of online versions has leveled out. However, another 10% did not currently use the online version, but were considering it, so there may still be some growth. The use of portals for clients to upload tax data documents among survey respondents increased to 55% in 2021 from 48% in 2020, and 51% in 2019, 46% in 2018, and 40% in 2017. It is interesting that the reported use of portals actually decreased in the first “COVID Year” (2020), and the increase in 2021 is possibly just a return to the previous pattern of expanding adoption. Another 15% of respondents indicated that they were considering adopting this practice, similar to 14% in 2020.
Exhibit 8: Other Technology
Although software companies promote the use of pay-per-return pricing as a way to reduce tax return preparation costs, survey respondents have reported decreasing use of this feature over the last several years, with only 25% using pay-per-return pricing in 2021 (compared with 28% in 2020 and 35% in 2019). Several industry publications predicted an increase in outsourcing tax preparation activity due to the remote working environment; only 6% of respondents, however, reported that they outsourced some tax preparation activity, the same percentage as 2020. In the history of this survey, outsourcing has remained at approximately 6%, with those not currently using outsourcing but considering it ranging from 2% to 6%.
Several of the tax preparation software packages rated by respondents allow adopters to integrate practice management software or other applications with tax preparation software. In 2021, 25% of participants indicated that they currently use integrated applications, with another 14% considering it, a nominal change from 2020. Respondents who viewed integration as important to their practice decreased slightly from 39% to 37%, contrasting with 20% reporting that they did not integrate at all, compared with 29% in 2020. Overall, the practice of integration has been fairly constant, but interest in adoption by non-users has declined.
Although most survey participants have not changed tax software in the last five years, 29% had changed either tax preparation software (20%), tax research software (5%), or both (4%); these percentages are comparable with 2020. Another 9% of respondents indicated that they plan to switch tax software within the next year, including 2% who plan to switch both tax preparation and tax research software, a small decrease from 2020. The most frequently cited reason for changing software was cost (60%), but some gave other reasons for switching as well. The most common factor after cost was desire for more features, although improved ease of use, dissatisfaction with customer support, and technology issues were also frequently cited. One representative participant stated, “Tax software and research software is great if you buy top of the line. Once you trim out the offering to fit your budget, then you are missing something and the products are less than perfect.” Several respondents provided write-in comments suggesting that they are dissuaded from switching software because of the learning curve associated with new software, as well as losing carryforward information.
The importance ranking on customer support (see Exhibit 7) returned to pre-2020 levels after an increase in 2020. This may reflect users’ greater comfort with working from home in 2021. However, actual contact with vendors’ customer support was broadly similar to previous years, including 2020, with some modest shifts in usage of support options. Consistent with previous years, telephone assistance was the most commonly used option, with 42% of participants using it often or frequently and 53% of participants using it occasionally. E-mail contact was accessed often or frequently by 15% of survey respondents and occasionally by 45%, representing a decrease in the percentage using e-mail often or frequently more than offset by those using it occasionally. Similar to 2020, in 2021 online assistance was used often or frequently by 27% of respondents and occasionally by 45%. Live chat usage was comparable to 2020, with 15% using it often or frequently, and 38% using it occasionally.
One respondent brought up two COVID environment–related reductions in the quality of customer support. First, increased cybersecurity fraud has added layers of authentication to even be able to communicate with customer support. Second, with software support personnel working from home, “the voice connection of the support representatives is also abysmal and one can hear their variety of background noises.”
Tax Season Challenges
Despite optimism that the pandemic would not have a significant impact on the 2021 tax season, the reality was that it continued to influence the profession in substantial ways. During spring 2021, 45% of respondents indicated that more than 75% of their tax professionals were working from home, and an additional 8% reported that more than 50% of their tax professionals were working from home. Overall, approximately one-fourth of respondents predicted that, moving forward, none of their staff will work from home, whereas another one-fourth expect that all will work remotely. This, of course, leaves 50% in the middle with varying levels of remote operations. Furthermore, 28% of respondents anticipated no change in the percentage of professionals working from home in the future, whereas another 28% expected an increase in the percentage of professionals working from home or a move to all professionals working from home. Only 10% of respondents expected to see a return to pre-COVID operations as soon as possible.
Although the respondents to this survey are probably more reflective of average small-to medium-size firms, it is interesting to contrast this to the direction the Big Four have taken. PricewaterhouseCoopers recently announced that all 40,000 of its staff (both audit and tax) will work remotely for the indefinite future. Ernst & Young has continued to operate remotely, even though its U.S. offices are largely open. KPMG has promoted its “work anywhere, together” strategy, and Deloitte has indicated that employees will be able to negotiate for their preferred arrangements.
More than half of the survey respondents predicted that they expect a number of issues related to the COVID environment to impact CPA firm practices in the future:
- Challenges communicating with tax authorities due to government personnel working remotely (72%)
- Keeping up with changes in tax law and pandemic-related provisions (63%)
- Increase in cybersecurity attacks on CPA firms/personnel (60%)
Additionally, more than 48% of respondents anticipated an increase in cybersecurity attacks on clients and challenges with software/hardware due to firm staff working remotely. On a positive note, only 25% expected software or hardware challenges due to clients working from home, and only 18% predicted challenges in working with software providers. Thus, the survey participants are realistically expecting some level of new challenges associated with the pandemic and changes in the structure of their practices in response to COVID.
In addition to the unique trials posed by the COVID-19 pandemic, the survey asked respondents about the extent to which several other concerns created problems for them during the 2021 tax season, summarized in Exhibit 9. The issues included in the survey were identified from news articles and discussion boards monitored during the season. A large majority of respondents experienced problems arising from waiting to speak with an IRS representative, with 89% reporting minor or significant problems, an increase from the 79% reporting these problems in 2020. Although the percentage of respondents who had significant problems obtaining assistance from a New York State or City representative decreased somewhat, 67% reported minor or significant issues with this process, compared with 60% in 2020. The majority of respondents reported no problems with rejection of e-filed returns due to identity theft, but minor or significant problems were experienced by 43%, as compared with 36% in 2020; fortunately, most of those experiencing problems characterized them as minor. Finally, 50% of respondents indicated that they experienced minor or significant problems due to phishing or malware e-mails, up from 40% in 2020, although again most characterized the problems as minor. Clients notifying tax professionals of phishing or malware emails related to tax caused minor or significant (mostly minor) problems for 44% of survey participants
Exhibit 9: Tax Season Problems
Several compliance-related issues unique to the 2021 filing season also resulted in problems for respondents. The delay in the IRS processing start date to February 12 caused minor or significant problems for 74% of respondents, while the extension of some filing deadlines to May 17 resulted in minor or significant problems for 72% of respondents.
Some challenges were related to technical tax law issues associated with the pandemic; for example, 68% of respondents experienced minor or significant problems with PPP loans (determining the taxable status, forgiveness, and expenses paid from the funds). Assisting clients with refunds of tax paid on unemployment compensation resulted in minor or significant issues for 63% of respondents, and assisting clients with additional tax credits under the American Rescue Plan Act caused minor or significant problems for 70% of participants.
The IRS is now organizing its Dirty Dozen list of tax scams (IR-2021-135) into four categories that reveal the largest sources of fraudulent activity; these include pandemic-related scams, personal information cons, ruses focusing on unsuspecting victims, and schemes to take unscrupulous actions. In a press release (IR-2021-65) dated March 25, 2021, IRS Criminal Investigations (CI) marked the one-year anniversary of the CARES Act by reporting that it had investigated 350 tax and money laundering cases totaling more than $400 million in fraud related to Economic Impact Payments, the Paycheck Protection Program, and the Employee Retention Credit. Many of the individual cases highlighted in 2021 press releases reveal COVID-related fraud in the millions of dollars. In addition to these fraudulent reporting and application schemes, IRS CI states that taxpayers are also at risk from phishing emails, letters, texts, and links that use keywords such as “COVID-19” and “Coronavirus.”
The TIGTA report, “Interim Results of the 2021 Filing Season” (Ref. No. 2021-40-038, May 6, 2021) indicated that the number of potentially fraudulent returns stopped from processing decreased more than 90% between 2020 and 2021, but did not provide any further analysis if this was due to a processing backlog or if fewer suspected fraudulent returns were being filed (https://bit.ly/3GHfXow). An unexpected consequence of the IRS backlog, however, is that taxpayers’ 2020 tax returns were being rejected from e-filing if the 2019 return had not yet been processed. E-filing acceptance requires taxpayers’ prior year adjusted gross incomes, but they were not recorded in the IRS records because the 2019 returns had not yet been processed.
The 2021 TIGTA report indicated that the IRS was able to reduce the number of fraud filters that it uses to detect identity theft, which hopefully resulted in fewer false positives. The IRS was actually able to confirm, and stop processing on, about 25% more identity theft returns in 2021 versus 2020. The National Taxpayer Advocate (NTA) Publication 4054 “Objectives Report to Congress: Fiscal Year 2022” (June 2021) reported yet another consequence of IRS reduced public contact (https://taxpayeradvocate.irs.gov/reports). The number of unresolved identity theft claims filed by taxpayers ballooned from 26,000 in 2020 to over 227,000 in 2021—a more than 10-fold increase. The IRS Identity Theft Central webpage (https://www.irs.gov/identity-theft-central) is a good source of information for individual and business taxpayers, and also a helpful reference for tax professionals.
The Cost of Tax Software
For many of the commercial packages discussed in this article, the cost of tax software options is not publicly available, and is often tailored to specific customer preferences and the number of users. The pricing structures for tax preparation software vary widely across products, with some offering a flat fee for unlimited returns and others using per-return pricing. Additionally, some software prices include both individual and entity returns, whereas others are available separately. Many vendors prefer to discuss this information on a customized basis with potential customers. An unofficial listing of prices, as of October 2021, for products covered in this survey will be available at https://www.cpajournal.com.
The 2021 tax season posed several challenges to tax practitioners. The season started late and witnessed multiple delays due to an IRS processing backlog and filing deadline extensions. New tax laws were passed into the tax season period of dynamic compliance activity. But professionals adapted and used tax software to meet their clients’ needs. Most New York State tax practitioners continued to function in a remote work environment, and now anticipate that at least a sizable percentage of their employees will continue to work from home. Despite some frustrations with the cost of tax software and the level of customer service provided, survey respondents expressed overall satisfaction with both tax preparation and tax research software. The software they use meets their needs, is generally user-friendly, and has become familiar to them. Most respondents are experienced software users and plan to continue using the same software packages into the future.
Many respondents to last year’s survey reported considering technology enhancements such as adopting integrated practice management software, but with the exception of an increase in the reported usage of client portals to upload tax data and documents, this year’s survey did not reveal major changes. Processing backlogs plagued the IRS, resulting in a notable decline in its ability to handle taxpayer inquiries on a timely basis. Survey participants faced this issue, with 89% experiencing minor or significant problems contacting the IRS for assistance. Two-thirds of respondents reported similar issues obtaining assistance from New York State or City tax authorities. There was also an increase in the percentage of respondents reporting minor or significant issues associated with rejection of e-filed returns due to identity theft—not surprising, given trends reported by the IRS with respect to identity theft.
In the 2021 annual survey, New York State CPAs generally expressed satisfaction with commercial tax preparation and tax research software resources, as well as with free online tools. The average ratings for both tax preparation and tax research software were generally consistent with previous years, although ratings for some products reflected more substantial changes. In 2021, ease of use was selected as the most important feature for tax preparation software, followed by accuracy (low error rate) and cost. For tax research software, ease of use was rated as the most important feature, followed by timely updates and cost. While the order of the top three features has shifted from year to year, the same three qualities have consistently emerged as the most important for tax preparation and tax research software, respectively, over the past several years.
Drake Software, a lower cost option for tax preparation software, took the top rating overall and for most features. The Tax Book was the highest overall rated of the tax research products, regaining its top ranking after two years during which it was surpassed by other products; it also received the highest ratings for several features. Both of the top-rated packages received the highest ratings for ease of use and value for cost, two features that respondents consider among the most important.
There are many options when it comes to tax software, including free resources for tax research applications, which are increasingly used by tax professionals. Survey respondents included some practitioners requiring high functionality and quality, and others needing low-cost options. Although write-in comments highlighted concerns with customer support and cost, package ratings reflected overall satisfaction with software. The ratings of individual features and overall satisfaction reported from the 2021 survey should help those who wish to consider the different packages. The website information for the tax software vendors rated by 2021 survey participants is listed in Exhibit 10.
Exhibit 10: Tax Software Vendors
Susan B. Anders, PhD, CPA, CGMA is the Louis J. and Ramona Rodriguez distinguished professor of accounting at Midwestern State University, Wichita Falls, Texas.
Carol M. Fischer, PhD, CPA (Inactive) is professor emerita of accounting at St. Bonaventure University, N.Y.
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