Tax Automation Comes Of Age

From the Jan./Mar. 2008 Issue

Just two preciously short years ago, no software existed to help accountants organize the (ever-growing) stacks of client tax compliance source documents. And the thought of auto-magically harvesting data from those documents and directly pushing into tax preparation software was a glimmer in the minds of a few thought leaders. In 2004, a group of forward-thinking Florida CPAs asked a custom software developer to help them solve a workflow problem, and a few months later BOCDIP was released and a whole new genre of software was born.

The process, which looks deceivingly simple, scans a 1040 client’s tax documents (“stuff” is the operative term of art) and sorts the pages into a logically organized, bookmarked PDF file. Then, using dual monitors displaying this organized PDF as “workpapers” on one screen and tax compliance software on the other, a professional tax person can prepare a return paperlessly. The idea was much better than the early implementation, but, despite early warts, BOCDIP (Bag of Crap Document Imaging Process) resonated positively throughout the profession, and many firms were very interested. BOCDIP was soon acquired by CCH and renamed as ProSystem fx Scan … and the genre quickly gained credibility. Suite style competitor Thomson paid attention and quickly rolled out a similar product called TaxFlow in its GoFileRoom document management system. These products utilize a combination of OCR (Optical Character Recognition), ICR (Intelligent Character Recognition), and biometric pattern recognition (think fingerprint or face matching software) to figure out what each particular document is and then arranges and bookmarks it appropriately in a PDF file.

In prior years, many well-run firms had an administrative assistant who had been trained, often over the span of many years, to recognize most items and arrange them in proper order. Some firms use interns for this process. All are usually instructed to file unrecognized forms in a special “miscellaneous” folder where we, as tax professionals, can quickly find and identify them. Sometimes this identification process is done ad hoc (“Hey boss, what’s THIS form and where does it go?”), and sometimes questions are accumulated (“Boss, I put these unidentified forms in this folder. Can you tell me what they are and where I should file them in the future?”). The trick with all three — a long-time admin, an intern or a software program — is to determine how MANY forms they can recognize and how ACCURATE is that recognition. The currently available products vary wildly in their abilities, just like those long-time admins or interns!

About the same time, industry visionary Dave Wyle’s SurePrep released 1040SCAN, which very quickly moved the game up a notch ... or two! Suddenly, it wasn’t enough to simply “scan & organize,” as “scan & populate” had arrived. The 1040SCAN product not only scans and organizes, but it actually “reads” the numbers off the forms it’s identified and transfers the data it reads directly into tax compliance software. Many practitioners are chuckling now because we’ve all had long-time admins and/or interns doing the same thing. That WAS once considered a best-practice. Not anymore. Now there is definitely a new sheriff in town.