Tax returns have always had a grueling route from scraps of receipts in a shoebox to scrutiny in the halls of the Internal Revenue Service. Now, some are taking a more circuitous detour — through India.
The accounting industry has recently begun using the burgeoning India outsourcing and technology markets to process American clients' returns. In some cases, the work being performed is replacing tasks of U.S. accountants.
So information like your salary, your bank and brokerage statements, credit card information, and anything else that you might be submitting as part of your tax return could be going to companies abroad without your knowledge.
“It's not simply data entry,” said Kevin Robert, chief executive of CCH Tax Compliance, a tax software company that provides software for an India-based outsourcer. “We're taking in raw tax source information and there're going to be levels of interpretation.”
While small now, observers predict it will soon be the way the majority of accounting firms handle individuals' taxes. About 20 firms sent 1,000 returns to India last year on a “pilot basis,” said Gary Boomer, chief executive of Boomer Consulting Inc., a consulting firm for the accounting industry in Manhattan, Kan. This year, he thinks 50 firms are using these services and that about 25,000 to 45,000 tax returns will be processed in India.
The country has become a huge technology center over the past several years, with many U.S. corporations hiring out functions like data processing and customer service. The work force is both skilled and less expensive than U.S. counterparts.
Accounting firms typically gave many of the duties being sent overseas to their junior accountants, who would handle the initial preparation process.
Ernst & Young LLP now sends about 5 percent of its tax returns to India for the first fill-out, said Alan Kline, national director of tax compliance. The firm doesn't consider it outsourcing, however, because the processing center is Ernst & Young's India office, Kline said.
Smaller firms are partnering with third-party companies that specialize in providing skilled labor in India, like India-based Datamatics Ltd. or Outsource Partners International of New York.
While sending returns to India might be a boon for accountants, there are some growing concerns from critics. Chief among the worries is the level of training the workers at the outsource centers receive, particularly since they tend to have no background in U.S. tax law.
“We're looking at sophisticated tax returns” that may take a junior accountant two years to master, said Gary Shamis, managing director at SS&G Financial Services, a CPA firm in Cleveland, Ohio.
SS&G had meant to test an outsourcing program this year with 100 returns, but stopped after 16 because there were too many problems, said Shamis. “They didn't get the right answers.”
Others worry that transferring private financial information to another location could result in increased identity theft.
To protect financial information, some outsourcing centers will eliminate the ability of workers to download data, print, scan or copy.
To alleviate quality concerns, companies that offer outsourcing in India promise to hire only chartered accountants with an education at least equivalent to a certified public accountant designation and training in U.S. tax law.
Accounting firms also maintain that quality is protected because responsibility for accuracy still rests with the U.S. firms and the signing accountants, who continue to conduct reviews of all returns.
“What we make very clear is that we are responsible for anything that goes out,” said William F. Rucci Jr., a founding partner of accounting firm Rucci Bardaro & Barrett of Malden, Mass.