Revolutionizing tax preparation

The advancement of technology has allowed for the tax preparation process to be entirely computerized.

It seems not so long ago that accountants prepared personal tax returns with paper and pencil. They had adding machine tapes, the latest copy of the Income Tax Act, a stack of information slips and the telephone at their side. They required the telephone to call clients and tax authorities for missing information. And they weren’t always able to get the necessary carry-forward balances and other information from the tax department by phone, so they sent letters and hoped to get a reply before the tax returns were due. Usually, they filed the returns with the information they could get, and hoped that the changes made on assessment or reassessment were not too dramatic.

The mid- to late ’80s saw the introduction of computerized income tax preparation software into the Canadian market. Canada Revenue Agency (then known as Revenue Canada) gradually developed standards and procedures that allowed computer-generated and printed returns to be filed with the agency. By the mid-’90s it was possible to file returns electronically using various forms of electronic-data interchange. The written, copied and printed forms were disappearing and the annual rush to the post office on the evening of April 30th was replaced by the last minute transmissions and that dreaded wait for the acknowledgment reports.

Although most of the preparation, processing and transmission of returns had been entirely computerized by the turn of the century, one large piece of the puzzle still remained primarily a manual process: accessing information from the CRA. Most of the historical information on taxpayers was stored on CRA computers, but it could only be accessed by tax preparers via telephone, fax or mail request. With ever-increasing volumes of information and requests for it, the telephone (and fax) infrastructure was frequently overwhelmed, and tax preparers were finding it more and more difficult to obtain information on a timely basis.

CRA took its first step toward addressing this problem in 2006, when it introduced a means for tax preparers (with authorization from their clients) to access parts of their personal-tax clients’ databases through a service called Represent a Client (RAC). The next year, RAC was expanded to include business-tax clients as well. In these first years of RAC, only basic information such as prior year tax returns, assessment notices and statements of account was made available.

Over the years that information was expanded to include copies of some information slips. CRA also added the ability to request adjustments to prior returns and file some information returns (such as GST), all from within RAC. By 2012, the tax preparer needed only to reach for his or her computer, instead of the phone, to find that missing information.

Once CRA and tax preparers realized how much time could be saved and how many errors could be avoided by using RAC, there was no turning back. Two different projects introduced early 2013, one from CRA and one from CCH Canada Ltd., heralded a quantum leap in the tax preparer/CRA relationship.

In the first of these projects, CRA made it possible for tax preparers to forward information or documents to the agency through the RAC module. For many tax preparers, having to respond to CRA requests for information by photocopying or faxing documents was one of the most frustrating parts of the engagement. Fax numbers would ring busy for hours, faxes would be interrupted during transmission or the assessor would not receive any or all of the fax.

By allowing a preparer to attach files and documents directly in RAC, the module made communicating with CRA much easier and more efficient. The potential of using RAC for two-way communication augurs very well for future relationships between CRA and tax preparers.

The second project, introduced concurrently by CCH Canada (Taxprep), is equally promising. For a number of years, the company had received inquiries from its development partners (a number of client firms) about the possibility of having Taxprep pull in the information from RAC directly. Instead of having to launch RAC, authenticate oneself as a valid user, enter the client’s SIN and then search through literally dozens of web pages to find and print the data, and then manually enter that data into the client’s tax file, the partners thought it would be wonderful if the software just “imported” all that data directly once users had authenticated themselves.

CCH set out to develop such a “webscraping utility,” which it hoped to include with its 2012 T1 software. The company presented its project to CRA early in 2012, hoping approval would be granted prior to the introduction of the production version of the T1 software between late January and mid-February of 2013. The product was to be called TaxprepConnect and a number of development partners were chosen to test this new utility while using early pre-production versions of the T1 software. To address matters of taxpayer security, users would have to re-enter their user RAC user name and software each time they launched the software (i.e. the authentication information would not be saved in software configuration between sessions).

The development partners used early versions of the software to download information from RAC directly into client tax files for hundreds of clients and the response was overwhelmingly positive. When the production version was released, CCH had not yet received approval or rejection from CRA, and the decision was made to activate TaxprepConnect for general use.

As a result, for the first two weeks in March 2013, all users of Taxprep T1 for 2012 were able to update client carry-forward balances and all information slips available from RAC were imported directly into the software and used to populate the data fields in the client’s income tax file. By mid-March, however, CRA voiced a number of concerns about potential problems this could cause with server capacity and the efile process in general, as well as some security and other considerations. In response, CCH immediately deactivated the service. The concept had certainly been proven but, ironically, its overwhelming popularity might have contributed to its early suspension.

In July 2013, the CRA created a working group with software developers to discuss a solution that would make the tax preparation process easier for third-party preparers as well as for individuals. CRA seems confident about the outcome of the process; as one representative noted: “We are confident that this collaborative effort between the CRA and software developers, including CCH, will provide an end solution that facilitates the filing of taxpayers’ returns in a secure, efficient, and accurate manner.”

Now that the tax professionals have had a small taste of what can be accomplished when software developers are granted access to the data already available through RAC, it will be very difficult to put the genie back in the bottle. Will the RAC platform finally be the conduit for secure two-way communication between tax preparers and CRA? Will the continuing discussions between software developers and CRA result in further use of webscraping techniques for direct access of RAC on an interim basis and will CRA ultimately develop its own utilities to directly export the information from their site?

The answers, for the moment, remain elusive. But one thing is for certain: we have seen the future and it is now!