Staying Sharp: A Look at Tax Return Preparation Through the Decades– March 06, 2018

Cohen & Company Partner Mike Kolk tells what it was like preparing tax returns “back in the day,” how the process has evolved over the firm’s 40-year history and what the future of tax return prep may bring.
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Picture it: A group of accountants at their desks, sans computers, filling out stacks of paper forms detailing every tax nuance of their clients’ lives for the previous year — stopping periodically to reference the resource library (of actual hardcover books and “onion skin” paper inserts) to find the latest mileage reimbursement amount or this year’s allowable deductions for new equipment.
 
The process of preparing a tax return in the early days of the firm’s existence may seem arduous, but that’s how it was back in 1984 when Mike Kolk started his first tax season at Cohen & Company fresh out of college. While returns weren’t prepared entirely by hand, tax accountants were filling out and adjusting the bulk of the returns with a trusted No. 2 pencil.
 
“We had a pile of computer input forms to complete for each client with all of their information for the past year,” remembers Kolk. “We’d hand the completed sheets to an administrative assistant who would bundle all of the client packets every day and mail them to a service center in Dallas, Texas, for data input.”
 
The handwritten information provided by the firm was input into a giant computer that was, in Kolk’s memory, “as big as six rooms and had the computing power of an early-generation PlayStation®.” The computer would calculate and print out the returns, along with related diagnostic material, before all was shipped back to Cohen & Company. The first thing the accountant on the job did was reconcile the numbers.
 
“Easy-peasy out the door if you and the computer came out with the same answers,” says Kolk. “If things didn’t match up, you had to go back and figure out ‘who’ was right. Unlike today where computers automatically update and recalculate as you go, back then if something got missed it meant correcting it on a new form and sending it back to Dallas to change the data, recalculate, reprint and reship. It took a lot of nerves, transportation and labor costs to meet a deadline in those days.”
 
While the process offered an extra layer of assurance that calculations were accurate, it pushed accountants up against the ropes, especially if they were into the October extension filing season.
Unwilling to settle for status quo, Cohen & Company recognized the importance of investing heavily in technology to stay ahead. The firm evolved from the outsourced system to its own dedicated keypunch terminal and a few desktop computers in the late ’80s; to a Windows-based program in the early ’90s with personal computers for everyone; to laptops in the late ’90s.
 
“Ironically, the Windows solution was the worst tax system we ever experienced in our lives, not to mention we couldn’t have switched at a worse time” says Kolk. “Computers crashed while we were doing returns. It was so bad we actually got the vendor to reimburse us for the entire price of the software.”
 
As technology eventually improved, so did other areas in the return process, such as how clients and the IRS received final returns. Clients saw the large paper packages of the ’80s and ’90s replaced with
CDs, then electronic PDF copies, and most recently portals for larger and more complex entities.
 
Electronically filing returns with the IRS was also a complete game changer when the IRS upgraded the capability about 10 years ago. Even the way the firm tracks a return’s progress has undergone a digital transformation, with its own proprietary “pink sheet” web-based tracking system (named after the pink handwritten sheets from the old days) to further enhance efficiencies. 

New Expectations, New Opportunities

Thanks to technology, everything from researching tax code to preparing, proofing and filing a return is more streamlined.
 
“Improvements in technology certainly don’t mean simplified returns,” warns Kolk, “particularly as state and federal tax regulations become increasingly complex. However, the differences in our research materials, from large volumes of books that came with paper updates every two weeks to having everything at our fingertips online, has changed our world as tax accountants,” says Kolk.
 
The increase in efficiency and speed, from the time a client provides information to when the return is e-filed, also has improved the client experience.
 
“Turnaround time has gotten light years faster,” says Kolk. “Clients can see their tax liability almost immediately. Before it would take days to get them an answer.”
 
As the firm has grown, so too has the Tax Department, which is now more than 250 strong.
 
“We used to start our Thursday morning tax meetings reading the Wall Street Journal weekly tax column to the entire department, sitting around one conference table,” recalls Kolk. “That was our opener for the meeting. That and doughnuts. Back then we all had to know about everything. Now, because of our size, we can be more specialized. We have much deeper knowledge in specific areas to help our clients in more complex situations.” 

Some Things Never Change

While the tax code continues to evolve and becomes trickier in some ways, Kolk says, in essence, nothing much has changed.
 
“There were major tax code overhauls in 1939, 1954 and 1986, and of course we can’t ignore the significant changes we are dealing with now from the Tax Cuts and Jobs Act of 2017,” he says. “But in general, the underlying system doesn’t really change. Politicians will continue to layer new code sections on top of old ones, which begs perspective from those of us who have been around long enough to piece together old and new opportunities. Same soup, just different ingredients with each new head chef.”
 
The reason clients seek out the tax professionals at Cohen & Company hasn’t altered much over time either.
 
“Business owners want us to figure it out,” says Kolk. “While areas of attention come and go — like retirement or investment incentives — the goal of paying the least amount of tax allowable by law generally stays the same.”
 
Perhaps one of the biggest constants over time has been how Cohen & Company has maintained the innovative and collaborative tax culture Founder Ron Cohen and other early partners created.
 
“Even amongst significant growth, we have been able to maintain the cultural roots this firm was founded on,” says Kolk. “From weekly tax lunches, to sharing creative ideas and solutions with colleagues, to interacting socially to maintain our camaraderie — it’s all very important to what we do and is a great source of pride and identity.” 

To Infinity … and Beyond?

What other changes might be in store for the next generation of tax preparers (and taxpayers)? Kolk suggests someday, “way down the road,” the income tax itself could become a thing of the past, possibly replaced by a VAT-type of tax. And technology, of course, will continue to be a driving force, with artificial intelligence likely gaining headway and changing the makeup of accounting firms and compliance enforcement for the IRS.
 
“We’ve already seen many solo practitioners replaced by popular do-it-yourself tax programs and other online options,” says Kolk. “Robots doing the job of entry-level tax accountants is not science fiction. It’s coming. The IRS also likely will tap into this growing field to help cross-check records and more efficiently hold taxpayers accountable. But regardless of what’s in store related to technology, additional reform or other government changes, the firm will be a thought leader in the process and thoroughly prepared.”
 
Please contact Mike Kolk at mkolk@cohencpa.com for further discussion.
 

Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.