‘There But For The Grace Of God Go I.’

My un-named friend was exactly correct: The problem could have happened
to any one of the tax compliance vendors. The 2001 Arthur Andersen
debacle was similar in that afterwards, almost all honest practitioners admitted,
at least privately, that “it could have happened to any of us.”
I’ve had the opportunity to visit with nearly every tax compliance vendor
over the past few weeks, and, privately, each did admit either similar problems
(smaller scaled and without coinciding with a filing deadline) or very close
calls. Technology is fragile. As expected, these same vendors then proudly
pointed to their own (relatively) error-free recent history.

Overworked practitioners emerging from a long tax season of 70+
hour weeks don’t always logically or reasonably analyze this sort of
problem. Not only are they understandably stressed, they simply don’t
have enough facts to fully understand and react. The processes and procedures
in place at each vendor are extensive — far more stringent than those
in ANY accounting firm. All vendors have automatic fail-over, redundant systems
that are tested regularly both internally and by the IRS. All vendors know
and understand the seasonality of our profession, and they design their systems
to meet that peak. Contrary to public opinion, what happened at Intuit was
not necessarily a volume problem. It was actually a database error unrelated
to volume. There is no doubt that, had the problem occurred a month earlier,
Intuit would have had a better chance to react and solve the issue. The sheer
number of practitioners affected by the problem apparently made timely communication
difficult, if not impossible. Later that week, when I visited with Intuit’s
Professional Tax Division VP, Sasan Goodarzi, he explained it as a database
overflow problem exacerbated by very high filing volumes.

Only a handful of competitors are left in the tax compliance market.
The “Big Three” consists of Intuit, CCH and Thomson. Intuit is
the clear leader with over 107,000 firms using its ProSeries and Lacerte products.
CCH follows, having just last year bolstered its 23,000+ ProSystem fx users
with 30,000 ATX and 9,000 TaxWise users. Finally, rounding out the triad,
is Thomson Tax & Accounting with its 21,000 UltraTax CS and 1,200 GoSystem
Tax RS users. That leaves Drake (20,000), Orrtax (12,000), and TaxWorks (4,000,
and recently acquired by consumer tax giant H&R Block), and upstart Orange
Door (user count currently estimated at fewer than 100) as the remaining professional-grade
products in the market.

The e-filing components of these all provide essentially the same service
— they produce a properly formatted file and provide a transmit vehicle
to the vendor where those files are aggregated and forwarded to the IRS and,
if applicable, state taxing authorities. The number of returns actually e-filed
by these programs varies wildly. As expected, a relationship can be established
between the number of user firms and the number of e-filed returns actually
transmitted on each of these platforms. However, that relationship is not
determinative because the demographics of user firms are so different. Many
small tax-driven firms produce tens of thousands of 1040s each year —
volumes that dwarf many of the largest full-service tax and accounting firms
that often produce fewer but more complex returns. Interestingly enough, these
more complex returns have not, until recently, been e-filable. The net result
is that some smaller user bases actually file huge numbers of returns. The
chart to the left details the breakdown (by vendor and product where available)
of the number of e-filed returns over each of the last three years. A quick
glance reveals that Intuit users file more returns than all other competitors
combined. [An interesting aside: The percentage of total e-filed individual
returns professionally prepared has remained fairly constant over these years
at about 60 percent.]

Intuit stands alone among its above-named competitors as the one
also servicing the “do-it-yourself” consumer market. Its
competitors are hitting hard on this fact in advertisements and direct mailers.
Clearly, the gloves are off.

The formerly fanatically loyal Lacerte user groups seem to continue
to bubble over with anger directed (in my opinion, it’s actually MIS-directed)
at Intuit. It’s fairly clear that the user base feels that
Intuit was not fully forthcoming with information. Despite receiving numerous
e-mails, letters and phone calls from the vendor, these users are still complaining
loudly. The antidote? Intuit executives should be front and center at public
events wherever practicing accountants gather.

My Analysis & Advice

To Practitioners: Understand that every one of the shrinking few
tax compliance vendors offers technologically excellent services.
The bump that Intuit hit is roughly analogous to the undiscovered error on
that one return that got out the door at your firm. And you KNOW it’s
happened! It is NOT indicative of overall quality. It really could have happened
to anyone.

To Vendors: Your executives should be accessible. You have
to talk to and, more importantly, LISTEN TO, your customers. Personally. Every
month. It’s not enough to read reports or send people out to meet with
customers. This is a handshake business, and you need to listen to practitioners
across the board. Don’t confuse listening to your own customers with
listening to the marketplace. Remember that there are many more accountants
out there who have chosen someone else’s product. Don’t you want
to know why?