Tuesday, July 28, 2009


A manually prepared tax return is not automatically inferior to or less accurate than a tax return prepared using software. Just the opposite can be true. The basic law of software applies here - Garbage In, Garbage Out. Individuals and tax preparers alike should not rely on tax software as a substitute for knowledge of Tax Law and experience in actually preparing tax returns.

Each tax season I prepare about 400 sets of returns manually. In my 37 years as a paid tax preparer I have never used tax software to generate a 1040, 1040A, or, for that matter, a 990, 1065 or 1120.

Whenever I attend a tax seminar and the instructor asks who still prepares returns manually my hand is among the two or three that go up (on occasion it is the only hand). This is usually followed by a statement by the instructor to the effect – “Well you are the only people here who really know tax law”, or “who really know how to prepare tax returns.” At a National Society of Tax Professionals seminar a few years back the instructor, the Society’s Executive Director, wanted to shake my hand.

Whenever someone asks me what tax software I use I simply point to my head – indicating my brain.

During the session on common mistakes made by preparers at the IRS Tax Forum I attended two years ago the instructor went so far as to say that those who use tax software to generate 1040s have basically become nothing more than glorified data entry clerks. I totally agree!

While I have no problem with tax practitioners using preparation software in their practice, I very strongly believe that all tax preparers must first learn how to prepare 1040s (and 1040As) by actually preparing a variety of different returns manually – either in classroom education or via on the job training – and then, and only then, after they "know what they are doing", learn how to use specific tax preparation software.

I am not alone in this opinion. In a comment to one of my TWTP posts Charles E McCabe, founder and CEO of Peoples Income Tax, Inc, which operates The Income Tax School, said (the emphasis is mine), “I believe computerized tax return preparation is better as long as the preparer first learns how to prepare returns manually, as they do in our courses in The Income Tax School.”

And it is very, very, very important for tax practitioners at all levels of experience and proficiency who use 1040 preparation software to thoroughly check the finished return before signing it – as thoroughly as one would check a manually prepared return. One should never assume that just because a return is prepared using software it is automatically either legally or mathematically correct.

Because I do not use tax preparation software I cannot file federal returns electronically.

As for the advantage of an electronically filed return over a manually submitted one - Russ Fox, E.A. explains in a post at his blog TAXABLE TALK, “I have been told that the process for a printed return (this would include those that are manually done) is that they are transcribed by clerk-typists and then follow exactly the same path as electronically filed returns”.

The reason Russ prefers electronically submitted return, and I agree with his thinking, is – “I trust my ability more than a clerk-typist's. I think that there's a slight advantage for electronic filing versus paper filing for audits, but that's mainly because of the possibility of transcription errors by the clerk-typist.”
Once I am able to submit federal income tax returns electronically without having to purchase expensive and flawed software, and without having to give my fingerprints to the government and undergo a background check, I will happily do so.

UPDATE - Joe Kristan has added his 2+ cents in the post "Last of the Mohicans" at THE ROTH AND COMPANY TAX UPDATE BLOG. Be sure to read my comment!

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