Long-term care is different from medical treatment designed to cure a condition or illness. Long-term care is meant to address the needs of an individual who, because of a chronic condition, accident or other trauma, or illness, requires assistance with basic self-care tasks (called activities of daily living, or ADLs, such as dressing and bathing) or other necessary assistance (called instrumental activities of daily living, or IADLs, such as cooking and managing finances). Here are the tax issues related to long-term care.
Long-Term Care Insurance
Those who cannot easily afford to pay for long-term care out of their own resources may want to consider buying long-term care insurance. Generally, this type of coverage provides a fixed daily amount when the insured needs long-term care. The coverage may run for a set term (e.g., three years) or for the life of the insured.
For federal income tax purposes, premiums for long-term care insurance are treated as deductible medical expenses up to set dollar limits (Code Sec. 213(d)(10)). For 2017, the limits are (Rev. Proc. 2016-55, IRB 2016-45, 707):
• Age 40 and younger: $410
• Over age 40 but not over age 50: $770
• Over age 50 but not over age 60: $1,530
• Over age 60 but not over age 70: $4,090
• Over age 70: $5,110
These limits are per individual, so if both spouses are 72 years old and each has a policy, the dollar limit on their joint return for 2017 would be $10,220.
The deduction for itemized medical expenses is based on a percentage of adjusted gross income. For 2017, all taxpayers, including those age 65 and older, the threshold is 10% of adjusted gross income (Code Sec. 213(a)). Seniors had a 7.5%-of-AGI threshold that expired in 2016, but proposed legislation failed to extend this special rule.
Retired public safety officers who elect to pay long-term care premiums with tax-free distributions from their qualified retirement plans cannot deduct the premiums. This rule applies where the distributions are paid directly to the insurer but would otherwise be taxable if received by the officers.
Self-employed individuals, who can deduct their health insurance premiums as an adjustment to gross income rather than as an itemized deduction, can treat long-term care premiums in the same way (Code Sec. 162(l)). However, only amounts up to the age-related dollar limits can be deducted (Code Sec. 162(l)(2)(C)).
Combination policies. The Pension Protection Act of 2010 allows life insurance contracts and commercial annuities to be combined with long-term care coverage (hybrid policies), typically with a rider on a whole life insurance policy or an annuity (Code Sec. 7701B(e)). None of the premiums paid for hybrid policies are deductible if they are a charge against the cash surrender value of life insurance contracts or cash value of annuities (Code 7701B(e)(2)).
Employer-provided coverage. Employer payments of long-term care insurance premiums for employees, spouses, dependents, and employees’ children under age 27 by the end of the year are treated as a tax-free fringe benefit (Code Sec. 106). These premium payments, regardless of cost, are not subject to FICA taxes.
HSAs. Funds in health savings accounts (HSAs) can be used to pay for long-term care insurance (IRS Publication 969). These HSA distributions are tax-free to the extent of the age-based limitations discussed earlier.
FSAs. A medical flexible spending account (FSA) cannot be used to pay premiums on long-term care insurance (Code Sec. 125(f)). This is not an eligible expense of an FSA.
There is a spectrum of care provided in different living arrangements ranging from independent living, to assisted living, to skilled nursing care, to intensive nursing home care. The cost of living in a nursing home, which is used primarily for medical reasons, is a deductible medical expense to the extent the care is not covered by insurance or government program. No allocation is needed for medical services; all of the cost, including amounts for food and lodging, are deductible.
Those residing in continuing care facilities to receive long-term care assistance may also claim a deduction, but only for a portion of their costs. If this living arrangement is primarily for personal reasons and not primarily for medical care, only costs related to medical care are deductible. This can be based on the percentage of costs allocated to medical care (see e.g., Rev. Rul. 67-185, 1967-1 CB 70; Rev. Rul. 75-302, 1975-2 CB 86; Rev. Rul. 76-481, 1976-2 CB 82, and Baker, 122 TC 143 (2004)).
Proceeds From Long-Term Care Policies
When it is medically determined that the insured needs long-term care, the policy begins to pay off. If the policy pays a per diem amount without regard to the insured’s needs, only the portion up to a set dollar limit is tax-free. For 2017, this amount is $360 per day (Rev. Proc. 2016-55, IRB 2016-45, 707).
However, if the policy has a higher per diem amount, it can be tax-free to the extent of qualified long-term care services for a chronically ill individual. Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services for a chronically ill individual under a plan of care prescribed by a health care practitioner. A chronically ill individual is a person who, within the previous 12 months, has been certified as being either of the following:
• Unable to perform at least two activities of daily living without substantial assistance for at least 90 days because of a loss of functional capacity. Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence.
• Requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.
Proceeds from life insurance policies. A policy may pay accelerated death benefits to the insured. Like proceeds payable on the death of the insured, proceeds payable to an insured who is chronically or terminally ill can be tax-free (Code Sec. 101(g)). Tax-free treatment applies to all proceeds payable on account of a terminal illness (i.e., one expected to result in death within 24 months with some exceptions). Tax-free treatment on account of chronic illness is limited to the amount described earlier for long-term care insurance proceeds.
Tax-free treatment also applies to the sale of a life insurance policy in a viatical settlement (Code Sec. 101(g)(2)).
Out-of-Pocket Costs For Long-Term Care
Even though long-term care is not medical treatment, the costs that are not covered by insurance which are for qualified long-term care services of a chronically ill individual (defined earlier) can be treated as a deductible medical expense (IRS Publication 502).
Executive Editor Sidney Kess is CPA-attorney, speaker and author of hundreds of tax books. The AICPA established the Sidney Kess Award for Excellence in Continuing Education in his honor, best-known for lecturing to over 700,000 practitioners on tax. Kess is Senior Consultant to Citrin Cooperman & Company and Counsel to Kostelanetz & Fink.
Cloud accounting software has freed CPAs from many of the constrictions of 20 years ago. A CPA can now work from multiple locations and get more in-depth input from clients in a way that is convenient for them. This is all the more reason why such software should be selected carefully. CPA Magazine invited industry thought leaders to a roundtable discussion to get their views on recent developments in cloud accounting software, what mistakes and/or opportunities CPAs should be aware and tax professionals should look out for when selecting cloud accounting software?
KURT KUNSELMAN CEO of AccountingSuite
What is a recent development and/or useful feature in cloud accounting software? Adding collaboration tools such as chat with your accountant or chatting with other users within the cloud service with the ability to create tasks. Cloud accounting is about collaboration. The more tools that are added, such as chat with others in your account, the more efficient we all become and it redefines the purpose of cloud accounting “software” - which is really a service. Chat capabilities that also allow for creating tasks will become industry standard and will also redefine daily workflows within tax, client accounting services and overall company operations. This not only creates the efficiencies with accountants and other users, but, keep in mind, it includes third-party users that are part of your account such as contractors and third-party fulfillment partners.
What is something tax professionals should look out for when selecting cloud accounting software? The ability to export a clean and useful file that groups all information from a cash basis chart of accounts into the correct categories for the schedule that is needed for Sole Prop, C Corp, S Corp, B Corp, and Non Profits. In addition, the tax professional should look for a solution that has built in controls for best practices and allows their clients to scale their business. The old saying “garbage in/garbage out” applies to tax professionals as well. They need to be assured that the cloud accounting software is just not letting clients create bad data. As our technology solutions become more sophisticated, we can automate best processes and prevent users from entering data where it’s not supposed to be in the first place. We are not there yet, but soon in the future we should be as we move to hands-free accounting.
DR. CHANDRA BHANSALI Co-founder and CEO of AccountantsWorld
What is a recent development and/or useful feature in cloud accounting software? Automation is key in cloud-based accounting software. The ability to automatically update accounting data with payments made and received is an incredibly useful feature for both accountants and their clients alike. Automation reduces the effort and time it takes to follow-up with clients to receive and aggregate information. It enhances accuracy of data by using the ability to identify similar transactions and to route them to the right account automatically. Therefore, it cuts down a significant amount of time and cost in preparing the books. Such features enable accountants to now serve more clients within their existing resources. Obviously, it increases revenue and profitability.
What is something tax professionals should look out for when selecting cloud accounting software? Most accountants agree the more their clients are involved in data entry, the more mistakes they’ll be left cleaning up. Cloud-based accounting software that allows accountants to provide limited access to their clients when necessary is the ideal choice. This collaborative cloud-computing model will help reduce the need to comb through multiple platforms to aggregate data, increasing a firm’s efficiency, productivity and profitability.
CECE MORKEN Executive Vice President and General Manager, ProConnect Group at Intuit
What is a recent development and/or useful feature in cloud accounting software? There are two very useful features that will save accountants a significant amount of time and reduce the number of tools they need to use. The first is the integration with tax. During tax season, accounting professionals spend about five hours per client cleaning up their books to prepare them for a tax return. The time-saving integration simplifies workflow by creating a seamless, end-to-end experience that translates a client’s books into a tax return. The second useful feature is practice management. A cloud-based solution designed to be the one place for accountants to effortlessly and seamlessly manage workflow, client communications and daily operations. The feature will leverage data and user behavior patterns to automate overhead and identify work that needs to get done, eliminating the need for accountants to discover and enter tasks manually.
What is something tax professionals should look out for when selecting cloud accounting software? Tax professionals, like all accounting professionals, should do their homework before choosing a cloud accounting software. Firms should choose a solution that makes working and collaborating easier for their clients and their staff. An integrated solution across bookkeeping, accounting, and tax reduces data entry errors, saves time across the workflow, and makes communication easier and more secure. By connecting your client files directly to your cloud accounting solution, you also can view your client files in real-time, which saves time during year-end clean up and gives you the ability to proactively make a difference with your clients.
TERESA MACKINTOSH CEO of Trintech
What is a recent development and/or useful feature in cloud accounting software? One of the latest advancements in cloud accounting software space is Risk Intelligent Robotic Process Automation. Risk Intelligent Robotic Process Automation allows your organization to live and thrive in a risk-based world. One where the robots know the tolerances that are allowed according to your organization’s policies and automatically runs activities, only notifying a person when there is an issue to be resolved. With Risk Intelligent RPA, an effective controls framework underpins the whole process and, by unifying all key control components together, it creates a detailed audit trail for compliance initiatives. To drive further efficiencies, Risk Intelligent RPA can be utilized to lower costs and reduce errors and enables your highly qualified employees to focus their time on developing valuable strategic insights for your business. This technology not only provides additional value to the business by increasing efficiency and effectiveness, but it also encourages the type of high-value work most likely to attract and retain high-quality people.
What is something tax professionals should look out for when selecting cloud accounting software? As the office of finance continues to be faced with increasing regulation, ensuring the integrity of your period-end numbers is more of a challenge than ever before. When selecting a cloud-based accounting software, we recommend investing in a solution with an effective compliance framework that supports all of your Record to Report processes from the time a transaction occurs all the way through regulatory and financial reporting. Now, with compliance as a foundational principal of the entire financial close cycle, you can be confident that your reports are both accurate and compliant with all applicable regulations.
What is a recent development and/or useful feature in cloud accounting software? Cloud accounting software offers a number of useful features that benefit users with greater mobility, flexibility and convenience. Anywhere, anytime access to information so that firms can increase client response times, and having a central database to make it faster and easier to access files and fulfill client requests – are advantages that an on-premise solution cannot provide. Cloud-based solutions typically lend themselves to service offerings that customers can subscribe to as their business or clients demand. And today, clients are demanding more responsive service, including the ability to access self-serve features whenever they want. With cloud accounting software, clients with busy schedules have the advantage of not needing to meet in person to handle paperwork or sign forms. Accounting staff can work from home or create non-traditional work hours since employees can stay connected to the office at all times of day and from all locations where they have internet access.
What is something tax professionals should look out for when selecting cloud accounting software? When selecting cloud accounting software, professionals should make sure to find the right partner to work with to make a successful move to the cloud. The partner should be able to support them should they choose to take pieces of their workflow and move it to the cloud – enabling them to make the process changes needed for cloud adoption in phases – or migrate completely. Additionally, it’s important for professionals to outline their current and future goals for moving to the cloud. They should consider a cloud accounting software provider that will not only serve their needs, but partner with them along the way to ensure their goals are met from initial implementation to future growth.
KERI GOHMAN President of Xero Americas
What is a recent development and/or useful feature in cloud accounting software? Machine learning and automation are key developments in cloud technology that allow accountants to focus more on the advisory services instead of data entry. The innovative machine learning automation systems will transform the accounting practices of small businesses and their accounting partners, saving valuable time and money. Accounting software is getting smarter, automatically performing analysis which previously required human intervention. Consider tasks like bank reconciliation: systems can learn how to completely automate this job, freeing up your time to provide a deeper level of service to help your small business customers thrive. As machine learning and AI have an increasing role in the profession, it will make accountants more proficient, more productive, capable of taking on and handling more clients, while also delivering more value through insight, rather than through long hours of tallying up figures. Machine learning cannot match human insights; rather, it complements brain power to benefit all involved.
What is something tax professionals should look out for when selecting cloud accounting software? With the evolution of cloud technology, the way people prepare for tax season has changed, making the process easier and more streamlined. Clients and accountants alike have increasing control of their data and can use it to make better business decisions and meet tax obligations with ease. When a tax professional is selecting cloud accounting software, aim for mobility, affordability, simplicity of use and connectivity to other applications. Cloud technology can automate things that a business would typically have to do manually, such as reconcile their books, manage cash flow and integrate with other services and applications - make sure the software you select does this seamlessly.
In order to optimize your CPA Firm’s overall efficiency, effectiveness, and productivity in connection to researching and resolving a tax issue and determining the sustainability of a tax return filing position per Circular 230, the appropriate tax research processes must be meticulously designed, implemented, and executed. The subsequent five practical steps will guide you in establishing an all-inclusive tax research effort on behalf of your entire client base while properly ascertaining the likelihood of success should a tax position taken on a tax return be challenged by the Internal Revenue Service (hereinafter the “Service”) upon examination.
Tax Research Methodology
Establish the Facts and Circumstances The first step in the tax research process is to establish all of the facts and circumstances provided by your client in order to determine which tax laws apply to your client’s fact pattern. At this initial stage, it is imperative not to omit nor overlook any of your client’s facts and circumstances whether appearing material or immaterial. Always be guided by the axiom that facts and circumstances appearing to be immaterial individually may, in fact, be material in the aggregate.
Determine All the Issues The second step in the tax research process entails determining all of the tax issues affecting your client’s specific facts and circumstances and any and all mitigating factors. Normally, complex tax issues evolve through several stages of development. For instance an experienced tax professional, based upon his or her prior knowledge of the tax laws, can normally determine most of the initial pertinent issues in terms of general tax laws. However, after performing an initial search of the authorities to answer the initial issues, a tax professional often discovers that one or more additional specific technical questions of interpretations must be resolved before the initial issues can be fully addressed. Consequently, at this stage, a tax professional may also encounter the need to obtain additional facts from the client. Accordingly, the tax research process may have to move back from step two to step one. In addition, you the tax professional may learn at this stage that facts initially not considered to be important may in fact prove critical to the resolution of all of your client’s tax issues.
Identify Statutory, Administrative, and Judicial Authority The third step in the tax research process entails identifying the specific authorities to support all of your client’s tax issues while appropriately weighing authorities that may be contrary to your supporting position. Generally, this process begins with consulting statutory authority (e.g., the Internal Revenue Code) and quickly expands to encompass administrative authority (e.g., Proposed Treasury Regulations, Temporary Treasury Regulations, Final Treasury Regulations, Revenue Rulings, Revenue Procedures, Private Letter Rulings, Technical Advice Memorandum, General Counsel Memorandum, Circular 230, Internal Revenue Manual, Internal Revenue Bulletins, IRS Field Service Advice Memorandum, IRS Determination Letters, and IRS Notices, etc.) and judicial authority (e.g., judicial interpretations decided by the U.S. Tax Court, the U.S. District Court, the U.S. Court of Federal Claims, the U.S. Circuit Court of Appeals, the U.S. Court of Appeals for the Federal Circuit, and the U.S. Supreme Court). In addition, at times, you the tax professional may have to consult the legislative history (e.g., the Public Laws and Congressional Committee Reports from the House of Representatives and the Senate) of a particular Internal Revenue Code section to fully address what Congress’s intent was in passing a particular bill. Lastly, you may also want to consult the voluminous range of editorial interpretations (e.g., Tax Treatises, Tax Journals, etc.) available to assist in the interpretation a particular tax issue. However, it must be duly noted that editorial interpretations are impermissible sources of authority before the Service and the judicial system. For clarification purposes, the subsequent synopsis will elaborate upon the aforementioned statutory, administrative, and judicial interpretations:
The Internal Revenue Code All federal level tax statutes passed by Congress into law are compiled and published in Title 26 of The United States Code. As it should be recalled, Title 26 of The United States Code contains the specific statutes that authorize the Service to collect taxes for the federal government. Generally, the tax research process begins with consulting the Internal Revenue Code and quickly expands to encompass administrative and judicial authorities based upon the complexity of the tax issue under analysis.
The Treasury Regulations The Treasury Regulations provide the official interpretations of the Internal Revenue Code by the Treasury Department and have the force and effect of law. The most common forms of Treasury Regulations include:
• Proposed Treasury Regulations (e.g., binding only on the Service and not the taxpayers);
• Temporary and Final Treasury Regulations (e.g., binding on both the Service and the taxpayers); and
• Preambles (e.g., treated just like legislative histories to demonstrate congressional intent and may underlie either type of the aforementioned treasury regulations regardless of status as Proposed, Temporary, or Final).
Revenue Rulings A Revenue Ruling is an official interpretation by the Service of the tax laws. Initially, Revenue Rulings are published in the weekly Internal Revenue Bulletin. The same rulings later appear in the permanently bound Cumulative Bulletin, a semi-annual publication of the Government Printing Office. Revenue Rulings hold less weight than the Treasury Regulations because they are intended to cover only specific fact patterns. Regardless, Revenue Rulings can provide valid precedent but only if your client’s facts and circumstances are substantially identical.
Revenue Procedures A Revenue Procedure is a statement of procedure that affects the rights or duties of taxpayers or other members of the public under the Code. Similar to Revenue Rulings, Revenue Procedures are less authoritative than Treasury Regulations. However, Revenue Procedures should be binding on the Service and may be relied upon by taxpayers.
Private Letter Rulings Private Letter Rulings (hereinafter “PLR”) are issued directly to taxpayers who formally request and pay for advice about the tax consequences applicable to a specific business transaction. Such PLR request have been employed frequently by either taxpayers themselves or the taxpayer’s representatives (e.g., a taxpayers’ representation through a CPA Firm or Law Firm) to assure themselves of a preplanned tax result before they consummate a transaction and as a subsequent aid in the preparation of the tax return’s filing position. When the IRS issues a PLR it is understood that the PLR is limited in scope and application to the taxpayer making the request.
Technical Advice Memorandum A Technical Advice Memorandum (hereinafter “TAM”) is a special after-the-fact ruling that may be requested from the taxpayer or the technical staff of the Service. For instance, if a disagreement arises in the course of an audit between the taxpayer or the taxpayer’s representative and the revenue agent, either side may request formal technical advice on the issues(s) through the District Director. Under certain circumstances, TAM’s can be used as a basis for the issuance of a Revenue Ruling and can also be subsequently published as a PLR.
General Counsel Memorandum General Counsel Memorandum (hereinafter “GCM”) are legal memorandum that are prepared by the IRS Chief Counsel’s Office. GCM’s analyze proposed Revenue Rulings, Private letter Rulings, and Technical Advice Memorandum. GCM’s that were issued after 1981 constitute substantial authority for purposes of the penalty assessed for the substantial understatement of income tax.
Circular 230 Circular 230 is an IRS publication that sets forth the requirements and responsibilities of professionals (e.g., Attorneys, Certified Public Accountants, Enrolled Agents, and Enrolled Actuaries) admitted to practice before the Service. It should be duly noted that Circular 230 was most recently revised on June 12, 2014 and all tax professionals admitted to practice before the Service must adhere to this latest version which can be referenced at: http://www.irs.gov/pub/irs-pdf/pcir230.pdf
Internal Revenue Manual The Internal Revenue Manual (hereinafter “IRM”) is an official compilation of policies, procedures, instructions, and guidelines for the organization, function, operation and administration of the Service. It is not legally binding and the policies are not mandatory. The IRM guidelines do not confer any rights on taxpayers.
IRS Field Service Advice IRS Field Service Advice (hereinafter “FSA”) are taxpayer specific rulings furnished by the IRS National Office in response to requests made by the taxpayers or IRS Officials.
IRS Determination Letters A Determination Letter is issued by the IRS at the taxpayer’s request to outline the Service’s position on a particular transaction that has already been completed. Generally, Determination Letters are issued only when a determination can be made on the basis of clearly established rules in the statute or regulations.
IRS Notices When prompt guidance concerning an item of the tax law is needed, the IRS publishes notices in the Internal Revenue Bulletin. These notices are intended to be relied upon by the taxpayers to the same extent as a Revenue Ruling or Revenue Procedure.
U.S. Tax Court The U.S. Tax Court is an independent 19 judge federal administrative agency that functions as a court to hear appeals by taxpayers from adverse administrative decisions by the Service.
U.S. District Court The U.S. District Court hears civil actions against the United States for the recovery of any tax alleged to have been erroneously or illegally assessed or collected by the Service. Trial by jury is available at the preference of either the petitioner or defendant.
U.S. Court of Federal Claims The U.S. Court of Federal Claims is a Washington D.C. based appellate-level court in which a taxpayer may sue the government for a refund of overpaid taxes.
U.S. Circuit Court of Appeals The U.S. Court of Appeals is one of thirteen courts including the District of Columbia and the Federal Circuit Courts, to which appeals from a trial court, such as the U.S. Tax Court, are directed.
U.S. Court of Appeals for the Federal Circuit The U.S. Court of Appeals for the Federal Circuit hears appeals from the U.S. Court of Federal Claims.
U.S. Supreme Court The U.S. Supreme Court is the highest appellate court in the federal court system and in most states. The U.S. Supreme Court, under its certiorari procedure authority, reviews the constitutionality of a tax law and a small number of tax decisions by the Court of Appeals.
The subsequent chart illustrates the geographic boundaries of The United States Courts of Appeals and the United States District Courts:
Resolve the Issues The fourth step in the tax research process entails the resolution of your client’s tax issues after identifying, analyzing, and interpreting all of the applicable authorities. It cannot be overstated that you should have provided, as needed, reasonable statutory, administrative, and judicial support to demonstrate that your tax return filing position could be upheld if challenged by the Service upon the fruition of an examination and that you exercised due diligence and acted in good faith. Furthermore, at times, positions taken on tax returns may need to be disclosed on Form 8275 entitled “Disclosure Statement” or Form 8275-R entitled “Regulation Disclosure Statement” depending upon the complexity and controversial nature of the tax issue. Noting, by disclosing positions on your client’s tax returns you may be able to avoid paid preparer penalties should your position be disallowed and avoid the application of the six year statutory period for assessment under I.R.C. § 6501(e).
From a risk management perspective, in order to mitigate or avoid income tax return paid preparer penalties pursuant to I.R.C. § 6694 (e.g., penalties that are assessed on both paid tax return preparers and tax advisers that are deemed paid tax return preparers due to their consulting on matters that constitute a substantial portion of their client’s tax returns even if they were not engaged to prepare nor review the tax return), a “More-Likely-Than-Not” standard should be satisfied. The subsequent standards of the applicable levels of opinions should be scrupulously analyzed when assessing your tax return filing position:
• “Will” Standard: Generally, a 95% or greater probability of success if challenged by the IRS. A “Will” opinion generally represents the highest level of assurance that can be provided by an opinion;
• “Should” Standard: Generally, a 70% or greater probability of success if challenged by the IRS. A “Should” opinion provides a lower level of assurance than is provided by a “Will” opinion, but a higher level of assurance than is provided by a “More-Likely-Than- Not” opinion;
• “More-Likely- Than- Not” Standard: A greater than 50% probability of success if challenged by the IRS. The • “More-Likely-Than-Not” standard is the highest level of accuracy required for purposes of avoiding the accuracy-related penalties under I.R.C. 6662A;
• “Substantial Authority” Standard: Typically, greater than a “Realistic Possibility of Success” standard and lower than “More-Likely-Than-Not” standard (i.e., 40% probability of success);
• “Realistic Possibility of Success” Standard: Approximately a one-in-three or greater possibility of success if challenged by the Service;
• “Reasonable Basis” Standard: Significantly higher than the “Not Frivolous” standard (i.e., that is, not deliberately improper) and lower than the “Realistic Possibility of Success” standard. The position must be reasonable based on at least one tax authority that can be cited as valid legal authority;
• “Non-Frivolous” Standard: Approximately a 10% chance of being upheld upon examination by the Service and accordingly under no circumstance should a tax professional ever render services with this level of comfort; and
• “Frivolous” Standard: Approximately a percentage less than a 10% chance of being upheld upon examination by the Service and accordingly under no circumstances should a tax professional ever render services with this level of comfort.
It should be duly noted that each of the aforementioned standards above has a relevant meaning to both the taxpayers and tax professionals when evaluating a tax position and the related disclosure requirements. Noting, the percentages listed for “More-Likely-Than-Not” and “Realistic Possibility of Success” are specifically provided for and discussed in the treasury regulations. In contrast, the percentages for “Substantial Authority”, “Reasonable Basis”, “Non-Frivolous”, “Frivolous” have been developed based upon their relative importance in the hierarchy of standards of opinion as principally provided for in congressional committee reports. Moreover, while not mathematically calculable, the percentages are still practical in demonstrating the relative strength of one level as opposed to another level.
Communicate with Your Client The fifth and final step in the tax research process entails communicating the conclusion to your client. Your client, of course, must ultimately make the final decision concerning what course of action to take, even though the client’s decision is guided by and often dependent upon the conclusions reached by you, the tax professional. It is strongly recommended that this tax advice be rendered to your client in a written format, as opposed to verbal communication, and preferably in a formal tax advice memorandum format (e.g., Facts & Circumstances Section; Issue(s) Section; Analysis Section; and Conclusion Section) meticulously discussing the applicable statutory, administrative, and judicial authority to appropriately document your due diligence in assessing the tax issues(s) and resolving them satisfactorily to reach a strong tax return filing position (e.g., “More-Likely-Than-Not”, “Should”, “or “Will” filing positions). Finally, caveat language in the form of a disclaimer should be documented within the tax advice memorandum for any areas of the tax law that were not within the scope and application of your tax research services (e.g., the scope and application of our tax advice memorandum is in connection to the U.S. Federal-level tax consequences only and does not provide any advice or analysis in connection to any U.S. Multi-State tax consequences nor any advice in connection to Financial Statement Reporting purposes under U.S. GAAP nor IFRS).
Conclusion By following the preceding all-inclusive practical steps in the tax research process you should be able to render your tax research services to your entire client base in a more efficient, effective, and productive manner while adequately weighing risk management concerns in connection to tax return filing positions. As a final reminder, the guidance contained in this article should be applied with due professional care including seeking further professional advice from a subject matter expert should it be deemed warranted based upon both the complexity and contentious nature (e.g., taking a tax position contrary to a Treasury Regulation on Form 8275-R, etc.) of the tax matter under review.
Peter J. Scalise serves as the Federal Tax Credits & Incentives Practice Leader for Prager Metis CPAs, LLC, a member of The Prager Metis International Group. Peter is a BIG Four Alumni Tax Practice Leader and has approximately 25 years of progressive CPA Firm experience developing, managing and leading multimillion dollar tax advisory practices on a regional, national, and global level. Peter serves on both the Board of Directors and Board of Editors for The American Society of Tax Professionals (ASTP) and is the Founding President and Chairman of The Northeastern Region Tax Roundtable and The Washington National Tax Roundtable, both operating divisions of ASTP.
Written by Martin M. Shenkman, CPA, MBA, PFS, AEP, JD
Aging clients are growing in number and practitioners should address their needs.
Consider the Six Following Facts:
1 By 2050 the population aged 65 is projected to be 83.7 million. This represents significant growth, almost double the figure from 2012. The population 85 years and over will double by 2036 and then triple by 2049. The numbers are significant and the impact on CPA practices should be as well.
2 The 85-and-over United States population, the fastest-growing cohort in the country, is projected to rise from 5.8 million in 2010 to 19 million in 20501. The needs of these very elderly clients will be more pronounced, especially in terms of protection from elder financial abuse.
3 The biggest health concern is Alzheimer’s, which strikes at a 47 percent rate among the over 85 population2.
4 Mental illness and cognitive deterioration increase with age. So an aging population will result in an increase of these challenges as well. The average age of an Alzheimer’s diagnosis is 73. Almost half of those over the age of 85 have some cognitive impairment. Chronic illness also increases with age. 90 percent of seniors have at least one chronic disease, and three quarters have two or more chronic diseases. The challenges of chronic illness are broader than merely the cognitive issues associated with aging. Practitioners must recognize that mere physical frailty may make client targets for financial abuse.
5 The age for peak financial decision making is age 50. Financial decision making ability begins to decline by age 60 and is significantly impacted by age 80. Even more worrisome is the same studies indicated people’s perceptions of their abilities do not decline. At what age are most estate plans crafted? Likely much older3. The fact is that many clients wait too long to create an estate plan that addresses the challenges of aging. This delay exposes these clients to greater risks of elder abuse. Creating estate plans and signing documents at a time when the client is frailer and his or her cognitive abilities more limited may itself be the opening that perpetrators exploit. This growing gap between financial ability, and the aging client’s perception of his or her financial ability, is one of the gaps that perpetrators of elder financial abuse seek to exploit. It is also very telling of why preventing elder financial abuse is so difficult. Those who are vulnerable often perceive themselves as fully capable of making financial decisions. They will often simply not see any frailties to address in further planning. Practitioners that are truly acting in the long term role as “trusted adviser” may be the optimal professional to encourage planning.
6 Half of all people age 65 and older live alone4. This makes comprehensive planning, not merely the preparation of documents, essential for the protection of these clients. Many of these clients are not only vulnerable as a result of health challenges, but isolated in terms of having few if any family or friends to safely rely on to name in fiduciary capacities. Too often estate planners, and others, assume everyone has appropriate family members to name to serve as an agent under a power of attorney (or successor trustee under a revocable trust). The result is that these clients may be ill served by an estate planning process that presumes family or other trusted persons to serve in these vital capacities. That too could prove the unraveling of any safety the plan might have afforded. Different steps are needed.
Questions CPAs Should Ask
Planning for aging clients requires a different focus than other engagements. CPAs can clarify their role and delineate how they can protect aging clients by asking questions. Consider:
❏ 1. How can CPAs educate clients about the growing risks of elder financial abuse (identity theft, etc.)? Unless clients, and often their loved ones, are informed of the magnitude of the problems they are unlikely to pursue optimal planning.
❏ 2. What role can CPAs play to minimize the risks of elder financial abuse?
❏ 3. What practical steps can the CPA recommend to most aging clients to lessen the risks of financial abuse?
❏ 4. a) What roles can or should a CPA serve in under a client’s financial plan?
b) What liability does the practitioner face serving in those capacities?
c) What liabilities do the firm that the practitioner is affiliated with face?
d) Who should earn the fees involved, the practitioner, the firm, or some combination?
❏ 5. What steps can CPAs take to step fully into their role as the “trusted adviser” to protect aging clients? 6 What additional services can practitioners offer aging clients to minimize the risks of elder financial abuse, identify when abuse has occurred, and otherwise help protect aging clients?
❏ 7 How will the dynamics of the estate planning team change as a client ages? b) What new persons may serve on that team?
❏ 8 What role can CPAs serve when an agent under an aging client’s power of attorney acts? b) Similarly, what role can CPAs serve when a successor trustee under an aging client’s revocable trust serves?
❏ 9 Who should the practitioner deal with: agent under power of attorney, successor trustee under a revocable trust, guardian, care giver, who?
❏ 10 What steps should CPAs encourage clients to take with their estate planning attorneys to implement documents and safeguards to minimize the risks of elder financial abuse?
❏ 11 a) What signs of cognitive impairment should practitioners be alert for?
b) What corroborating evidence is advisable to obtain?
c) Who should a CPA consult with to determine a client’s capacity to take various actions?
d) Does the CPA have authority to speak to the persons who can provide the necessary input? If not, what approvals are necessary?
❏12 As the CPAs role widens, are additional services covered under existing malpractice coverage or is additional coverage advisable?
Checklist: Elder Abuse Planning Considerations
❏ 1 What is Elder Financial Abuse?: The crime must be defined to be identified. Elder financial abuse can be defined as the illegal or improper use of an older person's funds, property, or resources.5 That definition, as the crime itself is broad and wide ranging.
❏ 2 Reporting is Rare: Studies suggest that only one in 44 cases of elder financial abuse is ever reported. Whatever the actual figure may be, and that is likely impossible to discern, low reporting occurs for a variety of reasons. These reasons help better understand the crime of elder financial abuse and why advance planning to prevent, or at least identify it, is so important:
a) The frailty that creates the opportunity for elder financial abuse progresses to the point where the victim/client is not able to pursue the crime.
b) The duration and cost of legal remedies are both significant. The elder financial abuse victim may not have the strength, time, or financial resources to pursue the perpetrator. Even if family members or others discover the abuse they too may lack the willingness or ability to commit the requisite financial resources to pursue the victim’s legal rights.
c) Many of the elder financial abuse crimes are committed by family, close friends or others and the victim is embarrassed to discuss the matter.
❏ 3 Signs of Elder Financial Abuse: Understanding some of the common signs of elder financial abuse may assist practitioners in identifying problems. Consider:
a) Large payments, transfers, investments or other transactions occur and there is a dearth of supporting documentation about those arrangements. For example, the client’s bank account may reflect wire transfers of large sums to a title company or other third party to fund a purported investment but there is no documentation of the underlying contracts or details of what the wire was for (e.g., no operating agreement corroborating the investment, nor subscription documents signed that reflect the investment, etc.). Similar to this is new and unusual transactions. Sometimes even small unusual transactions may be an indicator of larger underlying problems.
b) When queries are made of the elderly client, agent under the client’s power of attorney, care giver or other persons involved about financial matters, the explanations provided are implausible, or worse. For example, the elderly client used to withdraw $100/week for incidental cash expenses (tips to delivery people, lawn care in the summer and snow shoveling in the winter, etc.). The amount has increased to $500-$1,000/month and the explanations are that “inflation has had an impact.” That is not sufficient to justify such a large increase. The poor explanation itself leads to further suspicion. Common explanations from family fiduciaries and caregivers might be similar to: “It’s none of your business,” “It’s for food,” or other comments that represent more of a deflection of the inquiry than an answer.
c) While it may be common for an agent under the client’s power of attorney to route mail, especially financial mail, to the agent’s address rather than to the client, often a better approach and one that is less worrisome, might be for the agent to receive duplicate statements and the client to continue to receive the originals. If an agent receives all statements it undermines any planning for checks and balances. Also, while it may be common for some seniors to shift mail to Post Office Boxes to minimize the risk of mail being stolen and confidential data compromised, who has access to that post office box? Who picks up the mail in the box?
d) While many clients have a favorite child, niece, grandchild, etc. most people seem to still bequeath assets in equal shares among a class of beneficiaries. When a dispositive scheme departs from this norm, especially if there is another suspicious connection to that beneficiary, this is a cause for concern and practitioners should, along with the assistance of counsel, investigate. A common example is a client whose will and beneficiary designations for decades benefited a list of beneficiaries equally. Then suddenly that historic division was modified in a new will or beneficiary designation to favor one family member who is spending increased time with the aging client, or has other unusual relationships.
e) While many clients intentionally have different dispositive patterns under beneficiary designations and legal documents, if there are not logical explanations as to why, that may indicate a financial abuse. For example, a client might name a new spouse as beneficiary of assets under her will and her children from a prior marriage as beneficiaries of a life insurance policy. That avoids fights over personal property or a home that might be used and funded by both. It might also be possible that the insurance or other asset that is not included in the taxable estate is given to a non-spouse beneficiary. On the other hand, if the client’s beneficiary designations were signed many years ago, and as the client’s health has deteriorated the client signed a new will that has a new and unusual dispositive scheme favoring one particular beneficiary that might be a sign of elder abuse. The favored beneficiary may have orchestrated the execution of the new will but not had the foresight or ability to identify and change the other beneficiary designations.
f) The care the elderly client is not receiving is inconsistent with the income or wealth she has. This might be a sign of heirs unreasonably manipulating the situation to minimize care costs and maximize their inheritances.
g) Household belongings have disappeared. This might be obvious from merely visiting the elderly client’s home. For example, marks on the wall where paintings once hung, or different shades on wood floors indicating where oriental carpets once lay, may be obvious. Another way to identify missing personal property is to compare the listed property on the homeowners’ policy to the actual property on the premises.
h) If the elderly client does not understand financial and other arrangements that have been made for him, are there fiduciaries who do understand it and sufficient checks and balances to protect the client?
i) If the client recently has reconnected with long lost relatives or has just made new "best friends" that could be a wonderful sign of socialization, or an indication of a perpetrator seeking to capitalize on the elderly client’s wealth and declining capabilities. Has the new found family member suddenly been added to a will or named agent under a power of attorney or been listed as a co-owner of a bank account?
❏ 4 Perpetrators: Understanding who might perpetrate elder financial abuse is important to protecting against it, and identifying it when it occurs. A key point is that there are a myriad of possible perpetrators, not just the fiduciaries or home health aides as many people assume.
a) Financial abuse can be committed by a caregiver. In simple forms the caregiver simply steals valuable jewelry or art from the patient. In other circumstances the caregiver might walk the patient past an ATM several times a week pocketing withdrawals the patient may not even remember making. It is sadly not uncommon to see caregivers manipulate their patients to sign new legal documents resulting in the caregiver inheriting, or obtaining through other means, significant sums and sometimes the entirety of the patient’s estate to the detriment of the natural heirs the patient may have otherwise intended.
b) Anyone from the client’s family members might be involved. While many are shocked by family members abusing an elderly parent or relative, this is all too common. In many cases the perpetrator does not view what is tantamount to abuse and theft as a wrong. Rather, they view it as an entitlement. “I gave my life taking care of mom, I deserve what I am taking and so much more.” The rationalizations, however, don’t change the result of what was done.
c) Organized crime has grown in its involvement in elder abuse cases in light of the amount of money at stake. Criminals can abuse the elderly in a range of ways including not merely theft of the elderly person’s assets but also laundering money through the elderly client’s accounts. Theft of the client’s identity, abuse of credit card information obtained under false pretenses, and other complex techniques are all common.
d) Relationships are often created for the express purpose of foisting an elder financial abuse scheme to abscond with assets. Elderly widows and widowers are often preyed upon but others who seize on their new vulnerability following the loss of a long time spouse or partner to create a new relationship for the express purpose of marriage followed by divorce, or perhaps just being named as an agent under a financial power or co-signer on an account. By the time the grieving widow or widower realizes what has occurred the culprit has often taken significant funds and moved away.
❏ 5 Educate Clients: Practitioners should make a concerted effort to educate clients, and their loved ones about the risks of elder financial abuse and protective measures that should be taken. Too often these conversations never occur. CPAs might focus meetings on tax compliance or investment allocations (if the CPA is handling the client’s investments). Estate planning attorneys have traditionally focused on documents and tax minimization. Financial advisers have traditionally focused on investment planning and while that has broadened to more comprehensive financial planning it often does not appear to address the elder financial abuse risks adequately. As noted above, one of the key reasons clients do not seek this information is that they are of the attitude: “Elder financial abuse cannot happen to me…I have a good family, I am wealthy…I am educated…etc.” Whatever the rationalization it is simply not true. Elder financial abusers show no bounds in who they will victimize. Many clients, and even advisers, believe wrongly that their wealth, education or supposedly close knit family precludes this from affecting them. It is not so.
❏ 6 Family Realities Should Change Planning: Many plans presume that every client has an array of trusted family members to name to serve in various fiduciary capacities, e.g. an agent under a durable power of attorney to handle finances when the client is incapacitated, a health care agent to make medical decisions, etc. The reality is often quite different. Only 20% of American families are intact families with a husband, wife and children. And even of that small percentage not all have good relationships with children, or children who are financially sound. Practitioners should have open discussions with clients as to who they have named in these capacities and whether the people they have named are really appropriate. Too often a client meets with a new attorney for an hour or two and races through these decisions. A lawyer who has no prior background with a client or the client’s family is at a severe disadvantage to a CPA who may have a decade’s long relationship with the client to observe or identify issues in who is named. It is advisable to broaden the discussion to include other advisers. It is important that the attorney or other adviser making the inquiries ask much more than “Who would you like to name as agent under your power of attorney?” Questions should include: “How long have you known this person?” “What is your relationship with this person?” “How and why do you feel confident this person would not abuse this role?”
Checklist: Financial Planning Considerations
❏ 1 Longevity Considerations: With clients potentially living for two or three decades past retirement age, planning to assure adequate financial resources for that duration is vital. Financial modeling can provide a more realistic assessment of the range of financial results a client may experience. This planning, which should be at the foundation of determining an asset allocation and other major financial decisions can provide an invaluable touchstone to compare actual expenditures when endeavoring to monitor for financial abuse. Without a baseline financial analysis it may be difficult to ascertain whether payments actually made are questionable.
❏ 2 Minimize Financial Risk: Practitioners should guide clients to minimize the risks of elder financial abuse. Guide clients to simplify financial matters including consolidating accounts into a single institution where feasible, automating banking, and having electronic bank statements go to more than one person. Simplification, consolidation, and checks and balances, makes it easier for designated persons to monitor and safeguard finances. Simplification makes it easier for a client with declining capabilities to monitor his or her own finances. This can also minimize the number of paper bills and statements a client receives. While this may sound simplistic, the reality is that most clients have too many accounts, disorganized financial records and worse. These lapses can provide weaknesses for perpetrators to exploit. Too many financial accounts likely means more paper documents in a mailbox to steal, more records to keep track of which an aging client may not be able to, more opportunities to confuse the client with sham investment recommendations.
Checklist: Estate Planning Considerations
❏ 1 Minimize Estate Planning Risk: Be certain the client has met recently with his or her estate planning to update his or her estate planning documents. Too many clients, and even practitioners view the fact that a client “has a will” as sufficient. It is not so. First, client circumstances change. If a home health aide has a client change a deed or account to transfer on death to the aide, the family will lose out. Having existing documents may prove irrelevant if an attorney, or other adviser, is not periodically reviewing account ownership, beneficiary designations and more. When was the last time the documents and planning were reviewed? Did the planning specifically focus on longevity planning issues or was it simply tax and dispositive planning (e.g., who gets what).
❏ 2 Gift Provisions in Powers and Revocable Trusts: Rethink the gift provision included in powers of attorney and revocable trusts. The default provision for many clients might appropriately be a restriction prohibiting gifts. This is in sharp contrast to the historic practice of using annual gift exclusions as a default. Gift provisions have been notorious for their abuse by those perpetrating elder financial abuse. For the vast majority of clients the use of annual gifts is simply a tax anachronism.
❏ 3 Make Powers Safer: Consider the use of joint fiduciaries and/or a formal monitor position to integrate some protective checks and balances into a financial power of attorney. While nothing may prevent co-agents from colluding to financially abuse the principal, the likelihood has to be lower than a single agent unilaterally taking that action. Having someone monitoring the actions of the agent, especially if that is a CPA with financial training and expertise, is even a better precaution. Few people take this latter step.
❏ 4 Domicile Issues: Planning for aging clients should consider the possibility of needing to change a client’s domicile even if the client may lack capacity to do so. Domicile has traditionally been addressed by estate planners as a means of avoiding state estate tax in a decoupled state. With the increased importance of longevity planning, a broader and earlier consideration of domicile planning might be important. Whatever the reason that domicile may be changed, those charged with monitoring the client’s finances for potential elder abuse should be especially vigilant. Changing domicile may result in a change to a new lawyer who can practice in the new jurisdiction. Who selected that new lawyer? The client or a child attempting to convince the parents to change the dispositive provisions? Will laws in the new jurisdiction be harmful to the client’s financial security? Might they expose the client to a more robust spousal right of election for a recent spouse? Does the client even understand the ramifications?
❏ 5 Collaboration: Planning to minimize elder financial abuse should be a collaborative team of all advisers: the clients’ attorneys, insurance consultant, CPA, wealth adviser, care manager, charitable gift officer, and other professional advisors. Communicating with the client’s attorney and other advisers will enable every adviser to provide better quality service. Not only is planning for aging a multi-disciplinary task, but clients often tell different parts of their “story” to different advisers. Collaboration can help put the disparate pieces of the client’s “puzzle” together. Has the client named a reputable financial institution as a successor trustee instead of family? That might bring valuable safeguards, but the other members should not assume that the financial institution is beyond question and that the institution will actually fulfil its fiduciary duties to monitor a client’s assets for which it serves as trustee. There is never a guarantee. But adhering to a team process can provide vital checks and balances.
❏ 6 Make Revocable Trusts Safer: A banking institution or trust company can serve as a trustee or co-trustee to bring with it professionalism and independence (but see caution in the preceding paragraph). Consider integrating an independent care manager provision into the trust to perform a quarterly assessment and issue a written report to the corporate trustee, as well as to a key friend or family member (or perhaps the trust protector). As a CPA, you can have yourself named as a monitor charged with compiling periodic statements and perhaps more.
1. Old Age in America, by the Numbers, Dale Russakoff, July 21, 2010 http://newoldage.blogs.nytimes.com/2010/07/21/aging-in-america-how-its-changing/?_r=0 .
2. Mark Miller, “Why Cutting-Edge Healthcare Will Help The Rich Live Longer,” May 8, 2015, Reuters.
3. Serena Elavia, “50 is Peak Age for Financial Decision Making,” Sept. 18, 2015, http://thetrustadvisor.com/headlines/peak-age? The article cites a Texas Tech University study.
CPA’s website is the proverbial greeting handshake for many potential clients. It forms a person’s initial opinion of the firm. This importance has led many to speculate on the best way to construct and maintain a website. CPA Magazine approached thought leaders on the subject to get their views on mistakes CPAs often make when creating what website and what feature every CPA website should have.
DAVE RUTAN CEO of CPA Site Solutions
What is a mistake you see tax professionals often make when creating and running their websites? Enticed by the low-cost and easy DIY claims, many tax professionals attempt to build their own website. They soon realize that proper website creation involves much more than inserting contact information and a few pictures. Professionally designed websites should be more than aesthetically pleasing. A well-designed website should be created to convert visitors into clients by incorporating search engine optimization elements, properly placed calls-to-action and engaging, educational content. It’s also critical that tax professionals keep their website updated. Aside from turning off prospective and existing clients, websites that lack fresh content and user-friendly features are penalized by search engines, resulting in poor rankings and ultimately a decline in business.
What is a feature you think every tax professional’s website should have? There are a number of must-have website features that will benefit accountants. The first is engaging, educational content. Not only does the right content inform visitors about the services you offer, but it also helps increase search engine results rankings. And, since the vast majority of Internet searchers don’t go past page one of results, your firm’s ranking is a key factor prospective clients’ ability to find you. Your website should also showcase positive reviews and testimonials to help prospective clients know what it’s like to work with you and your firm. It’s also important to have a secure portal that allows tax professionals to conveniently exchange files with clients via their website. Finally, an updated “Contact Us” page with request forms allows you to gather information directly from your website 24/7.
ROBERT TENNER CEO of Accounting and Financial Site Builder from Tenenz
What is a mistake you see tax professionals often make when creating and running their websites? The heart of any website is the content. In order for a website to be successful the content must be relevant, timely, and useful to a firm’s desired audience (whether it’s existing clients or potential leads). Professionals that want to properly leverage their website must put some time into thinking through their content: how they describe their practice and services they provide, what resources they want to provide to clients (such as articles or calculators), and critically, how often they are willing to update and refresh content. This is often more difficult than people guess, but having direct access to modify and update their website’s content is key to help eliminate obstacles on maintaining the most important aspect of their website. Going through a third-party every time you wish to change something is not only a hassle, but eventually is exhausting and results in stale and out-of-date content. We also see too many firms paying fees for services they don’t need or use. We believe a better solution is providing a web platform that allows the firm to just add and pay for the services and features that work for them, not the website provider.
What is a feature you think every tax professional’s website should have? It seems not a month goes by without another big new story relating to a new online security breach. Any tax professional starting to embrace digital tools must realize that email is not a secure channel to send private information. Professionals must offer a secure file-sharing portal for their clients to keep their information safe. Emails travel across many different servers, some of which may or may not encrypt the message as it goes. Just like a postcard, that means prying eyes could see the information as it travels. A secure file transfer portal lets clients and tax professionals securely upload, store, and download sensitive documents at any time.
DR. CHANDRA BHANSALI Co-founder and CEO of AccountantsWorld
What is a mistake you see tax professionals often make when creating and running their websites? When it comes to running their websites, many accountants fail to take full advantage of the time a visitor spends on the site. It is like leaving money on the table. A good website must provide quick answers to the questions visitors may have as well as make visitors aware of additional opportunities they could be interested in, including tax saving, tax planning and other add-on services. Especially during tax season, the home page itself should become the landing page to capture leads as well. In order to ensure leads are captured accurately, be sure your site encourages visitors to fill in basic contact details that are submitted and captured by the firm.
What is a feature you think every tax professional's website should have? Every tax professional’s website should be shoppable. In today’s digital-first world, prospective clients have access to the information and tools to do their own research and to shortlist their choices. If your website content is compelling enough and fits their needs and wants, they are ready with their criteria to buy. “Where to buy” needs to be more obvious and prominent on your site. Most websites offer free consultation, contact us forms and other similar features. But surprisingly, more often than not, the shoppable feature, or the “buy button,” is missing. Not having a buy button means not giving immediate buying opportunity to the interested prospect, which can result in a prolonged sales cycle and even potential loss of interest from the prospect. A 10%, limited time, web-only discount along with a buy button can add to your sales.
HUGH DUFFY Chief Marketing Officer of Build Your Firm
What is a mistake you see tax professionals often make when creating and running their websites? One of the mistakes we often see is most tax accountants find themselves struggling with the dilemma of choice. They are either very interested in having a website with a lot of tools or they are looking for a website that will assist with their marketing efforts and generate new leads. Accountants that focus on tools are hyper-focused on getting a website that comes with all the bells and whistles like hundreds of pre-written articles, email newsletter tool, social media posting tool, secure file sharing tool, payment processing, online portal connectivity, calculators and access to tools that have nothing to do with accounting and tax. Accountants that are more concerned about marketing tend to be focused on a search engine optimization, posting online reviews and reputation management, having professionally-written content, social media marketing and effectively communicating their firm's branding. The mistake is failing to realize in order to have a truly effective accounting website, tax accountants should be investing in a website provider that offers answers to both these needs.
What is a feature you think every tax professional's website should have? There is no need to settle in today's online world. We truly believe that accountants shouldn't have to trade-off tools versus marketing in their website presentation. Instead, we recommend choosing a website provider that understands the needs of accounting firms and understands the difference between an enrolled agent versus CPA, QuickBooks versus Xero, and provides tools that enable accountants to operate more efficiently, and within compliance. Not to mention, a provider that doesn't put your firm into a box and instead gets to know your firm and can provide a website that clearly defines what you offer and what makes you unique. With the evolution of websites designed specifically for accountants, you should expect the core tools to be well designed for peak performance, a visual presentation that effectively brands your firm and paints the picture you want to embed in a prospect's mind, and motivates the prospect to call your office and meet with you.
LEE REAMS II CEO of ClientWhys
What is a mistake you see tax professionals often make when creating and running their websites? It takes much more than a website to stand out online. If no one can find your website, what is the point? To showcase your experience, tax pros need to be active on all of the major social media profiles, actively share knowledge on their blog. We often see what we call a “dinosaur” website, where the professional tried to save money and built a site that was never updated after it went live. That strategy just doesn’t work. You need to be present where your clients are spending their time online. Be active on social media and engage with your audience through your email newsletter. A lot of what is said about you occurs online. Let’s make sure it is positive.
What is a feature you think every tax professional's website should have? Social proof and client recommendations should be front and center on a tax professional's website. Times have changed. Consumers no longer rely on the recommendation of one. They do their research and make better choices based on the opinions of many. So building up a stockpile of reviews and testimonials makes it easier to convert web leads and those referred by others. You also have already planted the seed of trust by what others have said about you. They are more likely to follow your advice, refer others, and maybe, just maybe, pay more for your services.
JEFF DRAKE President of CPASites, LLC
What is a mistake you see tax professionals often make when creating and running their websites? The biggest mistake we see accounting firms make is creating an interactive website and then not being active with it. When we first began building tax and accounting websites, there were very few options for creating an interactive site. But over the years, as blogs and Twitter apps became prevalent, more professionals jumped on the bandwagon and began viewing their website as an active marketing tool they can use to stay in touch with their clients. The problem however, is after the initial excitement of their new website “toy” has worn off and the drudgery of everyday work resumes, their blog entries and tweets begin to taper off. We repeatedly warn our clients that a blog or Twitter app that hasn’t been updated in weeks or months is far worse in appearance than not having one at all. Our experience has been that unless there is someone in the firm that has maintained an active blog and/or is passionate about online communication, it is best to simply maintain content for their clients that is updated external sources.
What is a feature you think every tax professional's website should have? With the increased focus on security and confidentiality, we think it is now imperative that all tax professionals maintain a secure client portal that can be used to store and transfer files with their clients. Many tax professionals are still using standard email for exchanging tax information and the risks are enormous. They seem to assume that it’s no more risky than mailing a return to a client but they fail to realize that, unlike information sent via email, packages sent through the U.S. Postal Service cannot be intercepted and copied by anyone around the world. Since tampering with a sealed and mailed document is easily evident, often traceable and subject to severe domestic criminal penalties, the mail services are considered an acceptable level of risk. Tampering with emailed documents however, can leave behind no evidence, be completely untraceable and if done outside the country, be completely exempt from domestic law. Email is a highly unacceptable risk for a tax professional.
SEBASTIAN LEE President/Owner of Service2Client
What is a mistake you see tax professionals often make when creating and running their websites? Not taking the time to create a great bio with high quality images. On a larger topic, learning and being willing to spend money on marketing.
What is a feature you think every tax professional's website should have? It sounds simple, but a beautiful photo of personnel or landscape and a Free Consultation offer. Further on this topic is a video from one of the partners.
JORDAN C. KLEINSMITH Sr. Product Manager, Tax & Innovation at Thomson Reuters
What is a mistake you see tax professionals often make when creating and running their websites? You cannot afford to write-off the importance of aesthetic appeal. Many of you probably think along the lines of what you would like to see on a tax professional’s website and overcomplicate your sites for the average non-tax-minded visitors, leading to a cluttered appearance and confusing navigation structure. Less is truly more in many cases. You are likely correct in saying you gain most of your new business by word of mouth, but you may be failing to recognize that the first thing a referred prospect is going to do is search for your website online – very, very few prospective customers will make a cold call to your office or email you before taking this step. Once they arrive at your site, you have mere seconds to make a good impression and influence them to reach out and make contact. If your site looks “cheap” or unprofessional at a glance – or is not formatted to display correctly on a mobile device, which is what the majority of new prospects will use to look you up – you will likely lose the opportunity to gain a new client. Aesthetic appeal is one of the only tools at your disposal to make such a positive impression in such a small window of time.
What is a feature you think every tax professional's website should have? An absolutely critical feature to any tax professional’s website – beyond a clear brand promise of the quality service you pledge to all clients – is a method of contact to your office that does not involve making a phone call. This could include something as sophisticated as a live chat capability to an on-call member of your office, a submission form requesting a prospect’s contact information and service(s) desired, or as simple as a link to an email address at your firm. You may not realize it, but there’s a major paradigm shift underway in how prospects select service professionals based on communication preferences: whereas the old litmus test was “I’m not doing business with any company I can’t call for service at a moment’s notice”, the new requirement is “I’m not doing business with any company I have to call for service at a moment’s notice.” This extends to self-service capabilities like secure access to tax returns and other documents online, but begins with prospects shopping for a new tax preparer.
NAKE SAKANDER Product Manager at Wolters Kluwer Tax & Accounting
What is a mistake you see tax professionals often make when creating and running their websites? A mistake I see — not just from tax professionals but across the board — is building a website without a clear goal of what you want to accomplish. Having a website just to have one isn’t good enough anymore. You must have a definitive goal or vision of what you want to accomplish, whether it be to educate, sell a product or service, or any other goal.
What is a feature you think every tax professional's website should have? I believe every tax professional’s website should be built on technology (responsive design) that optimizes the user experience based on the device type they are using to view the site. If a site doesn’t work on the user’s mobile phone, chances are that the user will not engage any further. So much of our technology consumption and engagement is on “mobile” devices, phones and tablets, that not having that experience optimized is a nonstarter!