U.S. firms outsource tax work to India
By Rachel Konrad
Associated Press
SAN JOSE, Calif. — Twelve-hour shifts in seven-day workweeks exhausted accountants at Rucci, Bardaro & Barrett. But most painful for Chris Barrett was the annual "Easter parade" — layoffs of seasonal workers and interns after April 15.
So Barrett, a partner in the Malden, Mass.-based firm, will send about 150 of his 600 clients' tax returns this year to India, where recent college graduates will prepare Americans' 1040s. Barrett won't hire — or fire — more employees, and the average turnaround time for completing returns is shrinking.
"We're always looking for ways to reduce the pressure," Barrett said. "It frees us up to provide financial and estate planning, which we didn't have time for when we were too busy filling out returns."
Tax experts say Indian chartered accountants — the subcontinent's version of certified public accountants — will prepare 150,000 to 200,000 returns this year, up from about 20,000 in 2003 and 1,000 in 2002.
Critics say outsourcing short-shrifts U.S. accountants and exposes unwitting Americans to identity theft.
Last week, U.S. Sen. Dianne Feinstein, D-Calif., urged major U.S. financial services and accounting firms to be cautious about outsourcing sensitive work such as tax preparation. "I am gravely concerned that consumer data is being sent overseas without proper safeguards," she wrote to chief executives of Citigroup, Bank of America, Ernst & Young, Equifax and TransUnion.
But executives argue that they can't afford to ignore the trend.
The average accountant in India makes $250 to $300 a month, compared with $3,000 to $4,000 in the United States. Many firms say they'll use the savings to undercut competitors or add premium services like retirement planning. They also say Indian workers will be needed to replace droves of retiring baby boomer accountants.
"It's going to change the paradigm in which professionals prepare taxes, maybe even more than the way TurboTax (software) changed the way individuals did their taxes," said Dave Wyle, head of Newport Beach, Calif.-based SurePrep, a software and consulting service with 300 accountants in India.
Since the late 1990s, accountants have sent bits of tax work to India — lists of itemized deductions or schedules of profit and loss — primarily for multinational companies and U.S. citizens living abroad. But in the past year, they've sent thousands of individual returns to India, where about 50,000 accounting majors graduate from college each year.
Ernst & Young, with more than 1,000 workers in Bangalore, will prepare 15,000 of 100,000 tax returns abroad. Most are corporate returns. About 4,000 will be for U.S. citizens living abroad, and about 1,000 for U.S. residents, spokesman Ken Kerrigan said.
KPMG, which outsources returns of U.S. expatriates, is "considering" expanding the practice to the returns of U.S. residents, spokesman Greg Dvorken said.
PricewaterhouseCoopers and H&R Block have no immediate outsourcing plans. But H&R's mortgage subsidiary, Option One Mortgage, is sending data entry work to India, and H&R is studying whether outsourcing has "other possible advantages," spokesman Bob Schneider said.
Critics say risks outweigh advantages.
Although firms have yet to report identity theft or fraud that stemmed from outsourcing, privacy advocates cringe at the notion of scanning and transmitting W2 forms — along with the Social Security numbers and salary information on them — across about a dozen time zones.
Democratic presidential front-runner John Kerry wants overseas call centers to disclose their location — the New Economy version of the "made in America" label. Some consumer groups and privacy advocates say accountants should do the same.
Ernst & Young customers must sign a document acknowledging that a foreign accountant may work on their return. But most firms don't make such disclosures.
Accountants outsource by scanning clients' W2s, 1099s, K1s and other records and sending them to Indian workers through strongly encrypted e-mail or private networks.
Indian workers complete forms obtained from Web sites of the U.S. Internal Revenue Service and transmit them to American accountants, who review, print and sign the documents, thus assuming legal liability.
To protect privacy, tax consulting firms in India — SurePrep, Datamatics, Xpitax, Outsource Partners International and other firms — usually have armed guards outside offices. Entry is restricted by microchip-embedded swipe cards.
At SurePrep, bags and briefcases are prohibited. Computers have no printers or devices for removable storage like floppy disks. Internet use is restricted to internal sites and tax research.
Bruce Carlin, managing partner at Worcester, Mass.-based Carlin, Charron & Rosen, plans to outsource about 2,000 returns — twice as many as last year and a third of this year's totals. Unless the client asks, the firm does not disclose that it outsources with Datamatics, Carlin said. But "the vast majority of people understand what's going on," he said.
A 1040 form prepared in India can cost as little as $75 — including labor, software and hardware costs. In the United States, it would likely cost as much as $150, Carlin said.
