1040 Central operating manual.

• Author: Erler, Michael J.
• Position: Guidelines for income tax return preparation

Individual tax return preparation is frequently viewed as possessing the following characteristics:

* Uncontrollable as to when and how done: For most offices, individual tax return preparation provides as much as 10% (or more) of annual office revenue, 60% of which is performed in a three- to four-week period. While the due date of April 15 is virtually unyielding, clients deliver their information with seemingly complete unpredictability, and the availability of staff to do the work when needed, follow up on review notes and obtain guidance from management personnel is haphazard at best.

* Intensive concentration of management time: While staff-to-partner ratios in many aspects of tax work are in the range of 3:1, 4:1, 5:1, etc., individual tax return preparation is usually 1:1 or 2:1. This is a very poor use of management time during the most critical period of the year (and the best time for new client and work opportunities).

* Fill-in work between larger, more interesting engagements: Individual tax return preparation frequently tends to be overshad-owed by major engagement pressures and deadlines.

* Long time frame and excessive time and charges to complete: The time between the date tax information is received and the date returns are mailed often is several weeks or months. During this period, missing information, multiple handling of returns and resulting reorientation to the facts, delays in follow-up on review and staff unavailability may occur, adding hours to the return preparation process.

Selection of facility

The single most critical feature of an effective 1040 Central is selection of a facility in which all engagement personnel may work together (one room) and are physically segregated from other firm personnel. (This might be likened to the typical audit field environment.)

For engagement personnel, working together in close quarters affords effective supervision, immediate and consistent on-the-job training and fewer nonengagement-related interruptions. For 1040 Central management, a larger measure of control over the field environment is achievable. And for return signers (members, managers, etc.) and all other firm personnel not on the engagement team, access to and influence on specific staff behavior, style and order of work is prevented, thereby allowing orderliness and efficiency as well as minimizing stress.

Each office will need to address this feature within the confines of its own practice office. However, since selecting the proper facility will ensure gaining certain efficiencies (listed below), additional rental cost or construction modification will be justified.

* Greatly shortened learning curves, resulting in tremendous cost savings.

* Reduction in the number of times a return is handled.

* Adherence to a policy of first-in, first-out (FIFO).

* Control of management over staff focus on the engagement.

* Management awareness of progress, since hours put in correlate with returns completed.

* Immediate knowledge and implementation of tax matters and their handling.

* Less stressful, more enjoyable work environment, due to camaraderie and team spirit.

Space arrangements should be made immediately. Lead times to make space available will vary widely; however, the amount and nature of the space can be determined only after a complete inventory of the returns to be prepared is made and the resulting number and levels of personnel set.

Equipping the facility

A list of equipment should include:

* Number and specifications of computers.

* Printer(s).

* Copier for low-volume usage.

* Computer phone/network lines.

* Number of tables and chairs.

* White board or chalkboard for notices, procedures, progress reports, etc.

* Adequate ventilation (many people and machines in one room generate a lot of heat).

* Separate computer server for calculating returns (to save preparer time).

* Sufficient file cabinets or shelving to store work in various stages of progress (see the "Inventory control" section, below).

* Adequate telephones (i.e., one for reviewers and one for preparers).

* Lunch/break area (encourages staying together and out of the regular office areas where staff might get distracted from 1040 Central engagement duties).

* Refrigerator, coffee pot, etc.

* State tax services (forms and instructions).

* Moody's/Standard & Poors stock guide.

Personnel job descriptions

The following positions and duties will be needed in 1040 Central:

* Engagement supervisor: This position offers good experience for management development. The engagement supervisor generally is a permanent tax department senior or manager, whose responsibilities include overseeing all aspects of the engagement from planning in June, recruitment, training, computer software and hardware, and continuous on-site supervision throughout the preparation season; identifying issues requiring policy decisions and implementing directives of the tax coordinator; advising preparers and reviewers on the specific handling of client facts and instructing them as to when research is appropriate; conducting the research (so preparers and reviewers can continue to focus on production and minimize "wheel spinning"); resolving disputes; bringing violations of operating rules by nonengagement personnel to the attention of the tax coordinator; being the "last word" on-site on all matters; supervising and directing the inventory control clerk; acting as liaison with software representatives.

* Reviewers: Usually permanent personnel with two or more seasons of experience or seasonal personnel with several years of experience and sufficient demonstrated knowledge and inquisitiveness to identify needed corrections and opportunities for improvement in accuracy and completeness.

"Reviewers" is somewhat of a misnomer; through leveraging via preparers (who assemble and organize client data into the form of a tax return), these persons produce several returns in the time conventionally spent producing one return.

Reviewers draw returns on a FIFO basis from the work-in-process (WIP) table (returns that have been completed by preparers to the best of their ability), perform 100% on-screen review and tracing to client information, and enter notes on-screen as to errors found or questionable issues. Direct interaction with preparers on matters that have learning value or items requiring clarification is encouraged. Otherwise, on completion of a review, the return file is put on the respective preparer's "re-prep" table (if there are review notes) or on the "deliver to signer" table (if no corrections are required).

* Preparers: Temporary personnel who are usually specially trained, but often nondegreed, who possess basic ability, motivation, detail orientation and tax return preparation...