2009 CPA TECHNOLOGY DAY PRACTICAL STEPS FOR A PAPERLESS TAX SEASON James Blaylock, CPA, CITP President of BLAYLOCK & COMPANY, CPA, PC

Do you need to be paperless? No, unless you: Want to protect your records, or Want to have more billable time, or Want to expand beyond 50 clients. 2

Protect Your Data Fire Flood Theft Storms Earthquakes 3

Had Fosselman & Associates been relying on paper, they would have Example Fosselman & Associates Palmer, Alaska On February 14, 2006 the company experienced a total building loss due to fire. Their server was saved, but everything else in the building was completely destroyed. Because they are a paperless office, they had an electronic back up of all their essential business files. The very next day they were back to work in a rented building with ten years of tax returns and other critical documents on hand! Had Fosselman & Associates been relying on paper, they would have suffered a total loss. 4

Protect Your Records 70% of companies that experience major data loss go out of business within a year. Data Protection Plan for Blaylock & Company Server with mirrored drives ($1,200) 4 external USB drives for daily on site backup (@ $70 each = $280) (One drive is always kept off site.) Online backup service @ .50 per GB X 52 GB = $26 per month (Data is stored at 448 bit Blowfish encryption.) 5

Time, Our Biggest Expense The average office worker spends 400 hours per year searching for paper documents. I pay Ron $50 per hour. Do I want him to carry files? I bill him at $200 per hour for tax work. I can’t bill that much for moving. 6

The Financial Effects of Paperless Blaylock & Company, CPA prepares 700 returns per year. We use 60,000 fewer sheets of paper per year. We reduced paper, toner costs by $600 per year per employee. Gross billing increased 25% with fewer staff. We can find all the files all the time! We save about 2 hours per day per person. It costs an average of $25,000 to fill a 4-drawer filing cabinet and more than $2,100 per year to maintain it. 7

Expand Your Client Base Provide more timely service. The most common complaint about tax professionals is the delayed response. Copy client’s important papers and charge them for it. A client would never leave you if you have a copy of their birth certificates, insurance policies, etc. Get paid helping your clients go paperless. 8

Get Started FIRST STEPS Find an expert and make your plan. If you stay with less than 50 clients, windows may work. Go forward now. Blaylock & Company Plan Install document management program “Print” last year’s tax returns to the electronic file cabinet Scan permanent documents (trust agreements, etc.) Get 2 monitors for everyone. Purchase a good scanner 9

Workflow for Tax Season Blaylock & Company, CPA Procedures Receive documents from clients. Place them in a brown folder to travel the office. Assign the return to a preparer. The preparer will enter tax info and select documents to be saved. The prepared return goes to the reviewer. The reviewer looks at last year’s return on screen, compares this year’s input with paper documents. The package is given to clerical for printing and scanning. Final review and billing. Fujitsu fi 6130 10

The Brown Folder

Is it Legal to be Paperless? E-sign Act of 2000 (15 USC 7000, et. Seq.) Revenue Procedure 97-22 Publication 1345A IRC 6107 & 6695 (preparers must keep return copies or a list) DOL 29 CFR Part 2520 Re: Labor Records 8 CFR 274a.2 Re: Form I-9 12

denied legal effect solely because it is in electronic form. E-Sign Act Not withstanding any rule of law . . . a signature or record may not be denied legal effect solely because it is in electronic form. E-sign Act, October, 2000 (15 USC 7001 et. seq.) 13

Exceptions to E-Sign Act Exceptions for wills, testamentary trusts and eviction notices (See 16 USC 7002 (a) & (b) You are also required to give paper records to those who request it. (See 15 USC 7001 (c) 14

IRS Rules IRS Rules for Electronic Records Revenue Procedure 97-22 Records maintained in an electronic storage system that complies with the requirements of this revenue procedure will constitute records within the meaning of §6001 of the Internal Revenue code. 15

IRS Rules Section 3: Scope of 97-22 .01 This revenue procedure applies to an electronic document management system - (1) electronically imaging hard copy documents - (2) “cold” imaging of electronic documents .02 Pertains to all matters .03 Use of a third party does not relieve the taxpayer of the responsibilities 16

Apply to paper and electronic records. IRS Rules Section 9: Penalties Apply to paper and electronic records. Taxpayers whose storage system fails to meet the requirements of this revenue procedure may also be subject to penalties including the: - §6662 (a) accuracy-related civil penalty (20% of understatement) - and the §7203 willful failure criminal penalty ($25,000 to $100,000 and 1 year in prison) 17

Income Tax Preparer Must: Requirements Income Tax Preparer Must: Furnish a copy to the taxpayer (The copy can be electronic) Retain a copy of the tax return or retain a list of returns (This can also be electronic) IRC 6107(a) and (b) 18

What Records Must be Kept? Requirements What Records Must be Kept? A copy of the return or a list (Tax data is not a copy!) Forms W-2, 1099R, etc. Form 8879 Form 8867 (EIC Checklist) or Information needed to fill in Form 8867 19

What Records Should be Kept? Requirements What Records Should be Kept? Prevent us from being blamed for return errors by the IRS or our clients Give our clients the level of service they expect 20

How Long Should Records be Kept? Requirements How Long Should Records be Kept? 3 years after the end of the 12 month return period July 1 to June 30 is the return period 4 years for returns signed before 6/30 5 years for returns signed after 6/30 Penalty is $50 per return up to $25,000 21

Requirements Special Situations Preparers are required to have records at all times: Retirement Sale of practice Closing business 22

Thank you for Attending! Decide what kind of paper you want in your office. Paperless is Possible, Practical, And Profitable James Blaylock, CPA, CITP Blaylock & Company, CPA, PC (801) 375-7515 James@BlaylockCPA.com 23