Getting started in electronic tax research.

How to make the search faster and easier.

Technology is making tax research less taxing. Although many CPAs still work with paper subscription tax services thumbing through hundreds of bound pages increasingly accountants are harnessing their computers to get answers to tax questions. Those who have turned to computers find they can do the work faster, cheaper and easier. And even more important, the research often is far more thorough.

Only a few years ago, the only option for accountants in all but the largest CPA firms was the paper path. Using high-tech tools for tax research was out of the question for many others because few resources were in place and much of the technology was beyond their reach. Today, the technology is not only within easy reach but the resources are abundant as well.

In addition to paper, CPAs today have three options for conducting research: They can access the most current data via CD-ROMs, from commercial online services and on the Internet. As a result, CPAs are turning in droves to the new technologies; their growing popularity is driving down prices of the products and making the resources available to an even wider audience.

The only significant obstacle to these new- high-tech tools is the anxiety often associated with trying new technology. While not limited to accountants, it effectively has kept many CPAs working with paper tax publications. The goal of this article---intended as a primer on how the new tax tools work and the services available--is to help persuade tax practitioners who have not yet ventured into electronic tax research that the new user-friendly technology is worth exploring.

ACCESS VIA CD-ROM 

The CD-ROM, which has become the ubiquitous medium for recorded music, is fast gaining the same stature for information--whether it's packaged as an encyclopedia, a dictionary or a tax research tool. Although tax CD-ROMs have been around since the mid-1980s, only in recent years have they made significant inroads among tax practitioners. Their popularity is fueled by several factors: their increasing user-friendliness, convenience and the accessibility of the technology. In fact, today's computers come equipped with CD-ROM drives, and installing such a drive on an old machine costs less than $150.

Adding to their appeal is how they search and manage the information. Each CD contains a search "engine"--a software application that conducts very sophisticated hunts for words and phrases associated with the target topic. Once the target document is found, it can be read by a word processor, copied, edited and pasted (electronically) into any document. A user then can conduct further searches within the document using the word processor's own search capability.

The storage capacity of CD-ROMs also is central to their growing popularity. Each 4.7-inch disk holds about 600 million bytes of data, the equivalent of about 300,000 pages of printed matter. The text of an entire basic tax library-the Internal Revenue Code and Regulations, revenue rulings and procedures, technical advice memoranda, letter rulings, court decisions, committee reports, publishers' commentary, textbooks and treatises--can be stored on as few as five disks. Replacing a paper library with an electronic system reduces the floor space needed to house the tax library, from about 500 square feet to a few inches.

As new vendors enter this market, and competition grows, prices trend downward, making the tools increasingly affordable. Exhibit 1, page 46, shows the costs of selected CD-ROM and print products offered by the major tax research publishers.

As part of an affinity program, members of the American Institute of CPAs are eligible for a 10% discount on new purchases of Research Institute of America (RIA) tax research material. Members also are eligible, until August 31, for a 30% discount on RIA's Federal Tax Handbook and may take advantage of a 5% discount on renewals of material purchased under this affinity program. Starting in 1997, the 5% discount applies to all RIA renewals.

Caveat: Users should be careful when comparing costs because publishers package their products in different ways--resulting in apparent price discrepancies. RIA's OnPoint System, for example, is not equivalent to any one Commerce Clearing House (CCH) package. Instead, CCH has comparable material on a number of separately priced products, not all of which are included in exhibit 1. In order to get a meaningful price comparison, users have to contact each vendor and decide what information packages they need to meet their particular needs.

ON THE ROAD

Another big plus CD-ROMs provide is portability. No longer does a CPA have to tote a printed copy of the Internal Revenue Code and Regulations to a client's office. A CD-ROM-equipped laptop can handle the task. Likewise, a CPA who travels extensively can pack a laptop and a few disks ,md work anywhere.

In the accountant's office, the CD-ROM system can be designed to allow multiple users to access the disks simultaneously-ending the frustrating experience of finding that a particular binder needed for a project is being used by someone else.

Additionally, whether in or out of the office, a CPA can take information from a CD and insert it into a memorandum or other document being prepared with a word processor. The information stored on a disk also can be printed directly without a word processor, a benefit to those with an aversion to reading information on a screen.

Tax practitioners know how critical it is to conduct quick, thorough searches of all primary (statutory, judicial and administrative) and secondary (tax services, journals, textbooks, treatises and newsletters) sources of tax law bearing on client issues. The cornerstone of traditional tax research is one or more of the subscription tax services, the paper versions of which are organized by IRC section or topic. Both forms of organization depend on the topical index prepared by the tax service publisher. However, if the significance attached to the topic by the researcher does not correspond to that attached by the publisher when the index was prepared, the researcher runs the risk of not finding all the relevant data.

CD-ROMs avoid this problem by allowing the researcher to use keywords to search the document. In effect, researchers create their own indexes rather than rely on publishers' topical ones. However, all the popular CD-ROM systems accommodate the traditional approaches if, for example, the researcher knows the applicable code section or wants to use the publisher's topical index. Exhibit 2, page 48, illustrates the keyword search process for a relatively simple issue.

Using a CD-ROM for tax research has its negative side, too. Here is what some CPAs don't like about the tool:

* If you can't tolerate reading material on a screen, you're going to lose some of the speed and efficiency of CD-ROMs while you wait for printed copies of the collected information. In time, however, you may become accustomed to reading on the screen.

* If you're used to spreading out several sources of tax authority on the desk, you may feel constrained by the screen even though Windows permits multiple screens to a limited extent. However, you may be surprised how easily you can learn to work in a different medium.

* CD-ROMs aren't updated as frequently as printed services or online systems, which are discussed in the next section. While this is a valid concern, it's often mitigated by the snail's pace at which some office libraries file new pages in binders.

ONLINE IN REAL TIME

A fast-growing option to CD-ROMs is the online services, where tax research material is stored at a central location and users access it with their computers via modem by dialing a special, dedicated phone number. Lexis (LexisNexis), Westlaw (West Publishing) and CCH Online are the most widely used online systems for tax research. Tax Analysts also offers a collection of its online daily electronic databases in a Lotus Notes-based product.

The biggest advantage of the online services is their speed: They are updated at least a week sooner than the printed services.

At one time, online systems were not user-friendly, but the human interface has improved. For example, Lexis, Westlaw and CCH Online now allow the use of standard English in structuring search commands or queries. All the popular online systems use essentially the same operational practices. Each, however, has its own set of functional commands, connectors and database names that the user must master to take full advantage of the system.

The search engine most programs use allows the researcher to limit the scope of the search. For example, the search request "home mortgage points" and "deduction" instructs the computer to retrieve any documents containing both the phrase home mortgage points and the word deduction.

The user who does not know all the quirks of the search grammar, however, may receive some surprises. For example, the Lexis subscriber who uses the query "rent-to-own" does not receive information on the tax treatment of rent-to-own contracts because on Lexis "to" is a noise word--a common word that conveys little or no subject meaning (for example, to, the, and, of)--and cannot be searched. To circumvent this problem, the request can be modified to "rent +2 own," which instructs the computer to find documents in which the word rent precedes the word own by two or fewer words.

The occasional user of an online system may prefer the natural language search alternatives of Lexis (free-style), Westlaw (Win) and CCH Online (plain language), in which ordinary English is used to structure the search queries. For example, the query might be, "tax treatment of rent-to-own contracts." In response, the screen shows the top 25 statistically relevant documents (that is, documents with the most occurrences of the search terms). The user then selects which ones to examine.

Online tax information also is available from two American Institute of CPAs' resources: The Accountants Forum (which is on CompuServe) and its home page (http://www.aicpa.org).

THE RIGHT STUFF

The online systems generally are available to both Windows and DOS users. The Windows version usually requires at least 4 megabytes (Mb) of hard-disk space, 4 Mb of RAM and Windows 3.1; the DOS versions, at least 4 Mb of hard-disk space, 512 kilobytes of available RAM and DOS 3.3. A modem and telephone line also are needed.

All the commercial online tax systems contain primary source documents and some commentary and analysis. CCH Online provides the editorial materials and analysis found in its print products. Lexis includes RIA's editorial material and analysis, Tax Analysts publications and other business publications, depending on the subscription selected. Westlaw provides access to the Tax Management Portfolios published by BNA's Tax Management and is integrated with the Dow-Jones/News Retrieval information services. Westlaw also allows access to Barron's, the Wall Street Journal and various other business and economic information sources. Exhibit 3, page 50, highlights the tax materials available online and provides toll-free access numbers for the vendors.

The commercial online tax services have almost as many pricing options as they do customers because of the various ways their services can be combined to meet customer needs. The options include hourly rates for online access through third parties, flat rates for limited usage plus hourly rates for additional online time and fiat rates for unlimited usage. Lexis offers one flat-rate plan. On a new subscription, firms with fewer than 20 professionals at one location can gain unlimited access to the Lexis tax law libraries, including Sheppard's citation service, for a flat monthly fee of $150 for the first user, $100 for each additional one and a monthly subscription fee of $15. Thus, a sole practitioner can have unlimited access to Lexis for $165 per month, comparing favorably to the CD-ROM and print service prices shown in exhibit 1.

THE INTERNET OPTION

The Internet's World Wide Web is yet another way to conduct tax research. While available information is not as comprehensive as that provided via CD-ROM or online, it can be especially handy in tracking down business-related subjects that have an impact on taxes. For more information on accounting Web sites, see "Tapping the World Wide Web," page 73.

Users can tap the Internet indirectly by subscribing to a commercial online service (for example, America Online, CompuServe, Prodigy) or directly by setting up an account with an Internet access provider. Most users are likely to prefer the indirect access because such services are easier to use and often less costly.

Tax material on the Web includes statutory, administrative and judicial sources of tax law. Statutory sources include the full Internal Revenue Code, full-text versions of all House and Senate bills and the Congressional Record for the last four sessions of Congress. The regulations are the primary source of administrative tax law on the Web and can be searched using keywords, regulation citations or concepts.

Many judicial sources of tax law--recent opinions and dockets of federal district, appeals, bankruptcy court and the U.S. Supreme Court--are available through the courts' public electronic access bulletin board for a fee. Not all of these sources, however, are available free of charge on the Web, making it of limited value for researching statutory sources of tax law.

The Web also has sites containing state and foreign tax information. The state tax information includes explanations, tax forms and legislation, while the international material is primarily background information.

RESEARCHING CLIENT ISSUES

The lack of commentary, analysis and reference to case law on the Web greatly limits its usefulness for tax research. The practitioner also may encounter outdated information on the Web because government agencies place low priority on updating free resources. The Web is so overwhelming in the sheer volume of information that even sophisticated users often find it difficult and slow to access.

With the scope and quality, of materials on the Web increasing daily, however, the future for Internet tax research is promising. It has the potential to provide almost instantaneous access to new developments worldwide, and it is not hard to envision the commentary and analysis critical to tax research being available on the Web--perhaps not free, but at a reasonable cost.

The expanding body of knowledge bearing on client issues requires powerful tools to ensure effective and efficient research. Competitive pressures eventually will force all tax professionals to master these tools, and CPAs can be assured that the longer they remain on the sidelines, the more difficult it will be to catch up.

Exhibit 4, above, contains some specific suggestions to help the CPA move from the sidelines to the tax research playing field. Implementing these suggestions may not make a user an expert, but they will ensure that the CPA is a player in the technology, game.

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EXECUTIVE SUMMARY

* ALTHOUGH MANY CPAs still work with paper subscription tax services--thumbing through hundreds of bound pages--increasingly others are harnessing their computers to get answers to tax questions. Those who have turned to computers find they can do the work faster, cheaper and easier. And even more important, the research often is far more thorough.

* IN ADDITION TO PAPER, CPAs today have three options for conducting research: They can access the most current data via CD-ROMs, from commercial on-line services and on the Internet.

* CD-ROMs' POPULARITY is fueled by several factors: increasing user-friendliness, convenience and the accessibility of the technology. Today's computers come equipped with CD-ROM drives, and installing one on an old machine costs less than $150. Adding to CD-ROMs' appeal is the ease in searching for information. Also, their storage capacity--the equivalent of about 300,000 pages of printed matter--is central to their growing popularity.

* ANOTHER BIG PLUS IS THE CDs' portability. No longer does a CPA have to tote around a printed copy' of the Internal Revenue Code and Regulations to a client's office to handle issues requiring immediate resolution. A CD-ROM-equipped laptop can handle the task.

* COMMERCIAL ONLINE SERVICES are another option. Tax research material is stored at a central location and users tap into it with their computers via modem by dialing a special, dedicated phone number. The biggest advantage of the online services is the fact that they are updated at least a week sooner than the printed services.

* THE INTERNET'S WORLD WIDE WEB is yet another way to conduct tax research. While available information is not as comprehensive as that provided via CD-ROM or online, it can be especially handy in tracking down business-related subjects that have an impact on taxes.

LEE G. KNIGHT, PhD, is the E. H. Sherman Professor of Accountancy at Troy State University, Troy, Alabama. RAY A. KNIGHT, CPA, JD, is senior manager at KPMG Peat Marwick in Atlanta, Georgia.

CASE STUDY

CD-ROM vs. PAPER

Verdict: They Both Win

"Give up paper? No way!" Speaking is John (Jeff) Fothergill, a partner of a nine-member accounting firm, Fothergill, Segale & Valley, in Montpelier, Vermont. He adds, "We've used a CD-ROM tax reporting service for the past three years. And while we love it--it's a very convenient tool--I don't think we'll ever give up our two main paper services: Commerce Clearing House's Federal Standard Tax Reporter and Bureau of National Affairs' Portfolio."

Although some people think using both a paper service and a CD-ROM is like wearing a belt and suspenders, Fothergill says it's not like that at all: One complements the other. He explains it this way: "Since the CD-ROM service is on our file server, everyone in the firm can access it from any workstation. And when our professionals start a tax research project, they invariably turn first to the CD-ROM service--after all, it's right there on their computers and they don't have to walk down the hall to the library."

The first step is a keyword search. That's where the CD-ROM service excels--gathering all the possible places where pertinent data may be located. Then, if the project is relatively simple, the researcher probably sticks with the CD-ROM service (the firm uses CCH) to look up the details."

But, he adds, if it's a complex tax issue involving many citations and many keyword "hits," a professional often turns to the books once the keyword search is narrowed down to the most likely places where detailed information can be found.

Why switch from the CD-ROM service at this point to the paper resources when both contain exactly the same information?

The issue is scanability. "It's a lot easier for the eyes to scan material neatly typeset on paper then read text on a computer screen," he explains.

Just the other week, Fothergill says, the firm's partners discussed the possibility of eliminating paper services. "After all, it does seem redundant." But in fact, he adds, they are two different tools, and it's clear that one does complement the other.

The price of such redundancy is relatively small--especially when one considers the convenience it buys: It costs about $400 to $500 a year extra to have the CD-ROM service in addition to the books. In most cases, publishers who offer both paper and CD-ROM products provide sharp discounts--as much as half off-- when both products are bought.

There's at least one situation in which Fothergill says he won't turn first to the computer. "When I need to introduce myself to a relatively new topic, or one that I don't deal with very often, I might start with the BNA portfolio, scan the index, read some introductory material. Then, once comfortable with the relevant code sections and the theory, I may may go to the CD-ROM for more detailed searching for cases and rulings."

When asked why some professionals appear to be more comfortable with high-technology solutions than others, Fothergill say's there is no easy answer. "Some people say it's a matter of age--that younger people have had more experience with computers and therefore are less anxious about using such tools. But I've seen guys in their 60s who just love computers."

While everyone in the firm went through formal training in the use of the CD-ROM service, the only way to become really proficient with a system is to use it heavily.

One of the functions of CD-ROMs that vendors speak glowingly of is the ability to copy their text and then paste the material into documents for clients or others. "We don't find the function of much use," Fothergill says. "As a practical matter, that text is written in legalese, but we prefer to paraphrase it into plain English"

He adds, "I'm waiting for the day when the CD-ROM tax services upgrade to include voice activation. I want to sit here and talk to my computer and have it play the research back to me." Even then, he says, "we'll probably' use paper to complement the CD-ROM."

EXHIBIT 2: CONDUCTING KEYBOARD SEARCHES ON CD-ROM

EXAMPLE: A client paid two points on the refinancing of a home mortgage. You need to determine if and when these points are deductible.

SYSTEMS: Windows versions of CCH CD-ROM and RIA CD-ROM.

APPROACH: Keyword search (can also search by code section and publisher's topical index).

How it's done with CCH:

* At the Research Topics screen, double click on Federal Taxes to open the library.

* Double click on Fed Income Tax Reporter to target that publication, click once on Research command (at top of the screen) and then click on the Search button to display the Search Template.

* Type home and mortgage and points and refinancing.

* Click once on the OK button. The Search Results screen shows 14 hits--that is, documents containing the words home, mortgage, points and refinancing.

* Click once on the OK button. A list of the 14 documents appears on the screen.

* Double click on the document you want to view.

How it's done with RIA SEARCH (OnPoint System 1):

* At the Main Menu screen, double click on Search Core Library.

* Type home mortgage points refinancing in the query box.

* Click once on Search All to search the entire core library (analysis, code, regulations, revenue rulings, procedures, IRS publications).

* Click once on the Search button. The screen shows that 12 documents containing the words home, mortgage, points and refinancing (that is, 12 hits) have been found.

* Click once on the View Hits button. A cascading of the titles of documents containing the 12 hits appears on the screen.

* Double click on the document you want to view.

EXHIBIT 3:

  SELECTED ONLINE TAX RESEARCH PRODUCTS      Toll-free
Vendor         Product                       number

CCH            Federal Tax Service           800-335-5224
               Analysis, code, regulations
               Standard Federal Tax Reports

Lexis-Nexis    Tax Package                   800-356-5548
               Federal and state caselaw,
               code, regulations, tax
               analysis materials, daily
               tax news, IRS materials,
               state tax materials, Tax
               Notes Today, RIA materials,
               estate law materials

Tax Analysts   TaxBase on Lotus Notes        800-955-2444
               Collection of Tax Analysts'
               online daily electronic
               databases in Lotus Notes
-               based product. Includes
               Tax Notes Today, State Tax
               Notes, Tax Notes International,
               Tax News Highlights and
               Documents, Court Petitions and
               Complaints

West           Westlaw                       800-328-9352
Publishing     Federal and state caselaw,
               code; regulations; administrative
               materials, BNA, CCH and Warren,
               Gorham & Lamont tax materials;
               IRS materials; Wall Street Journal

EXHIBIT 4:

GETTING STARTED WITH COMPUTERIZED TAX RESEARCH

1. Don't assume the cost of new technologies is prohibitive until you've consulted with all providers. Competition is keen in this area.

2. Contact the providers now--not during the busy tax season. The more lead time you give yourself, the more time you have to develop the skills needed to take maximum advantage of the power inherent in the new technologies.

3. Don't try to master all the new technologies at once. Start with one new tool and implement it slowly. Give yourself the opportunity to experiment and make mistakes.

4. Supplement the hands-on work with computer magazines and books.

5. Participate in seminars or continuing education programs focused on computerized tax research. Be cautious, however, because many seminars for tax professionals focus on electronic tax preparation and filing instead of tax research.

6. Check the advertisements in tax and accounting journals to learn what computerized research products are available and what others are using.

7. Access the Internet now. It may not currently be the vehicle of choice for tax research, but its long-run potential demands that the tax researcher be able to navigate the information highway when this potential is realized.