Tax Practice Review - the real benefit.

Last year, McGladrey & Pullen implemented an internal program of Tax Practice Review (TPR), patterned after the AICPA's Guidelines for Voluntary Tax Practice Review (VTPR). The firm's program focused on the same three primary areas emphasized by the AICPA guidelines: (1) practice management, (2) administrative review and (3) technical review. The critical distinction, however, was McGladrey's emphasis on continuous improvement, focusing on client service. Ultimately, the true measure of a tax practice review is the benefit to clients.

For the past several years, the controversy in tax peer review has centered on the concept of "voluntary" TPR (see "Point/Counterpoint: Voluntary Tax Practice Review," The Tax Adviser,Jan. 1995, p. 3). This article will not repeat the pros and cons of a voluntary TPR program, but will describe the rewards to be gained from the review process.

The AICPA Tax Division has, for several years, offered a series of checklists designed to assist in the thorough completion of tax compliance projects. It is easy to be misled into thinking that a TPR is simply a documentation program to review checklist compliance. Quality control is obviously an integral part of the program, but increased client satisfaction with the practitioner is the true benefit.

The TPR process involves a review of policies and procedures, and discussions with all levels of personnel of the reviewed firm in the following areas:

* Practice management/quality control: Review of the system used to deliver service, including personnel, supervision and professional development.

* Administration Measurement of the firm's compliance with internal and external professional standards. A tax practice must adhere to its stated policies on practice and procedures and the implementation of those policies.

* Technical review: Review of live client files to ensure that practice management/quality control measures are in fact being applied to actual client engagements. Reviewed issues include client expectations, technical accuracy, fee documentation and client communication.

A friendly, collegial atmosphere in a firm with multiple locations enhances its ability to candidly share TPR results. These results provide the basis for improvement programs for any practice. Be aware, though, that the results of a TPR can be overwhelmingly focused on internal matters. It should be the objective of the "reviewed" tax practice to enhance the comments and suggestions made by taking action on internal issues that will increase the firm's client satisfaction. The stated objectives of a TPR should include clients" overall satisfaction; client satisfaction with products and services provided (and the related objective of improved technical quality); and the firm's ability to monitor compliance with internal and external professional standards (e.g., the AICPA Statements on Responsibilities in fax Practice or IRS Circular 230).

The benefits to be derived from a TPR (internal or external) based on the implementation of the review team's findings include:

* Lower cost of services.

* Improved technical research and documentation.

* Standardization of tax practice and procedures.

* Measurement techniques for monitoring tax initiatives, such as functional specialization or concurring review policies.

* Fewer errors.

* Increased ability to defend tax positions.

* Enhanced internal standards in the areas of client acceptance, billing and collecting.

* In a mature industry such as public accounting, a tax practice must take every opportunity to explore methods for improvement. The (partial) list of actual "best practices" (taken from McGladrey & Pullen's internal pilot TPR program in Summer 1996) on page 588 offers ways to save administrative dollars while providing the best possible service to clients.

Many firms may view these procedures as merely generic ideas, and see themselves in full control, thereby dismissing the notion of initiating a TPR. In reality (based on McGladrey's experience), such a program will help all firms improve internal operations and expand their tax practice and client service. This, in turn, will lead to increased client satisfaction and profits for a growing tax practice.

RELATED ARTICLE: Best Practices

* Standard file documentation and organization with these features:

a. A bar-code on files as a tracking tool.

b. Separate sections within a file to allow simpler record retention.

c. Permanent tax files.

d. Well-organized and maintained computer files.

* Standard individual file as a tool for training.

* Standardized forms (by industry) for collecting information prepared by the client.

* Electronic tax bulletin board to capture memos, research data, standard tax workpapers and standard prepared-by-client listings.

* Tax personnel scheduling issues, including scheduling systems for compliance projects.

* Concurring review requirements for specialized areas.

* Development of industry or tax specialty, as highlighted by review of client files.

RELATED ARTICLE: Abbreviations Commonly Used in The Tax Adviser

TTA             The Tax Adviser
aff'g           affirming
AFTR2d          American Federal Tax Reports, second
                series (Research Institute of America)
Ann.            IRS Announcement
CB              Cumulative Bulletin
Cir.            Court of Appeals
Cl. Ct.         Claims Court
COBRA           Consolidated Omnibus Budget
                Reconciliation Act of 1985
Cong. Rec.      Congressional Record
Ct. Fed. Cls.   Court of Federal Claims
DC              District Court
DRA             Deficit Reduction Act of 1984
ERISA           Employee Retirement Income
                Security Act of 1974
ERTA            Economic Recovery Tax Act of 1981
Fed. Reg.       Federal Register
F2d             Federal Reports, second series
F3d             Federal Reports, third series
F Supp          Federal Supplement
GCM             General Counsel Memorandum
HIPAA           Health Insurance Portability and
                Accountability Act of 1996
H. Rep.         House Ways an Means Committee
                Reports
IR              Internal Revenue News Release
IRB             Internal Revenue Bulletin
P.L.            Public Law
Regs. Sec.      Treasury Regulation
Rev. Proc.      Revenue Procedure
Rev. Rul.       Revenue Ruling
rev'g           reversing
RRA             Revenue Reconciliation Act of 1993
SBJPA           Small Business Job Protection Act of 1996
Sec.            Section (refers to the Internal
                Revenue Code of 1986 unless
                otherwise indicated)
S. Rep          Senate Finance Committee Report
SSRA            Subchapter S Revision Act of 1982
Sup. Ct.        Supreme Court
TAM             Technical Advice Memorandum
TAMRA           Technical and Miscellaneous
                Revenue Act of 1988
TC              Tax Court (regular decision)
TC Memo         Tax Court (memorandum decision)
TD              Treasury Decision
TEFRA           Tax Equity and Fiscal
                Responsibility Act of 1982
TRA             Tax Reform Act of 1986
USTC            United States Tax Cases
                (Commerce Clearing House)

FROM JAY ZACK, CPA,TAX PARTNER AND DIRECTOR OF TAX SERVICES FOR THE TWIN CITIES PRACTICE, MCGLADREY & POLLEN, LLP, MINNEAPOLIS, MINN.

Editor's note: Mr. Pascarella chairs the AICPA Tax Division Tax Practice Management Committee. Mr. Zack is a member of the committee.

If you would like additional information about this article, contact Mr. Pascarella at [phone] or Mr. Zack at (612) 376-9.379.