Tax software put to the test.

A review of the leading products.

Tax accountants love to grumble about their tax software, telling war stories about how they survived software bugs, tardy arrivals of updates and state editions and occasional erroneous IRS code interpretations. As this in-depth survey of tax preparers shows, most CPAs really don't hate their tax software; in fact, they generally give their brands high marks.

That's not to say they're unaware of their products' shortcomings. Unlike years past, they show more willingness to switch brands. (For more on the survey and the problems associated with brand switching, see the sidebar "The Business of Tax Software".) Our survey showed that 33% of those who switched brands last year made the move because they were either dissatisfied with their old brands or simply found ones they liked better; another 30% of the switchers gave other reasons, but many of those switched because their vendors either had gone out of business or had stopped supporting the products.

THE HIGHEST RATING

We also surveyed the products users are abandoning and embracing. ProSystem fx, the Windows program from CCH, is the brand likely to experience the least turnover--with only 0.8% of its users saying they planned to move to another brand (see exhibit 1). Likewise, it's the brand favored by most (24.5%) who planned a switch but didn't currently use

ProSystem fx. The second most popular brand attracting new users was Lacerte for Windows (15.1%).

[Exhibit 1 ILLUSTRATION OMITTED]

And although 13.8% of users of ProSystem fx for DOS planned to switch to another program next year, the DOS product gained the reviewers' highest overall approval rating (4.6 out of a possible 5) with its Windows version running a close second with 4.4. (For details of those ratings, see exhibit 2). In examining the data, we were initially surprised that a DOS product outscored a Windows version--albeit the gap was small. We concluded that the DOS users, although not large in number, are extremely loyal to their products and are very resistant to upgrading to Windows.

[Exhibit 2 ILLUSTRATION OMITTED]

The product with the lowest overall rating was Arthur Andersen's A*Plus*Tax--a brand that was discontinued after last tax season. Its Windows version received the third lowest rating (3.7), slightly ahead of GoSystem for Windows (3.6).

All of the programs caused at least one problem last tax season that reviewers said was the software's fault (see exhibit 3). The brand that generated the most grumbling was A*Plus*Tax for Windows--33.3% of the users reported problems. Lacerte for Windows generated the least--17.1%.

[Exhibit 3 ILLUSTRATION OMITTED]

In addition, the reviewers reported that only three of the programs handled all the tax law changes correctly--two Windows programs, Lacerte and ProSeries, and UltraTax for DOS. The brands garnering the most reports of new law errors were A*Plus*Tax for DOS (15.8%) and Pencil Pushers for DOS (8.7%).

Another measure of a program's friendliness and accuracy is the number of times a user needs to call technical support for assistance. A*Plus*Tax for Windows triggered the most calls (see exhibit 5). ProSeries for Windows generated the least.

[EXHIBIT 5 ILLUSTRATION OMITTED]

This year, the National Association of Tax Practitioners (NATP) conducted its own survey, assessing its members' level of satisfaction with the tax products they use. You'll note, as shown in exhibit 6, that the 17 products which received the highest number of responses in its survey are not exactly the same as in our survey. Yet, as shown in exhibit 8, page 31, there is an astonishing similarity in the overall satisfaction ratings between the products that are common to both surveys.

[Exhibit 6 ILLUSTRATION OMITTED]

SELECTING A BRAND

Readers often use the material in articles like this as an aid in buying software--and surely the experiences and recommendations of professional colleagues can be an effective guide. Some of our ratings (see especially exhibit 2) should provide much useful information for making a decision. Another guide for whether a package fits your firm is in exhibit 7, in which reviewers profiled their firms and listed the software packages they used. You can use this information as a negative guide in other words, rather than select a package because most firms your size use it, consider rejecting packages when firms with profiles similar to yours don't use a package.

[EXHIBIT 7 ILLUSTRATION OMITTED]

But relying exclusively on what amounts to recommendations--even though the recommendations are from a large group of experienced tax practitioners--also carries with it a danger: Software that works well for one tax practitioner may not be right for another.

The best--and some say the only effective--way to make a buying decision is to put the software through its paces. In other words, try it. Tax software vendors are willing-even eager--to send you evaluation copies of their prior-year products. By checking the profiles in exhibit 6 and the responses to the reviews, you should be able to come up with two or three candidates

Resist the temptation to skip this hands-on test. If you limit your assessment to survey results, you will be jumping on a bandwagon, but the band may not be playing your tune or even going your way.

RELATED ARTICLE: The Business of Tax Software

For those involved in preparing tax returns and selling tax software, 1998 represented both the best of times and the worst of times.

The positives. For many tax software vendors, this was a banner season: Sales were excellent and vendors experienced relatively few embarrassing bugs. Ditto for professional tax preparers: Not only did they encounter few work-stopping software problems, but also the 1997 tax rule changes contributed to a surge in new business.

The negatives. For some practitioners, the future has become less certain: The software industry is continuing to consolidate and, as more products are discontinued, CPAs looking to the future fear they may eventually become tax software "orphans." Our survey showed that of CPAs who recently had switched to new products, 46.2% took the step because their brands of many years were terminated (see exhibit 4).

[Exhibit 4 ILLUSTRATION OMITTED]

Despite generally strong software sales, competition among vendors intensified last year and at least one major vendor--Pencil Pushers--decided to call it quits, closing its business and selling its customer list to CCH, publisher of ProSystem fx. CCH says it plans to fold the product and is offering Pencil Pusher's customers incentives to convert next year to ProSystem fx. And in a surprise move, one giant of the industry--Intuit, publisher of ProSeries--acquired another giant--Lacerte--for $400 million in cash. Although Intuit says it plans to continue the Lacerte brand, if Intuit's past acquisitions are any guide, the Lacerte brand might become history in a year or two.

Until recently, customers of the larger vendors had felt reasonably immune to becoming orphaned. But the acquisition of Lacerte and Pencil Pushers leaves many feeling vulnerable.

Even without that threat, many tax software users continue to experience the grass--is greener syndrome, wondering whether Brand X is better than whatever they've been using. While most tend to be reasonably loyal to the products they use, that loyalty is not necessarily a voluntary condition. A move to new tax software requires a sizable investment: converting data from the old software to the new product; loading the application and, if necessary, debugging a network configuration; and--the biggest expense--learning how the software works and training staff. That final step often triggers the greatest resistance from those who just don't like change--any change.

RELATED ARTICLE: How We Conducted the Survey

This year we enlisted you--our tax expert readers--to review the software packages covered in this article.

How we collected the data. When the tax season ended on April 15, the Journal of Accountancy, in cooperation with the authors from Brigham Young University, mailed 4,200 questionnaires to AICPA members who regularly prepare tax returns. We asked them to rate only the software they use--assessing such details as ease of installation and the courtesy and effectiveness of technical support. We also asked the users whether--for whatever reason--they planned to switch to another product next year, and, if so, which one they had in mind.

To ensure we covered the software market comprehensively, we targeted our mailing to five key groups of CPA firms: sole proprietors, local firms, regional firms, national firms and the Big 5.

In a separate mailing just before tax season started, we sent vendors of the leading tax software products a different questionnaire designed to gather technical details about their brands. Not all the vendors supplied the requested data, and thus some vendors are missing from the data tables (exhibits 9 to 11).

[Exhibit 9-11 ILLUSTRATION OMITTED]

Although we asked 4,200 CPAs for their reviews and received 763 returns (an 18% return rate), the products in 56 of those reviews were so sparsely represented that we determined data on them aren't statistically valid; as a result, we omitted those products from the reviews. In total, we received reviews on 37 different software products, but only 11 brands from 7 vendors were well enough represented to warrant inclusion in the analyses (exhibits 1 to 8).

[Exhibit 8 ILLUSTRATION OMITTED]

MARSHALL ROMNEY, CPA, PhD, CFE, is an accounting and information systems professor at Brigham Young University, Provo, Utah. BRIAN SPILKER, CPA, PhD, and RON WOKSHAM, CPA, PhD, are assistant professors specializing in taxation at the same university. STANLEY ZAKOWIN is a senior editor on the Journal.

Mr. Zarowin is an employee of the American Institute of CPAs and his views, as expressed in this article, do not necessarily reflect the views of the AICPA. Official positions are determined through certain specific committee procedures, due process and deliberation.