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Technology for administering taxes in the 1990s.

Technology for Administering Taxes in the 1990s

An article by Robert Wells and James Keene in the Spring 1989 issue of The Tax Executive reported the results of a survey of Fortune 1000 companies on the use of computers in corporate tax departments.(1) In their analysis, Wells and Keene demonstrated that the computer -- especially the microcomputer -- has made significant inroads into the way corporate tax professionals do their work. For example, they found that 60 percent of the respondents have computerized more than half of their departments' operations.

The computerization of corporate tax functions leads to sizable gains in the volume of work processed, productivity and accuracy. In addition, computers help tax professionals research more efficiently and keep abreast of changing tax laws. This is accomplished, in part, by the efficiencies tax departments realize by (a) making computers more available, (b) using local area networks (LANs) and peripheral sharing, (c) employing better trained and computer-literate personnel, and (d) acquiring or developing more powerful applications internally.

This article endeavors to move beyond the helpful "snapshot" provided by Wells and Keene by focusing on some of the new cutting-edge technologies. These technologies present intriguing prospects for easing the administrative burdens of tax compliance and planning, and this article (together with the accompanying comprehensive example, "Dorothy of Oz meets Mr. Wizard") explores how computer technology is changing corporate tax practice and its administration.


In a series of recent articles in The Tax Executive, Professor Barry Arlinghaus reported survey findings on the operations and management of corporate tax departments. His third article, in the September-October 1989 issue,(2) contains detailed tables on the functions of computers within tax departments. From these results, it is clear that the personal computer is now a major factor in tax department operations.

The expanding role of computer technology in taxation is synonymous with equipping each tax professional with a tax workstation. As it is generally identified, a "tax workstation" is the configuration of hardware and software -- usually on a personal computer -- provided to tax professionals to make this technology more accessible and enable them to manage the tax function more productively.

One reason for equipping tax professionals with workstations is because computer technology represents perhaps the most productive method for performing the increasingly complex tax function and analyzing the myriad of new federal, state, and international tax laws and regulations. Tax workstations become almost a necessity in counter-balancing the effects of tax complexity and the greater compliance burden. In addition, many corporations view tax workstations as a way to discharge more efficiently all or part of their compliance function inhouse.

There are numerous technologies that should be evaluated for application in a tax workstation environment. Table 1 lists several new or evolving technologies that should be considered. Most of these are discussed below, and many of the ways they might be used are illustrated in the accompanying story of "Dorothy." They are logically divided between technologies for tax determination and technologies for managing the tax department.(3)


Corporate tax departments have for some years benefited from computer-assisted techniques for accessing vast mainframe data bases through a modem.(4) Vendors and their products include Mead Data's LEXIS, Prentice-Hall's PHINet, and West Publishing's WESTLAW, as well as the recently released Commerce Clearing House ACCESS. These services provide, in addition to the basic full texts of tax authority, access to numerous related materials, such as the Bureau of National Affairs' Daily Tax Report and Tax Analysts' Tax Notes. Electronic sources are also a convenient way to monitor legislative and regulatory activities because they can provide the most current and easily accessible information.


One of the most significant technological developments in recent years is the CD-ROM disc.(5) This technology provides information in a digital form that can be read by a laser. These discs are the same size and generally use the same technology as audio compact discs.(6) Their inherent power is their ability to store vast amounts of information. A CD-ROM disc has the capacity to store up to 660 megabytes (660 million characters) of information in an uncompressed format, i.e., about 100 feet of library shelf space.(7) As a result, several vendors are now providing primary tax research materials such as tax cases, IRS pronouncements, and letter rulings -- decades of the full text of tax materials -- on only a few discs. You can now literally hold in the palm of your hand this "electronic library" or "library in a box" containing much of the available tax authority.

A CD-ROM library is a full-text data base that can be searched with keywords incorporating "boolean logic" (i.e., the use of "and," "or," and similar connectors). This is the same basic method employed by CCH ACCESS, LEXIS, PHINet, and WESTLAW. Because of the substantial costs of formatting hundreds of thousands of tax authority documents, these are the only vendors (except LEXIS) that have either a similar CD-ROM product on the market or are testing one for release in 1990. They generally, however, do not include their entire mainframe library on CD-ROM -- just the primary authorities and private letter rulings.

In addition to tax authority on CD-ROM, some vendors are providing multi-volume tax services on discs. West, for example, offers all the BNA Tax Management Portfolios on a single disc. Moreover, Matthew Bender has released its new 18-volume Bender's Federal Tax Service on a single CD-ROM.

Since CD-ROM is a static medium, i.e., once a disc is created it cannot be modified,(8) each CD-ROM product must be periodically updated. This is managed by intermittent releases of updated discs that include the current developments. For example, Matthew Bender updates its service with a new release each month. To update research between releases, most vendors allow you to connect to their on-line service and automatically transfer your search request, in a nearly transparent manner, to the mainframe as though it represented a "new matters" or "current developments" volume.(9)

To use CD-ROM, you need a CD-ROM player (actually another disk drive), which is a separate piece of hardware costing between $500 and $1,000. Of course, this drive is not limited to accessing the currently available tax services; other tax-related CD-ROMs are on the horizon and many corporations are now producing their own discs for internal use. In the near future, a bank of multiple CD-ROM drives known as a "jukebox" will be appropriate. This avoids the need to swap different discs in and out of a single player and is a virtual necessity with network use.(10)

There are many relevant factors in evaluating the costs and benefits of on-line versus CD-ROM services. Although many of these factors are situation-specific, some of the more common ones are noted below.

* On-line services represent

mainly a variable cost that is

"metered" by usage, and may

also entail minimum monthly

charges. In contrast, a CD-ROM

application is basically a

fixed monthly cost, and thus

the per-hour rate declines with

increased usage.

* On-line services will work from

almost any location and on any

computer that has a modem.

The use of CD-ROM, however,

generally requires at least an

AT-class computer (80286

microprocessor) computer and

one CD-ROM drive, which,

unless portable, is less

convenient for shared use.

* On-line services provide more

data bases within their tax

libraries and may be easier to

use because their software and

search techniques are already

familiar to the user. On the

other hand, some of the CD-ROM

products, having been

recently developed, are not

bound by older, mainframe

software techniques and thus

may be more user-friendly.

* Although it is unlikely that

CD-ROM would replace the

printed copy of a service in the

user's tax library, it may

reduce the costs of multiple

copies and actually replace


* Other factors that affect each

alternative and specific

situation differently include:

access speeds of CD-ROM drives

and mainframes, computer

processor speed, modem baud

rate, size of the data base

searched, the software search

logic, complexity of the search

request, quality of vendor-provided

training, and the level of

the user's experience.

2. Other Searchable Data Bases

The management of the corporate tax function is, in some respects, expanding beyond the need for just tax-related information. With a PC and a modem, numerous data bases that are not tax-specific can be accessed, the hourly costs of which are comparable to the tax services discussed above. Some examples are listed below.

* ABI Inform -- Existing since

the early 1970s, the American

Business Index has on-line

abstracts and full-text articles

from hundreds of business


* Dialog -- Containing more

than 300 data bases, this

comprehensive service includes

many non-business sources of


* Dow Jones News/Retrieval -- Among

its many areas of

business and financial

information, the Dow Jones service

includes several business

newspapers, Standard & Poor's

data, and investment research


* NewsNet -- This service

contains over 320 business

newsletters, 10 worldwide

newswires, TRW profiles, and

Investext company and

industry reviews. In addition, a number of these data bases are accessible through the online tax service vendors on a "gateway" basis or, in some instances, on CD-ROM.

3. Keyword Search Tools

Management of the tax function may also benefit by having one of the new software tools that permits you to search with keywords and boolean logic any of your computer files, regardless of their format. For instance, GOfer, Lotus Magellan and ZyINDEX are products that possess this capability. Folio VIEWS, a similar type of search software, requires that you first prepare the files, but it then produces what might be called a "desktop data base" for text searching and browsing in a more structured fashion.

Electronic search software may be used, for example, to search simultaneously and rapidly across lengthy research or report files for a particular configuration of certain keywords. You also might use these programs to locate a key document -- perhaps in response to an IRS examination request -- even though you do not know its file name and only recall certain keyword information about its contents. Similarly, they might be used for a subsequent search of tax authority that has been downloaded to a PC from an on-line or CD-ROM tax service.

4. Return Preparation

Federal and state income tax returns are increasingly being prepared by computer. In addition, many other types of tax returns (e.g., payroll, sales) can be prepared more efficiently using a computer.

There are three basic methods used by corporate tax departments and CPAs for the preparation of a computerized return:

* Prepare the input data

manually and submit it to a vendor

for mainframe processing and

printing of the completed


* Input the data in an electronic

form and then transmit it to a

vendor for mainframe

processing, with the option of

printing the return at either the

preparer's or vendor's site.

* Prepare and print the return

in-house using

microcomputer-based software.

Whichever method is used, there are a number of new features added by vendors in recent years. For example, supplemental programs can expedite data input by uploading it from a corporate general ledger or trial balance. New context-sensitive help screens, electronic bulletin boards for software updates and support, automatic links to tax planning modules, and data conversion capabilities have made computerized return processing more attractive. Moreover, in the future we may see the integration of expert systems technology with compliance packages to aid comprehensively in both the preparation and review of returns.

Corporate tax departments are increasingly evaluating the practicality of performing compliance tasks on computers in-house. For many tax executives, this means greater control over the return cycle. It also offers the potential of linking to primary corporate accounting records, having data readily available for planning, and being able to analyze proposed audit adjustments more easily. An in-house compliance system also offers the prospect of developing a fully integrated tax and financial accounting information system.

Bringing the compliance function in-house and integrating it with a company's financial system presents a number of challenges. During the start-up phase, installation, customization, and conversion require substantial planning and coordination. The scope of the project can be as detailed as that required to install a cost accounting system or financial accounting package. Furthermore, once in place, support and maintenance become critical.

5. Electronic Filing

Five years ago, the Internal Revenue Service committed itself to an electronic filing program for individual returns to facilitate processing and expedite refunds. Although presently not available for corporate returns, it is likely that the 1990s will see electronic filing of returns for certain sizes and types of corporations. This prospect is even more likely because of the sophisticated data analysis and artificial intelligence techniques the IRS has instituted in recent years.

6. Expert Systems

Just as the "number crunching" aspect of tax work has been augmented by electronic spreadsheets and computerized return preparation, "knowledge crunching"-- the need to manipulate and analyze large amounts of qualitative data -- is made far easier by the technology of expert systems. In broad terms, an expert system is a computer program that captures the decision-making expertise used to solve certain problems. More specifically, it is a "knowledge-based system" that emulates expert thought to solve significant problems in a particular domain.

Expert systems consist of two principle parts: the knowledge base and the inference engine. The knowledge base may contain both factual information (user-specific data and tax rules) and judgmental information ("rules of thumb" on how to solve problems efficiently). The rules are typically organized in an IF-THEN format, such that the meeting of a conditional IF leads to the THEN consequences. The inference engine is the "mind" of the program that uses the knowledge base to fuel the program's operation.

In the early 1980s, there were fewer than 100 experts systems in use to aid physicians, chemists, geologists, and computer programmers. By 1987, however, there were an estimated 1500 expert systems up and running worldwide; 200 of these were at DuPont, which had another 600 in the works.(11)

Expert systems are becoming increasingly important in tax practice.(12) Although it may not currently be feasible for companies to develop their own expert systems, such systems have proven to be a valuable tool for service providers. For example, the first and perhaps most extensive tax expert system developed by CPAs is Coopers & Lybrand's ExperTAX [sm].

ExperTAX is used by auditors and tax professionals to evaluate a client's tax accrual, tax compliance requirements, and tax planning opportunities. This general business expert system asks questions as a function of the responses to prior questions, each of which includes an explanation of why the question is relevant. With its thousands of rules, ExperTAX then identifies issues for further evaluation, thus primarily functioning as a diagnostic tool to aid professionals in their work. Recently, the ExperTAX technology was expanded to several industry-specific supplementary tax programs covering insurance, oil and gas, and exempt organizations.

Major expert systems projects also are underway at the IRS. According to former Commissioner Gibbs, expert systems are the government's best bet for more efficient tax administration.(13) As of 1988, 14 projects were underway in Treasury's Artificial Intelligence Laboratory.(14) One IRS project of particular interest to practitioners is the "International Section 482 Expert System," an attempt to replicate the reasoning process currently used by international examination experts in analyzing audit cases involving the allocation of income and expense among related multinational corporations.(15)

For many corporate tax departments, the economies of scale may make it impractical at this time to develop expert systems. The potential of these systems, however, should not be overlooked; with the advent of expert systems' shells that expedite development, they could prove as useful to the tax professional as the spreadsheet. In the future, they might provide a technique for lending tax expertise to field locations, permitting non-tax specialists to understand the tax implications of their strategies. They also may be used as a "smart" system front-end to gather information efficiently that can then be analyzed in a data base or spreadsheet module for reaching conclusions.(16)

Finally, on the more distant horizon are systems (e.g., neural networks) that, although not necessarily classified as expert systems, rely on inductive techniques to draw conclusions about large quantitative data bases by searching for patterns or relationships. One area where this technology might be useful is in gathering information to substantiate pricing decisions within the scope of section 482.

7. Tutorial and Help Systems

New software applications can bring great benefits to the tax professional, but those benefits will be negated if users cannot readily learn and use the technology. Thus, software designers and programmers are using new techniques to make systems easier to learn and use. "User-friendliness" has become a key software requirement -- even the best system cannot overcome a difficult interface. In fact, much of the new design and programming focus has been too search for ways to make inherently difficult software easier to use.

One technique that has been used successfully for information-intensive text is hypertext programming. A hypertext document has pre-established links between its various related parts, which enable the user to jump between these linked parts with only a keystroke.(17) For instance, a hypertext-linked Internal Revenue Code would be far easier to follow because the user could switch between related sections and definitions. Consequently, this technology may become an important standard in judging whether or not software is user-friendly.(18)

A hypertexted tax document might, for example, contain editorial interpretation of a Code section, wherein any reference to other Code sections, regulations, cases, etc., could be viewed immediately by activating the link to retrieve them to the screen. This is currently available in some CD-ROM tax products. Hypertext is also becoming a common feature in expert systems shells.

Another area in which advances in design technology have greatly helped the user is in that of learning how the software functions. Learning a new software system is becoming easier, despite the increase in the number of system features, because of the addition of context-sensitive help and on-line tutorials. These features are especially appropriate for systems that must be used by people with varying levels of expertise or that must be learned quickly.

"Context-sensitive help" is a help system that provides software help based on what you are doing at a given time within the program. "On-line tutorials" are tutorials, often context-sensitive, that provide a short lesson on how to perform the current action, along with some examples to try. Both of these techniques furnish different levels of help and training without having all the information appear on the screen at once. This avoids confusing the novice or being too simple for the advanced user. The levels of information are, however, available at the same time on one computer.(19)

By their very nature, context-sensitive help and on-line tutorials never require that you exit from what you are doing or search through an extensive index, and they always relate to the current problem without confusing the user with unneeded information. Thus, the user avoids frustration and saves time.

Hypertext, context-sensitive help, and on-line tutorials promise additional benefits as software designers use these techniques to do more than aid learning. These same methods can be used in on-line reference systems to support the user in basic tax problem solving. (See "Dorothy of Oz Meets Mr. Wizard" for an example in the setting of a tax reference system.) These techniques may be able to prompt the user for input, offer suggestions and recommendations, and expose the user to new ways of thinking about and interpreting a tax issue.

Similarly, these techniques could be applied to teach tax knowledge and train tax professionals. They would enhance computer-based training or computer-aided instruction, which represent evolving methods of using computers to assist learning.


1. Local Area Networks

A local area network, or LAN, connects different computers together into a group, enabling these systems to share data, software, and hardware, such as printers and disk drives. LANs are not new, but they have become increasingly popular in microcomputer-equipped offices, giving users the capabilities and security of larger computer systems, with the cost savings, ease of use, and decentralization of microcomputers.

In a LAN, a hardware connection is made between computers so they act as one system. A LAN can generally connect many different types of computers together, no matter the size or operating systems of those computers, effectively removing communications barriers.

There are several different types of LANs, each with varying degrees of complexity and expense. Some LANs operate on a peer-to-peer basis so that any one user can access the computer of any other user. Most LANs also have a server, which is usually a separate, dedicated computer, to manage network usage. A server can be compared to the control tower at an airport: it makes sure that everything goes to the right place, moving smoothly with no accidents, and oversees all general operations when more than one system is involved.

Security is always a concern when working with interconnected computers. LAN hardware and software manufacturers are aware of this concern, and security provisions are built into their products, most having various layers of security precautions. At the low end is the fact that every LAN-capable software package includes file protection against unauthorized use or deletion, usually accomplished through an application-specific password. There are also precautions against being able to access all (or any) data on a particular PC or within someone's personal area of the LAN hard disk.

At the high end of security capabilities, there are commercial LAN products that can meet stringent security requirements for the government's classified information with little or no modification. Thus, a LAN can actually assure a level of security for sensitive data that is not possible with stand-alone systems.

Another aspect of LANs is that system backup and restoration are much easier to perform; each backup must be done only once, as opposed to relying upon individual users to back up their data or having one person assigned to backing up many stand-alone machines. LAN backup is much like backup of minicomputers or mainframes, only without the problems of backing up to reel-to-reel tape. Moreover, since stand-alone capabilities are maintained for all machines, system down time does not interrupt all work.

With PCs on a LAN, true gains in productivity and efficiency can be realized. For example, it is no longer necessary to have each user maintain a separate copy of data files or software, as each user can be given access to the LAN copy. This means that users always have the current version of a data file, work is not duplicated by several people, and data transmission is fast and error free. Software use is more efficient, as software is not resident on machines where it is never used, and the upgrade process is less disruptive, for both users and computer services personnel alike, as there is only one copy to replace. Training is also more efficient: materials can be made available over the LAN, and on-line communication with an instructor, a software company representative, or the local computer "guru" can get questions answered quickly. Software companies generally encourage the use of LAN-compatible software, offering site licensing agreements, and a greater number of software companies are making LAN support an integral part of their product.

2. Workgroups and Groupware

"Workgroup computing" consists of people involved in the same project or same area of work being connected to a network and performing much of their intergroup communication over that network. Mainly a management tool, it requires the use of groupware to solicit comments and information from all members of the group.

"Groupware" is network software optimized to take advantage of its environment. Certain tasks in business, such as scheduling meetings and reviewing documents, depend heavily on working with other people. Groupware can greatly streamline this process by allowing people to perform a lot of their interaction on-line through a LAN.

One of the earliest types of groupware still provides an excellent example. The document review cycle is generally a time-consuming, interactive process, requiring that the same document be passed from person to person, each being able to see one another's comments and suggestions. After the review cycle is completed, there is often discussion about the changes. With document review groupware, the document remains in the computer system for commenting. Areas of the screen are reserved for comments, and the software incorporates editing features that allow members of the group to enter proofreader's marks onto the document without changing the actual document.

Another common example of groupware is that of the office calendar, where each member of the group places his or her appointment and due-date schedule, making it easier to plan for meetings and other events. This office calendar is just one item in the category of electronic office files, computer software that seeks to achieve the "paperless office," by moving all the things that clutter the average office -- writing, mail, filing, etc.--onto the computer.

3. Remote Access/Control Communications

An alternative to networking is to use modems and remote access communications software over phone lines. Although this does not provide the speed and interconnectivity of a network, it is a low-cost way of communicating with other computers. By this method, you can still contact a computer with which your computer does not share a network or connect with one of the on-line services. Similarly, this technology may be handy for communicating with a computer in the tax department while working in the field at a branch or subsidiary's office.

Another use of this technology is telecommuting, a way of working that is becoming increasingly popular. Using computers, modems, and the existing telephone lines, "telecommuters" can work wherever they happen to be, sending in their work, receiving comments, even conducting meetings on-line.

A newer form of remote access communication is that of remote control communications. With enabling software and modems or another communications link on both machines, you can have one computer literally control the other machine. When you type something on your computer, it shows up on the screen of the other machine, and the other machine carries out the commands you enter.

Remote control software has several immediate uses. It is used on a very basic level to transfer files between computers -- for example, between desktop and laptop computers, or computers that have different operating systems (e.g., Macintosh and IBM-compatible computers). Another application for remote control software is for working at home; just leave your computer on at work with the remote control software running, dial it up from home, and you can use your work computer. Still another application for this software is in training and problem solving -- you can control another machine at a distance and guide the user through an action step by step.

4. Electronic Mail and Electronic Teleconferencing

One of the most commonly used features of remote access communications software and networks is electronic mail. In fact, electronic mail is becoming so popular that it is built into the operating system software of some currently available computers.

Electronic mail assigns you a "mailbox" on the computer system. This is a number that acts just like a mailing address. When someone sends electronic mail, the mail system alerts you that the message is waiting and stores it in the area reserved for you -- your "mailbox." After you have read it, you can file it in your personal files for later reference, move it to a floppy disk, forward a copy, send a reply, or delete it. When sending mail, you can send it easily to one person or a group of people.

Electronic mail is provided as part of a network (either through the operating system or special electronic mail software) or as a paid commercial service. There are few differences between electronic mail available from a service provider or on a LAN. The main difference is that a commercial service lets you mail something to anyone else who is a part of that or a related service, while the LAN only lets you mail things to other people who are on that LAN or connected networks, such as company's widearea network.(20)

Related to electronic mail is electronic teleconferencing. This allows you to "meet" with someone on your computers, typing messages back and forth. In fact, an entire group of people can get together, despite their different locations, for a meeting linked by computer.

5. Project Management/Tax Calendar

Some would argue that managing the preparation of tax returns is as difficult as managing a construction project. Project management software has become an integral component in monitoring, coordinating, and scheduling projects. Tax professionals should consider using these tools for managing the planning, research, preparation, and review tax functions.

A customized data base or project management application can be developed to create a tax calendar. Tax calendar software, for example, coordinates return due dates, preparation steps, and staff scheduling. In addition, it can facilitate the comparison of budgeted and actual time spent for each step in the tax process.

6. Dynamic Data Exchange

Although far from perfected, dynamic data exchange is becoming increasingly common. "Dynamic data exchange" allows data to be automatically transferred between computers and software programs to provide instantaneous updates.(21)

Dynamic data exchange was pioneered on multi-user computer systems, and is continuing to grow with networked PCs. It is also becoming important in

stand-alone microcomputer packages, with the most outstanding example being word processing and desktop publishing software. The easiest way to explain its use is with the example of a data base. If two users are working on a file and one user makes a change, the second user is informed of it, and the change shows up immediately in both places. This means that no user ever has to work with old data.

To take this a step further, assume a person responsible for desktop publishing a proposal has just noticed a mistake in one of the numbers, taken from data prepared in a spreadsheet. The entire package has already been put together and is ready to be printed. Without today's sophisticated computer systems, this change would be a major, last-minute endeavor. The number is in the cost proposal breakdown, several times in the word-processed text, and in at least one of the charts, produced by an artist in a graphing package. With dynamic data exchange, the change only has to be made once, in the spreadsheet. The word processor file refers to that cell in the spreadsheet, as does the chart. The desktop publishing document also directly includes these files. Therefore, when the accountant changes the spreadsheet, the computer system automatically updates the other places the item occurs in other files for different software, even if on different computers and storage devices.

7. On-Board Fax

The facsimile or fax machine has become a standard communications tool of U.S. businesses in the 1980s. Increasingly, the fax is being used to link operations globally. Putting fax capabilities in a microcomputer (an on-board fax) is one of the newer options for businesses.

This option has several advantages. For mobile executives, the onboard fax permits sending and receiving documents over ordinary telephone lines in hotels, airports, and field locations. An on-board fax also eliminates the time and inconvenience of printing the initial document for review. However, once printed, the document is generally of higher quality than that available from traditional fax machines. In addition, these devices are ideal for transmitting high volumes of data, and data can be readily transmitted to multiple locations. Once received, the information can be merged, manipulated, reformatted, or analyzed in applications software without re-inputting information.

This technology provides a significant opportunity for corporate tax departments that have historically had to review bulky, hard-copy reporting packages from both domestic and foreign affiliates for estimated payments, tax returns, and provision analyses. In addition, this alternative should be considered by companies that have attempted to link operations through information transfers directly to a mainframe computer or by modems to microcomputers.

With the growing popularity of the fax, it is not uncommon for office fax machines to become overloaded. Equipping personal computers with fax capabilities is one alternative to solving this information bottleneck and ensuring that key personnel are never separated from important information. In addition, as another alternative, technology is now being developed that will link laser printers directly to fax machines. Not only is the copy quality improved, but information can also be more easily distributed and linked to a company's personal computer network. Finally, there is at least one current product that combines, at a reasonable cost, fax and printing capability plus optical scanning all in one peripheral device.

8. Optical Scanning

The technology of optical scanning is closely related to facsimile transmission: typed documents and graphics are translated into electronic images that can be manipulated by a computer. While the greatest influence has been felt in desktop publishing and the graphic arts, optical scanning has many applications in other business areas.

Optical character recognition (OCR) scanning takes this technology one step further. A regular scanner sees everything as a graphic image, whereas OCR scanners see the actual characters and numbers of the text. With an OCR scanner, you can scan in data to be used with applications software. For tax departments, this technology can facilitate the input of large amounts of quantitative data into data base, spreadsheet, or other programs for analysis.

Scanning technology continues to improve with the addition of handheld devices to stand-alone equipment. Scanning hardware is also becoming more accurate and affordable, and can even recognize foreign language characters and handwriting. Perhaps the most important consideration when evaluating this alternative -- apart from accuracy -- is how it will integrate with the software programs that you are using. In other words, will the electronic data be readable by your word processor, data base, or spreadsheet, and will it be in a format that is readily usable? It also is important to evaluate the storage capacity that the translated information will require; for instance, scanned images can produce very large files.

9. Voice Recognition/Speech Synthesis

A key protagonist in 2001, A Space Odyssey was a computer (Hal) that "obeyed" voice commands and responded verbally. Voice recognition and speech synthesis technologies are now available, but their capabilities are not currently practical in business contexts. Nevertheless, it is currently possible to "train" computers to recognize a limited number of commands and even respond to those commands.

This is proving an invaluable innovation for the disabled. For business users, this means that verbal commands eventually may cause the computer to execute routine, repetitive key strokes or operations. It also may be used to alert users to important messages or appointments, and voice synthesis will aid proofreading. In the not-too-distant future, your computer may act as a dictating machine, "typing" the words on the screen as you speak.


During the past five years, microcomputers have become an essential tool for the tax professional. Research sources have become more accessible; the compliance burden has been lessened; and sophisticated, multi-year planning has become more efficient. As a result, tax professionals are no longer restricted to researching manually expansive libraries of legislative history, cases, and administrative pronouncements. Multi-column worksheets and sharp pencils have gone the way of the green eye-shade. In their place is a new assistant, the microcomputer.

In this description of the emerging technologies and their implications for tax practice, our thesis has been that the computer revolution is accelerating. Even in their infancy, the new technologies present significant promise for improved efficiencies. Tax professionals need to be aware of the new technologies and alert to the ways in which they can be applied to tax practice. As we have attempted to illustrate in our companion piece, "Dorothy of Oz meets Mr. Wizard," the land of Oz is not far away; rather, it's a familiar world where electronic magic abounds. [Tabular Data Omitted]


(1)Robert J. Wells and James D. Keene, Computer Use in Corporate Tax Departments, 41 Tax Executive 257-62 (Spring 1989). (2)Barry P. Arlinghaus, Communication, Information Flow, and Involvement of the Tax Department in Corporate Decision-Making, 41 Tax Executive 441-46, 480-520 (Sept.-Oct. 1989). (3)Review and evaluation of the various hardware platforms, different operating systems, and specific software products is beyond the scope of this article. (4)Arlinghaus, supra, at 482 (approximately 39 percent of survey respondents use computerized tax research services). (5)CD-ROM stands for "Compact Disc-Read Only Memory." (6)Although technologically similar, a CD-ROM disc cannot be interpreted on an audio CD player. (7)A single CD-ROM disc holds about the same information as 1,900 5-1/4" 360 KB floppy disks, 475 3-1/2" 1.44 MB high-density floppy disks, or 33 20 MB hard disks. (8)In contrast to CD-ROM's static nature, which is similar to a WORM (Write Once Read Many) disk, erasable optical disks are beginning to appear, especially with LANs. An erasable optical disk also uses laser technology but can be written over and reused just like a floppy or hard disk. Erasable optical disks are already available in formats up to 1 gigabyte (1 billion characters) of storage. (9)Most vendors have little or no extra charge for updating tax research on-line. (10)At this time, several of the CD-ROM applications have not been adapted for network use. If an application will be used in connection with a network, it should be discussed with the vendor. (11)H.E. Feigenbaum, P. McCorduck, and H. Nii, The Rise of the Expert Company 273-315 (1988). (12)For a recent review of the applications of expert systems to taxation, see Robert L. Black, Thomas W. Carroll, and Sara K. Rex, Expert Systems--A New Tax Practice Tool, Tax Adviser (forthcoming). (13)Gibbs Discusses Tax Administration in the 21st Century, Document 87-7220, Tax Notes Today (Nov. 16, 1987). (14)Report from the Assistant Commissioner (Planning, Finance and Research) Describes Active Research Projects Within the IRS Research Division, Document 88-2004, Tax Notes Today (Mar. 7, 1988). (15)Id. According to this document, "recent studies have shown that International Examiners are not consistent in their application of section 482 regulations. Therefore, to improve the quality and consistency of effort, this project will: focus on creating a case selection and issue identification system for section 482; capture the knowledge used by identified section 482 experts in working these cases; and disseminate this expertise in a systematic manner to all International Examiners." (16)Black and Grudnitski demonstrate this with their COTES and TaXpert expert systems, which determine the constructive ownership of stock through attribution under 60 relevant code sections, e.g., sections 267 and 318. Their expert systems query the user according to the tax rules of the code section of interest and the user's previous answers. After all the relevant information is gathered, constructive ownership is determined and reports produced through the inclusive dBASE-formatted programs. See, e.g., Robert L. Black and Gary Grudnitski, Expert Systems in Complex Tax Environments: An Application for Determining Constructive Stock Ownership Under Subchapter C, Advances in Taxation (forthcoming). (17)The theory behind hypertext is to increase productivity and communication by encouraging non-linear thinking and the building of relationships between objects and ideas. At the same time, it does not discard traditional, linear processes. The hypertext programming technique consists of the programmer setting up relationships between items on a screen or in a document. The screen or document retains its traditional format, and you can still read it that way. However, if you activate any of the programmed links, the software takes you to the related item. (18)The best known example of hypertext is HyperCard for the Macintosh computer. This implementation uses the paradigm of a stack of index cards. You can look through the cards linearly, reading one then turning to the next, or in any other way that has links built into it. A simple example of a HyperCard application would be an address and phone listing, with each card showing name, company, address, and phone number. While the cards are stored in alphabetical order by last name, if you select the hypertext-linked company from the card, you'll see a new card with information about the company. For example, what its business is, how many years in business, how many offices, etc., could be noted. HyperPad is a similar software package for IBM-compatible computers. (19)Context-sensitive help and on-line tutorials have become a standard software feature because they are far more practical than constant reference to the user manual. Everyone who uses computers is familiar with the drawbacks of these systems. For example, with many help systems, trying to find what you are looking for often is a matter of locating the right term in an extensive, on-screen index. Also, you need to know how to use the help system, fairly straightforward when there is a function key or menu choice set aside for help, but not all systems make it quite that obvious. Another problem is that some on-line help systems just are not very good -- giving too little information, requiring you to exit from what you're doing, or taking longer than looking something up in the manual. Tutorials can be even worse. To compound the problem, many of these systems are particularly confusing for the novice user, the very person who most needs readily available assistance. (20)New technology is also integrating voice mail with electronic mail, an obvious benefit of which is that both parties do not have to have a computer. (21)A related technology is that of electronic data interchange (EDI), which allows the exchange of formatted data between software and systems.

Robert L. Black is a Director in the National Tax Services office of Coopers & Lybrand, where he is primarily involved with information technologies. Mr. Black is a certified public accountant and holds a Ph.D. degree from the University of Minnesota. Before joining Coopers & Lybrand, Mr. Black was a professor at the University of Texas at Austin. He has published extensively not only on information technologies but also on the tax aspects of high technology. William F. Leary is a Manager in the National Tax Services office of Coopers & Lybrand. He has worked extensively with corporate tax departments in developing information gathering and processing systems and installing compliance and planning software packages. Mr. Leary is a graduate of the College of Wooster and the University of Toledo College of Law, and holds a Masters of Science (Taxation) degree from DePaul University. He is a certified public accountant.
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Author:Leary, William F.
Publication:Tax Executive
Date:Nov 1, 1989
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