Some U.S. tax returns being prepared in India

SAN JOSE, Calif. — Twelve-hour shifts and seven-day workweeks exhausted accountants at Rucci, Bardaro & Barrett. But most painful for Chris Barrett was the annual "Easter parade" — layoffs of seasonal workers and interns after April 15.

So Barrett, a partner in the Malden, Mass., firm, will send about 150 of his 600 clients' tax returns this year to India, where recent college graduates will prepare Americans' 1040 forms. Barrett won't hire — or fire — any extra employees, and the average turnaround time for completing returns is already shrinking.

"We're always looking for ways to reduce the pressure," Barrett said. "It frees us up to provide financial and estate planning, which we didn't have time for when we were too busy filling out returns."

Tax experts say Indian chartered accountants — the subcontinent's version of certified public accountants — will prepare 150,000 to 200,000 returns this year, up from about 20,000 in 2003 and only 1,000 in 2002.

Critics say outsourcing gives short shrift to U.S. accountants and exposes unwitting Americans to identity theft, which the Federal Trade Commission ranks as one of the country's fastest-growing crimes.

On Thursday, Sen. Dianne Feinstein, D-Calif., urged major U.S. financial services and accounting firms to be cautious about outsourcing sensitive work such as tax preparation.

"I am gravely concerned that consumer data is being sent overseas without proper safeguards," she wrote to chief executives of Citigroup, Bank of America, Ernst & Young, Equifax and TransUnion.

But executives argue they can't afford to ignore the trend.

The average accountant in India makes $250 to $300 a month, compared with $3,000 to $4,000 in the United States. Many firms say they will use the savings to undercut competitors or add premium services such as retirement planning. They also say Indian workers will be needed to replace droves of retiring baby-boomer accountants.

"It's going to change the paradigm in which professionals prepare taxes, maybe even more than the way TurboTax (software) changed the way individuals did their taxes," said Dave Wyle, head of Newport Beach, Calif.-based SurePrep, a software and consulting service with 300 Indian accountants in Bombay and Ahmedabad.

In the late 1990s, the nation's biggest accounting firms began sending bits and pieces of tax work to India — lists of itemized deductions or schedules of profit and loss — primarily for multinational companies and U.S. citizens living abroad, said L. Gary Boomer, a consultant for accounting firms.

But in the past year, they have sent thousands of individual returns to India, where colleges graduate about 50,000 accounting majors each year.

Ernst & Young, which employs more than 1,000 workers in Bangalore, will prepare 15,000 of 100,000 tax returns abroad. Most are corporate returns. About 4,000 will be for U.S. citizens living abroad, and about 1,000 for U.S. residents, spokesman Ken Kerrigan said.

KPMG, which established an Indian subsidiary in 1993, has six offices providing tax and other consulting services for 2,000 companies in the subcontinent. Spokesman Greg Dvorken said KPMG executives "continue to explore" whether to use foreign accountants for preparation of U.S. returns.

PricewaterhouseCoopers and H&R Block have no immediate outsourcing plans.

Critics say risks outweigh advantages.

Although firms have yet to report identity theft or fraud that stemmed from outsourcing, privacy advocates cringe at the notion of scanning and transmitting W2 forms — along with the Social Security numbers and salary information on them — across many time zones.

Ernst & Young customers must sign a document acknowledging that a foreign accountant may work on their return. But most firms don't make such disclosures.

Accountants scan clients' W2s, 1099s, K1s and other records and send them to Indian workers through encrypted e-mail or private networks. Indian workers complete IRS forms and transmit them to American accountants, who review, print and sign the documents, thus assuming legal liability.

Michael Gray, a San Jose CPA whose firm prepares about 200 returns a year, worries that rampant outsourcing will limit the experience of American accountants and jeopardize the profession.

"If we're sending the bulk of this work overseas, then we're not going to have the jobs for Americans in the traditional training ground for CPAs," Gray said. "We may see a brain drain in our industry."