Users turn to technology to help minimize tax costs

Computerworld - Corporate tax departments have often been the last in line for big boosts in IT investments, since the process of preparing taxes is so labor-intensive that it's seen by many companies as a fixed cost. But that's beginning to change as some users look to leverage technology to help reduce Uncle Sam's bite.

For example, some companies are starting to automate their entire tax processes -- from collecting the data in a central repository to using sophisticated computer modeling software that can simulate different scenarios for minimizing tax burdens. Their goals include shortening tax preparation times and improving tax planning.

"We've got members from across the spectrum looking to use technology to ease their tax-related burdens -- making payments, collecting records, even filing returns," said Timothy McCormally, general counsel and director of tax affairs at Tax Executives Institute Inc., a Washington-based association of tax professionals that has members from about 2,800 U.S. companies.

But those efforts don't always come easy when they include the installation of new databases and applications. "One of the biggest challenges that companies face is the ability to access data from prior years when they move to relational databases and [enterprise resource planning] systems," McCormally said.

Cooperative of American Physicians Inc./Mutual Protection Trust, a Los Angeles-based insurance firm that offers malpractice coverage to California doctors, is a case in point. Accountants at the firm continue to manually re-enter tax data into spreadsheets or cut and paste tax information from data screens in different systems. "We do it the old-fashioned way," said David Preimesberger, the cooperative's chief financial officer.

Tax departments historically have trailed behind other parts of companies when IT funding is parceled out, said Bob Huff, a senior manager at KPMG Consulting Inc. in McLean, Va. Ironically, he and others noted, IT investments elsewhere in a company can make the tax planning process more difficult.

"One of the common omissions is that when you change ... from a legacy accounting system to a new ERP [system], you frequently forget to do the right things that would support a tax audit that may be auditing three or four years back," said Jim Hatch, CIO at Pactiv Corp., the Lake Forest, Ill.-based maker of Hefty-brand trash bags. "That complicates life for the tax people."

That can also lead to even more serious consequences. For example, companies that fail to align their enterprise resource planning initiatives with tax planning may end up paying more in taxes than they should, according to Steven Rainey, a partner at KPMG LLP's