TAX SOFTWARE 2007

The face of professional tax preparation is changing and is likely to evolve significantly over the next five years as technology developments revolutionize some of the most basic processes in preparation and reviewing, outside of the already automated calculation itself.

The last few seasons have been dominated by vendors adding states, forms and incremental improvement in features. But the 2007 software is the beginning of a new era.

The trends raise the likelihood of the following:

Data entry will be increasingly automated, although it's not clear which technology will win.

Portals will become the preferred way tax and other confidential documents will be distributed.

Outsourced tax preparation is getting an uptick because of the tight labor market, even if it's not the hot item many expected.

"What I'm seeing is that optical character recognition is the big item," says Larry Gray, a partner with Alfermann & Gray, and an UltraTax user who has spoken on behalf of many tax and accounting vendors.

What Gray is referring to is the spread of scanning software designed to capture data from documents so that it can be entered directly into the tax preparation software.

While most vendors are working on scanning technology, the impression is that SurePrep, which provides outsourcing services and worfkow software, is ahead of the pack with its 1040 Scan.

"We have heard mixed reports," says Theresa Mackintosh, VP of marketing for Thomson Tax and Accounting and its CS products. "Intuit really struggled with its Scan product. We heard similar things with CCH. We have heard good things with SurePrep."

However, most expect the others to catch up and a lot of products are in development.

According to SurePrep CEO David Wyle, 1040 Scan not only captures the data on the forms through scanning, but also organizes them and produces an indexed PDF and puts the content in the appropriate fields of Form 1040. Well, most of the data, because no one has yet produced foolproof image capture through optical character recognition.

"It should eliminate about 60 percent to 70 percent of data entry," says Wyle.

SurePrep claims its software can learn to recognize new forms, and that it has already learned many because of the vast number of American tax forms that make...