CPA Concerns: Offshore Tax Services and Client Data Security | CapActix

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Last year
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Introduction

• When a tax return preparation may reveal or
  utilize a taxpayers tax return data without
  first getting the taxpayers authorization, IRC
  section 7216 and its accompanying regulations
  apply. Because violating section 7216 and its
  regulations is a federal criminal, CPAs should
  become familiar with these laws. When offshoring
  services, CPA tax preparationfirms are often
  concerned with sharing client data overseas.
  However, firms must familiarize themselves with
  the operations and procedures top offshoring
  companies follow to understand the safety and
  privacy of taxation data.
• It allows CPA firms to assure their clients of
  protected data and no safety breaches.

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What are the concerns faced by CPA firms
regarding offshoring?
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1. Quality control  
Offshoring involves delegating important tasks to
a third-party provider, which can increase the
risk of errors or subpar quality of work.  
2. Data security  
CPA firms have access to sensitive financial
data, and offshore providers may not have the
same level of data security protocols in place as
the CPA firm.  
3. Regulatory compliance  
CPA firms must comply with regulatory
requirements, and offshore providers may not be
familiar with these regulations. This can
increase the risk of non-compliance and potential
legal consequences. 
4. Cost savings may not materialize  
While cost savings are often cited as a reason
for offshoring, the upfront investment in
infrastructure, training, and management of an
offshore team can offset those savings.   Such
lack of information poses a threat to expansion
offshore accounting and keeps major CPA firms
from benefiting from the advantages.  This post
will talk about how offshore accounting works for
CPA firms, along with the regulatory framework,
restrictions on offshore firms, and laws that
they have to abide by.  Must read Tax Preparation
Outsourcing Service All Your Questions Answered
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How Offshore Tax Service Providers Ensure Quality
Control 
Offshore tax service providers can ensure quality
control in several ways 
1. Establishing quality control processes 
Offshore tax service providers should have robust
quality control processes in place, such as
quality assurance reviews, peer reviews, and
internal audits, to ensure that work is completed
accurately and meets the CPA firms standards. 
2. Hiring qualified professionals
Offshore providers should hire qualified
professionals with relevant experience and
training in tax preparation and accounting to
ensure that work is completed to a high standard. 
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3. Providing ongoing training
Offshore providers should provide ongoing
training to their staff to ensure that they are
up to date with the latest tax laws and
regulations, as well as the CPA firms procedures
and requirements.
4. Using technology
Offshore providers can use technology to improve
the accuracy and efficiency of their work. For
example, using automated tax preparation software
can help reduce errors and ensure consistency in
the work. 
5. Establishing communication protocols 
Offshore providers should establish clear
communication protocols with the CPA firm to
ensure that any questions or issues are addressed
promptly and accurately. 
6. Conducting periodic performance reviews 
Offshore providers should conduct periodic
performance reviews to identify any areas for
improvement and ensure that their staff is
meeting the CPA firms expectations.  Must
read Step by Step Process for Outsourcing Tax
Preparation Services from CapActix
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How Offshore Tax Service Providers Ensure Data
security Of Clients Data 
Offshore tax service providers can take several
measures to ensure data security for their
clients data. Here are some common practices 
1. Physical and network security  
Offshore tax service providers should have data
backup and disaster recovery procedures in place
to ensure that client data is protected in the
event of a natural disaster, system failure, or
cyber-attack. 
2. Data backup and disaster recovery  
Offshore tax service providers should have data
backup and disaster recovery procedures in place
to ensure that client data is protected in the
event of a natural disaster, system failure, or
cyber-attack. 
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3 Secure file transfer  
Offshore tax service providers should use secure
file transfer protocols to transfer client data
between the CPA firm and the offshore provider.
This includes encryption, password protection,
and secure file transfer protocols like SFTP or
HTTPS. 
4. Staff training and background checks  
Offshore tax service providers should train their
staff on data security best practices and conduct
background checks to ensure that they are
trustworthy and reliable. 
5. Non-disclosure agreements (NDAs)
Offshore tax service providers should require
their staff to sign NDAs that prohibit them from
disclosing client information or using it for any
purpose other than providing tax services. Must
read  5 Reasons Why Outsourcing Tax Preparation
Will Be the New Normal
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The Legislative and Regulatory Framework

• IRC section 7216 and its guidelines provide a
  blanket restriction on a provider disclosing or
  using a taxpayers return information without
  specific permission. However, section 301.7216-2
  of the Treasury Regulations contains several
  exceptions to this regulation. IRC Section 7216
  makes it illegal for a tax return preparer
  toknowingly or recklessly
• Disclose any information provided to a tax return
  preparer in connection with the preparation of a
  clients tax return, or
• Use tax return information for any purpose other
  than preparing or assisting in preparing a
  clients tax return.
• IRC section 6713 allows for civil monetary fines
  to get levied. A preparer may get disciplined
  under Treasury Department Circular 230, or the
  AICPA may penalize a preparer for willful
  unlawful release of tax return materials.

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What comes under protected tax data?

• Any knowledge, including but not restricted to a
  taxpayers name, location, or identification
  number, SSN that is supplied in any form or way
  for, or in conjunction with, the compilation of a
  tax return Treasury Regulations section
  301.7216-1(b)(3). The following is information
  from a tax return
• data that a taxpayer provides to a tax return
  preparer,
• data that a third party offers to the tax return
  preparer, and
• information that the tax return servicer obtains
  from tax return data

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Are there any exceptions?

• Section 301.7216-2 of the Treasury Regulations
  offers a long list of revelations and
  applications of tax return data that a tax return
  preparer may conduct without the taxpayers
  permission. The IRC section 7216 expressly
  specifies that the regulations will apply. The
  following situations allow for disclosure
• To those who will help in the processing of a tax
  return in a returned preparers firm
• If a tax return preparer gives software to a
  taxpayer to use in completing or submitting their
  tax return to meet changes in IRS forms, e-file
  requirements, or new administrative, legislative,
  or statutory guidance, and to test and assure the
  softwares technical capability.
• CPA firms should consider hiring  Offshore Tax
  Preparation firms and having their taxes prepared
  under the supervision of a professional team with
  a two-tier review procedure. Tax preparers
  outsourcing activities to CPA firms in the United
  States will also increase the performance and
  adaptability of the tax return process, easing
  the load on taxpayers and improving their bottom
  line.

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Offshoring instead of Outsourcing A better
alternative for CPA firms

• Many CPA firms, including the Big 4, use Indian
  offshore staffing to complete their tasks. Its
  important to emphasize that were not using the
  term outsourcing. Credible offshore firms
  understand that outsourcing services to CPA
  companies arent the best option. Instead, you
  could call what we do remote (offshore)
  staffing. It is the type of arrangement that CPA
  firms like. Please see the list below for a
  sample of remote staffing options.
• The remote employee will operate in your
  organizations environment, including your Tax
  Software, Document Portal, and other PMS.
• CPA firms can customize the services provided by
  remote employees to meet their specific needs.
  They can choose the level of experience and
  expertise required, the types of services
  provided, and the reporting and communication
  protocols. 
• It will be taken into account if you hire remote
  workers.
• Employees get hired on the offshore firms
  payroll. They must adhere to the NDA, security
  procedure, and other security measures
  implemented by offshore firms due to the legal
  agreement.
• Your offshore accounting company will manage
  employees and their paychecks like your remote
  staffing agency.

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Bottom line

• In the tax time of 2023,  CPA tax
  preparationoutsourcing will provide more
  versatility and adaptability to the professional
  tax procedure, reducing the strain on taxpayers
  and saving money. CapActix Business Solutions
  safeguards client data with several measures,
  some of which include
• SSL at Every access point is protected by a
  secure network and electronic locks.
• Separate login credentials for each employee to
  access the SSL-encrypted server and execute work,
  as well as tracing of employee activity within
  the LAN
• Employees activities over the WAN utilizing the
  physical firewall get logged.
• The IT team is the only one who configures the
  clients software credentials in the approved
  employees User profile on CapActixs central
  server. As a result, employees that work with
  your data will never be aware of software
  credentials. They will be working directly on the
  software that has been pre-configured in their
  user profile.
• CapActix Business Solutions is ISO
  27001-certified company that offshores your
  accounting and taxation clients to streamline the
  process for your firm. Contact CapActix for
  Offshore Tax Preparation for your next tax season.

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