The debate over tax reform and changes in the tax code continues to be on the minds of consumers as local accounting practitioners report that almost 64% of their income is derived from the preparation and filing of tax compliance, planning and problem resolution.

Looking at tax preparation and planning exclusively, slightly under 55% of the practitioners reported specializing in tax planning and associated financial planning as the primary source of revenue and the focus of their practice marketing and development.

While almost 45% of the local practitioners claim financial statement preparation to be their primary source of income, further investigation reveals that on average 20% of their annual revenues are derived from year end tax compliance for their business clients. Removing tax compliance income from the financial statement preparation income revealed that small business financial statement preparation can be considered the main source of revenue for less than 36% of small local practitioners.

While most local accountants do not perform audits or get involved in special consulting projects, another group of less than 1% of practitioners reported that their main source of revenue was actually from audits and special projects. Interviews with this group of practitioners revealed a tendency to specialize in one industry or specialty, such as automobile dealerships or small governmental entities.

This tendency to specialize revealed a need for industry specific skills and a knowledge of niche practices. Examples cited included the small local "Buy here, pay here" auto dealerships and the financing of large brand name auto dealerships. Other examples were the specialized audits of the Asset Based Loan (ABL) and Commercial Finance or Factoring industries.

One of the main deterrents to the production of audit income as a major source was the staffing requirement that accompanies the performance of audits for a public company. Since most local practitioners are either small or sole practitioners, any large audit work requires the involvement of several firms in a joint venture with the originator possibly losing the lead position. Fee splitting and revenue sharing problems also are a deterrent to joint venture efforts and public company audits.

This trend to specialize was reflected in the specialties of the practitioners who reported a concentration in tax preparation services. Practitioner respondents were evenly split among those who concentrated on tax planning, financial planning and problem resolution for troubled taxpayers.

Interviews with tax and financial planning specialist revealed that fees from tax and financial planning clients were on average at least ten times the average fees for year end tax preparation. And, while this disparity would seemingly encourage a shift from year end tax preparation, planners universally agreed that year end tax preparation was the primary source of new tax and financial planning clients.

The other group of practitioners who reported that the majority of their income was derived from tax preparation issues were those who specialized in tax preparation. These practitioners indicated that only a small portion of their income was from current year-end tax preparation, rather their primary source was split evenly between the preparation of delinquent tax returns and the correction of erroneous tax filings, with problem resolution and taxpayer representation.