More US Tax Returns Being Prepared In India

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: Washington — Between now and April 15, millions of Americans will be turning over their financial information to tax preparers.

What many of them will never know is that their personal data will be shipped electronically to India, where workers will pore over the numbers.

Estimates of how many state and federal returns will be done in India this year range from about 100,000 to 150,000, up from about 1,000 just two years ago. The numbers are likely to surge in coming years because of the enormous labor cost savings.

“It’s still a pretty small slice but, as in a lot of these things, it has grown relatively rapidly in the last couple of years,” Internal Revenue Service Commissioner Mark Everson said. Everson said the practice of using low-wage professionals overseas to prepare U.S. tax returns is legal. Furthermore, he said, “there is no requirement that it be disclosed to taxpayers.”

Because offshore tax preparation involves the privacy and accuracy of tax returns, “it’s something we’re going to take a close look at,” he said.

Many accountants defend the practice as safe, cost-efficient, and potentially even beneficial to U.S. workers. But some lawmakers are concerned.

Sen. Dianne Feinstein, D-Calif., recently asked the General Accounting Office, Congress’s investigative arm, to examine the growing practice of shipping sensitive personal data to other countries.

Last month, Rep. Ed Markey, D-Mass., sent a letter to the Public Company Accounting Oversight Board, inquiring whether it had “considered whether offshoring of tax (services) ... should be subject to further regulation or even prohibition in order to ensure privacy, confidentiality (and) data security.”

The March issue of the Journal of Accountancy, published by the American Institute of Certified Public Accountants, said federal law does not require accountants to “disclose to a client the fact that independent third-party providers are used in performing services for clients.”

Executives of offshore tax preparation companies say their systems are exceedingly secure and workers highly trained. They say they use very sophisticated methods of encryption to protect valuable data, such as Social Security numbers, account numbers and incomes, from hackers and identity thieves.

Offshoring is catching on so rapidly because it offers many advantages and minimal risks, the executives argue. Specifically, it allows U.S. accounting firms to get tax returns done more efficiently and at a much lower cost.