James Bourke
James Bourke

Smart Scanning

What’s the big deal?

December 14, 2009
by James Bourke, CPA.CITP

Tax season is just around the corner. You’ve spent the past few weeks checking and double checking your systems and applications to insure that the season will go off without a hitch. As part of preparing, have you looked into one of the newest technologies to hit the tax area?

What Is Smart Scanning?

It goes by many different names, but plain and simple, smart scanning is the act of auto-populating your tax application with information extrapolated from client-specific source documents, resulting in input fields being substantially completed before any human intervention.

Think about the average individual tax client. They pay an annual visit to your office. They catch up on what transpired over the past year and leave your office about five pounds lighter than when they arrived. Being left with a tremendous amount of source documents (W-2s, 1099-INTs 1099-DIVs, 1099-MISCs, 1098s, K-1s, annual brokerage statements reporting gain and loss activity, charitable contribution details, rental property information and more) you start the process of sorting and then keying this information into your tax application.

Smart scanning takes this process to a whole new level. After receiving the source documents from your client you would still sort through the information, pulling out the useless documents, resulting in a package that contains information necessary for the preparation of the return. But with this technology, while you will still have to scan and extract the information, it will then magically populate into your tax application. Upon completion you will receive some form of electronic notification regarding the next step.

A number of vendors have entered this space over the past few years. Each vendor brings to the table features that are unique to their specific application. Although the end result is generally the same, the underlying technology in each solution is quite different. 

A key to the successful implementation, deployment and continued use of smart-scanning technology is obtaining an understanding of the expected end result.

If a firm deploys this technology with the belief that a majority of its client tax returns will be 100 percent completed, with no human intervention, they will be overwhelmingly disappointed.

However, if a firm goes into such relationship with the understanding that this technology will serve to materially populate the tax preparer’s tax application with a substantial amount of client source information, they will be extremely pleased with the end result.

Regardless of the vendor selected, you or your staff will still need to address exceptions or issues encountered during the scan and populate process. Examples of the most common issues generally include dealing with:  

  • Hand-written instructions from your client
  • Charitable donation letters
  • Manual or stray notations made on source documents
  • Unusual or non-regularly occurring source documents
  • Foreign source documents
  • State K-1s for partnerships, LLCs and S Corps
  • Details regarding capital gain and loss transactions

As for the capital gain and loss transactions, although they may require a little bit more human intervention than your standard source documents, the vendors have each created a way to significantly cut down on the input time associated with this activity.

While some vendors have taken the approach to program their applications to recognize annual gain-and-loss reports from specific financial institutions, others have built-in utilities that allow such activity to be extrapolated to a spreadsheet with missing fields — such as, information not available — can then easily be populated and exported out manually to the tax application. Either way, resulting in a significant time savings.

Smart scanning will not serve to replace individuals in the tax-preparation arena. Instead, this technology shifts responsibilities and roles of individuals, resulting in a lower overall cost of preparation and higher profit realization.  

Tax preparers in a firm will now have a different starting point. The tax software being utilized will now be populated with a substantial amount of a client’s source data. The preparer only reviews the previously populated data to ensure that everything has been captured and then inputs the remaining information that may have fallen out of the scanning process. The result is a return that will likely have a lower level of review comments or changes, than one that may have been entirely prepared manually.

Finally this technology has a lower cost of preparation resulting in an increased realization rate for the firm.


You still have time to investigate which smart-scanning solution is right for your firm for this upcoming tax season. Don’t delay as you’ll need to have your staff trained and educated properly on the new process before the first return hits the door.

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James C. Bourke, CPA.CITP, CFF is a partner at WithumSmith+Brown where he is director of firm technology. He is a past president of the New Jersey Society of CPAs and currently serves on AICPA Council and is the Chair of the AICPA CITP Credential Committee. He was recently named one of the Top 100 Most Influential People in the Profession.