Web Tax Preparers Take on the Big Guys

Imagine having a real, live tax preparer so close you wouldn’t need an appointment, so quick you’d never be kept waiting and so cheap you’d declare April 15 a holiday.

That dream inspired innovation from two ordinarily staid CPAs, Russell Gottlich and Gregory Yulish. Now their Encino-based start-up, Taxes4Less.com, has awakened investors, taxpayers and even the IRS to a new type of online tax preparation.

Think of it as a cross between self-service e-filing and your neighborhood accountant. Instead of carting receipts to the local tax shop, consumers anywhere in the country can send their tax information to Taxes4Less.com preparers through the company’s Web site. Many returns can be completed overnight, starting at just $35. The goal is to save filers time, money and the hassle of visiting a tax pro in person.

Do-it-yourselfers have long enjoyed such electronic convenience using popular tax software and Web-based programs. But with more than half the nation’s 127 million filers using paid preparers, Gottlich and Yulish saw an opportunity to extend those benefits to a wider audience.

Their hybrid has gotten a nod from the IRS, secured a coveted link on the agency’s Web site and attracted $1.5 million in venture capital. Now the pressure is on the former Arthur Andersen tax associates to cultivate big investors and a national brand.

It won’t be easy. At least two rival “dot-coms” have a head start linking filers with live preparers. Colossus H&R; Block Inc. could be close behind. Industry watchers say it’s only a matter of time before mom-and-pop operators, who control 75% of the market, can offer Web-based preparation as well.

But Taxes4Less.com’s founders and investors say there is plenty of room for tech-savvy newcomers to maneuver in a market so large and fragmented.

“This Internet space is wide open,” said Yulish, the 35-year-old president of Taxes4Less.com. “We’re all about merging the human element with technology.

The industry clearly is moving in that direction. This year the IRS projects that one in four individual returns will be filed via telephone or computer. Paid preparers seeking speedy refunds for their clients will account for more than 70% of that e-filing volume. But in most cases, digital technology affects only the last step of the process, when a preparer ships an electronic copy of the client’s paperwork to the IRS.

The true potential of e-filing, Gottlich and Yulish decided, lay in streamlining the upfront chores as well. Why not allow taxpayers to submit their tax information online, from home, day or night?

“Consumers already are banking and trading stock online,” said Gottlich, 35, chief executive of Taxes4Less.com. “Taxes are just the next step.”

Here’s how it works.

Filers collect their W-2 forms, mortgage interest and all the usual detritus they would lug to their preparer’s office. Then they log onto the Taxes4Less.com Web site (https://www.taxes4less.com) to get a user name and password.

Once registered, users type their information into an electronic organizer. Customers can halt the process at any time, and pick up where they left off later. Help is available through live chat, e-mail and a toll-free number. True Luddites can simply mail their paperwork to the company in a postage-paid “shoe box.”

When all the information is received, a Taxes4Less.com preparer goes to work. These $12- to $18-an-hour employees are licensed and bonded. However, they are not certified public accountants or enrolled agents. Taxes4Less.com does have CPAs on staff who review all returns. The company also guarantees accuracy by agreeing to pay interest and penalties that result from any mistakes by their employees.

Pricing for forms and schedules is a la carte, with a typical return running about $90. That’s close to the average spent in an H&R; Block storefront, and less than half the rate charged by many CPAs.

Eliminating face-to-face interaction cuts down on costs. But some experienced professionals question whether it’s really a good deal for taxpayers. Los Angeles CPA John Stoller says office visits allow him to dispense advice and extract valuable information that clients might not remember on their own.

“There’s a lot more to it than just cranking numbers,” he said. “That personal interplay is very important.”

Still, the online approach is winning converts among young, tech-savvy filers such as Klaus Winterholler, a manufacturing technician from Raleigh, N.C.

The 34-year-old South African immigrant found Taxes4Less.com while surfing the Net. Knowing little about the American tax system, he figured he might as well file his first U.S. return online. He hit the send button on a Saturday night and was pleased to receive a finished return a few days later.

Things didn’t go as smoothly for Floridian Scott Buda. His first online attempt got lost in cyberspace, delaying the refund he needed for a Las Vegas vacation. Taxes4Less.com mollified him with an apologetic phone call and a deep discount on his fee.

Yulish and Gottlich acknowledge that growing pains have led to some technical glitches. More than 4,000 filers have registered with the company so far, though only 200 have seen the process through to a completed return. It’s a conversion rate they hope to boost dramatically with beefed-up advertising on sites such as CBS Marketwatch and TheStreet.com.

Hidden in the back of a strip mall, the company’s spartan offices and chockablock cubicles are testimony to its low-overhead philosophy. Relaxed in sport shirts and chinos, the founders and brothers-in-law (Gottlich is married to Yulish’s sister) are indistinguishable from their 25 mostly part-time employees. Their one perk: a view of the parking lot.

It’s a far cry from their days working for a blue-chip accounting firm, and successful stints in private practice. But so convinced were the pair of the Internet’s potential, the normally level-headed accountants abandoned their old lives, mortgaged their homes and cobbled together a business in time for tax season last year.

That first Web site was bare bones. Their staff could have fit into a phone booth. But their biggest challenge was figuring out how to attract customers on a measly $50,000 advertising budget.

They tried radio. No response. Then newspapers. Nada. Their online dreams and home equity hanging in the balance, they bet their last $20,000 on a Yahoo banner ad. Bingo. Two hundred returns poured in at the 11th hour. Not exactly a torrent, but enough to assure Gottlich and Yulish they were on the right track.

“That’s when we decided to do a business plan,” Yulish said sheepishly.

By doing their homework and admitting their limitations, the partners attracted venture capitalists who liked their no-nonsense style. Lead investor Ziad Ghandour, head of Los Angeles-based T.I. Capital, says a second round of financing is in the works, along with the search for a seasoned CEO.

“Greg and Russell are solid and know the business better than anyone,” Ghandour said. “But experienced management will help attract the funding to take this business to the next level.”

Taxes4Less.com recently got a leg up from the IRS by winning official “e-file partner” status. That involves passing a background check and demonstrating competence in preparing returns. But the real benefit is their prominent link on the agency’s Web page, which is already driving traffic to the Taxes4Less.com site.

They’ll need all the help they can get.

Two other online hybrids, TaxLogic.com and E1040.com, beat them to the market and are steadily building market share. H&R; Block, which controls nearly a quarter of the paid-preparer market, is also eyeing the space, according to company officials. Ditto for software giant Intuit, whose popular products are used by do-it-yourself filers and tax pros alike.

Experts say those two behemoths have the market share and brand name to transform the landscape overnight.

“I don’t see a lot of opportunity for the small guys to become national players,” said Bill Doyle, analyst with Cambridge, Mass.-based Forrester Research.

But Gottlich and Yulish are confident in their ability to secure a niche with low prices and solid customer service.

“There’s plenty of business out there for everyone,” Yulish said. “After all, everybody has to pay taxes.”