Outsourcing Gone Wrong: Hidden Risks for California Taxpayers
Outsourcing accounting and tax work overseas has become increasingly common — especially as firms look to cut costs and scale quickly. It is often marketed as an efficient, affordable solution. But when it goes wrong, the consequences can be severe.
For California taxpayers, mistakes made offshore frequently surface months or years later — often in the form of IRS or Franchise Tax Board (FTB) notices, penalties, and audits.
Why Firms Outsource Overseas
Many firms turn to overseas providers to:
Reduce labor costs
Handle high volumes of returns
Address staffing shortages
Increase turnaround speed during busy season
On paper, the model can look attractive. In practice, quality and accountability are inconsistent.
Where Outsourcing Breaks Down
Problems often arise due to:
Limited understanding of U.S. and California-specific tax law
Lack of familiarity with FTB rules and conformity issues
Misinterpretation of complex income (stock compensation, crypto, multi-state income)
Overreliance on templates and automation
Minimal client context or judgment
California tax law is nuanced, and small errors can have large downstream effects.
Common Errors We See
When outsourced work goes wrong, it often involves:
Incorrect residency or part-year resident reporting
Missed California-only income adjustments
Misreported stock sales and cost basis
Improper treatment of RSUs, options, or bonuses
Inaccurate crypto transaction reporting
Missed estimated tax payments or underpayment penalties
These errors may not be obvious until a notice arrives.
The Accountability Gap
One of the biggest risks is lack of accountability. When problems surface:
The overseas preparer is no longer involved
Communication is slow or nonexistent
Responsibility falls back on the taxpayer
Fixing the issue requires amended returns or audit representation
Ultimately, the taxpayer — not the outsourcing firm — bears the liability.
Security and Confidentiality Concerns
Tax returns contain sensitive personal and financial data. Overseas outsourcing can raise concerns about:
Data security and access controls
Compliance with U.S. privacy standards
Limited transparency into who is handling your information
Once data is shared, control is difficult to reclaim.
Why California Taxpayers Are Especially Exposed
California’s tax system adds complexity through:
High marginal tax rates
Aggressive residency enforcement
Nonconformity to certain federal rules
Frequent FTB audits and inquiries
Generic, low-context preparation increases risk in this environment.
The True Cost of “Cheaper” Tax Prep
What initially appears cost-effective can become expensive due to:
Back taxes
Penalties and interest
Professional fees to correct errors
Stress and time dealing with tax authorities
Savings disappear quickly once corrections are required.
How All California Accountancy Is Different
At All California Accountancy, we do not outsource tax preparation overseas. Our work is:
Prepared and reviewed in California
Aligned with IRS and FTB requirements
Focused on accuracy, documentation, and defensibility
Supported by direct client communication
We believe informed judgment and local expertise matter — especially in California.
Disclaimer
This article is for educational purposes only and does not constitute legal, tax, or accounting advice. Consult a qualified CPA regarding your specific situation.
IRS Circular 230 Disclosure: Any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties or promoting, marketing, or recommending any transaction or matter addressed.