Tax Shop, an Orlando-based developer of tax preparation software, is launching a service that may give financial institutions a new way to generate fee income.

The program, called Annual Tax Checkup, enables banks, thrifts, and credit unions to offer customers who prepare their own tax returns a review service and the ability to electronically file returns.

$39 Charge

Participating banks charge customers $39, instructing them to drop off their tax returns at local branches. As much as $10 per return goes to the bank.

Certified public accountants or tax preparers - which the company calls "Tax Shop partners" - collect the returns, review them for errors, and file electronically with the IRS.

The 5,000 Tax Shop partners, located throughout the country, are responsible for complying with Internal Revenue Service regulations, so there's no liability for the bank, the company said. The financial institutions basically function as "mailboxes" for returns, it said.

There arc also no fees or services required of the financial institution. A bank simply signs up, and Tax Shop delivers all essential marketing materials, such as statement stuffers and lobby brochures.

The large potential customer base for Annual Tax Checkup gives banks an opportunity to generate significant new fee income, said Michael Martone, Tax Shop's director of marketing. The IRS estimates that over 55 million, or half, of all taxpayers prepare their own returns each year.

Room for Growth

In 1993, 12 million returns were filed electronically, representing only 11% of the total number of taxpayers in the United States, according to the Research Institute of America, publishers of analytical tax services for accountants, lawyers, and financial executives. Clearly, there is room for growth in this "wide open field" said Mr. Martone.

By providing the service, "a bank with 360 branches could potentially earn $300,000 in a two- or three-month period," he said.

Further, providing electronic filing through Annual Tax Checkup can help banks get a jump on what may become a required service, said Mr. Martone. The Research Institute of America reports that the IRS has asked lawmakers to grant them "regulatory authority to require that tax returns be filed other than in paper form," to increase processing efficiency and to prepare for increasing numbers of tax returns. The IRS would like to increase the number of returns filed electronically to 81 million by 2001.

Newsletter for Customers

Besides generating new fee income, Annual Tax Checkup can help build customer loyalty by providing individualized tax tips that customers will want to come back for, said Tax Shop officials. The service can function as an effective cross-selling tool as well, they said. For example, customers are notified if they are qualified for individual retirement accounts, mutual funds, and home equity loans.

Customers also receive a tax summary report, a quarterly newsletter with tax-related articles written by bankers and tax professionals, and a Capitol Hill report that informs them of new tax legislation.

In addition, they receive an acknowledgment verifying that the IRS received their returns, direct deposit of refunds and planned payment schedules for customers owing taxes, and a tax withholding update, featuring suggestions on how customers can adjust their withholding for the coming year.

The review part of the service may even help customers get their refunds more quickly by reducing errors, said Mr. Martone. Tax experts estimate that over 30% of the self-prepared returns filed each year contain errors. Tax Shop's software, approved by the IRS, the company said, so mistakes can be rectified before returns are ever filed.

Bargain Claimed

Compared with other electronic filing services, and financial consulting companies, for $39, Annual Tax Checkup is a real bargain, Mr. Martone said.

"In the past, companies offering electronic filing services have been associated with questionable lending practices, because they charged exorbitant interest rates for cash advancements on return refunds," he said. "The Annual Tax Checkup is not a refund service. It's a fast, convenient service where financial institution customers receive tax counseling without paying the high costs associated with a CPA or financial advisor."

Tax Shop, a subsidiary of Tenkey Publishing Inc., provides tax programs to accounting firms, CPAs, and tax professionals. In 1993, the company transmitted over 60,000 tax returns and was among the top 10 professional income tax software developers in the country, based on number of users.

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