What Is a Tax Service Bureau and How Does It Work?

What is a tax service bureau?

Service bureau is an industry term, not an IRS license category. The IRS's e-file categories include Electronic Return Originators (EROs), Intermediate Service Providers, Transmitters, Software Developers and Online Providers. A service bureau is usually a business that partners with a professional tax software company to resell and support that software for a network of independent offices. It often also arranges access to bank products, such as refund transfers, through the software's banking partners.

For a preparer, the appeal is simple. You keep your own clients, your own brand and most of your preparation fees. The bureau provides the tools, training and support you would otherwise have to find and manage yourself.

Bureaus tend to serve two groups. New preparers want a guided path: help applying for an EFIN, software training before the first client, and someone to call when a return rejects in February. Experienced preparers leaving a franchise or a larger firm want to keep more control over pricing and clients without giving up professional-grade software and bank products. A good bureau can serve both, but the support you need in your first season is very different from what a 10-year veteran needs. Ask how the bureau handles each.

How do bureaus, software vendors and preparers fit together?

Think of it as three layers. The software vendor builds the tax program and transmits returns to the IRS. The service bureau buys or resells access to that software, configures it for each office and gives first-line training and support. The preparer's office prepares returns, meets clients and originates the e-file as an ERO under its own EFIN.

Many bureaus also recruit sub-bureaus or partner offices, meaning experienced preparers who bring their own network of offices under the bureau. Each office in that structure is still its own e-file provider. The IRS's EFIN guidance says each office location where e-file transmissions occur needs its own e-file application, and an EFIN cannot be shared, rented or transferred. Interested in leading a network? See Become a service bureau.

How does money typically flow through a service bureau?

Arrangements differ from bureau to bureau, so treat this as a general picture, not a promise:

• Software fees: The office pays the bureau for its software package, either upfront, through per-return charges or through a mix of both.
• Preparation fees: You set your own prices. Clients pay you directly, or with their consent through a bank product that deducts the fee from their refund.
• Bank-product and add-on fees: When a client chooses a refund transfer, the bank charges a product fee. The software may also allow optional add-on fees that the office or bureau collects. These must be disclosed to the client.
• Bureau compensation: Bureaus typically earn a share of software sales and certain per-return or add-on fees. The exact split is set in your contract.

How do bank products affect when you get paid?

When a client pays through a refund transfer, your preparation fee usually isn't paid when the client walks out. It is paid after the IRS releases the refund to the bank and the bank pays out the fees and the client's balance. Publication 1345 describes this kind of product, a Refund Anticipation Check, as one that directs the refund to a financial institution, which then pays out the fees and the balance. The IRS also notes it doesn't guarantee that refunds are deposited on a set schedule or in full. Refunds can be delayed or offset, which means your fee can be delayed or reduced too.

The IRS isn't involved in or responsible for these financial products. They are business contracts between the provider and the taxpayer. Before you rely on bank products for cash flow, ask the bureau how fees are paid out, how often, and what happens to your fee if a refund is offset or a product is denied. Any revenue examples a bureau shows you are illustrations. Actual results vary and are not guaranteed.

Service bureau vs. franchise vs. going direct: which fits you?

Each model trades independence against support. Here is a general comparison. Terms vary, so read each contract.

What compliance responsibilities stay with you?

Joining a bureau doesn't shift your legal duties onto it. As the preparer and ERO, you remain responsible for:

• Your own PTIN and EFIN. Every paid preparer needs their own PTIN. Your firm's EFIN must be protected and kept current, with application updates within 30 days of changes.
• Due diligence. Paid preparers handling returns that claim the Earned Income Credit, Child Tax Credit or Additional Child Tax Credit, Credit for Other Dependents, American Opportunity Tax Credit or head of household status must meet due diligence requirements and complete Form 8867.
• Section 7216 confidentiality. You can't use or disclose a client's tax return information without proper consent. The IRS notes that a violation can be a misdemeanor punishable by up to one year in prison and a fine of up to $1,000. Civil penalties under section 6713 are $250 per disclosure, up to $10,000. Bank products require the client's written consent before you share information with the bank.
• Bank-product disclosures. Publication 1345 says you should explain that the refund goes to the financial institution, disclose all fees and the amount the client will receive, and never advertise a loan or refund transfer as the refund itself.
• Data security. Tax preparation firms are covered by the FTC Safeguards Rule and need a written information security plan.

What should you ask before joining, and what are the red flags?

Before you sign, ask any bureau, including ours: Which software and bank partners do you work with, and can I see the contract and full fee schedule in writing? Which fees come out of my clients' refunds, which come out of my revenue, and who sets the add-on fees? When and how am I paid, and how are rejected returns or bank-product denials handled? What training and support do you offer during the season, through which channels and at what hours? Do I keep my client list if I leave?

Our How it works and Pricing pages cover our process, and specific software, bank-partner and fee details are confirmed during enrollment.

Be cautious if a bureau shows any of these warning signs:

• It offers to let you file under its EFIN or someone else's while you run a separate office. Publication 3112 says the IRS sanctions providers who rent, lease or buy EFINs, or who let people who haven't passed suitability use their EFIN.
• It encourages unsigned returns. Preparers who leave their name and PTIN off returns are often called ghost preparers. The IRS requires the ERO to identify the paid preparer, including their PTIN, in the electronic return.
• It is vague about fees, or pushes add-on fees you can't explain to clients.
• It guarantees income or promises a specific number of clients.
• It is vague about training, data security or who your software and bank partners are.