Growing ECommerce W2/1099 Tax Compliance Business

This well-established company provides employers and financial institutions with the ability to prepare and file the full range of IRS information returns and annual wage reports documenting payments to recipients, as well as Social Security Administration (SSA) and Affordable Care Act (ACA) returns. It typically serves 1,900-2,000 customers annually, including Fortune 1000 and smaller corporations, colleges and universities, and federal/state/municipal agencies. Customers can distribute completed tax forms to recipients or have the company print and mail them to recipients or e-file them. If a proposed IRS policy is approved, by 2023 the number of companies that must e-file reports will dramatically increase—from those that file at least 250 reports to those filing at least 10, which has already attracted new customers in anticipation of this expanded compliance requirement. The software provides many valuable features, including the ability to: validate taxpayer identification numbers; flag errors prior to filing returns; quickly and easily correct errors after filing; file combined federal/state returns; and electronically file state wage reports. Because customers can purchase only the services they need, the company has a significant pricing advantage over competitors that bundle multiple services. With virtually no advertising, growth has been driven primarily by repeat and referral patronage, reflecting the company’s robust software capabilities and stellar support, which has enabled many customers to avoid substantial interest and penalties. Since 2020, the company has acquired gained many new customers because their previous vendors discontinued valuable services. Because the company provides a compliance—vs. a discretionary—service, it is highly resistant to economic downturns. An accounting firm would be an ideal buyer, as it would greatly increase revenue derived from its existing clients, while attracting new clients that appreciate the benefit of having a single company address both their tax preparation and filing needs.