Getting paid for software files?

Losing a fairly big client, taxes only, to a larger firm. Files in 15 states, 3 entities. I'm being asked for usual workpapers and depreciation, etc. No problem. BUT, I'm also being asked for the tax files in software so they can use or convert for 2014. And I'm thinking, huh, that's mine, and it's worth something. If they get that, they won't have to re-enter 2013 and then roll it over, or re-enter the previous data if they'd rather do that. For 15 states!

Am I realistic in expecting a fairly substantial payment for those files?

I believe you are being realistic. You are under no obligation to provide those files. I feel the same way about QuickBook files.

I'm thinking, huh, that's mine, and it's worth something

Don't be petty.

Agree with CathysTaxes, you are not obligated to provide the files. (Actually, the client should be able to provide all the required documents for filing new tax returns directly to the new preparer, it should not require any involvement from you whatsoever). So, regarding the other comment about not being petty, the challenge then becomes to charge an amount for providing copies of your software files that is substantial. This is not a no-cost transaction, the client should pay one way or the other: either to the new firm for creating return files from scratch using printed documents (including keypunching, reviews, etc), or to you for saving them the extra labor.

You may also need to implement a legal agreement that such files are provided "as is" and you are not responsible for whether or not everything carries over correctly into the new firm's software.

implement a legal agreement that such files are provided "as is" and you are not responsible for whether or not everything carries over correctly into the new firm's software.

That's a compelling argument, so I've reconsidered. I would provide written printouts of state and federal depreciation and any other historical schedules needed to prepare the returns, along with printouts of the first prior year state and federal returns. No other workpapers except what was actually filed, and no staples or binding. It's a package; they don't get to choose only certain pages. Price is per page, same as local Kinkos charges for computer printing, paid before starting work. Not available until two weeks after extension season, then client must pick up in person. I would not provide digital files because that would make me responsible for their data entry over which I have no control.

I would not provide digital files because that would make me responsible for their data entry over which I have no control.

And they can also maybe see all of JR1's inputs. The client paid for the finished product and that's what the client should get. The fact is, if you want to switch firms, there's a cost involved. Client is trying to minimize it's re-input cost on JR1's back.

No other workpapers except what was actually filed,

I agree. Seems JR1 was more than willing to hand this stuff over, which I wouldn't do. Client has the opening trial balance and JR1's entries, and the final trial balance. That's all the client needs.

I wouldn't hand over database files unless they want to consider it a sale of a portion of the practice (in this case, a single client), which would mean 1.5x of one year's revenue for that client as a starting point.

Thanks for the input folks. I appreciate it....I like ChrisV's idea best, of course. Like that's gonna happen! lol

I've been asked that before, and generally I will do it for no charge if the client and I are on good terms. Just out of general goodwill to the client - I don't have a lot of clients that leave, but the ones that do usually come back after a year or so.

For a smaller client, I don't have a problem giving them the software either. But when there's big time investment of time involved, and the opportunity for the next guy to save a lot of hours re-inputting, it only seems fair that I get compensated in trade.

I would never give them an electronic file, maybe you tagged something as estimated or whatever and you don't want them to see it, An electronic file might show changes you made to the return too. Its too much info if one of your years gets audited and they blame it on your work. I treat electronic files and workpapers and they belong to me. The client gets a hard copy of the return and any carryover schedules which you didn't include in the return.

I would do this:

Create a blank file with the same software so that when you save it, it looks like a real file. Encrypt it with a password. Send it to the client. Client will think it's real and will try to open it, but it has a password. When they ask for the password, tell them it's "ahole." Client won't think it's funny, but will try to open it anyway, but it won't work. Client will call back. Then you tell client you're searching your memory banks because you forgot to write it down. "Try s***head," you tell the client. Proceed with this game until you are out of explicatives.

Or, if you have an outstanding invoice with the client, you can do what I did with that Head Injury client of mine, who wanted my IRS penalty waiver letter in Word format (so he could use it to respond to the state on his own). I said, "Sure, it's on the way." The Word document I sent him was named "Penalty_Waiver," but when you open it, all that's there is a copy of my unpaid invoice...LOL LMAO LMDO

I can't find the smiley for LMDO?

What does that mean anyway?

I will give a client a QB backup. I will give a client a tax return which includes all schedules, including depreciation.

I don't hand over Lacerte files, not to clients, and not to other firms. I don't want anyone to see my inputs or overrides. I consider it a liability.

I FEEL THE same way about qb files, they are a liability, I give a print out of the g/l and the last bank reconciliation. TBWS's and comments on it are mine not for the client or another acct to see.

Has as anyone here ever asked the prior preparer for a tax data file and had that prior preparer asked to be compensated for it?

How did you respond?

I guess I'm naive. I've volunteered the Lacerte file as a sign of goodwill when clients have left in the past. I've also asked for detailed workpapers to orient to new clients' affairs, and I've received them - even from the big firms. In one case, there was a lot of copying involved. The big firm charged the client $7500 for its time - a total rip off. In the course of going over the data, I found a mistake that caused the client to receive a $360,000 federal tax refund on the amended return that the original firm had to prepare.

So yes, there is a danger to providing your tax workpapers. But if you made a mistake that resulted in that refund, what does that say about you? Good thing another firm came along to review your work, right?

I would provide the data file to the new firm along with a letter, cc client, stating that it is being provided as a courtesy and that they are responsible going forward. I think that professional to professional transmission protects you more than professional to client. I would not insist on payment. You were already compensated when you created the file in the process of preparing the returns. I would go for maximizing goodwill instead. If accumulating the data to assist in the transition takes a lot of time, then I would bill accordingly.

Good thing another firm came along to review your work, right?

Not if the statute had already closed on that return. Then you've just caused yourself a lawsuit.

FYI - This question was asked in an article titled, "Practitioners' Responsibilities in Complying with Records Requests" in the 8/2014 issue of the Tax Adviser. The answer was that "There is no specific requirement that C provide a copy of the SuperTax file."

It goes on to say that if this was depreciation software, the answer would be different. And 10.28(b) of Circ 230 was cited and, for AICPA members, AICPA Code Interpreation 501-1. I can't say, however, what the state of affairs is with Circ 230. Since the IRS can only regulate representatives, and not preparers, I'm not so sure of Circ 230's relevance any longer.