Background check new clients

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#1
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Is it common to run a background check on a new client for individual income taxes or businesses? Is this legal without asking for consent? Couldn't reviewing the clients credit report help ask the right questions, etc.? Can I review a credit report without someones knowledge and it appearing on their credit report? Also, checking the credit report would show possible tax deductions.
 

#2
CathysTaxes  
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I don't know about the state you live in, but I believe in Illinois, you need written permission. I only ask for previous years returns for a new client.
Cathy
CathysTaxes
 

#3
ATSMAN  
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I have NEVER run any background on my clients but I don't see why you can't with the proper disclosure. I know my landlord clients routinely run background checks on their tenants from TransUnion.

The bigger question is what are you trying to find out? Will they pay you (credit check)? If that is your concern get a big retainer. I do that with business clients where i see cash flow to be an issue. If you are tryng to find out if they are behind on taxes, request a tax account statement/transcript. I get that when a new client says I think I am caught up but not 100% sure!
 

#4
makbo  
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ATSMAN wrote:The bigger question is what are you trying to find out?

Same question here. I'd be more worried about them running a background check on you, the risk is greater in that direction.

taxnyc123 wrote:Couldn't reviewing the clients credit report help ask the right questions, etc.? [...] Also, checking the credit report would show possible tax deductions.

Yes, to both questions. For example, you could note student loans, or mortgage loans, and ask about those. However, you would also get credit card info which is most likely completely irrelevant to the tax return. And you would see who else had made inquiries on the report, along with a lot of other "noise" data.

Overall, I think any tax interview value to the credit report is far smaller than the costs and risks to you of obtaining one (after all, once you have the data, now you have a huge responsibility to protect it). If you really think it will help, just ask client to get their own free annual report and bring it in.
 

#5
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I think it would help. Also, I read they were required for publicly traded audits although I may have read that wrong. The credit score aspect may be good for a financial planner type. Basically, building the clients credit would great if they don't have any, for investment purposes.
 


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