Disengaging

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#1
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So I acquired the client list of a retiring EA last year. One of those clients comes in this morning - this is my first interaction with him, other than setting up the appointment on the 'phone.

He gets 1099s for much of his income, a few checks and an unspecified amount of cash. He told me right at the start that he does not report the cash. Naturally, I told him he should and he decided quickly that we would not be a good fit (I agree). He also told me that the two prior EAs knew that he did not report cash. One is deceased and I never met him. The other, I'd find it hard to believe that he knew. I have looked at his work with a critical eye and asked questions of clients. That tends to confirm my own due diligence at purchase - he was good at what he did and ethical.

We parted company amicably enough and I am quite content that I will not be preparing his tax return. Now, this is my first year in business for myself. Is there anything else I should be doing? I wrote a detailed note for my file. Would a disengagement letter be a good idea? Or a bad one?
 

#2
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My insurance carrier advises to send disengagement letters, but to also remain vague as to reasoning. No need to make accusations or escalate a situation by the wording of the disengagement, but it simply serves to make it formal.

Mine is rather boiler plate and generally starts out with "As part of a periodic review of the Firm's objectives against currently rendered services and client base, it has been identified that [name of firm] can no longer provide any future services to [name of entity]." If they are a single client with multiple entities, I just write it to the primary person and list each of the entities I am disengaging.

Congratulations on upholding ethics. I have seen tax preparers have knowledge of things that should be disengagement triggers, but $$$ wins out. If I knew a client was intentionally cheating on taxes or lying to me, they would be in receipt of a disengagement letter sooner than they could blink.
 

#3
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Before discussing disengagement, you didn't mention whether you have an engagement letter signed with this individual for the current year. If not, there is nothing from which to disengage. Your note in the file should be adequate in this circumstance.

The engagement letter used at our firm states it will stay in place until severed via writing. In that case, I will ensure I send a disengagement letter. As Cornerstone mentioned, vague on wording. The purpose is to simply document the decision to disengage. There is no need to document the reasoning as there appears to be no dispute to the action.

I would get it postmarked soon. Documenting a disengagement right before or after a deadline can put you in a weaker position than several weeks before...worst case scenario.
~Captcook
 

#4
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CaptCook wrote:
I would get it postmarked soon. Documenting a disengagement right before or after a deadline can put you in a weaker position than several weeks before...worst case scenario.


Or, if an engagement has been signed, an e-mail from the client saying they are going elsewhere can serve same purpose (my E&O carrier's thoughts align with this statement).

I had a new client sign an engagement back in January, but they never gave me any information. When I told them a week before the 3/16 deadline that they would need to file an extension, they acted dumb and wondered why. I told them because I had not yet been provided any access to tax information or their books, and every time a suggestion is made on how access could be gained, they turn it down or claim a problem exists. I gave them the option of extending and staying with me, or going elsewhere. He did not like being called out, so he wrote in an e-mail that he would go elsewhere. JOB DONE, move on, "client" documented it for me.
 

#5
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Thanks, both, for the replies. Good question about the engagement letter. Last year, the retiring EA and I sent letters in the same envelope informing them of his retirement and introducing me. This year, I sent the engagement letter to the people that got the initial letter, with my signature at the bottom. I have been using that EL for some years with my part-time clients. I do not know if he signed it. We got as far as one piece of paper with his income and expenses written on it.

My thinking was that he might find nobody to do his return then complain that he was a client and I failed to file an extension. My draft letter would be something like "Thank you for coming in to see me today. I agree with your assessment that we would not be a good fit. You must file an extension blah blah. I wish you all the best for the future."
 

#6
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I'd update the engagement letter to include the client must provide you written permission to file necessary extensions. This is the language mine contains, from a template my E&O carrier provides. It shifts the burden to the client when they would otherwise try to shift the blame onto you. Now, obviously it is different if they DO provide written authorization and you overlook it or fail to file the extensions as requested.

To the extent you wish to engage our Firm to apply for extensions of time to file tax returns on your behalf, you must notify us of this request in writing. Our Firm will not file these applications unless we receive an executed copy of this Agreement and your express written authorization to file for an extension. In some cases, your signature may be needed on such applications prior to filing. Failure to timely request an extension of time to file can result in penalties for failure to file tax returns, which accrue from the original due date of the returns, and can be substantial.
 

#7
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That is good advice, Cornerstone. Thank you. My part-time business had only organic growth. I started with one client who knew someone else and so on. It was like extended family, right down to the family fights! (I had enough clients to pay for CE, which is pretty much all I wanted or could handle).

I am confident in my tax abilities (including the ability to know when I am out of my depth). Running a business is the tough part, though and I know I have much to learn. My dad can only give so much advice from the other side of the Atlantic.
 

#8
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My advice, start sending engagement letters via an e-signature platform like DocuSign or RightSignature (latter is by Citrix).

Not only is it more convenient for the client (assuming baseline tech savviness), you'll know whether or not the EL has been executed with objective time and date stamps prepared by the third party. You can also put on expiration on the file so it's not out in the ether forever. When I'm sending out ELs in December and January I put a 30 day expiration the initial send. The strong majority of clients (90% plus) get them signed within this window with perhaps a reminder or two for some.

Would solve your problem regarding the EL and help you sleep better at night I imagine.
 

#9
Frankly  
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SumwunLost wrote:My thinking was that he might find nobody to do his return then complain that he was a client and I failed to file an extension.
Who might he complain to such that it would make a whit of difference to anyone?
 

#10
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Frankly wrote:
SumwunLost wrote:My thinking was that he might find nobody to do his return then complain that he was a client and I failed to file an extension.
Who might he complain to such that it would make a whit of difference to anyone?


Here in NC, the state board is VERY responsive to client complaints. The state board in my opinion would open a case on this so the OP, while in my view, may be over reacting, he also may not be. We live in strange times.

I would simply tell the client in writing (emai etc. ) That he need find other representation.
 

#11
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Southpark, fortunately, I am an EA and not a CPA so the state board has no jurisdiction over me (yes, I know they think they do, but I'd just tell them to awa' and get raffled in my Sean Connery accent).

ManVsTax, the monthly fee for Sharefile with RightSignature is far out of my price range right now. In any case, encouraging clients to adopt this would be painful for a new business like mine. Only a handful have truly embraced Sharefile.

Frankly, one thing I left out of my post is that this person told me he knows the IRS is a privately-owned business. Were it not for his wife's employment, I suspect he would be a tax protestor.

I suppose what I want to do is shut down any argument quickly and painlessly. I have no admin staff yet, so any stuff like this is a serious time-suck. So nipping any problem before it has even budded is something I am trying to do. I just don't want to overdo it. Thanks all for the interest in this.
 

#12
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This is the email template I use to make it clear to select prospects that I won't be taking them on. Then, I save the email to PDF and retain in a large prospects Caseware file I have. Prospects either get an engagement letter or this email. Hope it helps...Feel free to use and modify.

Dear [Prospect Name]:

This letter confirms that [Your Firm Name] (“I”, “me”, or “my”) will not render professional services to you or represent you in the [Subject] matter. I have not performed any work and am expressing no opinion, conclusion, or advice concerning any matters to have been addressed in the performance of professional services. [Choose one]: Enclosed with this letter are the documents that you provided to me [OR] You did not provide me with any documents when I met with you to discuss your engagement.

I strongly recommend that you consult with other professionals about this matter immediately to ensure that you fulfill any obligations in a timely manner. Failure to meet applicable time deadlines may limit your tax return preparation and filing options, delay the release of financial statements, or otherwise limit your ability to seek relief under laws, rules, or regulations. Because I am not representing you, I have not researched and have not rendered advice on any subject, including without limitation, accounting, tax, audit, or consulting issues.

Again, I will not be representing you in this matter and will not be taking action on your behalf. Thank you for considering me for your professional needs.
 

#13
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Another epic thread.

"don't give a reason"

This is important advice on many levels.
 


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