Require payment before filing tax return?

Software. Marketing. Training. Running your business.
#1
wel  
Posts:
116
Joined:
3-Sep-2016 4:29am
Location:
USA
I had a debate with a colleague about this, and I can't find any authoritative guidance to determine who's correct -
anyway - the question is:

Is there anything preventing a tax preparer from requiring the client to pay for the tax return preparation prior to filing the tax return?

Does anyone have any guidance from the AICPA or an insurance carrier that would indicate that requiring payment is an acceptable practice? If so, would you please send me a link, etc.

Thanks!
 

#2
CathysTaxes  
Moderator
Posts:
3557
Joined:
21-Apr-2014 9:41am
Location:
Suburb of Chicago
If you think there is a possibility of being stiffed then I see no reason why you can't ask for a retainer.
Cathy
CathysTaxes
 

#3
Posts:
835
Joined:
1-Sep-2020 2:47pm
Location:
845-NY
You can require payment before delivering your work.
Once you've delivered the work and the client signs the efile forms, it's illegal to hold the efile for any reason.
You can look into the efile rules for that stipulation.
You also cannot withhold the clients original documents for payment. If they aren't happy with the bill, they can't get your work, but they are entitled to their source documents back. You can find this in circ 230.

Best practice is to present the invoice, get paid, then release your work. Or get a retainer when in doubt.

If they can't afford to give you 400 or 2000 before you start the work, why would they be able to afford to pay after, is my motto.
 

#4
ATSMAN  
Posts:
2094
Joined:
31-May-2014 8:34pm
Location:
MA
This has been an age old question since I got into the business. Your business model will lead you to certain conclusions. For example when I had walk-in clients the payment was REQUIRED before I delivered the finished product. Now with established clients I will either invoice them or they pay me at the time they pick up the return. Once someone stiffs me they are on a pay before you see mode!

With out of state mail in clients, most pay by credit card at the time they sign 8879 or some will mail a check after receiving the invoice. Most of my mail in clients have been with me for a long time so getting paid has not been an issue.

With amendments and complicated returns, I require at least 50% down payment. There are certain exceptions obviously depending on the client. With EITC returns, a payment is required. I don't do bank products.

I absolutely hate people who are shopping around for a tax preparer and you can tell that 90% of the time because the focus of their questions will be on prep fee, or they may ask how much refund you can get them compared to the next fellow. That should raise a red flag and if you want to deal with such clients, insist on getting paid first before delivering the finished product. Do NOT let them sign 8879 without getting paid!
 

#5
wel  
Posts:
116
Joined:
3-Sep-2016 4:29am
Location:
USA
Thanks - I've always known that we're required to return clients source documents, regardless of payment status - as those documents are the client's property.

I've had the position that the tax return (our work product) is our property, until we're paid - but have never required payment before filing, etc.

Recked - thank you for the references to look into.

I appreciate the responses.
 

#6
Posts:
2887
Joined:
21-May-2018 7:50am
Location:
Northern MI and Coastal SC
Certainly. I make most clients pay 50% of anticipated fee upfront, remaining balance before or upon filing (obviously I give certain clients leniency).
 

#7
Posts:
835
Joined:
1-Sep-2020 2:47pm
Location:
845-NY
It's not in the 230, it's the Pub 1345
https://www.irs.gov/pub/irs-pdf/p1345.pdf
Page 23
Once signed, an ERO must originate the electronic submission of a return as soon as possible.
An ERO must ensure that stockpiling of returns does not occur at its offices. Stockpiling is:• collecting returns from taxpayers or from another Authorized IRS e-file Provider prior to official acceptance in IRS e-file; or• after official acceptance to participate in IRS e-file, stockpiling refers to waiting more than three calendar days to submit the return to the IRS once the ERO has all necessary information for origination.

Once you have the signed 8879, you can't hold onto the return pending payment.
Is my understanding of the stockpiling rules. But you can refuse to release the return, and thereby the 8879 can't be signed, until paid in full.
 

#8
ATSMAN  
Posts:
2094
Joined:
31-May-2014 8:34pm
Location:
MA
But you can refuse to release the return, and thereby the 8879 can't be signed, until paid in full.


Bingo! No cash No 8879 to sign!
 

#9
Posts:
8156
Joined:
4-Mar-2018 9:03pm
Location:
The Office
You can structure your payment protocol any way you like.

Keep in mind that state usury laws will dictate how interest will work. You might want to review those before putting a late interest clause in your engagement letters.

In practice, I rarely use retainers and don't charge interest. I bill out when the final returns are delivered and I'd say 95% of clients pay me within my dictated 15 days. I rarely have collection issues.

Those who repeatedly pay late quickly find themselves being offboarded. I let go of a client last week for that exact reason.

I have been very flexible this year, especially with business clients. For a good number of them I've effectively let them dictate when and how much they'll pay over the last six months. I feel it strengthened the relationship. All have caught up and paid me in full at this point.
 

#10
Posts:
2468
Joined:
24-Apr-2014 7:54am
Location:
Wisconsin
Generally, for clients I see once a year, they pay at completion of the tax return. Credit cards make that really easy these days. For clients that I work with throughout the year I grant them my standard terms terms (prox 20) and it works well.

That's the standard, at least. There are always exceptions, especially for good clients. My biggest client by revenues is always hurting during Q1 so we've always agreed that they can pay for their tax returns in 3 monthly installments during Q2. Like ManVsTax, I've found that being willing to be flexible in the right circumstances strengthens the relationship.
 

#11
Posts:
2612
Joined:
24-Jan-2019 2:16pm
Location:
North Shore, Oahu
This doesn't answer the legal or ethical part of the topic, but here's how I roll:

I always just present the 8879 and e-file even if I suspect there is a chance they wont pay me.

1) Being stiffed has accounted for less than 1% of my gross revenue. It is VERY seldom.

2) I did the work anyway - it's too late - I already lost the time. I figure I have a BETTER chance of getting paid if I just go ahead and file and send billing reminders rather than if I hold the filing of the completed work as "hostage" anyway. Plus if I don't file, now they are going to start blaming me for any adverse consequences. I'd PAY not to deal with that crap.

3) If a client really doesn't pay me, I now have a very simple and clear path to disengage with said client. Sometimes I HOPE certain client will disappear without paying me. Non-payors are almost always the cheap returns anyway and they are often the most hassle. 350 bucks? PLEASE don't pay me and never call/email again. PLEASE!!!

Sometimes I think, "darn, they paid".
 

#12
ATSMAN  
Posts:
2094
Joined:
31-May-2014 8:34pm
Location:
MA
IMHO. Not delivering the finished product until you get paid is NOT hostage taking. Obviously you can not hold hostage their tax documents etc.

If you have been in business for a while with a stable base of clients, you pretty much know who the slow payers are and you do business with them accordingly. The real problem is brand new clients who just fired their prior accountant and you really don't know the real reason. If I know the prior accountant I will call and get a feel and let them know as a professional courtesy that I have been approached by their client.

I have one client since 2010 that is a very slow payer. He pays but completely ignores my invoices. It is an easy return and because I eventually get paid I have not fired him.
 

#13
Posts:
2887
Joined:
21-May-2018 7:50am
Location:
Northern MI and Coastal SC
The only thing unethical is if you receive the 8879s and do not file, or if you withhold original documents. Beyond that, we have the ability to invoice as we wish, including upfront payment or payment prior to filing (so, do not release the 8879s if you are concerned about it).

All new clients have to pay me 100% of an estimated fee upon signing engagement letter. If they balk at it, that provides immediate insight as to what they will be like in the future. I do not have issues collecting money from a single client I have, but I also do not like doing work without being paid something, hence the 50% requirement even for most existing clients. I may be self-employed, but these people as employees or even self-employed are not willing to work without continual payment, so why should I?
 

#14
Posts:
400
Joined:
19-Nov-2014 5:47pm
Location:
USA
The only thing unethical is when you do the work and they don't pay.

Generally, clients that have paid in the past will continue to pay in the future. I charge upfront for new clients that don't seem reliable, new clients with back tax issues, or anyone fling bankruptcy. I've been burned in the past and learned my lesson.

I had a client a couple years ago that filed bankruptcy and didn't pay. He then asked for his AGI for the tax return that I filed in order to file the next year on turbo tax...
 

#15
Posts:
2612
Joined:
24-Jan-2019 2:16pm
Location:
North Shore, Oahu
I also agree and feel strongly that you should get a retainer for 50% or 100% for all new clients who are behind on their taxes or not compliant in any way. This is the demographic, in my experience that will leave you unpaid for your work.

I don't take these clients anymore, fortunately. Makes for an easier life. Of course, if I ever become slow or need business, I guess I'll have to take them again.
 

#16
Posts:
2887
Joined:
21-May-2018 7:50am
Location:
Northern MI and Coastal SC
ItDepends wrote:
I don't take these clients anymore, fortunately. Makes for an easier life. Of course, if I ever become slow or need business, I guess I'll have to take them again.


I turned away a client like this last week. Unfiled taxes back to like 2008, $50k+ liability, wanted to see if he could get abatement based on PTSD, etc. I indicated the cost, which would require a significant retainer, of me even getting involved would likely far exceed any benefit of trying to negotiate given 12 years of noncompliance.
 


Return to Business Operations and Development



Who is online

Users browsing this forum: No registered users and 43 guests