Clients' old tax returns and documents

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#1
TAXTAX  
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I am doing some house cleaning and found some old clients returns and documents (bank statements, receipts) for 2011. I have not returned those old documents to them and wondered if I should just discard them.

I have never informed these clients about my document retainer policy and wonder if I run a risk of throwing thew away without notifying them. Some of them are no longer my clients. One owes me money and never pays the balance. (This one I really resent to deal with). Please let me know what i should do. Thanks.
 

#2
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If these are original records-bank statements, receipts, etc., I believe you have to return them or at least make the client aware that you have them. Your work papers are one thing, but, client's records are another. What if the IRS suspected fraud, for which there is no statute of limitations and went back that far.
I would check with your state licensing board , state CPA association and your malpractice carrier for further guidance, though.
 

#3
ATSMAN  
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That is the reason I do NOT keep any originals of any client's documents. I scan them and return the originals.

If you are in possession of any originals, I think as a professional courtesy, you must inform them to either pick it up or authorize you to destroy them. I would get that in writing.
 

#4
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I agree with Atsman. I have never kept client's original records and never recommend this. As he mentions, it's very important to scan those documents or copy them as mail sent back to the client has occasionally been lost.
 

#5
TAXTAX  
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Thanks for everyone's input. I don't keep client's original long long time ago. But this one is really from ten years ago. Back then she jipped my fee by refusing to pay the balance. That is why I held these. But now, if i email her, what if she demand that I sent it to her but refuse to pay for postage? Would it still be my obligation? or should I charge a service fee for processing her request? Just don't want to be taken advantage by this horrible ex client.
 

#6
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I'm not sure you can actually charge a service fee for returning a former client's original records which belong to her. If she won't pay for the postage, you can have her pick them up and sign a receipt, however, you probably aren't looking forward to ever seeing her again, which I well understand. If that is the case and if the postage isn't too horribly expensive, you could pay for the postage and just put it behind you as you will feel better being through with her. Also, why risk her contacting the state Dept. of Licensing and registering a complaint and extending the aggravation to you? It's not worth the stress [and I understand you might not feel good about paying the postage for someone who still owes you fees].
 

#7
Joan TB  
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The AICPA Code of Professional Conduct says that keeping client records (their original documents) is an "act discreditable", even if their fees are not paid. And the Texas State Board has even more strict requirements about what you can keep or not.

I see you are a CPA - even if you are not a member of the AICPA, you might want to understand your ethics requirements from your State Board about this issue.
 

#8
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Another lesson in hindsight here is to ESPCIALLY treat non-paying clients or those in which you have a conflict with extreme kindness and professionalism (but never help with services in anyway ever again, of course).
 

#9
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Going into this tax season we had 2+ years for hundred of clients that didn’t show up due to COVID. We are finally getting most of it back with this years docs. But some clients have moved on. We have offered for them to come pick it up but I’m not mailing it. I would never mail official documents, particularly to an ex-client, unless they were sent certified and I don’t want to pay that burden. We still have 50+ left, with a mix of current and former clients.
 

#10
novacpa  
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When I agree to take on a client, the 1st requirement is for them to get a "high speed" scanner. Learn how to scan
documents, make pdf files, name them, store them on a drive, find them, send to me as an attachment to an email.
I won't touch an original, unless paid in gold coins.
I've never had any security issues.
 

#11
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Are you an AICPA member or CPA? Regardless, it's a good starting point and most state licensing boards follow their guidelines. Generally speaking, if it is an original document you must return it to the client, even if they ask you to mail them. You may request they pay postage, but after 45 days you still have to return them even if they don't pay. You cannot hold original documents ransom for payment unless allowed by state law.

See this link, start reading on page 12. Then look at your state requirements.

https://us.aicpa.org/interestareas/professionalethics/resources/tools/downloadabledocuments/ethics-general-faqs.pdf

I found Q&A #6 pretty interesting, but I would not rely on it!

Also read Section 10.28 of IRS Circular 230.

I have discussed this with lawyers and the general consensus is it is not worth the potential headache of creating acts discreditable with AICPA or violating state or Federal requirements. Because I do not trust mail services or common carriers for such documents, every single tax client signs an indemnification agreement my lawyer drafted in case they request (or I am required to) send physical copies of anything.
 

#12
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Is the former client aware that you withheld source docs for payment? If yes, I'd imagine an attorney would tell you not to contact the former client, given the statutes have lapsed for that tax year. You can probably fill in the rest...

Moral of the story is don't withhold original source docs for payment, and follow your document retention policy. Nearly all documents and returns should be destroyed by the seven year mark.
 

#13
wel  
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The original documents are the client's property. As a CPA, you are not permitted to "hold them hostage" for payment.

At this point, the best course of action would probably be to:
1. confirm that the client still has the same mailing address
2. put the documents in a package addressed to the appropriate address with a note saying "I was cleaning out some old files and discovered that I had failed to return these documents to you. My apologies for the delay in returning them. Best regards -"
3. Don't bother trying to bill the client for postage, etc. - it could lead to a problem more significant than a few dollars of postage. Just return the documents and move on with your life.
 

#14
Frankly  
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Personally I would not waste another 90 seconds on this. Put the papers back in the filing cabinet where they can stay until ex-client asks for them. Done. Move on with life.
 

#15
CathysTaxes  
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I'm with Frank. When he needs the documents, he'll call. You can send him a letter asking when he can come and pick them up.
Cathy
CathysTaxes
 

#16
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Part of risk mitigation is not having SSNs and other sensitive data for long-gone clients hanging around, so I wouldn't put it back in the filing cabinet. If someone breaks into the office and steals the return page with the SSN, I can assure you that reaching out to inform a client that left over 10 years ago that their data may have been compromised will be far more embarrassing and the firm will be open to far more liability.

Personally I would treat the documents like workpapers and apply my document retention policy, if you catch my drift. They're 10 years old, the statute has long since lapsed, and supposedly the former client never asked for them back. Best to let sleeping dogs lie kind of thing and damned if you do, damned if you don't. Others may disagree and I can understand that.

Just don't do it again. :)
 

#17
JAD  
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^^^^
 

#18
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Frankly wrote:Personally I would not waste another 90 seconds on this. Put the papers back in the filing cabinet where they can stay until ex-client asks for them. Done. Move on with life.



Frankly, trust me when I state I am not being a "smarta$$" based on your user name. This is wrong. Original documents cannot and should not be held for any purpose. Some jurisdictions may allow greater leniency. I am not wiling to take the risk. Return them, be done, and learn from errors if such a client happens to screw you in the process by not paying an invoice.

For 2022 TY and beyond, I am going to have one engagement letter that is perpetual until canceled by one of the two parties. I am also charging a fee for my time to scan physical tax documents and making it known I WLL NOT hold documents in trust for any client. Either they scan everything as an appropriate resolution PDF, or I charge them for the same service. I had one client that took me an hour to scan their tax prep docs for TY 2021!
 

#19
ATSMAN  
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Just today I finished a tax return that was on extension and I called the taxpayer's assistant to come pick up the originals. Taxpayer is out of the country and she is being lazy to come to my office. So I told her to give me their FedEx or UPS Account # for billing and I will be more than glad to mail all that to her. I am not going to store piles of paperwork in my office.
 

#20
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Personally I'd give her a chance to pick up the originals first. You stated you finished the return "today".

If it's that bad where you have originals piling up for many clients, you might want to incentivize clients to upload scans instead of providing originals. A few different ways to do that. But the best is $.
 

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