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unpaid fees and the requirement to file corporate tax return

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#1
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this question relates to unpaid fees.

I have a corporate client that has become very problematic, constantly arguing about owing taxes, my procedures to prepare books and related taxes.

My corporate client has a partner within that thinks he can get everything done for much less. I have terminated my engagement. I did not have an engagement letter.

My client owes outstanding fees. My client was informed by me that I will not sign and file the corporate return without first receiving the signed form 8879 and payment for all outstanding fees, which are reasonable and have a history of being paid in the past.

My client sent the signed form 8879 but no payment.

Do think I am obligated to sign and file the returns without full payment of outstanding fees as outlined in my letter to them?
 

#2
makbo  
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Szoboszlay wrote:My client sent the signed form 8879 but no payment.

Do think I am obligated to sign and file the returns without full payment of outstanding fees as outlined in my letter to them?

No.

This topic has come up here before, usually in the context of individual 1040 filings, so you might want to search for those discussions to get a range of comments. The IRS pub has a reference to what I consider an obsolete rule about "stockpiling" from the early days of efile processing, but I believe the IRS is not interested in becoming involved as referee in a fee dispute between you and your client. (If you search, the term "stockpiling" is a good start.) The taxpayer can't force you to sign as the ERO. They may sue you or give you bad online reviews, but I don't think you risk any action from IRS.

It's too bad you didn't have an engagement letter spelling out this expectation up front, you really should. Some here think engagement letters serve no purpose, but unless you live in Tiny Town where "everyone knows your name" and deals are done on a handshake, you need them in today's business environment.
 

#3
KRHCO  
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From - https://www.thetaxadviser.com/issues/20 ... aug14.html

Analysis of Circular 230

Circular 230 applies to professionals who practice before the IRS. Section 10.28(a) of Circular 230 generally requires a practitioner to promptly return all "records of the client" necessary for the client to comply with his or her federal tax obligations. Records of the client include:

All documents or materials, written or electronic, provided to the practitioner or obtained by the practitioner in the course of representing the client, which preexisted the client's retention of the practitioner;

Materials prepared by the client or a third party (other than an employee or agent of the practitioner) at any time and provided to the practitioner; and

Any return, claim for refund, schedule, affidavit, appraisal, or any other document prepared by the practitioner, including employees or agents, that was previously provided to the client if the document is necessary for the taxpayer to comply with his or her current federal tax obligations (Circular 230, §10.28(b)).

However, "records of the client" do not include any return, claim for refund, schedule, affidavit, appraisal, or any other document prepared by the practitioner or the practitioner's firm pending the client's fulfillment of his or her contractual obligation to pay fees with respect to the document.

See this also - https://www.thetaxadviser.com/content/d ... xhibit.png
 

#4
novacpa  
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You are allowed to charge a "reasonable copy charge" some law firms charge $2 per/page.
Offer paper copies of all of his records, payment in advance.
 

#5
ATSMAN  
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When did you terminate your engagement? Before asking for a signed 8879 or after? If you asked for the 8879 after sending the termination letter you may have voided it.

When I terminate engagement due to a fee disagreement or procedure/timeliness issues I make it clear that no future work will be done and they are given a date to pickup their books and records or make arrangements for it to be mailed.
 

#6
Frankly  
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makbo wrote:It's too bad you didn't have an engagement letter spelling out this expectation up front, you really should. Some here think engagement letters serve no purpose, but unless you live in Tiny Town where "everyone knows your name" and deals are done on a handshake, you need them in today's business environment.


If he had an signed engagement letter, client would have happily written a check long before now?

If he hasn't paid and won't pay, sue him in small claims court. You don't need an engagement letter for that.
 

#7
makbo  
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Frankly wrote:
makbo wrote:[...] Some here think engagement letters serve no purpose [...]
[...] You don't need an engagement letter for that.

Right on cue, as expected. :D :) 8-)

You actually missed the point of this thread, however. It wasn't about how to get the client to pay, it was about whether there are, and if so how to minimize, possible consequences of not filing the return. Obviously you disagree, but I think many if not most believe a written, signed engagement (legal agreement) stating fees must be paid before return will be filed gives some meaningful support to the tax pro.
Kind of like what you sign when you take your automobile in for repairs, or similar transactions.
 

#8
makbo  
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ATSMAN wrote:When did you terminate your engagement? Before asking for a signed 8879 or after? If you asked for the 8879 after sending the termination letter you may have voided it.

I send the 8879 for signature (with review copy of return) and my invoice at the same time, as stated in my engagement. If they only send back the signature form but no payment, after a few days I remind them I am not filing the return until paid. This hardly ever happens, but yes I have refused to file a balance due return by the filing deadline over this issue. I probably wouldn't send a disengagement letter unless the situation stretched out to a week or more, or unless very large potential penalties were in play.

For comparison, H&R Block office software (at least when I worked there) would not allow efiling until payment had been recorded at the front desk, the choice was taken out of the tax pro's hands.
 

#9
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I retained a new client recently who owed money to their former CPA. The amount was in dispute so he asked me to intervene and attempt to settle this matter in his behalf. Client received only corporate and personal tax returns and a compilation for the prior year, without any disclosures.

I called the managing partner of this midsize national company who insisted that they be paid in full before releasing any client workpapers in their possession. I advises him of their compliance requirements with Circular 230 and he simply stated that when they get paid they will release all documentation.

The final outcome was that the client paid even more than was originally requested and they finally released all documentation.

Upon reviewing the documentation I discovered 2 material errors that they had made. They failed to record shareholder loans to business and they didn't take any deductions for company auto used exclusively for delivering merchandise to customers.

I had to adjust the financials and refile both business and personal tax returns for multiple years. Also known as the accounting full employment act.

The client wanted to report them to the NYS Education Dept. which he later decided was a lesson in futility.

So much for their Circular 230 compliance!
 

#10
makbo  
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mdubincpa wrote:Client received only corporate and personal tax returns and a compilation for the prior year, without any disclosures. [...] releasing any client workpapers in their possession. [...]
So much for their Circular 230 compliance!

It's not clear what you mean by "workpapers". Did client provide original source documents, such as W-2, 1099, etc, that were not returned until fee paid? If the only thing provided was copies, I don't see where Circ 230 was violated. I think CPA rules might have been violated, but they are stricter than Circ 230.

They could always try filing Form 14157 with IRS.
 

#11
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General ledger, journals and journal entries, Quick books files. etc.
 

#12
makbo  
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mdubincpa wrote:General ledger, journals and journal entries, Quick books files. etc.

None of those are covered by Circ. 230 as documents that must be "returned" to taxpayer upon demand. Only original source documents, such as W-2, 1099 (info returns), bank statements, receipts, etc.
 


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