Corporate Book & Details Incomplete

[G2R]

 

I'm stunned by the number of NEW clients I get that were incorporated by other lawyers, accountants, etc and did not have the articles of incorp, by laws, minutes, or stock certificates issued.  None of this was completed.  Some clients have no idea where the corporate book is? Some were just given articles of incorp and blank by laws, minutes, stock certificates and did not provide guidance or insistence that this be completed BEFORE the company opened (let alone before the first tax return was filed.)

So my question is.

1. Do you request to see the corporate (black) book when interviewing a new corporate client?
2. Do you verify the corporate details against what's on past corporate returns filed by another accountant?
3. When, or if, you incorporate a client, do you just send them off to legal zoom or a lawyer and leave it up to them the corp in order?  Do you ever check the book for accuracy?

My terror on this subject comes from a story father (also an accountant) told me that happened years ago.  New client comes in, says he's being audited.  My dad reviews the bookkeeping and financials for him, requests to see the black book, but the client forgot it.  On the day of the audit, the auditor requests to see the black book.  New client says, "Oh, I've got that this time Bob!"  Hands it to the auditor, (so my dad never got to review it) and low and behold, the lawyer screwed up the paperwork with incorrect dates and names, and worse, the stocks certificates were blank.  The auditor denied the incorporation & S election based on the book being wrong. My dad said, the penalties and fees put the guy out of business.  

Has the IRS relaxed these rules over the years?

Edited March 15, 2019 by jklcpa
edited at request of OP

[Lee B]

I have no idea what is allowed in the state of New York, but in my state of Oregon only attorneys can legally perform these tasks.

[Lion EA]

Same in CT. The lawyers have a strong lobby.

[jklcpa]

Agreed with the others. This is clearly an ethical violation for CPAs here, and both the State Boards for Accountancy and for Law, and the DE Bar Association would quickly find out and put a stop to it, especially in my small state where everyone knows everyone.

This happened to a public accountant with an EA that lives close by in my small town, and he was ordered to cease and desist by court order that he flagrantly ignored and ended up with fines for nine violations totalling of over $35,000.  He was also brought before the State Board of Accountancy on 3 separate times resulting in cease & desist, lost his license to practice for 2 years the first time which he ignored and it was finally permanently revoked.  His fines in these instances totalled over $582,000 that was based on revenues that ultimately went back to aggrieved former clients.  He was writing wills, trust and estate documents, giving legal advice related to those, and other legal work too that the DE Bar Association had been watching for a while before all of this transpired.  He used to come to the CPE breakfast seminars and was pretty much lobbying our state representatives to give him a CPA license because he wanted to issue financial statements beyond compilations. He'd sit at my table and once asked me if I'd speak to my state rep on his behalf.  My response was that we'd each tested and worked hard for those hours of experience to qualify, that we each had hurdles that we overcame, and that we'd EARNED the certificate and he should do the same.  

If you want to read about all that he did, his case is always included in my DE ethics course. I've wondered if his case is in the courses for other states too, or if it's only in ours because he was licensed here:  Estep case.pdf

 

[Catherine]

With all of Judy's cautions, of course none of us should be doing legal work.  However, I had never considered asking to SEE the black book.  Considering the repercussions of it not being properly filled out, I can see (a) asking to see it, and if it's not in good shape, (b) cautioning the client - in writing - about the possible dangers of leaving it undone.  NOT legal advice, but rather "in a case on audit, IRS disallowed corp status and s-corp election, result major penalties that shut business" because those statements are TAX advice - which IS our job.

[ILLMAS]

I just order it for my clients that want it because they know they are going to need it, others don’t want to pay the $1XX + whatever the attorney will charge.  I don’t prepare it.

[Roberts]

I do not generate the book and I don't ask for the book. If it's more than a single person entity - I tell them to visit an attorney. If it's just a single person entity I instruct them to visit a website.

As long as a legal situation isn't in place already - anyone can technically write up a legal document. The problem is you can't charge for it a lot of times. For example in a divorce I can write up a QDRO, charge for it but an attorney is required to sign off on it because a legal case is in place. I can write up a trust agreement or will for anyone - it's a state issue whether I can charge for it.

[DANRVAN]

On 3/14/2019 at 5:24 PM, GGRNY said:

 

 

1. Do you request to see the corporate (black) book when interviewing a new corporate client?
2. Do you verify the corporate details against what's on past corporate returns filed by another accountant?
3. When, or if, you incorporate a client, do you just send them off to legal zoom or a lawyer and leave it up to them the corp in order?  Do you ever check the book for accuracy?

I believe it is important to verify the balance sheet numbers you will be going forward with when taking on a corp or partnership.  Just recently I took on S-corp in which balance sheet was a mess.  Had a note receivable that shareholder was unaware of and prior CPA had no documentation of.  Also some prior AAA had been co-mingled with capital stock, and there was additional paid in capital that nobody could explain.   Accrued payroll liabilities seemed high and it turned out they had made incorrect journal entries so the liability kept growing as they added another layer to it every year.

This came from a firm that has a poor history of quality control.  Preparer  basically said that was the way she found it when turned over by retired partner.  Client got over $5,000 of bogus deductions over the years.

Back to your post, you raise some good questions but as others have mentioned  do not cross the line of handing out legal advice.  Also I would not recommend legal zoom over reference to a reputable attorney.