Need to run something by you guys

[Tax Bird]

I have a client, LLC, for whom 2007 is the final year. I've done the bookkeeping and tax returns since 2001. For whatever reason, in this final year, the LLC came into a lot of money (won a lawsuit) but has not been 'operational' since 2004.

Early in the year (2007), after the receipt of the lawsuit proceeds, two of the three LLC members received distributions. The third member did not. In the course of doing the bank rec's I came across transactions that I couldn't identify (>$200K in total). That was a month ago. Client calls today and tells me verbally what they are. He has no invoices or receipts. They do not make sense. (For example, rent expense of $100K in Dec '07 - the final month ever. $100K in rent for a business with no assets and no operations).

Since I am sure he is BSing and that this chicanery will trigger an audit, I am inclined to decline doing the tax return. Unfortunately, I have unpaid time on the bookkeeping so far which, while I hope I get paid, I doubt I will once I tell him I won't be doing the tax return.

Since I am appalled and a bit PO'd at the moment, I need to simmer down a bit before I send the 'kiss of death' email.

Any suggestions on content?

I want to keep it short and sweet. Something to the effect 'Dear BSer, After our conversation today, I am hereby declining any further work for BS, LLC.' I know I need to say more than that but that's all I can muster of a professional tone at the moment.

Any input would be greatly appreciated.

[RoyDaleOne]

Finish the bookeeping and sent a bill for that. Don't work on the tax return. If the client says anything or does not pay the bill maybe you could try;

1. Because this is a final year of operations I need to get paid for the bookkeeping.

2. It is my(our) policy to not do .... unless payment is current.

3. ???

After you get paid then you can raise any question about the documentation you want.

Also, note that there is a huge fine $5,000 for each item that is incorrect and possible lost of practice before the IRS etc...

Heck, I don't know.

[Tax Bird]

Finish the bookeeping and sent a bill for that. Don't work on the tax return. If the client says anything or does not pay the bill maybe you could try;

1. Because this is a final year of operations I need to get paid for the bookkeeping.

2. It is my(our) policy to not do .... unless payment is current.

3. ???

After you get paid then you can raise any question about the documentation you want.

Also, note that there is a huge fine $5,000 for each item that is incorrect and possible lost of practice before the IRS etc...

Heck, I don't know.

You know, at this point, this thing feels so 'icky' that I don't want my name associated with it at all. AND I don't want to do the 'spooky' bookkeeping either becasue I suspect the client will use it to set up some other unsuspecting soul ('the bookkeeping was done by a CPA - they have all the records').

I know what you mean, though. I did try to think of some way to get paid. But the only way I get paid in this scenario is to go along. Then it become the choice between my fee and my livelihood. For that reason, I think I'll take my lumps and dump him. I'll still send statements - weekly for years if I need to.

Thanks RoyDale.

[zeke]

"I think I'll take my lumps and dump him"

I agree. It's a small price to pay for peace of mind.

Zeke

[kcjenkins]

I agree also. Garbage does not get better with time, it just smells more.

[joelgilb]

You could also try asking for a retainer and indicated that due to the nature of the numbers the job became much more than in the past.

Then tell him that due to changes in the IRS's position, the number of Audits, Appeals, Tax Court issues etc have drastically increased (and this is very true, I have more representation now than I have seen in most of my career), and that there are now concerns both as to substantial underreporting issues (FRAUD) and preparer liability issues. Tell him that you need to more carefully documenting expenses and demand actual documentation for the expenses and proof of payment for any items of expenses he is giving you.

This could do a couple of things, expand the job and make you more money, while also increasing the accuracy of the return and your comfort level. And if he won't do it, well then you can still fire him.

[BulldogTom]

I would continue with the bookkeeping, but delay the work until payment. Then, when all paid up, ask for a nice retainer because of the impending closure of the business. Then ask for the reciepts for the expenses, and especially the landlord information for the 1099 that you are going to send out (for a fee, prepaid, of course) and after the business closes, it will be convenient for you to have thedocumentation on hand in case of questions. Then I would ask for the tax prep retainer. If he don't pay up, put him on extension until he pays. Then, I would do enough work to use up the retainer, and then show him the tax returns the way you know they should be.

If he don't like it, he can walk.

I never walk away from a fee if the client has money. Your client has money, go get it.

If the client is broke, dump him.

Tom

Lodi, CA

[Tax Bird]

Those are good rules of thumb. Thanks Tom.

[Lion EA]

Could the rent payment be a catch-up payment of past due rent now that the LLC came into some money?

[Tax Bird]

No. The business has had no assets or operations since 2004. The only reason it was held open was pending resolution of the lawsuit.

[kcjenkins]

So you think the 'rent expense' is either bogus, or paid to him, right?

[BulldogTom]

So you think the 'rent expense' is either bogus, or paid to him, right?

Are we looking at SE tax avoidance? That was my point also, when I posted about the need to send the 1099 for the rents paid. That will tell what is really happening. If it is legit, there will be a person with a tax id number who is expecting that 1099. If he balks at giving the number, there is a problem.

Get the fee paid up front.

Tom

Lodi, CA

[Tax Bird]

So you think the 'rent expense' is either bogus, or paid to him, right?

Yes

[Tax Bird]

Are we looking at SE tax avoidance? That was my point also, when I posted about the need to send the 1099 for the rents paid. That will tell what is really happening. If it is legit, there will be a person with a tax id number who is expecting that 1099. If he balks at giving the number, there is a problem.

Get the fee paid up front.

Tom

Lodi, CA

Yes and then some. The money was taken from the account via a cashier's check payable to him. No rental agreement - got real crabby when I asked about it. Made up some gobbledy gook about why he had to pay that much rent for a discontinued business with no operations or assets.

No fee, Tom. I ain't touchin' dis one.

[kcjenkins]

Yes, that stinks, big time. You don't need a client like that one, he will always be more trouble than he's worth, no matter how good a fee he agrees to. You could not sign a return with that bogus rent on it, and refusing the work is your best option, IMHO.