Advice Needed

[Terry D EA]

I will start off by apologizing for the lengthiness of this post. It is necessary to gain a full understanding of the situation. A previous client who I prepared multiple years tax returns for their rental enterprises, including three different 1065, personal returns, calculated all the depreciation, etc. Our relationship began around 2010 and lasted until 2021 when I moved my office. The client always provided me documents beginning in late December to prepare the upcoming year. For 2021, I sent several emails, voicemails, and text messages requesting the documents. No phone, calls, emails, or text messages were ever returned. I assumed the client moved on to another preparer. Now, the client is going through a serious divorce and has reached out to me for prior year tax returns to provide them to their attorney. Before I agreed to anything, I asked what had happened to our relationship and they said they wanted their accountant close to them. Okay so far, no problem. I just thought it would have been a decent thing to do to at least talk to me or let me know instead of ignoring me. 

The client wanted tax returns from three different LLC's and individual returns back to 2011. I could not provide all of them due to some of the software not being available. He said his partner in the rental enterprises was responsible to keep the copies and he did not. Ok, not my problem. I was able to produce copies for 2015 moving forward. Mind you, that each year they received hard copies of all of their returns. Some of these returns were so large I had to buy a paper binder. For providing the copies, (digital), I charged $15.00 per year. The client is good with that and paid the invoice. Now they have notified me that I may be called as a witness in their divorce proceedings regarding a property transaction that resulted from a catastrophic loss and discuss where the funds were applied and the taxation. (I can't track the funds coming and going, all I did was prepare the tax returns and had nothing to do with the books.) The client needs this according to their attorney to prove the property purchased from the insurance proceeds were used to replace the property that was destroyed that was part of a pre-nuptial agreement. As I see it, none of this is my problem. 

If I am called as a witness, do I have a right to charge the client for my appearance? Would there be any reason to contact my E &O insurance? No IRS errors, no notices, no reviews, no audits, my work is not being questioned, nothing. I would appreciate any advice with this matter. I want to tell them to take a hike but there's that subpoena thing.

[Lee B]

I would definitely contact my E & O Insurance Carrier.

According to the AICPA's Insurance Carrier, Divorcing Clients are one of the leading causes of Legal Proceeding against CPAs.

Being prepared is far better than being caught of guard by surprise.

[Lynn EA USTCP in Louisiana]

Charge out the wazoo, tracking from when you step out the door to when you get back. 

[BulldogTom]

35 minutes ago, Lynn EA USTCP in Louisiana said:

Charge out the wazoo, tracking from when you step out the door to when you get back. 

Can you charge your time if you are subpoenaed to testify?   If a judge orders you to testify you have to .... right?  How would you be able to charge the client for that compelled testimony?   

Unless you volunteered to testify...which I don't think you would want to do.  Would you?   I don't think your E&O carrier would appreciate it if you volunteered to be deposed. 

Tom
Longview, TX 

[Max W]

Before being called as a witness, you would either be deposed, or sent an interrogatory, or possibly both.  Since thery are looking for documents, the interrogatory is what is usually used.  It gives the person more time to dredge stuff up out of memory.

However, in your case you had nothing to do with the documents, are not required to keep copies of clients records and not even required to keep copies of their tax returns.  

So, get out your copy of Circular 230 and dog ear the pages pertaining to the keeping of records and returns and highlight the pertinent phrases.

This should be enough ammunition to send the attorneys looking elsewhere.

 

 

[Terry D EA]

My questions are the same as Tom's. If I'm subpoenaed, how can I charge when it is a court order to appear? i did not volunteer to be a witness or anything else. I was given a heads-up that the possibility exists, and the court date is set for February. I will do as Max said and get the copies of the circular 230 ready. I have been deposed before in a wrongful death claim for my father and hoped I would never have to go through that again. I can't testify to what the guy actually did with the insurance proceeds. All of this is to prove he replaced a multi-family rental unit that fell to a catastrophic loss (fire), that was part of a pre-nuptial agreement, with other property making other said properties part of the pre-nuptial agreement and not on the table for the divorce. I have nothing but worksheets and not even the tax returns as the transaction occurred in 2014. Because I had nothing to do with the bookkeeping, bank accounts, receipts or other records, I have no idea why this even involves me. For all I know he could have bought the other said properties with funds from who knows where. My personal take, there is significant real estate on the table, close to 30 properties, along with other assets, and it sounds like the soon to be ex-spouse is taking him to the cleaners. 

Another twist to add. The guy gave verbal permission for his attorney to contact me regarding any items he, the attorney, may need. Provided me the attorney's name and phone number as well. I wrote down nothing and did not agree to give out any information unless there was a signed disclosure statement. In this case, I think I will require the disclosure statement to be notarized. 

[Lynn EA USTCP in Louisiana]

Let the attorney (for whomever had the subpoena issued) know there will be a fee and present it to the attorney for payment.  IMO it does not matter that your appearance is required by the court; you should be paid for your time and knowledge.

 

[Terry D EA]

Thanks Lynn, here is another concern and maybe I'm over thinking this. There are three partnerships that this client is the tax matters partner and has signed all of the tax returns. Should I obtain the consent of each partner prior to releasing any information of the partnership returns. I guess maybe the easiest method would be to eliminate the K-1 information for the partners except the client. I've contacted an attorney to get these questions answered. What about the spouse's information on the MFJ returns. I think by Circular 230, both have to authorize consent.

[Lee B]

5 minutes ago, Terry D EA said:

.  .  .   What about the spouse's information on the MFJ returns. I think by Circular 230, both have to authorize consent.

Do this step by step very carefully, this is a can of worms!

[Lynn EA USTCP in Louisiana]

MFJ return - both spouses must authorize consent

Partnership - I don't know but wonder if consent of the 'tax matters partner' is all that is required.

[Medlin Software, Dennis]

Is there a reason/rule which you are using to keep data from 7 years ago?  I get it, tax data is different than what I deal with daily, but my philosophy is to not keep data longer than required since it cannot be used against you...  Where I am going with the question is to try to separate client "want" from professional "required" to.

I just find it odd when someone says I have my returns from 10 or 20 years ago, or all I have ever filed.

My take on the OP is someone is fishing, maybe for helpful testimony in this case, but fishing is still fishing.  I would make no response other than under the advice of my own representation.

[GLGACCT]

From IRB 2012-11 

8. Retention of Records

Proposed §1.6695-2(b)(4)(ii) required that a tax return preparer must retain the records described in §1.6695-2(b)(4)(i) for the period ending three years after the later of the date the tax return or claim for refund was due or the date it was filed.

All tax returns for the LLC's should be kept by the company permanently, not by the preparer.  

You may not want to volunteer any additional information as others have mentioned.

 

[Medlin Software, Dennis]

Thank you for the cite. In the OP, an issue with software availability was mentioned. If this covered a time within the retention period, the lack of ability to produce the recorder would require proactive notification to the IRS. Their rules for e records are draconian and not something most would want to be subject to. 

[Terry D EA]

Thanks to everyone, just all be aware that I have not volunteered anything. I have no reason to keep data beyond the requirements mentioned above. However, with Drake, each year there is a document cabinet that is backed up and contains all the information used to prepare the return, copies of the signature forms, and copy of the actual return. Maybe I'm anal but I keep an archived backup of everything. In this case I can't provide everything the client wants because I don't have it. It's older than three years and not my problem. I've made that well known. The client seems to think that because he was/is the majority partner, he can give permission for everything. I told him I disagree. He thinks I'm being paranoid. Damned right, my license is on the line. I also told him I would not provide copies to his attorney of anything involving the spouse without her permission as well. Still waiting to hear from the attorney that I called.

[Medlin Software, Dennis]

35 minutes ago, Terry D EA said:

copies to his attorney

My personal position would be I am not beholden to anyone other than my client, or a court I am subject to.  Meaning, I would provide required and allowed things to my client, or to a court, and not to any third party, not even my client's attorney.  What the client does with the information is up to them, and not "on" me.

I actually get this all the time, when someone asks how to provide a pay stub to a lender.  It is up to the employee to handle, no employer should be providing documents other than to the tax agencies, a court, or when required, to the employee.

[BulldogTom]

1 hour ago, Medlin Software, Dennis said:

I actually get this all the time, when someone asks how to provide a pay stub to a lender.  It is up to the employee to handle, no employer should be providing documents other than to the tax agencies, a court, or when required, to the employee.

I have this discussion with every new client, and then again when it comes up and they forgot the speech the first time.   I will provide YOU with any tax documents I have, and YOU can forward them to whoever YOU want.   I don't give nothin' to no one except YOU unless I am required by law to do so.   

Tom
Longview, TX

[Max W]

5 hours ago, GLGACCT said:

From IRB 2012-11 

8. Retention of Records

Proposed §1.6695-2(b)(4)(ii) required that a tax return preparer must retain the records described in §1.6695-2(b)(4)(i) for the period ending three years after the later of the date the tax return or claim for refund was due or the date it was filed.

All tax returns for the LLC's should be kept by the company permanently, not by the preparer.  

You may not want to volunteer any additional information as others have mentioned.

 

§1.6695-2(b)(4)(ii) only refers to form 8867.

[GLGACCT]

13 hours ago, Max W said:

§1.6695-2(b)(4)(ii) only refers to form 8867.

The correct citation is § 1.6107-1(b)

[michaelmars]

I have had this a few times.  you can not charge if a subpoena is issued.  Definitely contact your carrier and they may be able to squash or limit what you have to provide.