New Client - Crazy Request

[Terry D EA]

New client this year. Partnership that wants to elect S-Corp status. So far so good. I prepared the 2022 1065, K-1's etc and personal returns. They commended my on the job I did and want me to be their accountant/tax pro from now on. Okay, I'm still good. Last week they called and are trying to qualify to buy a new home but the lender wants to see they were making enough money being self-employed and asked me to write a letter stating they made more income than what was reported on their tax returns. No I'm not making this up. After recovering from the stupid question syndrome, I said excuse me but absolutely not!!! They tried to persuade me again with some BS logic and I quickly replied NO!! I wonder what kind of lender would accept a crap document like that??? I wanted to kindly say go to hell and go away. But instead I seized the moment they said they were okay with my answer but still wanted my assistance with the 2553 form. I told them I would email then with what they needed and what the fee would be to do so. $800.00 to $1500.00 apparently blew them away. Its been a week now and no replies. I mean really, what do some people think? What a good way to get disbarred and ruin a career.

[JohnH]

I think the lender is just trying to make them go away without turning them down flat.  So the lender makes a request they know is outrageous, knowing no accountant in their right mind would write a comfort letter like this.  That way the lender gets to blame you as the one blocking the loan rather than accept responsibility for their actions. 

Another possibility might be that they are making more than they're reporting and you have a tax cheat for a client. 

I'd be inclined to tell them if they have to lie to get the loan, then that's proof they can't afford the purchase.   Either they will get mad and leave you or you'll begin to cement a strong relationship based on honesty and trust in the advice you offer.

[Medlin Software, Dennis]

A lender may take such a doc happily, since they have you on the hook for fraud should the loan default. They get paid either way. Similar requests are made from employers. Employee will get a raise every 6 months, will remain employed, etc. No wise person gives any docs to a lender on behalf of another. 

[mcbreck]

Rocket Mortgage is back to offering mortgages with just 1% downpayment and they'll double that amount so that you have 3% equity. Several banks are back to offering 0% down to special groups.

I love that they wanted to you write a letter admitting you broke the law by submitting a tax return you knew was fraudulent.

[Terry D EA]

I know right?? Same as putting the rope around your own neck. 

[Lee B]

I would have just said that my professional liability insurance carrier won't let me write comfort letters.

[schirallicpa]

Yesterday I was asked by the notorious hair stylist type to provide a letter to the bank that they are making more money this year than what they reported last year.  I asked for $1000 retainer.  Didn't hear back.

[Medlin Software, Dennis]

Tipped workers often look to "report" what was likely "unreported" real time.  The pandemic payments were a wake up to all tipped workers that "unreported" income is not always "more".

[Sara EA]

A restaurant burned down and the plight of the workers came to light.  Some had worked there for decades and could retire.  Since they were paid partially or completely off the books, they were shocked that they were entitled to little or no Social Security benefits.  Others paid the same way were eligible for little or no unemployment.  Years ago SSA sent statements to workers a few months before their birthdays each year projecting their benefits if their inflation-adjusted incomes remained the same.  Amazing how many of our small business owners making $10 or $20k a year found religion when they saw in black in white that their SS would amount to peanuts.

[Medlin Software, Dennis]

And those who need Ssdi who under paid. I was asked today about how little RC someone could report. I asked them how little they wanted to leave their family of something awful happened. Yes, some may beat ss in earnings, but not many I suspect and certainly not at the first part of their career where their family is most at risk. 

[Abby Normal]

If we applied SS tax to ALL income, we could lower the rate. A lower SS tax rate would benefit low earners and small business immensely.

[Medlin Software, Dennis]

13 minutes ago, Abby Normal said:

If we applied SS tax to ALL income, we could lower the rate. A lower SS tax rate would benefit low earners and small business immensely.

Indeed. The subject wage is high enough, raises in the limit are just grabbing at the non regular employee.