What to do with poor clients?

[BulldogTom]

Long time client, hit some tough times.   Pulled some money out of IRA to make ends meet.   Did not have the money to pay me for the return and does not have the money to pay the taxes.   We waived our fee to help them out, but they still don't want to file because they can't pay.  We did not get their 8879s last night.

What do you do with a client like this?   You can only suggest....they have to sign the return to file.   Breaks my heart but I don't know how to handle.   I feel for them, but I think I did all I can do (short of paying their taxes.

 

Tom

[Patrick Michael]

I also seem to have a couple of these clients every year, most retired on a fixed income.  I always tell them that, even if they can't pay, to file the return.  It's not going to go away by ignoring it and will only get worse.  I explain the failure to file penalty of 5% per month of the amount owed, 1/2% a month failure to pay penalty, and the interest.  I then urge them (and offer to help them) to set up an installment plan to stop the penalties.   I like to follow up the discussion with an email to document that we had the discussion so they can't come back and say I didn't inform them.

 

[kathyc2]

3 hours ago, BulldogTom said:

What do you do with a client like this? 

Explain that there are 2 separate penalties, 1 for late filing and 1 for late payment.  

[Medlin Software, Dennis]

Pulled “some” money out of IRA? Then there may be “some” left to cover expenses.

Hard lesson that many have to learn. Just because customer gives you $100 does not mean you net $100, or in this case, WD of $X does not mean you can spend all of $X.

Tough conversation but should be dealt with by whomever assists them with money management, not from their preparer.

For me, I hear the “I cannot afford to update my 10 year old computer” or “I cannot afford $79 software “. This is from business owners who need to pay employees. A few times, it is from those preparing payroll for others and say they cannot afford my price. I will have the tough discussion that if <$100 software or <$500 computer update will “really” break them, they need to end their business as it is already broken. Or that they are giving away their services for less than minimum wage, if not free or at a loss. 
 

[Lee B]

There will always be clients who don't manage their money well and make bad decisions.

I have two monthly write up/payroll/tax clients who are currently making really dumb decisions.

They are rapidly ascending my termination list

[Medlin Software, Dennis]

It is tough to separate goodwill from those who may or may not know what they are doing (asking for free work).

I will often adjust price for animals rescue groups. Usually no for groups I know make money, donations or not.

In the op, I don’t read it as they are starving broke, so I would not discount, but I would share resources which may help them resolve or adjust their financial situation. 

[Lee B]

Refer them to VITA or the Tax Counseling for the Elderly.

[mcb39]

12 hours ago, cbslee said:

Refer them to VITA or the Tax Counseling for the Elderly.

That really doesn't solve anything because many of those preparers are volunteers with little knowledge of tax law or procedures.  I totally stress filing timely even if they cannot pay and let the IRS handle it from there.  Not necessarily a good solution; but you have done your due diligence and if they don't want to listen, it is on them.  They would definitely be off the client list for the following year.

[schirallicpa]

If they truly cannot pay tax, they can be placed in CNC status.  Surely they can pay you.  I remind people that they still manage to pay for their crap at Walmart.  They still pay their TV bill.  They still smoke (in some cases).  They still can pay you.  I'm sorry.  I just can't see that anyone is that bad off.  If they are filing a return reporting income, they have income.  I'm kinda being hard-hearted.  Tell them to take it somewhere else.  

[BulldogTom]

The client is a couple.   He had a stroke 5 years ago.   She had to stay at home to care for him.   They have been living off savings and government support.   The amount they have been living on is very little.   She had to take money from her retirement account early to cover living expenses as her last resort.  He is recovering but she is struggling to find work after a 5 year layoff from the workforce.   These are not people who have made bad decisions, they have hit hard times.   I know when I see clients feeding me BS about their spending habits.  This couple is not that.  I have known them for nearly 2 decades.   Poverty sucks, especially when you live in a very high cost state.

Tom
Longview, TX

[Abby Normal]

Sounds like a candidate for uncollectible status. I've used this before in these situations.

https://www.taxpayeradvocate.irs.gov/get-help/paying-taxes/currently-not-collectible/

[Medlin Software, Dennis]

Tom.  Those are the things I think about under my own roof.  I have tried to plan and insure as best I can.  One thing for sure, in today's reality, no one who wants to work (and can perform at least reasonably) is out of work.  With the situation you describe, they may be on other programs, IHHS, EBT, etc, which may give potential employer a useful credit if they get hired. Such as the lady who does better, near me, by begging while sitting under a quick serve help wanted sign offering $20+ per hour to start.  Personally, should my software venture somehow fail, I have done so many physical things in my years, I would be turning away work.  Certainly not as lucrative as not working with one's hands, but we would survive.

Not sure how their retirement is setup, but you did not say they used it all, so they still may have options.

[Catherine]

Tell them they really NEED to file. Else the IRS will send them a bill for FAR more than what you calculated for tax due, and they'll be behind the 8-ball playing catch up with those notices. Whereas if they file, they can then apply for CNC status. Far easier. 

[Lee B]

When people are struggling financially, their anxiety distorts their decision making.

All you can do is listen to them and encourage them to make better decisions by carefully explaining the situation to them.

Best Wishes to your clients

[Terry D EA]

Tom,

For what its worth, it is very honorable for you to be compassionate and concerned about a loyal long-time client. I think everyone of us has faced something like this in our line of work. I know I certainly have. While these folks may not have taken all of the available funds from their retirement accounts, they may need those funds to survive in the foreseeable future. Knowling what you know about these folks, I sure wouldn't want to be the one to take the last dollar and have that on my conscience that I may have caused them to fall further when I could have helped. I'm not saying this applies to every person who is down on their luck. Different circumstances require different actions. I agree to have them file the return and seek the CNC status. The bill will not go away but no collection activity will take place either. 

The ones I have no sympathy for are the ones that sit and complain about my fees and how hard it is to pay them and find them sitting at the Longhorn steak house for dinner right after they picked their return up from me. As you said, I think we can tell when the story we are given fails the smell test. You apparently know these folks very well so go with your heart on this one.

[Sara EA]

Catherine is right about the failure to file penalty.  Once they miss the extension deadline, it goes all the way back to April, so your clients are already facing six month's worth.  They must file ASAP and apply for CNC when they get the first notice.

At some point likely all of us have waived our fee for a client in distress.  Know your client, though.  Some might be embarrassed by accepting "charity."

[JohnH]

I've waived fees several time over the years when I decided it was called for, based on what I was told, what I knew, and also on my intuition.  Widows, church members who fell on hard times, etc.  I just always suggest that if they ever get back on their feet to make a contribution to a mission project (but not in my name, BTW).  Probably have even done it a few times when I shouldn't, but I'm not losing any sleep over it.  

You've described a situation I'd be very likely to waive the fee. I respect your decision and I respect you for making it.  Now if you can just get them to listen to your advice and file.  After the assessment, they might be able to submit a penalty waiver request if they have a good filing & compliance history, and an installment agreement might be manageable.  And as has been mentioned, CNC might be an option.  But they need to take action.  

One suggestion - print out a hard copy and send it to them ready to file.  That set of documents might carry more weight with them than an e-filing form.  Let them know they can send it in with a token payment or even no payment.  After the assessment, they might be able to submit a penalty waiver request if they have a good filing & compliance history, and an installment agreement might be manageable.  And as has been mentioned, CNC might be an option.  But they need to take action.  

[Pacun]

On 10/17/2023 at 11:03 PM, Lee B said:

Refer them to VITA or the Tax Counseling for the Elderly.

How long does it take you to prepare their returns? 10 minutes, 20, 30, 40, 50, an hour? If the client was a paying client for X years, I would do X years free.