Stupid Client

[Terry D EA]

I ususally don't stereotype my clients but this one takes the cake and then some. A young guy (40 ish) called because I do his girl friends taxes, and asked me if I could assist him with filing some past taxes. On the surface and without any furhter knowledge of the situation, I said sure and scheduled an appointment. This guy calls me with information that he has received a letter from the IRS that he has to sign for. Long story short, the IRS is looking for tax returns back to 2000, he has ignored their previous requests, and has not filed any tax returns since approximately 1995.

I got the certified letter today and it is a 30 day collection and intent to levey notice unless he pays 53,0000+ dollars including interest and penalties. Again this is just for 2000,2001, 2002 & 2003. No, he has not filed anything forward either. Also, no state filings. He failed to show for the appointment and had his girl friend deliver the letter to me. On the envelope he instructed me to complete an offer in compromise for 1500 to 2000. Is he kidding? That isn't even 10% of the balance due.

My first response is to tell this guy to take a hike. There is no way he can possibly pay my retainer which I think 1,000.00 is too little to start but I am considering this. Then where is the balance that he will owe me coming from? Hell, if he ignores the IRS there is nothing here that makes me beleive he won't ignore me either.

If I do take this on, what is a fair charge to complete the offer in compromise? I know that all tax returns have to be completed and at my regular fees per year, that in and of itself would exceed 1,000.00 without doing anything else. what the heck, if I charged him 10,000 and if the IRS accepted the offer of 10% of the balance due, then that would be a major savings! Some guidance please

[Jack from Ohio]

Ask him for $2,000 Cash retainer before you lay a pen to anything. Then make him sign an engagement letter. If he balks, hand him his letter and tell him call Ronnie Deutch.

You will not lose anything but an ulcer if you send him down the road.

One more thing... My Grandpa used to say... "You can't fix stupid!"

[JohnH]

I agree with Jack, but I'm a bit farther to the negative. Once 2001-2003 are cleared up, 2004-2009 won't be far behind. The client has already demonstrated that he's a total flake, so I don't think even $10,000 will be enough of a retainer. He's probably going to resist everything you do even though it will be in his interest, and his constant response will be "Well, why can't you just settle this so I can move on?"

My only response to him would be that he needs a good tax lawyer, and he needs one right now.

[Catherine]

I agree with Jack, but I'm a bit farther to the negative. Once 2001-2003 are cleared up, 2004-2009 won't be far behind. The client has already demonstrated that he's a total flake, so I don't think even $10,000 will be enough of a retainer. He's probably going to resist everything you do even though it will be in his interest, and his constant response will be "Well, why can't you just settle this so I can move on?"

My only response to him would be that he needs a good tax lawyer, and he needs one right now.

I'm going to add my voice to JohnH's -- this guy needs a tax lawyer. There is simply no way this flake can pay you anything near what he will cost you in time and aggravation. And from the sounds of it, he's very close to being past the point where you could help him even if he were NOT a flake.

Once you got to the point of saying he didn't show up for his appointment but sent his girlfriend with the letter -- that was it. He doesn't take it seriously. He won't take you seriously. He won't give you what you need when you need it. He will skip future appointments. And he will whine at you the whole time about how unfair it all is.

Hit yourself in the head with a brick instead -- it will hurt less, heal cleaner, and be over WAY faster.

[Margaret CPA in OH]

Here's another voice agreeing with the "Get out now" crowd. There is no way you can come out even let alone ahead with this situation. Listen to Catherine - she just dealt with a losing proposition wisely recently and, I'm sure, is sleeping ever more peacefully. And I don't think a brick was involved but her wisdom is clear.

[Lion EA]

I'd give him a copy of the yellow pages with tax attorneys.

If he wants you, tell him to show up with a retainer of $10,000 ($2,000 per year plus the OIC retainer) and his information for at the least the oldest year -- in person. No check -- return documents. No show this time -- no further appointments or communication allowed. When you complete the oldest year, have him pick it up in person with a check in hand to rebuild the retainer. Charge three times your normal fee: prep fee, rush fee, and way prior year fee. He has to keep replenishing your retainer, because you know 2004-2009 will be needed before the IRS accepts an OIC or even an installment agreement. Explain that an OIC has a down payment attached and that it is granted for doubt to liability &/or doubt to collectibility (guess that's not a word). A healthy 40 year old has earning potential and is not a good candidate for an OIC.

Discourage the girlfriend from marrying him!!!

[JohnH]

Offer the girlfriend free use of the brick.

Tell her she needs to use it either on him or on herself - her choice.

If she's wise, she'll use it on herself.

[rfassett]

I am on the tail end (I think) of one very similiar to your case. IRS had concocted a 2001 tax return with a pretty significant liability. That is what drove this guy to me. But nothing had been filed since. His story? "Had a Sch C business. Momma died. Momma left me half a million dollars. Closed my business. In my grief (Mama's death), I blew half a million dollars (Mama's money) on gambling, booze and easy women." (Mama would be so proud.) Says "I was irresponsible with everything and did not file any tax returns but I want to come clean now." So I get a nice retainer up front, prepare the returns after "pulling teeth" to get the information and begin working with the IRS. Have a plan completely worked out with the IRS onboard contingent on the 2009 tax return being completed and sent to the IRS by the first week in March (no big deal because now all he has is one W-2)and the return shows a refund (which will be applied). Return is completed in plenty of time but client does not show up to sign it after numerous promises that he will "be there tomorrow". April 14th I get a call from the IRS threatening to file a wage levy. My advice to the IRS? "Do it". Ten days later client calls and says "IRS is leving my wages. How come?" Duhhhh, gee, I wonder. Well, after being paid more money by the client, I got the IRS to release the levy, and the client and the IRS to agree to a plan. At the moment everything is hunkey dorey. But we will see for how long.

Two important points about your case: 1. His problems are not your problems. Keep that perspective. And 2: This can be a very good profit center for you. Bill at your PITA rate with payment in advance of services rendered. If you have worked through your retainer, do not do one more thing until you have another retainer to work against.

[Crank]

LMAO at the brick comments ... especially for the girlfriend.

Wow. I wouldnt take this one on. Just to agree with what has already been said ... I dont think it worth the time or aggravation. Run, dont walk away, from this guy.

[BulldogTom]

I am in the opposite crowd (sort of). I say you take this guy on provided you get a retainer equal to the amount you estimate you will charge for preparation of the tax returns. You can't do an offer anyway until the returns are filed. Then have a separate engagment for the OIC. Bill at the hourly rate and get a second retainer for 1/2 of the estimated hours you will spend. This is going to take some time.

If he can pony up the cash for you to get on the job, you might be able to make a few bucks on the returns in the off season.

There are no guarantees on the OIC - and he needs to know that.

Tom

Lodi, CA

[Lion EA]

How important is it to you to keep the girlfriend as a client? Is she an expensive return? Source of good referrals? If you don't mind losing her, send the guy packing. If you want to keep her, charge the guy three times your normal rate with a huge retainer in place at all times. Stop working whenever the retainer drops below your comfort level.

[jainen]

>>this guy needs a tax lawyer. <<

I disagree. I don't see anything in the original post that needs to go to Tax Court or is beyond Terry's ability as an experienced professional. However, I do think Terry should insist the taxpayer consult with a criminal defense attorney to protect himself from an IRS change of heart. Right now they are just enforcing collection on a Substitute for Return. When he files (assuming the defense attorney recommends filing some or all of the back years), the taxpayer will be admitting all sorts of things about himself, including his failure to file (which is a crime).

If the guy is sweet I might talk to him for a little bit. But I wouldn't start work without a thousand dollars on the table. He needs many years of tax returns, and I suggest prior year returns should be priced higher than current year.

An Offer in Compromise is absolutely out of the question at this point. The IRS will never consider one that does not cover ALL tax years owing. And you would need a real tear-jerker story to convince them to negotiate with a non-filer. I know he is anxious for somebody to do something about that letter, but honestly the easiest, cheapest, and safest response might simply be to pay the bill or set up a payment plan. In addition to filing all ten years, an Offer in Compromise will take you 15 to 30 hours to submit and negotiate, presumably at an hourly rate higher than you charge for simple bookkeeping. Meanwhile you will have identified for the benefit of IRS Collections the amount and location of all the taxpayer's assets! And your engagement letter MUST make it perfectly clear that there is no guarantee of success.

So I agree with Bulldog Tom. Do not "send him packing." He has come to you for legitimate professional help, which he dearly needs. Isn't that what you do for a living? Unless your practice just consists of quickie tax returns, consider this engagement carefully and thoroughly. Do not make assumptions--it's an unusual situation that requires some creative thinking. But if the guy wants to get straight, he can be a profitable off-season client for you. So remember to send the girlfriend a nice note of thanks with a Starbucks gift card for the best referral of the year.

[mcb39]

We have all had one of these at one time or another over the years and some of us have learned the hard way that this is not a responsible person. He didn't think he had to pay the IRS so why would he think that he has to pay you. Not to mention the aggravation that he will put you through. Walk away NOW, or plan on doing a lot of agonizing as to how you are going to get rid of him later. IMO

[Catherine]

I have to disagree with jainen.

Had the client come in for his appointment, said, "What do you need to start in terms of information from me and money down for you," my answer would have been very different.

But the ones who can't be bothered to come to their own tax appointment just don't take it seriously. There isn't enough money to make most of these people worth dealing with (for me). If you want him, jainen, go for it and more power to you.

I have plenty of work without taking on someone whose every action screams "Warning! Danger Will Robinson!" And I have learned the hard way to send those clients elsewhere.

Perhaps if I had a larger practice with several assistants to hound the guy with phone calls and not bring the stack to me until all documents were in hand, my answer would be different.

[JohnH]

In any event, $1,000 on the table is chump change with this client. Retainer is likely to be all you'd get, and once you start withholding additional work because he hasn't replenished the retainer, the fun would begin. You'd be in a hassle with him over his accusations of incomplete work and him trying to use his "uncooperative accountant" as another ploy to try and keep the IRS at bay. Worse yet, he will use some of the retainer you should have charged him to hire that lawyer you should have sent him to in the first place, and then you'll have a professional aggravator staying in your face.

Anyone who would decide to take this guy on had better get the full amount up front and then start work once you know the check didn't bounce. In the highly unlikely event that he turns out to be cooperative, it's easy enough to give him a refund when the work is completed (probably sometime next year) - he can apply it to the taxes he still owes at that time.

[OldJack]

>>You'd be in a hassle with him over his accusations of incomplete work and him trying to use his "uncooperative accountant" as another ploy to try and keep the IRS at bay.<<

I agree with JohnH. Just say no!

[Jack from Ohio]

We have all had one of these at one time or another over the years and some of us have learned the hard way that this is not a responsible person. He didn't think he had to pay the IRS so why would he think that he has to pay you. Not to mention the aggravation that he will put you through. Walk away NOW, or plan on doing a lot of agonizing as to how you are going to get rid of him later. IMO

I totally agree!!

One more thing... My Grandpa used to say... "You can't fix stupid!"

[Terry D EA]

My first gut instinct was to run and not walk away from this. However, I did take a long look at the situation from the same perspective as Jainen and Tom. I also agree the OIC is not on the table at this point because of the need for all of the tax returns. However, the guy did keep his appointment, and Jainen's words were my exact words to this guy. I am not putting pen to paper or even beginning to fill out the POA until there is 1,000.00 on the desk plus my normal fees inflated a little to cover the PITA part. Also, explained the additional charges and time involved to do the OIC should he qualify for some reason. So far so good, i got the retainer, an engagement signed with absolutely no guarantees of any kind implied or anything else regarding the outcome. Our agreement is to work thru the retainer and then the pen goes down until additonal payements are received. I did suggest a tax attorney but the beginning part is to complete the returns. I am thankful of the watchful eyes on this board and the advice you give for me to protect myself. Some of you will suggest I use the brick at Catherine mentioned and maybe I will need to, But for now, I am taking the plunge.

[JohnH]

Sounds like you made a rational decision based on your intuition, judgement, & experience. Regardless of what any of us may speculate from a distance, that's what counts most when you're sitting eye-to-eye with the client anyhow. Apparently you're off to a good start and I hope you'll keep us informed about how things progess - this is an interesting situation on several levels.

[rfassett]

Shoot! I was hoping you would give that guy my name!

Good luck! I think you stand to make some money and learn some things along the way. As I stated previously, the road is not an easy one, most especially with an uncooperative client. But use every tool available to you including the IRS. As I previously mentioned, I encouraged the IRS to issue a wage levy against my client because I was convinced that that was the ONLY thing that would get his attention. I did that, however, with full knowledge that it could, and would be, reversed if the client became cooperative. Again - Good luck!

[Margaret CPA in OH]

Good luck to you, Terry. I do hope you keep us informed as to the progress. I guess I am too old and cautious to undertake such a task but wish you well in this one. Using the tactics as noted should not hurt you in any way - cash up front is a really good way to begin!

[Catherine]

Good luck then, Terry, and I hope you do NOT need the brick!

Cash up front and a clear understanding that NO work begins until the check clears is heartening, at least.

[jainen]

>>He didn't think he had to pay the IRS<<

I commend you, Terry, for taking on this client. For all we know at this point, it is really only the size of the engagement that is troublesome. But just do it one year at a time and everything will probably fall into place. I recommend you call the IRS number on the letter, introduce yourself and explain what the taxpayer has asked you to do, politely asking for time and help in bringing the taxpayer back into compliance. I expect you will find the IRS very tolerant--after all, they can't very well do anything else!

I strongly doubt mcb39's characterization I quoted at the beginning of this post. In my opinion, there might be any number of good reasons he got into trouble. Tax protesters are very rare, and they don't bother coming to tax professionals for help.

[Terry D EA]

Just to update everyone as I agree this is an interesting case and I am sure we will all learn something regardless of the depth of our knowledge. After speaking with the IRS collection dept, they initially had no intentions to grant a hold and would not consider granting a hold until I had the client on the phone with me. Yes, the POA was faxed and received but the seriousness of the situation and the fact that liens had been filed and the IRS had the pen in hand to garnish wages,and the fact that I was able to offer him up to them for information that he had been avoiding to give them, were all reasons for the IRS to not grant a hold for me as his representative. With that said, and after about an hour and a half on the phone, the IRS did give us three weeks to get all of the returns filed, temporarily stopped the liens, and gave us the required addresses along with instructions on how to proceed with an OIC if that becomes apparent. What threw me a little, was the agent was not completely famaliar with some of the forms needed to complete these returns and tried to tell me if the only thing for the years in collections were wages, then their substitue returns would be good enough and there was no reason to file those years. I however, insisted the returns be filed so that would not be a possible stumbling block if the OIC option comes into play so the IRS couldn't say he did not file all of the returns. Maybe a little redundant but in this case I don't think any stone should be left unturned.

The returns are simple 1040 returns with only wages and 1099R income and I have them completed up to and including 2006. Now, the ball is in this guys court, bring the money, get the returns, it is that simple and he literally has no choice in the matter. So far, it looks like he will owe a significant amount due to pure stupidity. For example, one year he had a balance due of 1600. That has now turned into 6K= due to penalties and interest. I can only scratch my head and wonder why.

[JohnH]

For what it's worth, the $1,600 that turned into $6,000 isn't as bad as it first appears. The FTF penalty maxes out at 25%, so the effective interest rate represented by this penalty actually DECREASES when averaged over a long period of time. Even when you add in the ongoing FTP penalties and interest, and I'll bet you his actual cost of borrowing the $1,600 from the government will work out to an equivalent of about 15 - 17% APR if you run the math. I consider the penalty to be no different that interest for an individual, since interest on consumer debt is not deductible anyhow. So both penalties and interest can be lumped together as simply a cost of borrowing money. Certainly not wise to borrow money at those rates, but it's cheaper than standard credit card rates and he didn't even have to fill out an application. The unauthorized borrowing also didn't show up anywhere on his credit reports (at least not until the liens are filed, if any).

I've used this line of reasoning in the past to help a delinquent taxpayer understand what really happened. Sometimes it helps them to realize that the situation is less dire than it first appears and makes it easier for them to stomach repaying the money. Doesn't make it a wise thing to do, but it makes the point that the government isn't horribly mistreating them either. Nobody would expect the bank to loan them $1,600 for 5-8 years with no payment of principal or interest on the note and then not expect to pay accumulated interest when the balloon payment came due.