When Clients Say, "You Should Have Known!"
In May of last year, I got a call from a client who felt I had forgotten about him.
He took me to task and asked for special attention. This person had been a client for 20 years. Although I had significantly raised my fees during that time, I left his where they had always been.
I have been with him through his first marriage, medical school and residency and his move to Phoenix. He stayed with me because, many years ago, he was audited, and I got him off due to a technicality in appeals. Even though his income skyrocketed, I never raised his fees because I liked him.
Now, you might be thinking, “That's a huge mistake.” Well, let me explain what happened after that phone call.
At this time, I felt personally strongly about losing this client, so I put him on my radar. I did careful, free tax planning for him, called and checked on him and even flew to Phoenix on my own dime to see him and strategize with his lawyers and financial planners. I didn’t charge anything extra for all this attention. I normally get a retainer, and, if I have to travel 100 miles or more from Orlando, I get reimbursed for my expenses.
Like most firms, I have staff accountants who do all of the accounting work. I oversee it and do the tax-related tasks for the client. We have access to most of their bank accounts and pull the statements at the end of each month, but I don’t usually get involved with this. I just see the end result.
Back to this client: So, during the time I was paying all this extra attention to him, he didn’t think to tell me he started three more companies. In fact, I didn’t know until four days before the tax deadline. These new businesses were single-member LLCs that were treated as disregarded entities. The client was already in the highest tax bracket there was, and these three companies had a combined net income of $750,000.
When I found out about them, I was crushed. I knew I had done careful tax planning and was expecting a certain outcome. Then, from out of nowhere, I had $750,000 of additional income to deal with.
For whatever reason, some clients think we are magicians. I joke with my staff and say, “Now you see it, now you don’t.” To this client, the additional income was no big deal, until it was. To be honest, there was nothing I could do, other than fill out the form and send it to the client. He owed $250,000 in taxes.
I’ll say he “questioned” me about it, but it was more of an interrogation. I explained to him there was nothing I could do four days before the deadline. If I had known, we could have planned for the additional income.
He said that I should have known about the other companies because I had access to his bank accounts. Back to square one. I must have talked to this client 20 times during the year. I explained to him that he should have told me about these companies and that anything that produced income needed to be brought to my attention. Reluctantly, the client filed the returns and paid the taxes due.
In July, I made another trip to Phoenix, again on my own dime, for a tax strategy meeting. It’s one thing to get yelled at out of frustration when no one else is around. However, it is quite different to have it happen in front of other professionals. The topic of why the client owed so much came up, and I jokingly said, “My favorite client…” I was cut off, and he began to take his frustration out on me, again. However, this time, it was in front of his attorney and financial planner.
I’m Irish and have a pretty bad temper, but I didn’t lose it. I simply tuned it out and stared at the ground. My wife and partner stepped in and tried to explain where I was coming from. She knew if I spoke, I would explode.
The meeting ended, and we flew back home; we got in at about 6am. Exhausted, I went to bed. I heard my phone start ringing at 9am but ignored it, even as it rang four more times. I slept until about 2pm, and, right when I woke up, it went off again.
This time, I answered, and it was the client. He was upset and wanted to know if I was going to charge him for the tax plan I was devising and if he would need to pay an additional fee if he was audited. I said I would do the plan for free but would have to charge for any audits.
The client began to get angry again, but this time, so did I. I ended up telling him to get another accountant and hung up on him. I then turned off my phone and went on with my day.
About three hours later, he texted my wife and apologized. He said he was leaving for three weeks and would call me when he got back. We later had a much more pleasant conversation, but honestly, I felt a sort of freedom in getting rid of him.
Certainly, you have had a client who said, “You should have known!” What did you do about it?
Craig W. Smalley, EA is the CEO and Founder of CWSEAPA®, PLLC, located in Orlando, Florida, with clients all over the country in every industry. He has been admitted to practice before the IRS as an Enrolled Agent, and has a Master's Certificate in Taxation from UCLA. He has been in practice since 1994, specializing in individual, partnership...