How to Address Fee Disputes

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In nearly 25 years of practice I have learned that I will not file a tax return until I am paid in full and nor should you.

When there is a fee dispute, I am required under Circular 230 to return all documents to the taxpayer that will allow them to fulfill their tax obligations. I don’t have to give them my workpapers, up to and including depreciation schedules, or any other documentation that I have produced. However, the fact remains that I must return all original documentation to the client.

Throughout my time in practice, I have learned a few tricks. First of all, when I meet a client that hasn’t filed a tax return in many years, I get a large non-refundable retainer. I would like to caution that not all states allow a non-refundable retainer, so be aware. 

There was a recent discussion in a Facebook group I belong to that explored this topic and I felt the responses given were just outright wrong. The situation was a tax professional completed a tax return for a client and there was a fee dispute. 

The professional made a couple of appointments arranging for the client to pick up their original documentation. The taxpayer never showed up and the professional asked what their responsibility was in this case, but the responsibility still remains the same. 

My suggestion was to send back the materials to the taxpayer via certified mail and be done with it. I was then inundated with replies stating that it mattered what the state law said and not Circular 230.

Unless you are a CPA, state law doesn’t dictate your responsibilities. Besides, we are dealing with schematics. Enrolled Agents, CPAs, Attorneys and Unenrolled Tax preparers are governed by Circular 230, which supersedes state law. 

I am an EA and when it comes to the preparation of a tax return, the State of Florida, where I am domiciled, has no say on matters specifically addressed in Circular 230. Regarding said issue, Circular 230 states, in no uncertain terms:

Treasury Circular No. 230 §10.23, §10.34(b). Client Records. On request of a client, you must promptly return any client records necessary for the client to comply with his or her Federal tax obligations, even if there is a dispute over fees. You may not keep copies of these records.

The state in which I practice in has their own set of rules regarding the return of records, however I am not governed by them because I am preparing a Federal Tax Return. The last thing I need is to be reported to the Office of Professional Responsibility because some overzealous client stated that I did not return records to them in a timely fashion in order for them to fulfill their tax obligations. 

The penalty that will be charged, not to mention any possible censure from the IRS would be on me and not the client. Moreover, the onus is still on me to return the documentation. This is the main reason that I get retainers. 

Why do I do this (and you should too)? In case there is a dispute, I have been paid for the majority of what I have done for the client. The question is why in this profession are we too worried about asking for money or at the least we are worth?

In the end, you need to get comfortable asking for money. No one wants to do work for free.

About Craig W. Smalley, EA

Craig Smalley

Craig W. Smalley, MST, EA, has been in practice since 1994. He has been admitted to practice before the IRS as an enrolled agent and has a master's in taxation. He is well-versed in US tax law and US Tax Court cases. He specializes in taxation, entity structuring and restructuring, corporations, partnerships, and individual taxation, as well as representation before the IRS regarding negotiations, audits, and appeals. In his many years of practice, he has been exposed to a variety of businesses and has an excellent knowledge of most industries. He is the CEO and co-founder of CWSEAPA PLLC and Tax Crisis Center LLC; both business have locations in Florida, Delaware, and Nevada. Craig is the current Google small business accounting advisor for the Google Small Business Community. He is a contributor to AccountingWEB and Accounting Today, and has had 12 books published on various topics in taxation. His articles have also been featured in the Chicago Tribune, New York Times, Yahoo Finance, Nasdaq, and several other newspapers, periodicals, and magazines. He has been interviewed and been a featured guest on many radio shows and podcasts. Finally, he is the co-host of Tax Avoidance is Legal, which is a nationally broadcast weekly Internet radio show.

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Aug 10th 2018 01:15

Craig,
Nice article. Got a question, what would you do with the client that emailed me tax information, I prepared the tax returns, give him the good or bad new along with my bill and then he decides to go to a cheaper tax preparer or a tax preparer that will lower his tax bill? Some time these clients been with me for several years or new clients.
Thank you
Emil Estafanous, CPA

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Aug 10th 2018 17:33

You still did the work and it doesn't matter if they liked the results or not. Pay in full then they would be free to go wherever they wanted to.

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Aug 12th 2018 18:51

All you can do is sue them

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Aug 10th 2018 17:32

As a non CPA accountant I am under no such rules of non refundable retainers though if I do take one and the client ends up not being happy they will get a refund minus the hours I put in already. 4 year client this last year end kept telling me I missed expenses which I hadn't. When she checked with hubby he had paid the business expenses out of their personal CC which I had never had included as part of our engagement. Sent me a list of 10 more bank accounts and CC's that I "missed" and told me to add them to the financials. I said I'd be happy to add those all and sent a new engagement letter. She refused to pay the higher fee for the additional work and said she'd be finding an accountant that was more "agreeable to work with". They had paid their usual 50 percent retainer but still wanted their final financials immediately. I refused to release them of course without final payment.

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