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.
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...