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Clients… Sometimes, You Can’t Live With Them

Updated: Nov 13, 2020

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I just want to start this article by saying that I am far from being perfect. I make a lot of mistakes. However, with the checking system that we have in place here in the office, 99.9 percent of my mistakes are caught before they go out to the client. I do analyze a lot of returns and I have to say that there are some people who just shouldn’t be in practice.

I picked up a client recently. As with all new clients, I asked for the open year’s tax returns. The client was in collections for income and payroll taxes. He owned an LLC in Tennessee that was a real estate development company.

In the LLC, he had three rental properties that were in foreclosure in 2015. In 2016, the client filed bankruptcy and the bank took possession of the rental properties. The tax preparer listed the properties sold in 2015 for nothing, I guess due to the foreclosure, and the taxpayer ended up owing $36,000 in income taxes.

I asked the client after I examined the returns for the 1099-A about the 1099-C that should have been issued by the bank. According to the Taxpayer, the 1099s were never issued. So, I asked the obvious question, “Why are the properties listed as being sold on 2015’s returns?” The client said that he had told his tax preparer that he was in foreclosure.

The problem here is that someone can still possess a foreclosed home. The minute the mortgage company takes possession of the property, then it could become a taxable event. Or at least a 1099-A would be issued, which doesn’t always mean that a taxable event had occurred. After the 1099-A is issued, then the next thing the mortgage company will most likely do is issue a 1099-C, or cancelation of debt. Often, these 1099-Cs trigger taxable income. However, the client was in bankruptcy in 2016 when the 1099-C would have been issued.

So, we simply had to fill out a special form, and the income is not taxable. The 2015 return was amended, thus removing the sale, and pulling a Wage and Income Transcript for 2015 and 2016 to see if either a 1099-A or a 1099-C was issued to the Taxpayer. Then, we filled out the special form listing the income and stating that the taxpayer was insolvent. After that, the payroll tax issue was only $17,000.

In another case, I talked to a client who wanted to start an offshore company (because the taxes are lower) that would consist of investors who are bringing a cryptocurrency coin to market. About five years ago, I worked with eight different companies that brought coin to market. What this client was asking me to do was consulting with them, the investors, and the attorney. They said that after our conversation, I was the most crypto-knowledgeable accountant that they had ever met.

They asked for an engagement letter for the consulting. I’ve been down the road of the cryptocurrency market, and I know what it takes to do this type of consulting work. So, I sent them an invoice asking for a $5,000 retainer and that it wouldn’t cost more than about $10,000. Again, I know that this will take numerous hours because of the offshore company and the U.S. investors. They come back to me saying they had done most of the legwork and would pay me $2,000, while the unused portion would have to be refunded to them, even after I specifically said the retainer was non-refundable. To make sure that I was complete in understanding what was expected of me, I asked the client to send me a detailed list of what they needed me to do.

They sent me a schematic from their attorney of the entity that was structured overseas, which was riddled with mistakes. I replied that I would have to stick to the original engagement letter. That was a simple case of someone not respecting what you do, or what you bring to the table.

Then there are the clients who want you to think that they know more than you do. I don’t know if this is done as an attempt for the client to not feel stupid, but sometimes the clients get downright rude, interrupting you when you are making a point, or they just don’t respect you. When that happens, I simply stop and ask them, ”If you know all of this, then why are they calling me?”

The point I am trying to get at, is that some accountants shouldn’t be in practice. That $2,000 would be nice, but I know that what I am being asked to do will require hours and my expertise. They stated that I was the most knowledgeable accountant that they had talked to about the subject, and that comes with a price.

You don’t need some client who thinks they know more about the topic than you do. Those are the nightmare clients.


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