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Making the Call in Turning Down Potential Clients

Updated: Nov 13, 2020

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I had an appointment the other day with a potential new client (PNC) who is starting a Rollover For Business Start Ups (ROBS).

Basically, ROBS are where you rollover your retirement plan, and start a C Corporation. You then purchase the stock of the C Corporation, and start your business. You can also use a ROBS to purchase an existing business.

The PNC goes on to explain that they will sell their house in June. The proceeds in the ROBS will be $450,000, coming from a 401(k). She will use the $350,000 to by an RV, which will be her main home. The C Corporation will run a traveling consulting business and personal coaching.

Her idea is that she can travel around the country in her RV, blogging and promoting the “nomad” lifestyle. She wants to know what my thoughts are on this concept. Now, this person’s main home will be this RV. She was told by other accountants that there was no problem with this.

Let’s explore this for a second. Let’s say that this PNC had a main home, and also had a ROBS that bought the RV, that was used 100 percent for business. I could entertain that idea. The RV would be open to Special Depreciation Allowance (SDA), or if there was a profit Section 179.

However, the fact of the matter is that the RV is this person’s main home. It doesn’t matter that this person drives all over the country blogging, or whatever they will be doing. They will be using the RV to sleep, entertain themselves, eat — all of the normal stuff you do in your home.

What this will look like to the IRS is that this person, instead of taking the $350,000 out of their 401(k) to buy their RV, which would be taxable, just rolled it over into a ROBS, which has a flimsy (to say it lightly), business purpose.

I explain to the PNC that the RV is their main home. The best they could do is write off the home office deduction. I explain that they would have to use a portion of the RV EXCLUSIVELY for business, and by doing so they would be able to write off a percentage. She argues with me, saying that she did a Google search and she saw several articles saying that she could write the RV off 100 percent. I respond that I am not the accountant you are looking for.

Now, I turn away about 5 percent of the clients I talk to. In this case, I have a very good reason.

First of all, let’s say I go along with this crazy idea. I tell the PNC that all of this is okay. I give them advice, prepare the return in the manner in which she wants me to, and then the IRS decides to audit the return. ROBS, just due to their nature, are audited more because of the line the client has to walk. I then have to explain this concept to the Revenue Agent (RA), who will just tell me what I initially told the client, and they disallow the deduction for the RV and disallow the entire ROBS. This would set up a situation in which the client has $450,000 in taxable income. Even if it were to be appealed, the Appeals Officer (AO) would weigh the hazards of litigation and deny the appeal, leaving the only option of going to Tax Court.

Where does that leave me? The reason that you get your money up front for representation is that if the audit or appeal goes bad, the client won’t want to pay you. Further, they will be looking for someone to blame. Next thing you know, you are getting hit with a lawsuit. What was your negligence? You went along with something that you knew wasn’t right, prepared the return, and then defended it.

There’s something very important to remember about being licensed. We all usually form corporations, Professional Associations (PA), Professional Corporations (PC), Limited Liability Companies (LLC) or Professional Limited Liability Companies (PLLC) for our practices.

However, unlike most businesses that form these entities, we are licensed, and these entities cannot protect our personal assets. If we are sued, we are personally sued. If a judgement is entered against us, our personal assets are at risk. Why take the chance? When it comes to malpractice insurance, I insure myself and my firm for the maximum that I can for the reason I pointed out above.

Do I want to turn down 5 percent of the people that I speak with? Not really. However, you have to think about what they are asking of you, and you have to make a judgment call.


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