Death Of A Tax Preparer

[MRTAX4EA]

A dear friend, colleague, buddy recently passed away.

Considering the broad experience of the members of this board I feel this thread could be an important discussion for us.Tom was only 66 and I am not far behind. That being said, this matter is really something for which we all should be prepared no matter our age.

He was a sole proprietor. Among the issues: privacy, business entity, value of practice, work in progress issues, availability of prior returns to clients, information for the surviving spouse.

[AuditorTurnedGood]

It's always hard to loose a dear friend, but it does force us to look at the end of our own lives. I've begun some planning for the end of the practice, both in the event of my death (I am only 27, but these things happen) and when I want to stop working.

My wife has expressed no interest in continuing the practice should I pass away, and we have no children - yet. So for now I took out a good sized life insurance policy that should allow her to pay off any business debts and also to pay for someone to come in and wind down the practice (complete WIP, file the final return for the business, etc) and transition any remaining clients. The next step is to determine who that person will be. She is a shareholder in the S-corp at the moment, and my shares pass to her on death, making her the only owner. Since all of my contracts are with the corp, she then becomes bound by all confidentiality agreements, and as vice-president now she steps up to president with all its "rights and privelages".

Anyone else started this type of planning?

[Gary]

Term

I hope you bought term insurance.

[Gretel]

I agree, this is an important issue. I am a sole proprietorship and so far was only concerned that someone else has access to the bank account and can take care of things financially. I don't know anyone who could wind down my business or sell it.

Now, I am concerned about this, especially the privacy issue. Does anyone know a good solution for this?

[Roberts]

I'd be wondering how much value does the business have for my spouse. If you sold it today there is value within your practice. If you died tomorrow, that value is completely different. Why not set up a buy/sell agreement with someone in a similar situation?

[Bees Knees]

The disclosure rules mentioned in TTB updates say nothing about the tax preparer’s spouse.

http://www.thetaxbook.com/updates/thetaxauthority_update_service/pdf/bulletin/2-2-2009-4_update.pdf

Presumably, if the tax preparer has died, the confidentiality requirement does not transfer unless the new person in possession of the client files is also a tax return preparer engaged to do work for the client. Thus, I do not believe the spouse could be held liable for the Section 7216 penalty if the spouse is not a tax return preparer.

Having said that, I think the practical thing to do is for the spouse to either return the files to the clients, or shred them, unless the spouse wants to try to sell the business to another tax preparer.

[AuditorTurnedGood]

I hope you bought term insurance.

I sure did - whole life is nuts.