Negative tax engagement letter

[BHoffman]

I send out "negative" tax engagement letters every year. These letters do not require a signature, and state that if the client decides to use my services they are agreeing to the information in the letter. It's boilerplate stuff. I've never gotten a call before today.

Today's call comes from a real estate attorney client and I've done his tax returns for about 5 years. He informs me that the letter, without a signature from the client, will just never hold up in a dispute. He informs me that he would not sign the letter.

I inform him that he doesn't have to sign the letter, and ask him which part doesn't he like? He spouts off about the liability limit of the fee plus penalties arising from my willful misconduct or gross negligence. I tell him that I doubt any authority will require that the accountant pay the TAX. He seemed to want to keep the door open for "Damages". ????

Can anyone cite anything where the preparer was sued by a client for "damages" beyond the penalty and maybe the interest? Has anyone ever heard of this?

The sniping client asks me what I'd do if a signature was required and the client refused. I asked him that if I did require a signature and client refused to sign, what would he suggest I do? He announced that I should refuse services to the client. This is after he says he wouldn't sign the letter. Well, OK. I told him that if a client believes I might indulge in either willful misconduct or gross negligence, perhaps they would be more comfortable with another preparer. I also let him know that, as a fellow professional, he knows and I know it's the crooks and liars that get you into trouble. I let him know that I'm very, very careful about staying away from those types.

I have no idea what this guy's problem is. He has referred clients to me. I prepare 5 returns from this guy: His 1040, wife's 1120S, a 1065, a friend's 1040 and 1120S. Fees are more than reasonable. They have sung my praises and even sent a fancy box of chocolate covered strawberries.

After that phone call, I'm wondering if I shouldn't fire this guy. Maybe he'll do me the favor and just go somewhere else this year. And if they do, I won't miss them a bit.

[erchess]

Interesting

I find nothing wrong with the idea of sending prior clients an engagement letter but I agree with the lawyer that it's meaningless unless signed by the client. Large companies with teams of lawyers can get by with telling you that if you take a particular action such as using a charge card you have agreed to the terms of their letter. I doubt you had even one lawyer assist you in preparing your engagement letter so there are probably ways it could be broken. Besides, from the court's point of view you are a small business trying to act like you are a large business and they're all too ready to slap you down hard and permanently as an example to other small businesses and individuals.
'
I agree with you that no authority is going to expect you to pay the additional tax you didn't find. However, I wonder if the lawyer is not wanting an opening where he could ask a jury for punitive damages if what you did was bad enough. I don't blame him for wanting that door open and I don't blame you for wanting it closed.

[JG EA]

I don't think it is meaningless. An attorney told me that normal practice, even just including your letter that goes with the return, is important. And conversely, a signed engagement never is the final say if a preparer has done anything wrong.

[BHoffman]

Thanks for replies

I think the trick is to stay out of trouble in the first place. For example, I don't take very high or very low income clients because I think there's a whole lot of risk involved with those kinds of returns. As to willful misconduct and/or gross negligence, indulging in that sort of stuff is just not part of whatever it is that makes me tick. I take my responsibilities very seriously and respect my limitations.

Just thought it was strange that this guy would call up in a big huff over a boilerplate engagement letter. At least he read the thing. Oh well.

I'd still be interested to hear if anyone knows of any lawsuits where a client was awarded punitive damages from a tax preparer.

[BP.]

I wish I had the right YouTube video for you! "Billing Time" comes to mind, since this was a call from an atty!

[BHoffman]

I was hoping this was going to be a nice, quiet tax season....sigh.

http://www.youtube.com/watch?v=CR3dM-GlZK8&feature=related

[Lion]

Maybe

Maybe he was calling you as another small business person, as well as an attorney, to alert you to weaknesses in your letter. Instead of as a client reading your letter.

[BHoffman]

Lion - I treated it like that and thanked him, but it was clear he was looking for some sort of argument. I'm just not in the mood today to deal with cranky lawyer clients. I don't like attorneys on principle and this guy stirred me up this morning. I'm already tired just thinking about tax season, and I sure don't need a bunch of crap

[Black Bart]

Lawyered-up

Can anyone cite anything where the preparer was sued by a client for "damages" beyond the penalty and maybe the interest? Has anyone ever heard of this?

No, I've never heard of such, anytime, anywhere.

...it was clear he was looking for some sort of argument. I'm just not in the mood today to deal with cranky lawyer clients. I don't like attorneys on principle and this guy stirred me up this morning. I'm already tired just thinking about tax season, and I sure don't need a bunch of crap

I agree -- unsolicited and uncalled-for things like that tick me off too. Besides the fact that I've never seen a lawyer yet that knew Jack about taxes, I'm sometimes not so sure they know that much about the law either (ask a legal question cold -- most will study the floor/ceiling and say something like "Ummm....uh.....well....it could be..," etc.). Maybe he was in a crummy mood, your letter was handy, and he wanted to hold forth his professional opinion to lord it over a lesser mortal and thus inflate his ego. Or maybe he's just a horse's ***. Who can say? I've got 30 year old insults still smoldering in my "get-even someday" compartment.

Keep him? I don't know -- that's a lot of clients to lose -- guess I'd think it over 'til I got over being mad and then decide (money aids us in digesting such crap). But, if I'm upset enough I'll enjoy throwing them out without regret.

[geekgirldany]

I met one accountant that did no have her clients sign a letter. She had it stapled on the front cover of the tax return. It read something like "if you are accepting and paying for this tax return then you agree to the following engagement letter".

I get them to sign a new one every year. Because I am single I get alot of the fellows asking me "are we engaged now... if so I need to tell my wife "... I just laugh. I've never really had anyone question it except an engineer. He sat and read that thing for 20 minutes. He is a little hard to deal with at times. But I try to work with him because I get a good bit from preparing his taxes.

I am not sure why your lawyer client had such a bone to pick with on this. If it wasn't for him sending so many referrals your way I would have told him not to sign the letter or come back. But it is hard when he might talk bad about you to the people he referred.

[Snaggletooth]

Lawyer is Right

The lawyer is technically correct, and may have been trying to give you constructive criticism, especially if he has supported the quality of your work in the past. There could be situations where your defense has not been perfected for lack of written client concurrence.

He is, however, just reverting to his lawyer nature.

I would add a signature line to his engagement letter and would no longer do his return unless he signed it. From his perspective, his soliloquy has just created scienter on your part, such that in the event of a liability, you cannot claim you didn't know.

I don't think I would change my practice for any clients other than him, and would tell him so. His only concern should be HIS letter, and I would not change your letter for any other clients that you have identified as being part of his entourage.

For those of you not knowledgeable about Tennessee history, the first "State" in this area was the State of Franklin, circa 1780-1790s although it was never granted statehood by the U S Congress. They had their own government and own constitution, disputing their sovreignty with North Carolina. I only mention this to call your attention to the following:

It was unconstitutional for attorneys to serve in the State Legislature.

[FEDUKE404]

Thanks to S'tooth

...For those of you not knowledgeable about Tennessee history, the first "State" in this area was the State of Franklin, circa 1780-1790s although it was never granted statehood by the U S Congress. They had their own government and own constitution, disputing their sovreignty with North Carolina. I only mention this to call your attention to the following:

It was unconstitutional for attorneys to serve in the State Legislature.

Thanks for the information on the State of Franklin - that idea re legislative restrictions probably would not be a bad idea with the likes of Mike Easley and John Edwards patrolling the NC government hallways. The former governor and former "senator" are both likely to face federal indictments in the reasonably near future.

And my newest vocabulary word is scienter.

FE

[JohnH]

Our legislators & bureaucrats have managed to mess things up so badly in NC, I'm ready to agree to passing sovreignty back to Franklin, if they're interested. They can't do any worse, and if they' reinstate the "no lawyers in the legislature" rule, I'll vote for the move today.

BTW, whenver a long-time client takes the time to call or contact me in a huff, in my experience there's almost always some underlying, unrelated issue. Whether it's a sudden financial reversal, divorce, drug/alcohol problem, gambling or some other calamity, an unexpected change in a stable client relationship is often indicative of an unrelated problem which has them questioning other close relationships they have.

[Burke]

[QUOTE=Snaggletooth;92926]........... his soliloquy has just created scienter on your part,........./QUOTE]

I'm impressed. I got the soliloquy but "scienter?" Can you translate?

[Lion]

You handled it well

Hoffman, I like the way you handled it. John and Snaggle have good comments, too. I'd probably put a signature line on the letter for his whole referral group, since he might have been on the telephone to them next, or until his drunk wore off.

I feel exactly the same way about lawyers. One of my lawyer clients usually sends his wife, who is wonderful and mellow and just happy her husband is no long DIY on their dining room table for two months, but then immediately calls me with his soliloquy of the season. (I'll let Snag define!) I charge him a bundle for his time, folded into the tax prep charge. Last year he added a couple of K-1s, those energy companies so popular with the wealthy, so I bumped up his price. He has a couple of new ones this year, so I'm bumping up his price again. He thinks it because of the K-1s, but it's also because of his phone time. Should I send him the Billing Hours video?!