New solo practitioner

[remitwithbill]

Hello:

I received my EA card midway through last tax season and have one season under my belt as a sole proprietor. Prior to that I had worked as a CA registered tax preparer for a couple of national chains. As such, I am a little new to the protocol of running my own tax preparation business. Though answers to technical questions are readily available, my experience thus far is that answers to business decisions are less available and less cut & dried.

My current question has to do with letters received by clients-from the IRS or the State Tax board (Franchise Tax Board in CA). If I can ask for feedback, I'd like to hear how far most of you help clients respond to the IRS/FTB for information requested about returns that you have prepared and been for which you have been paid. The few times I have encountered this situation thus far, I have been able to clear things up within a couple hours of phone calls. I would certainly not consider charging a client for anything that was a result of a mistake on my part but I would be like to have a "policy" in place so that I can explain just how far the services (for which they paid at the time of the return) extend and when/why they can expect to be billed for further services for additional work on the same return.

I would really like to find out what the industry standard practice is for the range of options stemming from this type of situation. I'm guessing a meeting with him might result in many "you told mes". He might face an audit because his deductions were quite high, legitimately, on his amended return. Opinions and advice-if helpful and constructive are welcome.

Thanks in advance for any responses. If any other forum members know of other chat rooms/forums that are reliable and helpful, I'd appreciate the info.

Bill S

[JohnH]

If you must have a policy, then I suggest that your policy is that you charge for any work you do for the client. Then you are free to waive your policy any time you see fit, and you don't have to spend much time explaining why you did whatever you decided to do in any given situation.

[Kram BergGold]

My policy

My policy is predicated uopn how I like to be treated. I only charge clients for assistance with an audit or letter if the time spent exceeds three hours. I want my clients to contact me immediatley upon gettnig a letter. I don't want them trying to handle things on their own and then when it goes south contacting me. To me this is good customer relations and tells the client " I am here for you". The other day I called the hotline and took care of a matter in 15 minutes. This would have taken the client an hour probably. A win win.

[jimmcg]

My policy is predicated uopn how I like to be treated. I only charge clients for assistance with an audit or letter if the time spent exceeds three hours. I want my clients to contact me immediatley upon gettnig a letter. I don't want them trying to handle things on their own and then when it goes south contacting me. To me this is good customer relations and tells the client " I am here for you". The other day I called the hotline and took care of a matter in 15 minutes. This would have taken the client an hour probably. A win win.

Agee, I also do not charge for rudimentary audit letter follow ups, only if it leads to bigger and better things. As you say this is basic client service. Besides my hourly biling rate more than covers it. I charge a premium rate for premium service. My clients know how to reach me 24/7. This is what my clients want and this is what they get.

[ChEAr$]

Congratulations to you, Bill and welcome to the club.

Of great benefit to me has been membership in the NAEA with it's emphasis on representation of taxpayers. Their nationally renowned NTPI (National Tax Practice institute) is worth attending for the three year course where you learn every aspect of taking care of your clients in matters before the IRS. The national convention with NTPI will be in las Vegas, NV, in August. Also with membership comes membership in your state association/society, the California "bunch" as I call them. (grin) Seriously, a lot of good folks out their in that left coast state.

You've already found this bulletin board and you can learn a lot here, but the NAEA Webboard is also good where you can pick the brains of EA's engaged in rep work across the country and esp in California with that franchise tax ... bunch. whatever.

To your question certainly if the IRS letter, usually a CP2000 involves nothing more than what was on the return, and can be answered with minimum time, I don't charge for it.
But if it includes income items client didn't tell me about, or forgot about, the clock starts.

Lastly, always take the high road and never let the client dictate how to prepare a correct return.

[BHoffman]

Bill, welcome to the forum:

Here is a song we all like, and could pertain to your question:

http://www.youtube.com/watch?v=5TkuZ5oI9uY

[erchess]

Bill Welcome

I second what has been said about the value of the NAEA and would urge you to join. They do have a web board and it is frequented by very knowledgeable people. Another web board that like this one is open to tax experts of all sorts is operated by Tax Almanac. I believe there is also a tax group on Yahoo Groups but if you are not already registered with Yahoo Groups you might want to think twice before you sign up. If you sign up all the groups including ones organized around unsavory content of various sorts will be free to send you invites. There are many research services including those operated by NAEA and other Professional Organizations as well as businesses that may do little but research for tax professionals. I am under the impression that most professional organizations and publishers of books on taxes offer web boards and may offer research services. NATP, the other Prof Org to which I belong, does offer research services but does not offer a web board.

Now for the fee related question.

As Kram pointed out our lives are easier if clients receiving notices bring them to us asap and clients are more likely to do that if they're not likely to incur a heavy fee. At the same time we have to make money somewhere. My personal test is that I don't charge for a quick two or three hours doing such things as filling out the form the client received, writing a page of explanation about the facts of the case and perhaps attaching documentation.

I normally do charge if the response involves citations to tax authorities or involves more than one contact by mail fax courier or phone with the taxing agencies or if an in person meeting with the examiner or anything else causes me to spend more than two or three hours.

Those of us who are wiling to assist with examinations of returns we did not prepare always charge substantially for the service. Some believe the liability exposure of these situations outweighs any fee that clients would be willing to pay. I do these situations but I charge a lot for doing so. My absolute minimum fee in such a situation is 1.5 times what I would have charged for the return. That gets the miscreant three hours and anything else is based on my normal hourly rate. I do point out to the person that their decision to self prepare or use another professional who for whatever reason isn't doing the defense has cost them money.

As someone else pointed out of course we don't charge to fix messes we made. If the client is a good client I don't charge if what seems to have happened was an honest misunderstanding. Some of us might even pay the P and I either directly or through our E & O company. What I have done in the past was reimburse the P and I through free future services. A few of us might even offer an insurance policy that will cover the additional tax due. There is also a company people can go to and pay a very substantial fee but then if they get audited this company will defend them at no additional charge. I do not think the company pays any money for the taxpayer. When I looked into them I was unhappy with their fees and with the idea of not doing the audit work myself.

[Lion]

Welcome

If NAEA or NATP or such has a local chapter near you, check them out. You might pay a higher fee as a non-member to attend a dinner meeting with an hour or two of credit, but you get to try them before you buy. Having a local group gives you face-to-face contact with others in your boat. You'll talk about taxes, sure, but you'll also talk about running your businesses. Of course, stop in here any time to talk about common issues. See if your software has a forum; sometimes your question is not so much tax law but how you make something happen in your tax software.

I do what others have mentioned. I charge enough for tax preparation that I can spend time answering questions without an additional charge. I want my clients to call me before they do something with tax consequences or as soon as they hear from a taxing authority or when they read that article in the newspaper/co-worker explains new tax law/etc. I'll spend an hour or two with light research. Heavy research or heavy calculations will probably cause their fee to jump the following year. Audit rep is a separate charge, unless it was caused by my error. I, of course, charge non-clients for anything more than a general answer to their "quick question," but if they seem to be a good prospect I offer to use a percentage of their charge as a credit next season if they return to me for their tax prep.

[Snaggletooth]

Welcome to...

...this forum of intelligent, well-bred, and highly informed tax professionals. All of us have well-manicured lawns and walk amongst the pillars of the community. We are indeed the "Beautiful people".

Not really (and no, I didn't expect you to believe it), but there is a collective body of information here and hope you come often. You will find on many occasions that we need you as badly as you need us...

The onslaught of IRS notices comes every year, quite often in summer, and oftentimes most inconveniently in the middle of tax season. You will find that most of these are not your fault, in fact, most of them are not even correct. Your clients are obligated to respond to them or they will be levied, garnished, or whatever -- even if it is the govt that is wrong.

I can only tell you to cover the cost one way or another, because the letters are a substantial amount of work, especially when you have to document everything. I charge a minimal amount for responding to an IRS notice (some $35) simply because my preparation fees are aggressively low. I don't want to charge too much because the clients won't notify me of the problem.

Many of the notices are the CP-2000. This is the one where the client has failed to report income. Often these will be minimal income items such as the redemption of a bond on a 1099-B at face value with no tax effect. Clients know there is no income so they don't bother to tell you. But from the IRS point of view it is several thousand $ in unreported income.

You might consider not charging for this work if you are charging a high preparation fee to begin with. However, the number of these notices IS substantial and I would advise to cover the cost one way or another.

Another alternative is a two-tiered fee schedule: one where the fee is very basic, but you charge for everything you do, another tier for "premium" service where one fee covers everything. I don't like this because clients have their own idea of what you should and should not charge for.

[DaveO]

Occasional questions over the phone are free. However if someone expects me to take the place of their QB support line or fill out their FASFA then I’m charging.

Our preparation charges are very competitive and maybe to the low end for our area. Therefore most notices and CP2000 notices are charged for. Since you are just starting out as a solo practitioner you may want to waive the fees till you build up your client base and then insert a policy change in a future year end letter advising that this work will be charged from then on. As someone else on this board opined, “If I’m not going to get paid I’d rather not be working.”