Small Claims is it worth Pursuing?

[equinecpa]

I'm just wondering how many of you have pursued an unpaid bill in small claims court? What was the outcome?

I filed a claim in small claims court and the client is disputing it. They have hired an attorney to represent them . My bill is $2800.

My options at this time:

1) Hire an attorney and go to court but how much will that cost? Will it be worth the hassle?

2) Defend myself-but not sure I can beat an attorney at his game.

3) Drop the case and move on to paying work.

What would you do?

Carolyn

[Nashville]

Hire an Attorney

Hate to see you go to all this extra expense. If it helps you feel better, the client has had to do the same, and is electing to pay the attorney instead of paying you.

If you hire an attorney, the net fees earned by both attorneys will most likely be more than either party's revenue or savings.

Unless you have a sufficient knowledge of the facts and how to apply them to law, you will not prevail against an experienced lawyer. And the "law" I'm referring to is civil law, not tax law.

[WhiteOleander]

What do you have to lose if you go to small claims and lose? I thought attorneys couldn't represent the litigants in small claims. If you lose you don't get your fees. If you don't pursue it you don't get your fees.

[equinecpa]

What do you have to lose if you go to small claims and lose? I thought attorneys couldn't represent the litigants in small claims. If you lose you don't get your fees. If you don't pursue it you don't get your fees.

The court can award attorneys fees so I could end up having to pay HIS attorney fees!

I'm not sure about the laws in other states, but in Texas you can hire an attorney to represent you. I feel I'd surely lose if I defended myself against an attorney, but really don't feel like lining attorneys wallets just to settle this.

[spanel]

How cut/dry is it that the client owes you money? What exactly did you do? (i've taken someone to small claims court, not tax related, and went against an attorney.. we settled out in the hallway). So it can be done.

Chris

[ChEAr$]

I too thought that attorney's were barred from small claims court.

All you need is 1. your engagement letter which client signed, 2. a tally of how the 2800 figure was arrived at, e.g. number of hours x hourly rate plus expenses to be reimbursed.

With this, you have an iron clad case.

no engagement letter? grin... probably out of luck.

Lets give Jiggers a chance to weigh in on Texas procedures.

[appelman]

If you have a good case...

You might be able to get a lawyer to take it on contingency. I believe it is typically 50% if they go to trial and less if they settle.

[equinecpa]

How cut/dry is it that the client owes you money? What exactly did you do? (i've taken someone to small claims court, not tax related, and went against an attorney.. we settled out in the hallway). So it can be done.

Chris

My perspective:

10/2005: I timely filed 2004
10/2006: Started work on 2005. Have email dated 10/06 requesting information. Have a forward of that same email requesting information dated 04/2007, then 08/2007. Called and left messages at different times.

Client would call randomly and ask when his returns would be complete -my response when I had all the information to complete them.
09/10/2007: Client responded with some answers
10-11/2007: I reinput client data as I couldn't find it after switching computers. I did not bill for this time.
03/2008: I had further questions for client.
04/2008: Completed 2005 & 2006 returns. Client sent individual to pick them up.
05/2008: I billed for all 3 years.

His perspective: He says I took forever completing them and that I wouldn't give him his documents back. Says he called me 50 times and that he asked for his documents back and that I wouldn't return them (this is not true-I would have gladly given him his documents back and washed my hands of him at that time). He says he didn't file the 2005 & 2006 returns I prepared because they weren't right.

So how cut and dry is this? My word against his? My only evidence is emails with dates on them. I do have proof of efiling the 2004 return. I have no idea why I didn't bill it earlier?

So what do you think?

[Jiggers]

When I have had the one occasion to file against a non-payer in Texas Small Claims Court, I went to the Courthouse, talked to the Justice of the Peace for my precinct, paid his fee, gave him a copy of the bill, and he sent the Constable out to collect my fee, plus the filing fee.

A few days later the Constable showed up with a money order for my fee plus the filing fee.

One and only time that I have had to file.

I have another one that owes me and I will file after I have a long talk with him and his business. One that sells adult beverages with a very high proof. I might try to get some out in trade, but the bill is significant and I don't think I know anyone that could drink that much, especially Dewars!

Other than using Cousin Lenny to pay a night visit and rearrange some bones..........{j k :÷) }

[ChEAr$]

My perspective:

10/2005: I timely filed 2004
10/2006: Started work on 2005. Have email dated 10/06 requesting information. Have a forward of that same email requesting information dated 04/2007, then 08/2007. Called and left messages at different times.

Client would call randomly and ask when his returns would be complete -my response when I had all the information to complete them.
09/10/2007: Client responded with some answers
10-11/2007: I reinput client data as I couldn't find it after switching computers. I did not bill for this time.
03/2008: I had further questions for client.
04/2008: Completed 2005 & 2006 returns. Client sent individual to pick them up.
05/2008: I billed for all 3 years.

His perspective: He says I took forever completing them and that I wouldn't give him his documents back. Says he called me 50 times and that he asked for his documents back and that I wouldn't return them. He says he didn't file the 2005 & 2006 returns I prepared because they weren't right.

So how cut and dry is this? My word against his? My only evidence is emails with dates on them. I do have proof of efiling the 2004 return. I have no idea why I didn't bill it earlier?

So what do you think?

Oh dearie! I would say you're up that proverbial creek without proper means of propulsion.
From your timeline I did see a bit of tardiness on your part.
But the glaring item is that you didn't return his documents when he asked for them.
You didn't say, but it appears you still have them. ?????

Return his documents forthwith, and be consoled that you don't have to pay taxes on that 2800$.

[Jiggers]

1. Did he owe any taxes or did he lose any refunds for those years?
2. Did he lose business or have some other problem because of late filing? Such as not having a loan approved because of no tax returns?
3. I do agree that you might have a problem if he really demanded his information and you didn't give it to him. With him, his attorney and the IRS.
4. Has he always been tardy?
5. If you did the work, though not timely, I believe that he still owes you. I have one client "Estate" that an attorney won't finish up so that the heirs can convert to a partnership and take advantage of some farm losses on their personal return. It has been open since 2004. I guarantee that the attorney will send a bill and will collect his fee, even though he is very late.

[FEDUKE404]

Uphill battle, unfortunately

While I would not firmly speculate that you are "up the creek," I do feel the current might be very strong against you.

With a clear warning sign (unfiled prior year returns) I don't think I ever would have let those 2005 and 2006 returns walk without payment first. BTW: What happened to 2007?

It appears obvious this client has issues with good business practices and/or character and/or may have been shopping around to find a "properly" prepared tax return that suited him. While you are certainly welcome to choose your own clients, I likely would have either shown him the door or demanded a significant good faith deposit for preparing the past year returns.

And for the lawyers out there....the absence of an engagement letter might hurt.

OTOH: The cost of small claims court is fairly small in most jurisdictions, and they might send out a 275 lb deputy to serve the papers and also send a message.

Good luck!!

FE

[outwest]

Another observation:

My E&O carrier sends around periodic emails re: risk management. Recently one pointed out that the #1 trigger for malpractice suits (justified or not) is suing for fees.

Just an observation.

Personally, I would move on and spend my energy on more productive tasks than this.

[S T]

My only Experience

I had a client take me to small claims court - Reason I would not release documents as I had not been paid.

I took the entire "box" with me to small Claims Court

The JUDGE gave both the client and I -- verbal admonishments
To the Client - you should have PAID
To ME the Tax Preparer-Accountant- You can not withhold records that belong to the client

Go out in the hall and settle this - instructions from Judge
Client - Review the box to make all of your records are there, and that Accountant (Me) can provide you with the finished work project you engaged her for - If all is there PAY HER!

Accountant - Return the Documents to the client - give the Client the Work papers you engaged to produce - collect your check

End of story - I was paid - and now never hold Client's workpapers as "hostage" for payment.

Note: I wonder if we can issue a 1099-C as bad debt - I do not believe it has to be "secured property" Reason - Credit Card Companies, Phone Companies, Hospitals, etc issue 1099-C for cancellation of debt. However, there is the caveat that it be a financial institution that issues the 1099-C - according to IRS instructions

This was an interesting article and aproach http://www.stevensricci.com/pdf/BC-June08-Barron10.pdf

I found an Office of Chief Counsel Memorandum relating to this issue, released in June 1998 http://www.irs.gov/pub/irs-sca/1998-020.pdf

There is also an interesting discussion while not necessarily on point with your scenario at TA http://www.taxalmanac.org/index.php/...preparer_money but then Sec 6060P regs may prohibit us - which I find to be of some type of discrimanation just because we are not financial institutions - We do offer some type of credit to our clients for payment??

Of course that does not assist you on your own personal tax return income, as you have to claim the income first and then wash it out (if cash not accrual)- but the Client has to report as income for cancellation of debt for services. ????

From what I can determine there is NO penalty for issuing the 1099C - but rather whether or not it is ethical for us or issues either under CPA regulations or Circ 230.

Might be a tool, and I would like to hear from others regarding this approach.

Sandy

[Gary2]

This was an interesting article and aproach http://www.stevensricci.com/pdf/BC-June08-Barron10.pdf

Though the gist of it makes sense, there are lots of problems with that article. Perhaps the biggest one is the generalization of a specific case involving Texas law (in spite of being a federal court), implying it will hold everywhere.