Small Claims is it worth Pursuing?

[thomtax]

Cool!



You must have put on a great case. You won even though you didn't have a lawyer and the other guy did.

It shows that sometimes the system actually works.

At least in small claims court.

BMK

It's my understanding that, in some states, you are not allowed to have an attorney in small claims court.

LT

[Koss]

Small Claims Court

Cool!



You must have put on a great case. You won even though you didn't have a lawyer and the other guy did.

It shows that sometimes the system actually works.

At least in small claims court.

BMK

[thomtax]

Good luck and congratulations.

[equinecpa]

Just thought I'd update this post. With the coaching of a member on this board, I decided to battle out the two cases. Today was the court appearance for the first one. At first I thought I was up the proverbial creek without a paddle when I was asked to turn in my evidence to the court and only had one copy of everything (I had no idea I was supposed to have copies for everyone). Judge was kind and forgiving, let me pass them by the defendant's attorney and then submit the items.

I felt the client had a very weak case as she blamed me for late fees etc when she brought the returns in 3 years late! She even had the nerve to file a counter claim for the tax and penalties she paid.

The court ruled in my favor so now I have a judgement against her. Let's see if it gets paid!

One down, one to go-somehow I think the next one will be tougher as the client "believe's" his lies. It's going to be a my word against his kind of thing.

[ttbtaxes]

I would never sue for an unpaid fee. It only invites a countersuit which you have to defend and report to your malpractice carrier.

Move on to more fertile grasslands.

[DTS]

Small claims

A client owed me around $1,500 and did not pay until I filed in small claims and had him served. We met and I got my money, he gots his docs, sort of "you show me yours first". Court appearance never happened.

I'd give it a shot.

[equinecpa]

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$.

Sorry edited my original post. He never requested the documents back. I would have gladly returned them. I do still have them just because he hasn't come and got them -I have requested (in writing-which I hope I have a copy of) he come get them and he hasn't. I don't think I'd be wise to mail them right now-I think it would add fuel to the fire. Perhaps I should request that he come get them within 10 days of the letter, and if he doesn't I will charge storage fees?

This is the type of customer you don't want to do business with-I can't say I had any hard evidence of cheating but I didn't have good feelings about "completeness". I knew that and kick myself in the butt for putting up with him for so many years.

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.
FE

FWIW-I have already filed the claim and the client's attorney has responded -that's how I know an attorney's involved.

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.

I like this idea, I guess I can call around and see if there is anyone who will do this on contingency.

I don't use engagement letters except when doing business plans-I guess I had better start.

But once I've decided they aren't going to pay I just wash my hands of the whole matter. Good riddance to them and there's nothing to be gained spending billable time or emotional energy on the deadbeats. My perspective is that time spent trying to extract revenge can be better spent doing productive work for the ones who do pay.

Every time you invoice someone you get a check or you get an education. Or as my father-in-law Sam used to say, "If I trust someone and they beat me out of $200, then at least they will never have the chance to beat me out of $2,000, so I'm $1,800 ahead." Knowing the character of that type of client may be worth more than a few dollars in the bank.

You know John..I think I'm leaning this way and that's why I posted. Mark this as lesson learned and go on with productive work.

[geekgirldany]

Not sure what to tell you here. I do not let the returns walk out the door without payment. Be it $50 or $2,000. When I call or email about pickup I tell them the amount they owe, to bring cash, check, or credit card, and if they don't have the payment they can not have the return and I will not file it. I say this every year to every client.

I also do not prepare multiple year returns without getting half down. If they had an "individual" pick them up. Then the client has to send me an email or sign a letter stating that it is okay to release such private information to whomever it might be. Plus they better bring some money with them for payment.

Since you have filed it you could go on to small claims with no attorney but get some advice before you go. He may be paying the attorney to respond to the small claims filing with letters.... but will he want to pay for the lawyer to go to small claims court?.. if he is even allowed to represent him.

I was listening to a QuickBooks webinar that had an attorney speaking on engagement letters and how important they are. One of the hosts asked him on sending a 1099-C when you do not get paid for work. He said that he does not do it. He would not give a yes or no answer either.. One of the Hosts said she had a client that is a CPA that will send out 1099-Cs out at the end of the year for all accounts he had not been paid on. The attorney just laughed and said "I am not sure on that one".

Now with that said I have a client that brought by 3 years of tax returns at the end of 2009 with the last one being 2005. I got half down payment and received the rest when he picked up 2 years of returns. I needed (still need) an appraisal on land that was sold in 05. He never did get it because he said he could not afford to pay for the appraisal but brought future years for me to file. Well I now have 2010 return that has never been filed. Brought the return April 15 and I told him no way I could get it finished that day. He never returned my phone calls asking for additional info.

So I am going to mail him another certified letter stating that I still have 2005 and 2010 returns and give him the option to contact me to finish them or get the documents. Client in a very bad financial situation which I have a little sympathy on but you have to take care of business.

[JohnH]

My problem with the 1099-C approach is that it makes no business sense. It might produce a litlle revenge for the insult of not getting paid, but you can't deposit revenge in your bank account. We are in business to make money, and allowing emotional decisions to interfere with solid business practice just never works out well.

I mail most of my client's return to them and I let them mail payment back to me. Most pay right away or within 30-45 days. Some take longer to pay than I'd like, and I've had to write off a few who just never paid. But once I've decided they aren't going to pay I just wash my hands of the whole matter. Good riddance to them and there's nothing to be gained spending billable time or emotional energy on the deadbeats. My perspective is that time spent trying to extract revenge can be better spent doing productive work for the ones who do pay.

Every time you invoice someone you get a check or you get an education. Or as my father-in-law Sam used to say, "If I trust someone and they beat me out of $200, then at least they will never have the chance to beat me out of $2,000, so I'm $1,800 ahead." Knowing the character of that type of client may be worth more than a few dollars in the bank.

[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.

[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

[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.

[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

[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.

[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$.