Deferred Preparer Fee

[buzzardbreath]

Tom and Patricia walk into an H&R Block office (could just as easily be HP or Liberty for all I know). They want their
taxes prepared.

The Block preparer does all the right things, gets signatures on 8879, delivers, etc. Tom and Patricia find out they will have an overpayment of $1370.

Block charges them $170 for filing the return. But Tom and Patricia tell them they are broke, and do not have $170. They ask the Block preparer if they can allow the tax prep fee to be deducted from their refund, reducing their refund from $1370 to $1200. Block believes they can do it. (There may also be a nominal fee, but for simplicity sake, ignore it).

Everyone is happy for the moment. However, Tom and Patricia are in bankrutcy and will have their entire tax return applied to creditors, attorneys, and courts. They do not inform the Block preparer of any possible offset to their refund.

Which of the follow is correct?
a) Block will get their $170, and the bankruptcy plan will get the remaining $1200.
b) Bankrutcy plan will get the entire $1370, and Block will get nothing.
c) Neither of the above because Block has the resources to discover the bankrutcy upon e-file and will not defer the prep fee.

[S T]

Presuming your OP is Block, if you go to the Block sight, they state two ways to pay your tax prep fees.

Two ways to pay your tax prep fees 1. Pay with cash, a personal check, or a debit or credit card

2. Pay nothing out of pocket and deduct the fees from a refund
Learn more about deducting your fees

Seems like the Tax Preparation Office will collect their fees, and not involved in the Bankruptcy - T/p should provide the paperwork to Bankdruptcy from the Preparing office showing that their refund will be less than stated on the Form 1040 due to preparation fees.

BK Court will handle accordingly for the t/p assets to apply to other creditors.

So guess I voite for A)

I dont believe that "Block" can discover a BK notice and will block the efile

Given time lag on BK filings, I also don't believe that "Block" will loose out on their tax prep fees deducted from Refund.

Sandy

[FEDUKE404]

Quasi-answer

There is a legal question versus a procedural question involved here.

My guess (and it is that!) is the government would keep the entire refund and Block, or whoever, would just be left high and dry. Trying to recover the tax prep fees after the fact might become a challenge for them, although I would think there might be some legalese in the agreement the client signs that would obligate them to pay the tax prep fees if something went awry with the IRS. Send the sheriff??

OTOH, it is more than likely that an efile with bank product would bounce with an initial check of clients' financial/credit status. Return does not even get filed unless/until Block gets tax prep money up front, and like above the full refund never sees the light of day.

FE

[S T]

FE - seems like you were approaching from the Govt (IRS) - but OP asked about Bankruptcy -

I do not believe Bankruptcy and IRS or States are interlinked. but to be fair, the TP should provide BK with the paperwork, and possibly the "Prep Service" received their fee.

Procedural I have no knowledge - IRS or States can always do anything they want when it comes to refunds on efile, and they inform all parties later. IRS or States will only "keep" refund (not sure about the prep fee attached to) if those agencies in fact have a balance due. - Guess I missed in the OP relating to Govt Tax Payments.

Interesting subject matter, but then I don't participate in these type of transactions.

Sandy

[Jiggers]

If someone came to me and advised that they were in bankruptcy, I would ask them to have the bankruptcy court to hire me to prepare the return with the assurance that I would be paid.

Otherwise, I would request payment in advance. No different than the bankrupt taxpayer buying groceries at the local supermarket. He pays for them in advance before walking out the door. The bankruptcy court doesn't get involved and put the supermarket in line with other creditors.

[buzzardbreath]

Thanks to Respondents

I have edited the original post to state that the couple do not tell the Block preparer of the bankruptcy. If Block discovers this, they won't be able to find out from the clients.

This presents a whole different set of circumstances for Block.

[taxxcpa]

If you take bankruptcy, then pay someone for a debt incurred before bankruptcy, that cancels the bankruptcy protection (if anyone finds out). I've had people pay my fee after they took bankruptcy. One even paid me a bonus over-and-above my regular fee due to some extra work I did not bill for.

[MDEA]

Deferred preparer fee

If IRS releases the refund the preparer will be paid from the refund.If the refund has a lien than the prepare receives no fees.If you do bank products this is part of the business and you build it into your price structure.