How do you treat?

[WICPA]

I've experienced this maybe three times in twenty five years and now I have had it for the third time in a year. Had a guy come in yesterday that was referred to me by a retiring practitioner. Received his prior three years returns ahead of time and looked them over and found issues. He receives some Government payments each year around 2k for a set aside program on his land which he planted trees. He records the income on Schedule F and that schedule has had losses of 6-8 thousand each of the last three years. He was also deducting his Sec 125 health ins premiums on Sch A and here in Wisconsin you can deduct health insurance premiums you pay if your employer does not contribute which he also took advantage of. Also on Sch A were zero cash but 3500 - 4400 of non-cash contributions each of the last three years.

When he came in I started with the engagement letter which he signed and I went over pointing out his responsibilities as well as mine. Moved on the the Health premiums and showed the instructions and pointed out what he had done wrong. Next was the contributions and I gave him the 8382 worksheets I have and told him he would need to provide much more detail before I would consider it. He got defensive stating the last guy allowed it but I explained I am not him and this is how I do things.

We moved on the the Schedule F and of course that was pretty ugly. Expenses way over the top. Needs to deduct half his phone bill because he is on the road each day for his full time job and needs to be reachable in case something happens. Needs to deduct half his house utilities because he services his equipment in the garage. Has an old pickup truck used 100% for the farm with all kinds of repairs etc....

When I got through things my way of course instead of his usual refund he owes a couple of grand in taxes plus I tell him he should consider amending the prior years. He's not happy but seems to accept things. I tell him I will complete and review the return and be in contact regarding his final balance due. He leaves the office, later in the afternoon he calls me and states there were some other expenses the old practitioner always deducted that he failed to bring along and he was emailing me. I got the list, newspaper subscriptions, postage, and a whole lot of "supplies". Total over $1,000. Obviously he did not get the message.

I will call him today and tell him I am sending back his information and I will not prepare the return. Of course I'm out the time once again. I've told the former practitioner in a nice way that he is way more aggressive in how he treats expenses and I will not do those things. I even sent him instructions on things he was doing wrong but he argues his side.

I've stopped taking this guys clients but some had contacted me over the summer asking me to do their taxes so I feel somewhat obligated to help them but I cant' keep wasting my time like this.

So, how do you handle these situations. Cut them off right away and send them packing? Trying to educate them has not worked as they believe the former guy is smarter than me. I could bill this guy and the others for the time involved but I'm sure that is a waste of stamps.

Like to hear other experiences and how you resolved them.

Thanks for letting me vent.

[Uncle Sam]

I agreed with everything you said until it came to "I've told the former practitioner in a nice way that he is way more aggressive in how he treats expenses and I will not do those things. I even sent him instructions on things he was doing wrong but he argues his side."
That's not your place to contact a prior preparer no matter how wrong he/she is - even with client authorization. There are other remedies such as reporting the preparer to IRS (I believe it's Form 14137) or Form 3949A.
Once a client comes to you - all you can do regarding mistakes of other preparers is to advise the client to Amend - if they're unwilling -then reconsider taking them on as clients.
I had a situation a few years ago - H & W told me they filed separate returns for many years. I see both returns, and see different filing statuses (H - HOH, W, MFS) for a non divorce situation, went to 2 different preparers, neither had the other spouse's Social Security number on the other's. I strongly advised them to amend each prior year and owe money. They refused. I advised them I couldn't do their return.

[WICPA]

Thanks for your response US. To clarify, I did not contact him on this client. He sent a different client to me last summer who wanted to interview me before letting me do his work. I sat down with the guy reviewed his tax return and told him I could not take him on unless he agreed to amend prior years. He was a Farm client and I had issues with 179 taken on some things that I did not feel qualify. Also had a significant amount of employee benefits on Sch F with no type of written 105 plan. The large farm loss created EIC even though W-2 income was over 100k. He contacted the old preparer who approached me at a CE event and asked me why. That's when I discussed my issues with him.

[kathyc2]

I agree with Sam that it would have been best to not contact previous preparer with lists of what he did incorrectly, especially since he is retiring and getting out of business.

Most TP's don't know what is actually a deduction or not, and if they had been with him for a number of years their natural inclination would be to believe him instead of you.

I commend you on holding to your ethics rather than trying to make a fast buck, over the long term you are better off.

As far as the people you spoke with over the summer, I would contact them as soon as possible. I would tell them that you have reviewed some returns from the previous guy and that you have found he is much more aggressive in taking deductions in grey areas than you are comfortable in doing. That then leaves the decision up to them while they have more time to find someone else. If you tell them a month or so down the road that you aren't able to claim the same "deductions" as he did, they are much more likely to bad mouth you to others.