Your experiences?

[JG EA]

I've had a strange thing happen today and it is very disconcerting. I had a client call to ask why I didn't tell her she could exchange her investment property she sold in 2003! I looked back and couldn't find any proof that I had mentioned that possibility but usually I would mention that to clients.

It seems from my notes that I did know of the sale before it happened, but most of the notes were about installment sales. No proof.

This is a normally polite and friendly client, but this was an accusation out of nowhere. It seems that her sister recently 1031'd property and this caused her to start thinking about her sale 2 years ago.

I have spent the evening going through old phone records out of storage to see when I knew about the sale but it's sketchy and I can't remember.

How do you deal with this type of accusation? Or does this not happen to anyone else?

[S T]

Always the Client Lapse of Memory

JG, it probably happens to all of us. And it is always a Client that paid some tax, then talks to someone, then accuses and says you didn't tell me I could do something else. Did the client even bother to call and ask prior to completing the transaction, or did that client call after the transaction was completed.

But one of the things that I have learned over the years, is to document as much as possible , certain if not most phone calls now, with a letter or a fax or an email, relating to any transactions. Not necessarily property alone, but also separations, divorce, etc.

"Sample" Dear XXXXX,
I enjoyed hearing from you today, and discussing the possibility of your selling, trading, installment sales , XXXXX, XXXXX of your property at XXXXXXX. If after our phone conversation you would like to pursue your different options, please provide me with more specifics so I can outline the different tax issues for you.

Something to the above and adapt as necessary.

At least that way you have a copy in your file, stored in your "Word" documents, possibly in your email.

In your case you are talking about a 2003 transaction that was reported in 2004 which is over 1 year ago. How are you to remember. And knowing you from the QF and TB boards, we all know how detailed your record keeping is.

I wouldn't let it worry you too much, just try to figure a way to deal with the client's concerns and if your notes state installment sales and you can rely on that, then talk with her about that rather than the 1031 xchange. (Usually a person looking at Installment Sale is not considering a 1031 exchange) Totally different! Be honest, but don't buy into her accusations after the fact of almost 2 years.

Sandy

[JG EA]

But one of the things that I have learned over the years, is to document as much as possible , certain if not most phone calls now, with a letter or a fax or an email, relating to any transactions. Not necessarily property alone, but also separations, divorce, etc.

"Sample" Dear XXXXX,
I enjoyed hearing from you today, and discussing the possibility of your selling, trading, installment sales , XXXXX, XXXXX of your property at XXXXXXX. If after our phone conversation you would like to pursue your different options, please provide me with more specifics so I can outline the different tax issues for you.

I appreciate your response. I will check my appointment log at work and see if we met before the sale. I will develop a time line before callying her back and see what I can document.

Do you really write a letter for each phone call? I can't imagine having that much energy. But, with this litigious air around us maybe I should.

Thanks again.

[S T]

Not on every call

No JG, no letters on every call. I guess you just get a feel and somehow know the client. I have been documenting more, particularly with email now, as I have a send copy and a receipt copy. So if it has to do with property, retirement accounts, change of withholding, and a few other items, I do acknowledge the phone conversation very quickly.

Unfortunately I have found there is not a lot of loyalty when it comes to clients. I have had 20 year clients, call and say you didn't***************. So what is one suppose to do.

You simply offer the best service possible and try to cover all of the "bases", but sometimes you just can't please everyone!, particularly when it comes to tax issues.

I am like you with notes, everywhere, I just am now trying to get more organized utilizing the computer, email, and hopefully will get into the paperless and the posty notes.

Sandy

[JG EA]

Good advice

Thank you. I makes me feel better anyway.

[S T]

Hopefully More Responses Tomorrow

JG, Hopefully more posters will respond tomorrow, but maybe at least you can get a good nites sleep and tackle the issue on Tuesday.

Sandy

[Black Bart]

dissatisfied client

a strange thing / very disconcerting / client ask why I didn't tell her she could / couldn't find any proof / usually I would mention that /

No proof / accusation / sketchy / can't remember /

does this not happen to anyone else?

No, of course it's not just you. It happens infrequently, but more than you'd expect. It's especially upsetting when it comes from an old "trusted" client, the loyalty and friendship of which you felt assured and certain. I do more notekeeping now that I used to because of things like this, but I don't do them to the extent that I probably should. Still, if anybody makes a big deal out of something at the time, then I keep the file and all notes past the statute of limitations just in case. If she had made an issue out of it back then, you would probably have written up something about it.

She may be suffering from "seller's remorse" (got her price, but then there's those pesky taxes). She didn't like it then--she really doesn't like it now after Sis (who probably did ask about exchanges) told her she paid no tax. The clock can't be turned back, so somebody's to blame--either herself or you. Guess who! It's a sad fact of life that, "where money begins, friendship (usually) ends." There are notable exceptions, of course, but depressingly, they aren't that frequent. I've had a dozen cases or so of this over 37 years--people will: forget, get the facts mixed-up, and/or sometimes just outright lie about it.

A couple of incidents are vivid to me: (1) Client didn't want to mail state tax owed--asked chances of getting by--told not good in my opinion, but that I had another client who said--while always mailing his federal refund, for the last 5 years he had simply thrown his state tax return off the Mississippi River bridge driving home--claimed the state never caught him. Sure enough, client #2 started throwing his away too. Three years later state caught him--now back to my office. Complaint: "You told me to throw my state tax returns away." Fortunately (because of the bridge detail), I remembered it and told him that was wrong--I'd merely told him a story about someone who did that. Funny thing; when confronted he remembered that too and backed down (just tried to see if it would fly, I suppose). Anyhow, I don't tell that story anymore. (2) Years ago, wife's best friend asked, "What are some good stocks?" We aren't brokers (no charges or consultations involved), but wife said she owned Wal-Mart and liked it. Friend invested life savings and did very well. One day stock plunged several hundred points (subsequently recovering strongly). Ex-friend called next day, outraged; said we gave her "bad investment advice." No lawsuit, but end of friendship.

Generally speaking, the best defense is a good offense. Her two-year memory isn't any better than yours. Don't say, "I don't remember," even if that's the case, because she probably doesn't either. Take an adversarial stance that will set her back somewhat. Tell her you keep records of these things, that you've checked your notes, and, while she did ask about installment sales, she never said anything about swapping properties with anybody in which case you would most certainly have advised her about 1031's. She's no more able to "prove" her position than you are--at best, she has a record of a phone call to you or a cashed consultation check, but, outside of a tape recorder, nobody can really document what was discussed. She's mad about the money and her business dealings with you are almost certainly over, so all you can do now is some "damage control" by confronting her. If you try to be a nice guy and say "you might be right," she'll take full advantage. Don't make it easy for her.

[jainen]

written advice

From now on we have to pay attention to the new standards for advice in Circular 230. This case is clearly a covered opinion because Section 1031 has no business purpose other than tax avoidance. The standards apply to any written advice including a note or email followup to a phone call, and I'll bet it won't be long before they apply to the phone call itself.

[Armando Beaujolais]

It's almost a slam dunk when a business goes south and they're looking to sue somebody, and they sue the lawyer and the accountant, the accountant is the one who ends up holding the bag. It's not based on merit, it's based on the fact that lawyers document every twitch which covers their hinders years down the line when questions start getting asked. Accountants are left saying "I don't remember."

Chalk up one more example of why it's imperative to get an engagement letter signed. If the engagement letter said "I'm only doing your tax return," there would be no problem.

If you were specifically hired to help the client determine the best possible tax outcome of disposing of the property, they may have a point. If you simply gave some information in the context of preparation of the tax return, they're trying to hold you responsible for something that's way beyond what they hired you (or paid you) to do.

[Bees Knees]

One thing that comes to my mind: Does your organizer that you send to the client at the beginning of tax season have anything in it that advises the client to make an appointment to see you if they ever sell real property or a business ahead of time? Sometimes there is generic language that tells the client some things they need to come in and talk about before doing it.

Then the next question is: Did your client come in for a paid consultation BEFORE selling her real property? If not, you are not obligated to inform your client the A to Z on tax law. You got paid to fill out a tax return. It is not your job to memorize each and every client’s personal circumstances and then call them whenever you think of something that might apply to them.

Sure, it is an added service to keep your clients in mind. But unless they specifically call or come in for a consultation on a topic, you certainly cannot be held responsible for failing to give them all of their options ahead of time. You are not a sales person, expected to call them every other week with the tax hint sales pitch of the day so that they will come in for a paid consultation.

[taxmandan]

Clients attitude

Then the next question is: Did your client come in for a paid consultation BEFORE selling her real property? If not, you are not obligated to inform your client the A to Z on tax law. You got paid to fill out a tax return. It is not your job to memorize each and every client’s personal circumstances and then call them whenever you think of something that might apply to them.

I agree, too often tax preparation clients think that tax prep buys them tax consultation services for their many money making schemes. Which they usually don't mention until after the deal is done. Yes you'll see this kind of attitude on occasion, it's just human nature to try to blame someone else for "mistakes."

You might want to point out in your letter that her sister did not avoid taxes, she merely delayed the payment thru a LKE deferral. I am dealing with a client now who is upset that she messed up the LKE and has to pay taxes. Her husband says oh well, we gotta pay it sooner or later might as well be sooner, while CG tax is still 15%. I like his style!

I'm not one for keeping extensive notes on conversations with clients, and written opinions when I give one (rare) include Cir. 230 disclaimers, front, back, top & bottom. I do refuse to discuss any tax issues over the phone and require an office appointment to try to minimize the client's misunderstanding that what they heard is not what I said.

Don't sweat the small stuff, and it's all small stuff!

Daniel

[Gretel]

Thank you

so much Bees and Armando. I get more worried about these things too and try to document everything, but sometimes I forget. Your responses give me a little more ease.

JG, I hope you feel the same way and good luck. Isn't it great to have such great people on this board here?

[John of PA]

Tax & stock advice

A client has no case (malpractice) against you if the engagement was tax prep only. If it's a sort of grey area (client call often); then an engagement letter should clarify the engagment is tax prep only. I don't use engagement letters but probably should and I may start. As for stock advice (which I like to give as I subscribe to Value Line and do very well in the makret); I always emphise(sp) diversification. No matter how solid a company looks, any protfolio should be diversified as you never know, something could go wrong. I then say " because I'am not licensed as a broker, check it out with your broker to see if I'am missing anything.". If they don't have a broker, at least go the thier web sight to read about the company, and Yahoo Finance.

[jainen]

It all changed

It all changed in June when Circular 230 added the covered opinions rule. Don't get me wrong, I'm a big fan of engagement letters. Mine says "I do not provide legal advice, risk analysis, or financial planning... and this engagement does not include advice about your future affairs."

How much protection is that? Zero. The question is not whether I SAY I don't give advice, but whether I DO give advice.

[Black Bart]

Well, alright,

It all changed in June when Circular 230 added the covered opinions rule

and

The question is not whether I SAY I don't give advice, but whether I DO give advice.

what does the vaunted C-230 rule say?

She says you gave her 1031 advice. You say you didn't. Your word against hers. What proof is that?