Your experiences?

[jainen]

written advice

Circular 230 rules only apply to written advice. I brought up the subject because of the suggestions that we confirm every phone call with a note or email.

[lsmith]

Advice

If I understand correctly from what you had mentioned early on is that she wanted to sell the property not exchange it. We try to do the very best that we can but as far as documention goes, a few notes should suffice. I wouldn't feel bad about it. The client talked with you about one thing and later realized that they could have done another. I had one last year that wanted to do an exchange but went about it backwards and money had already exchanged hands with no appointments with a mediator. I stopped talking about an exchange. It sounds as if she regretted the installment and later realized that she could defer taxes with exchange. I don't like being accused of something that didn't transpire and I know that you don't either but would have been glad to tell them what they needed to do if they had asked you. Personally, I believe that you did your part.

[Lion]

Complaints

Yes, a few complain that we missed something. There was one who paid for a consultation with an elder-care lawyer but returned to me. Well duh, I make it clear I don't provide legal advice. And, she returned, so I couldn't have been too wrong and am probably a lot cheaper. It's very intimidating; however, when I have to sit there doing their tax return knowing that they already discussed one or more of their issues with an expert. Or, they call my manager to check on the price and complain about something I missed. But, still return. And, the few that don't return, I haven't missed very much. Or, they went to one of those real estate seminars and call you to ask why you didn't tell them X or Y. I ask a lot of questions, but I can't read minds. What clue did I have that he had an old 401(k) he could roll over into an IRA and invest in real estate? I never know how far to go in defending myself. But, if we never get complaints, we're probably being too docile. I think I was most hurt by clients who went elsewhere without saying anything to me (I found out when the new preparer called me with a question). I also found out that they are finally putting into play my suggestions from prior years. Oh well, you can't win them all. Just try to leave them happy enough or at least neutral or unsure of their own expertise, that they don't badmouth you around your area. Then have a glass of wine.

[Mark Goldberg]

What about these issues

Does your client understand that had she done a 1031 she would not have had access to the cash. Maybe she had the sales proceeds earmarked for something. Maybe she should realize that had she done a 1031 exchange she might be holding a piece of real estate that is worth less today than in 2003. Maybe in 2003 she had low income so she got to pay taxes at 10 or 15% on the gain. It is important that she knows more about 1031 than you currently pay no tax. Like when you sell the next property the tax could be even higher. I would say 1/3 to 1/2 of my clients who do 1031 exchanges regret it afterwards.

[Roberts]

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.

John, are you offering stock advice? Are you licensed to offer investment advice?

As for Value Line - have you looked at the closed end mutual fund FVL? It invests in the Value Line 100 and makes weekly adjustments as Value Line does. It basically tries to perform equally with the Value Line recommendations - minus the management fee.

[Donanita]

Replacement Property

Even if your had told her about the 1031 exchange would she have replaced the property sold.Sounds like she is mad and wants a scape goat to sooth hre ruffled feathers. I know there have been time when I have told a client what would happen if they did certain things pretaining to their taxes but they sometime do what they want to anyway and then cry about the taxes they have to pay.

[S T]

Correction

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.

I don't think 1031's are "Tax Avoidance", they are a "Tax Deferral" and very difficult to complete. Most 1031 exchanges fail for one reason or another.

Sandy

[JG EA]

Great people!

Isn't it great to have such great people on this board here?

Yes it is.

I will go over all these comments and come up with what I going to say to her (on the phone not in a letter). I went over every scrap of infomation I could, old appointments, old phone calls, and what I could document. The thing is I know I would have mentioned like-kind exchanges if consulted beforehand. But, it's not the sort of thing, I'd write down. The main reasons people don't want them is they want the money. She said that wouldn't have been a factor as their main goal was to reinvest.

One good thing I found was a small article in a newsletter sent out to my clients in 2000.The article talked about reinvesting doesn't mean you don't pay taxes on the investment property you sold unless you had set up a like-kind exchange... I know that was way before this 2003 incident, but it shows I knew about them and she could have read about them. In fact she had another installment sale going then, got paid off in 99 and called to ask about reinvesting the payoff to not pay taxes. Many clients ask that question and so I put it in the newsletter.

[Black Bart]

"What we have here is a failure to communicate."

say to her (on the phone not in a letter)

That's what the farm prison boss said about the punishment of inmate "Cool-Hand Luke." Maybe we should do the same. Do more, that is, of doing less.

Since, as Jainen says, C-230 applies only to written communications, then perhaps we shouldn't do it unless required to. A recent article quoted the late, old pol Huey P. Long (went something like this); "Don't write anything you can say; don't say anything you can whisper, don't whisper anything you can nod to, don't nod to anything you can smile at, don't smile at anything you can meet eyes with, don't meet eyes with anything you can ignore." This is, of course, a cynical and distasteful way to run a railroad, but IRS seems to be forcing us into the role of minding not just our own behavior, but that of all our clients. Penalties and the possibility of lawsuits have an effective chilling effect indeed.

We've all gotten some good advice out of this, i.e., document what you can and do more of it, watch out for the "good" clients, too, make "tax-prep only" engagement letters, have your letter inform clients (in a nice way) that you're not "psychic" and they are ultimately responsible for keeping themselves apprised on tax developments affecting them, realize that people always want to blame "someone else," drop the "mild-mannered accountant" role and cultivate a caring, but confident and firm stance (the sharks know a "weak sister" when they see one).

As for myself, first thing tommorow I'm writing up the best "tax-prep only" letter I can. Next, I'm discontinuing casual tax chat and all phone advice, referring stock-tip seekers to a broker, documenting all office consultations with a client-signed statement of mutual agreement with reference to topic of discussion, and, hmmm....what else? Got it! Put a loaded .38 in my desk drawer.

[dmj4]

Sic em' on the realtor-joke

In this case, I would have probably told them that a 1031 exchange is something that has to be done before the sale. I might even ask them if the realtor mentioned it to them when he/she listed the property for sale.

[JG EA]

She apologized!

I wrote out what to say and called the client - I had so many wonderful points thanks to all of you. I feel like giving a received oscar speech.
Thanks to ST for helping me not to worry late Monday night when I was the worst.
Thanks to Black Bart for helping me to see things from the client's point of view.
Thanks to Jainen to remind me to be careful what I write to clients. And for the phrase " I do not provide legal advice, risk analysis, or financial planning..." I used this with the client today.
Thanks to Armando Beaujolais for reminding me what I was hired to do - not everything.
Thanks to Bees Knees about my responsibilities being limited.
Thanks to taxmandan about like-kind deferrals (I explained this to her).
Thanks to Gabriele who started all the thanks.
Thanks to John of PA - I don't use very many engagement letters either - for reminding me tax prep doesn't include all things financial.
Thanks to Mark Goldberg reminding me about access to cash and especially about low income. That was the case with her! When I looked back this whole thing was greatly to her benefit. They earned thousands and thousands of dollars in interest and would have only saved a couple of thousand in tax!
Thanks to Donanita, dmh4, Ismith and Lion - if I've forgotten anyone please forgive me.
Thanks for all your trouble.
She was having a bad day and took it out on me.

[S T]

Thanks to the TB Family

JG,
You received some great responses, all of different approaches but very similar viewpoints. And all of us that post and responded, also were reminded of situations that we could be placed in and what we need to implement in our practices and dealing with our clients.

This is such a great "community of tax professionals" and information!

I for one with my limited resources could at least offer you a somewhat "hopeful and peaceful" sleep on your first night of posting. I know that you have very often given me a similar response to my late night "ramblings".

I am so thankful to all that particpate here!

Sandy

[Gretel]

Singing

I feel like singing. We should create a Thank You TB family song. After all it's almost Thankgiving.

This is the thread I have most benefited from of all out there. Peace of mind is the foundation of everything.

[Scarecrow]

I wrote out what to say and called the client - I had so many wonderful points thanks to all of you. I feel like giving a received oscar speech.

Maybe we need to come up with our own TB message board academy awards. We could have different categories, such as:

Best question of the year
Best answer of the year
Best supporting answer of the year
Best follow up question of the year
Best new member answer of the year
Best special affects added to post of the year
Most irritating client situation of the year
Most commonly asked question of the year
Most commonly asked question ignored of the year
Most emotionally charged response of the year

I’m sure there are other categories.

We would have to hold our ceremony sometime during the fall sweeps. Maybe get a TV network to broadcast it.

[taxmandan]

Client contact

She was having a bad day and took it out on me.

That is why it can be important to give them a little time to reflect and calm down before you contact them with your reply. Your approach was very professional and I'm sure she will value your services because of it. Great job!