Input requested (Crazy BSing Clients!)

[TaxBird]

I have a client, LLC, for whom 2007 is the final year. I've done the bookkeeping and tax returns since 2001. For whatever reason, in this final year, the LLC came into a lot of money (won a lawsuit) but has not been 'operational' since 2004.

Early in the year (2007), after the receipt of the lawsuit proceeds, two of the three LLC members received distributions. The third member did not. In the course of doing the bank rec's I came across transactions that I couldn't identify (>$200K in total). That was a month ago. Client calls today and tells me verbally what they are. He has no invoices or receipts. They do not make sense. (For example, rent expense of $100K in Dec '07 - the final month ever. $100K in rent for a business with no assets and no operations).

Since I am sure he is BSing and that this chicanery will trigger an audit, I am inclined to decline doing the tax return. Unfortunately, I have unpaid time on the bookkeeping so far which, while I hope I get paid, I doubt I will once I tell him I won't be doing the tax return.

Since I am appalled and a bit PO'd at the moment, I need to simmer down a bit before I send the 'kiss of death' email.

Any suggestions on content?

I want to keep it short and sweet. Something to the effect 'Dear BSer, After our conversation today, I am hereby declining any further work for BS, LLC.' I know I need to say more than that but that's all I can muster of a professional tone at the moment.

Any input would be greatly appreciated.

[DaveO]

When I doubt about a clients veracity

I cite the revised Circ 230 regs that require me to make "reasonable inquires". Then I make them. If the questionable numbers are large I demand documentation. I remember a client a few years ago that had what I felt were some bogus expenses along the lines of rent. I refused to put the information on the return without documentation, a lease, cancelled checks etc. I prepared the return without the questionable numbers and they left in a bit of a huff. About a year later I saw an article in the paper about how they were indicted in a scheme to defraud a federal agency over grant payments involving among other things, phony rent.

[TaxBird]

I agree with you but...

I cite the revised Circ 230 regs that require me to make "reasonable inquires". Then I make them. If the questionable numbers are large I demand documentation. I remember a client a few years ago that had what I felt were some bogus expenses along the lines of rent. I refused to put the information on the return without documentation, a lease, cancelled checks etc. I prepared the return without the questionable numbers and they left in a bit of a huff. About a year later I saw an article in the paper about how they were indicted in a scheme to defraud a federal agency over grant payments involving among other things, phony rent.

I don't want to sink anymore time into this.

I've had this client for a while so I know his moves. In previous years, I just conformed the work to the associated documentation - regardless of what the client said I prepared the tax return correctly. Then it was always a fight to get paid, which I eventually did when he needed me for other work.

I don't plan to take any more work from this guy. So any work on do now is on me. That's why I'm backing off now. Plus, the 1065 has been extended so by backing out now he has plenty of time to find someone else to do the work.

I expect, like your guy, I'll be seeing him in the papers, too. You just can't help people this self-destructive.

[ED SMITH]

First of all, give yourself some time to calm down. Excess adrenalin interferes with the reasoning process.

Then sit down and write him a letter (don't call him, especially if you have a short fuse)explaining that because of the extraordinary large amounts involved, that documentation is needed to substantiate the expenses as necessary. Also, you can tell him that without the documentation, you would have to include an attachment to the tax return, to protect yourseld, stating that you did due diligence and that the client failed to provide substantiation.

Also inform him that he is being advised that the penalties for understatement of income could go as high as 75% and that he might also face criminal prosecution.

If you don't hear from him, good riddance. On the other hand, there is always a chance he will reconsider.

This was written while the last post went up, so I didn't see it.

[jimmcg]

Reflect on it overnight. If your gut instincts remain the same, cut your losses and move on!
There are more productive and interesting projects to chalenge your talents.

[TaxBird]

Ahhhh...

First of all, give yourself some time to calm down. Excess adrenalin interferes with the reasoning process.

Then sit down and write him a letter (don't call him, especially if you have a short fuse)explaining that because of the extraordinary large amounts involved, that documentation is needed to substantiate the expenses as necessary. Also, you can tell him that without the documentation, you would have to include an attachment to the tax return, to protect yourseld, stating that you did due diligence and that the client failed to provide substantiation.

Also inform him that he is being advised that the penalties for understatement of income could go as high as 75% and that he might also face criminal prosecution.

If you don't hear from him, good riddance. On the other hand, there is always a chance he will reconsider.

Just the well seasoned advice I was looking for. Very smooth and very professional. Thank you.

And I quite agree with you, no calling. What do you think if I email him AND send a registered letter? Maybe just a registered letter, eh?

And what about his documentation - only originals of bank statements. Should I include those or wait a couple of weeks and then send them along?

That bring up another question...when a client is dumped, to you ask for them to arrange pick up of their old files? I'm inclined to just write a general/generic letter indicating that anything I have older than 4 years is slated for shredding unless they make arrangements to pick it up before xx-xx-08.

Another other pointers on professional ways to dump clients would be greatly appreciated.

[TaxBird]

Reflect on it overnight. If your gut instincts remain the same, cut your losses and move on!
There are more productive and interesting projects to chalenge your talents.

Thank you Jim. Good advice

[S T]

Billing

TaxBird, take the accounting billing and letters in stages.

Send a bill to him for the accounting that is outstanding, as if nothing is wrong as far as you are concerned. Advise the client that you are closing accounting and reconciling to get to a "happy" place on the tax return and you require his payment on the accounting to date, and then will bill additional tax and accounting time on closure of the 2007 tax year. Some of my past due business clients I just call or fax a statement and tell them "Baby Needs New Shoes" or something to that effect and make light of it. Usually works and I receive a check in the mail.

At least then you have been paid, and the client has financials through your point of billing.
Then after payment you can always, send him a letter, that "due to unfortunate circumstances, blah, blah, I am not able to continue to provide my services for your company. Blah, Blah, Blah. Following Ed's advise

Did this with one of my small contractors last year and he could not believe, that I wouldn't continue to prepare his profit and loss statements, tax return, and put up with his shenigans!

Good Luck!

Sandy

[TaxBird]

Thank you Sandy

I have done this with other clients to great effect. Unfortunately, he's one of those whom I always have to fight to get paid.

I think in this case it's best to take my lumps and go.

[KJ Judd]

It's amazing how I'll see something on this board & then be able to use it in practice. I have a new client who I am becoming less & less comfortable with. I was referred by a bookkeeper on another client, so didn't think there'd be any issues.

However, I've discovered he is behind on paying state withholding, tons of debt, slow on paying me & everyone, been in court regularly, extremely high employee turnover (top unemployment rate). Then I find out he's a convicted felon a couple times for child molestation.

Now he's telling me several draws on his line of credit that don't flow through his business checking account are for various business expenses, but he "doesn't know exactly what they are for".

However, similar to TaxBird, he owes me several thousands of dollars for work. I mailed him a request to bring his account current. I think I'm going to have to eat the tens of hours I have in on his tax returns & drop him. (Unfortunately he has five entities so the fees stack up quickly. Here I thought I was picking up a great client. Ha.)

Thanks for letting me vent.