Fault - opinions please

[erchess]

Client, an S Corporation, has received from the IRS a letter to the effect that the Service never received the Corporation's Election of S Status. I know that I prepared the form and gave it to the President and I saw him sign it. At that time he was the only shareholder. It was the intent to mail it first class which of course means that we have absolutely no proof that it was mailed. I did not know that we should watch for an IRS Letter confirming the election. I am pretty sure one never came.

It turns out that the IRS has caught the situation in time for me to do the Late Election and if I did not know how to do that the IRS letter seems to have a good explanation. However, what I want to know is whether I should charge the client my newly raised fee of $200 for an IRS Letter or should I regard myself as partially or completely at fault and discount or waive the fee? After all, if I had told them to let me know if acknowledgment did not come in x amount of time I guess that they could have told me and I could have printed another copy of the form, gotten it signed, and overnighted it to the IRS on their nickel.(I used to be in MLM and one of the companies gave me a discount plan I still have with UPS and Fed Ex so I get half off of what i would otherwise pay.)

[DTS]

Letter

Erchess,

I'm all for making money, but $200 for a letter to the IRS for a client that you're doing two returns for? I feel a bit steep, eh? Maybe, $25-35, if that. A letter of that sort will take you 4-5 minutes, max to type and print. You may p/o the client big-time and he'll take his business elsewhere.

I would feel the income from the two returns is worth more to you in the very long run! Of course, this is just my opinion and I don't know your relationship with this person. They may be a real pain to you and you feel this $200 is needed.

D

[erchess]

it's not just one letter

I have to go through the whole process of Late Filing for S Election. I don't really know how much time it will take but off hand It looks to me at this point as if we have a correspondence audit going. I will spend at least a couple hours writing the various statements. Maybe only $100 is appropriate.

Also I have a history of undercharging this client. I have done two S Corp Returns for $200 each and for the second year I did three individual returns for another $200.

You may have a valid point about my fee being too high and I appreciate that. However you didn't address the question of whether my normal fee for the work involved should be reduced or waived on the grounds that if I had provided better advice we could have avoided the need for this work.

[S T]

Maybe I was Lucky

Erchess, I had one a few years ago, wherein the attorney was to have submitted the S Corp election and we found about la year later it wasn't submitted. .

It was about a 15 minute phone call and a fax, and all was handled.

I could be wrong, but I think IRS just wants the paperwork.

Could be simple or could be complicated.

Sandy

[DTS]

Fault

Erchess,

I did not address your question because I'm not sure you're at fault. At a glance, it appears you gave the paperwork to the client to mail in. Also, stuff gets to the IRS by first class mail day in, day out. Maybe not the wisest thing to do, but it's done all the time.

Did you screw up? If so, do the work for free, put a good spin on this for your client and don't fret about it. I guess if the client screwed up...whatever you want out of it. Sometimes, just a nominal fee to let them know you have to earn a living.

I really think this is your call, as you know this person and your relationship better than anyone on here.

D

[erchess]

Here's th part that gives me the scare

Part of what I have to provide the IRS is a statement of why we had reasonable cause for the late filing. If I could say that I thought the Attorney who handled the incorporation had also handled the S election while he assumed I would do it, I would but in this case that is not what happened. It looks like either my client didn't get it in the mail or the mail went awry or the IRS got it and lost it. Even iif I were not an honest person I would know better than to lie to the IRS when documents exist that would prove me wrong.

[DTS]

Erchess

Just a quickie reply to your post. I have seen about 5 incorporations that were done by attys. They all did the proper paperwork for the client and sent in the elections for the client, so this has never been the issue you are having now.

So, I would say possibly the atty should have done so and that your client has forgotten they mailed the stuff in. You need this client to step up and remember.

Does not sound like you did anything wrong. Your $200 is sounding better and better

[Snaggletooth]

Certified mail

The fact that you feel some of this might have been your fault would tend to soften the $200 fee, which I do believe is too high.

There are certain critical documents sent to the IRS that are time-sensitive and they will claim they never receive them. The 2553 is one of them. Another example would be any response to a CP-2000.

I have a long-standing instruction to my clients that such correspondence should be sent certified mail. And if they don't, I will not indemnify them against the consequences. This includes refraining from my fees to write a letter.

It is truly amazing the high percentage of mailed documents the IRS claims they never received. But I've never had them deny receipt when certified mail was used.

[JoshinNC]

Charge them $50 to write the letters

and then bump up their corp fee by the other $150.

BTW, you're way too low on the corp anyway. I'm in rural NC, just like you, and my base for an S-Corp without balance sheet is $600 and $825 with.

[JohnH]

You have a situation which is ambigous with respect to the follow-through, so whatever you do will be a judgement call. I always recommend to the client that they mail the 2553 via certified mail with return receipt (as has already been mentioned), and in many cases I have them sign the form and I do the mailing just to avoid situations like this. The 2553 is just too important to leave to the routine handling procedures of the US Postal Service and the IRS combined.

So since there isn't a clear line of responsibility you do run some risk of losing the client if you charge for correcting the error. I'm a big fan of charging for what I do, but when there's ambiguity I usually resolve situations of this type in favor of the client.

However, if you decide to charge a reduced fee, you should bill them the $200 you expect to be paid under ordinary circumstances and then enter a "Courtesy Discount" or some other such terminiology to reduce it down to the $100, $50, or whatever you decide is fair. This serves the purpose of putting the client on notice that work of this type does have a determinable value just in case you need to write correspondence of other types for them in the future. Even this tactic can backfire, as some people resent being told you're doing them a big favor, but in most cases it's still worth the risk of alienating them because it's important to lay the groundwork for future billings.

I also agree with Josh that your fee for the corp returns is much too low.
(Additional info - I didn't want to post this until I came to the office & checked to be sure of my numbers. I charge $120 for a "No Activity" S corp return where the client just wants to keep the corp active for possible future use. I bill them a $480 minimum, and then enter a $360 "Adminstrative Reduction". There's also an $80 per shareholder charge for each K-1 beyond the first one. I'm planning to increase these charges in light of the new S-corp penalty rules, since we are now taking on much more potential risk to be involved with an S corp return. Not saying you should do what I do, and I'm sure there are others who charge much more, but just thought you might like to know some other parctices not too far from your neck of the woods)

[BHoffman]

Tuition

If I haven't dealt with a particular problem that could be considered relatively common before, I sort of look at a discounted or no-fee service as my paying some "tuition". The learning experience is worth something when I expect to see this same problem in the future with other clients. Out of the ordinary stuff always gets billed.

Agreed you don't charge enough for tax work. Why not let this service stand alone and then increase your tax prep fees instead of trying to juggle between the two?

You could easily charge the client $200 to handle the "lost" S election - how will they know it's a common problem or what it takes to resolve it? But, one of the questions I ask myself is this: As a professional tax preparer, is this problem common enough in the industry that I should know how to handle it? I don't usually tack on my "learning curve" time to that first client's bill if the answer is yes.

[NSNM]

Fax Form 2553 to IRS

I am not answering your question about the fee. But I want say where and how to transmit Form 2553 to IRS.

On page 2 of Instructions for Form 2553, two Fax numbers are provided to receive the Form 2553 by Internal Revenue Service (one at Cincinnati, OH 45999 Fax # 859-669-5748 and other at Ogden, UT 84201 Fax # 801-620-7116). You could simply fax your signed Form 2553 to one of two locations, depending upon the state where the corporation is located. My experience is IRS has always acknowledged in this procedure.

By the way the fax numbers given above is copied from instructions (revised - March 2005). Please check the latest instructions for any changes.

[AuditorTurnedGood]

Late Election

I recently had a situation earily like this one. We had managed to attempt to file the 07 1120S before we found out they didn't have the election. My "reasonable cause" was literally "thought it was taken care of, apparently not. Sorry for any trouble we may have caused" and the IRS accepted it without another word. I believe they really do just want the paperwork. (the company was incorporated in May of 2007 and we got them the election on something like April of 2008 and they were happy).

[erchess]

ok related question

The company filed for Incorporation some time in 06 and began business operations in August of 06. When was the Election Supposed to be made? To do what we are contemplating I have to act within 24 months of tie time the election was supposed to be made.

[AuditorTurnedGood]

It was due

The company filed for Incorporation some time in 06 and began business operations in August of 06. When was the Election Supposed to be made? To do what we are contemplating I have to act within 24 months of tie time the election was supposed to be made.

within 2.5 months of the incorporation of the company, or within 2.5 months of the beginning of the tax year in which you would like the election to be effective. The Tax Book has a great reference for this in their S-corp section. It got me through!