Can we charge for more work?

[S T]

It seems that IRS is planning to increase enforcement for underreporting of income.

There will be a "new letter" CP2057 which will request of targeted taxpayers to review and check their filed returns and then possibly file an amended return. Could this possibly be some of the DIY group?

Here is a link to review http://www.webcpa.com/article.cfm?ar...m=irs%20notice

Hopefully none of my clients will receive this notice!

Sandy

[taxea]

Can we charge for more work?

My written engagement agreement with clients specifically states that the fee they pay is for preparation of their tax returns and does not include any additional work that may occur should they receive correspondence from any taxing agency.

The only time I don't charge an additional fee is if I made an error. taxea

[OtisMozzetti]

State was doing the same with mileage logs

I read in the state website that they the state tax authority were doing what I consider the same with the question of whether taxpayers had substantiation of their business mileage.

[JohnH]

Speaking of charging for more work (or maybe I should really say charging more for work), I was reviewing an engagement letter from a law firm recently, and they had some interesting verbiage.

After stating that most statements are simply "the product of hours worked multiplied by the hourly rates for the attorneys and legal assistants who did the work", they then add something else.

The next paragraph says that if the firm plays a "material role in obtaining a result with benefits to the client which are disproportionate to the time expended", the firm may "bill a fee which exceeds our base hourly charges in order to more fairly reflect the value of our serivces to you."

Any comments?

[DaveO]

I saw one of those

Couldn't see why a CP2000 wasn't sent. Non reporting of some mutual fund sales was the problem and easily fixed. You know, "We didn't sell them just, we just exchanged them".

[erchess]

Were These Tax Attorneys?

Speaking of charging for more work (or maybe I should really say charging more for work), I was reviewing an engagement letter from a law firm recently, and they had some interesting verbiage.

After stating that most statements are simply "the product of hours worked multiplied by the hourly rates for the attorneys and legal assistants who did the work", they then add something else.

The next paragraph says that if the firm plays a "material role in obtaining a result with benefits to the client which are disproportionate to the time expended", the firm may "bill a fee which exceeds our base hourly charges in order to more fairly reflect the value of our serivces to you."

Any comments?

I believe that Circular 230 would prevent such activity in relation to practicing before the IRS and I believe that the IRS forbids any preparer from charging based on the size of the Refund but I do not know whether there is any such prohibition with regard to Attorneys generally. Are there any Attorneys who use this board?

[Black Bart]

Yeah,

Speaking of...charging more for work...an engagement letter from a law firm...says that if the firm plays a "material role in obtaining a result with benefits to the client which are disproportionate to the time expended", the firm may "bill a fee which exceeds our base hourly charges in order to more fairly reflect the value of our serivces to you."

Any comments?

The law firm's absolutely right and I don't think IRS has any say at all in how we structure our fees unless maybe we multiply a set high percentage times the amount of refunds. It's none of their beeswax.

Many times our applied experience and expertise benefit clients much more than just total case hours. Last winter I got about $3,800 of late filing penalties (plus interest on them) abated for a client because (I believe) I had developed a rapport with the case agent on previous cases. Our claim was first rejected (poor payment record) -- I had asked for the one-time penalty abatement. As a favor, the agent agreed to submit it a second time with a positive recommendation and it flew. A CPA had told my guy it couldn't be done and I just wallowed in that one -- enjoying it immensely.

Anyway, I billed him $800 -- much more than usual for me, but I felt, then and now, fully justified, and deserving. Who is IRS to tell me what my work's worth?

[JohnH]

Bart: I like the way you think there. I'd add more to the comment but right now I'm preoccupied - busily changing some of the wording in my engagement letter.

[Burke]

Couldn't see why a CP2000 wasn't sent. Non reporting of some mutual fund sales was the problem and easily fixed. You know, "We didn't sell them just, we just exchanged them".

I think these letters are ridiculous. Unreported income is usually 1099 income the TP either knows nothing about, or forgot because they didn't get the form. How many people do you think are going to answer these? Are they going to be able to respond with a request as to what the IRS is referring? If they owe anything, it is just going to delay the reporting process and add interest/penalties.

[taxea]

Can we charge for more work?

Just a few thoughts...

it sounds to me like the law firm is basing their fee on what amounts to a refund to the client and that is what is not allowed. The fee being charged should be based on the work done, not the outcome of the work done. Believe me if the client had ended up owing more taxes the attorney would not lower their fee.

The client may think they just exchanged stocks but they have to actually sell one stock to buy (exchange it for) another. I hate it when clients get into investments and don't know what is actually happening...it leaves me to explain it to them. My checksheet asks for the end of year statement from each investment company so I can catch the sales...not all 1099's look like 1099's some look like regular monthy statements and most clients don't pay any attention to them.

Lastly, the issue of the state checking the mileage is an audit...In Hawaii the state has finally started checking business return income against whether the client has paid the state general excise tax....an issue that is long overdue but warranted. taxea

[OtisMozzetti]

state checking the mileage

...the issue of the state checking the mileage is an audit...taxea

What the state had in their website was a form letter addressed to those who claimed business mileage. It merely outlined the state's statement of what is needed to substantiate mileage, and asked that those who had that substantiation to sign the form that they had it, or else to submit an amended return with payment.

I guess there is no sense differing about our respective understanding of the meaning of the word "audit".

[Snaggletooth]

There are billing guidelines

I believe Circular 230 DOES address price lists, and the frequency/duration with which you may change them. I can't possibly see how any of that can address a restriction on billing for notices such as the CP2000 and the new one Sandy mentions.

These notices DO become a nuisance. This new one is very likely to scare the DIY crowd, and they may be coming to us because they think the IRS is "on their trail." More terror tactics.

Fact of the matter is more than 50% of all CP2000 notices that I see are incorrect - either partially or entirely. Every other tax practitioner I know has a similar experience with them. The IRS would be better served by cleaning up their mess on CP2000s than to introduce another CP format when they haven't apparently done a thing to clean up their act on any of these notices to begin with.

[Black Bart]

Well, I'll listen to reason, taxea, but

Just a few thoughts...

it sounds to me like the law firm is basing their fee on what amounts to a refund to the client and that is what is not allowed. The fee being charged should be based on the work done, not the outcome of the work done. Believe me if the client had ended up owing more taxes the attorney would not lower their fee...

don't attorneys routinely get 25% of what they collect for the client in a lawsuit? They're pretty open about telling clients that upfront. While, I suppose, attorneys and accountants are bound by different rules (we aren't -- I think -- supposed to charge a percentage), is there any way we can get paid for our part in generating a large windfall for a client? Or are you saying that unless we (like F. Lee) tell 'em in advance that we charge $1,000 per hour, then we just have to suck on our $50 per from then on no matter what we gain for them?

Many of us charge different rates for a clerk's time than for our own tax prep hours -- would you say it's alright to raise fees if clients are notified in advance that such "quality" time would be much higher?

[OtisMozzetti]

when a contingency fee is allowed by Circular 230

Bart: I like the way you think there. I'd add more to the comment but right now I'm preoccupied - busily changing some of the wording in my engagement letter.

So, I ran out and re-read Circular 230. It describes some rules which became effective March 2008 about fees.


It says that "unconscionable" fees are never allowed.

It also says that "contingency fees" are allowed only under certain circumstances. Contingency fees "include" fees which are a percentage of the refund obtained; I guess that the best description would be "fees based upon the outcome".

The circumstances under which contingency fees are allowed are #1. in connection with IRS examinations, #2. claims filed solely for the abatement of interest and/or penalties, and #3. judicial proceedings.


#1 and #2 leave a lot of room for value-based pricing by tax professionals!

[Davc]

It says that "unconscionable" fees are never allowed.

So lawyers aren't allowed to do tax prep or rep anymore?