Collection from a Delinquent Client

[Uncle Sam]

I'll ask the question first - then give facts.
Would I be in violation or in breach of professional ethics if I were to divulge specific account information of a client in order to obtain collection from income execution on a delinquent account?
Client has not paid for 2007 tax return. Sent a few reminder notices, no response.
Hides behind voice mail on home and cell. Went to small claims court, obtained a judgment. Still no money. Made the proper filings with the County Sheriff for a "property" execution rather than an "income" execution.
property execution - lien goes against any property owned.
income execution - levies money against a bank account, garnishee wages.
Client lives locally, rents an apartment locally, but owns a coop rental with a mortgage in another section of state, and owns real estate in another state.
Taxpayer is self-employed (set up business in other state before moving to my area), and wife had different W-2 jobs and most likely isn't employed by any of them now (because I remember being told by client that wife had a new job in 2008.

The only account that I'm aware of (since information on it was on the return) is a bank account - bank name, and account number. All other information I received from client was handwritten on worksheets rather than from actual tax return documentation.

My question is - would I have a professional liability issue in going to the Sheriff and providing bank name AND ACCOUNT NUMBER, when normally a third party suing another party for a civil matter would usually only have name, address, phone number?
So - would I be open to be sued by client for using confidential information I have due to the tax preparation?

[Snaggletooth]

Breach of Ethics

Uncle Sam - I think you would be in violation. Not that you don't deserve the money, and it's probably exactly what the deadbeat should have happen, but the question becomes "Do the ends justify the means?"

I'm not sure if this is a Cir 1230 violation, but probably a state banking regulation which forbids use of account information except for authorized purposes. Of course the state which passed the regulation could levy the account without as much as a court order.....I wish government would for a single day be forced to live with the same garbage they expect us to live with.

[S T]

State Laws

Not only dealing with the IRS Circ 230 issues, but you probably have to look to your State Laws.

On small claims that I filed in Calif, and received favorable judgment, I then had to re-serve the party and have them do an appearance for "asset and employer listing"(I think it has another title), which would provide the information if they did not pay on the spot at that point.

I think your knowledge of the account from the tax preparation info gathering is out of the realm for collection, as it was provided in confidence from the client to the tax preparer, so you might have to proceed taking the "long" way around.

Sandy

[Burke]

Your obtaining a "property judgement" where a lien was placed on his property will eventually generate your income for you, as he will be unable to sell the property until this is satisfied. He will also be unable to borrow any funds or get credit until this judgement is removed from his credit record. In both these cases, the proper authorities will contact you at which time you can calculate interest to date and render them an updated figure. As a last resort you might try this. One of my colleagues (an EA) had the same situation one time. He wrote the TP a letter and advised if he did not receive the outstanding fee within X period of time, he would contact the IRS and have his name as "paid preparer" removed from the return. It worked.

[OtisMozzetti]

Issues about payment for tax services

Client has not paid for 2007 tax return. Sent a few reminder notices, no response.
Hides behind voice mail on home and cell. Went to small claims court, obtained a judgment. Still no money.

Let me just put out some general issues, without pretending that I have all the answers or even any of the answers:

Has this client been provided with the 2007 return, and has it been filed? Some tax professionals won't release their work product to the client, not unless payment is made. Checks and credit cards can be checked for authorization before, not after, the tax return is released to the client or before the tax return is e-filed.

Of course, with the above approach there is always the worry about Brain-Tappers who get you to work on preparing a return, only to maybe never receive and pay for the return. If the return will require a lot of your time, then some retainer payment could be required before the work begins.

[Uncle Sam]

Collection from a Delinquent Client

This was a first time client. Had he been a prior year client - I wouldn't hesitate in using the bank account information from a deposited check from a prior year - because that's general information that anyone can get from being issued a check.
The thought of removing my name as preparer - I thought of that - and HAVE used it in prior years for others - and HAS WORKED.
But the thought came to me - what would happen if after I send the letter out - time elapses with no money - then I send the letter to IRS - THEN I finally get paid. Would I be obligated to then notify IRS that I am back to being a "paid preparer". I don't think IRS cares one way or another. To them - so long as I prepared the return - my name goes on.
Do you remember the Zenith TV commercials from years ago -
"Quality goes in before the name goes on".

[JohnH]

This one has been beat to death on prior threads, but I lean in the direction that you are a "paid preparer" when you issue the invoice, regardless of whether or not you actually collect the money. So as a practical matter, you really can't have yourself removed as the paid preparer just because the client doesn't pay.

Others will counter that threatening to have yourself removed is sufficient to scare some clients - if that doesn't work then following through on the threat & actually notifying IRS accomplishes nothing since they won't honor the request anyhow.

I don't know which of the above approaches really matters, but somewhere inside I have this feeling that making an idle threat somehow brings me down to the level of the deadbeat client. That's just my personal feeling and I don't apply that to other preparers who have a different opinion.

At the end of the day I just decide that I'll follow the advice given to me years ago by my father-in-law who sold real estate and never required written contracts from his customers - if I trust someone and they beat me out of $200, then at least they will never have the chance to beat me out of $2,000, so I'm $1,800 ahead. In the long run, knowing something this important about their character is worth more than having a few of their dollars in my bank account.

[Bees Knees]

Nothing in Circular 230 says anything about a paid preparer. It only refers to a person who has signed the return as a preparer. If you signed the return, you are subject to Circular 230, regardless of whether you actually get paid or not.

[Bees Knees]

I found this at Reg. Sec. 301.7701-15

(4) A person must prepare a return or claim for refund for
compensation to be an income tax return preparer. A person who
prepares a return or claim for refund for a taxpayer with no explicit
or implicit agreement for compensation is not a preparer, even though
the person receives a gift or return service or favor.

Seems to imply that if you have an explicit or implicit agreement for compensation and you prepare the return, you are considered an income tax return preparer subject to the rules for signing the return. I don't believe you can take your name off the list if the client fails to pay. You had an agreement to be paid. You prepared the return. You signed the return. You are the income tax return preparer, subject to all applicable rules as such.

[ChEAr$]

I have to agree

I found this at Reg. Sec. 301.7701-15

Seems to imply that if you have an explicit or implicit agreement for compensation and you prepare the return, you are considered an income tax return preparer subject to the rules for signing the return. I don't believe you can take your name off the list if the client fails to pay. You had an agreement to be paid. You prepared the return. You signed the return. You are the income tax return preparer, subject to all applicable rules as such.

And have to wonder just what the reaction of an IRS person who receives and actually reads such a letter that seeks removal of preparer name due to non receipt of a fee.
Something like 1. rolls eyes, 2, tosses in circular file, 3. flushes it down the commode, a la Philadelphia service center years ago.

[Snaggletooth]

IRS treatment

He wrote the TP a letter and advised if he did not receive the outstanding fee within X period of time, he would contact the IRS and have his name as "paid preparer" removed from the return. It worked.

I believe it is a stretch of the imagination to believe IRS would entertain removing one's name as a paid preparer, and several posts have been made outlining this.

However, if the above-quoted strategy brings in uncollectible money, is it wrong? Just because IRS won't follow-through on their end does this mean that the strategy is unethical? Is it unethical to threaten with something known to be inert?

[Burke]

I think the strategy here is just the threat works. I never heard of anyone actually requesting this from the IRS. As mentioned previously, OP took all the appropriate legal actions to get his money and he will get it eventually, it just may take some time. Those liens won't go away. You can look at it as an investment, just sitting there accruing interest.

[Bees Knees]

I don’t like saying anything that isn’t true. Claiming to ask the IRS to take your name off their tax return is untrue if you do not actually do it.

The client agreed to pay you when he/she asked you to prepare a return. You prepare the return, send all copies back to the taxpayer with instructions along with your bill. When the client does not pay, send a second bill, then a third, etc. When you determine the bill is uncollectible, send the following notice of termination:

“I have terminated you as a client for failure to pay. As a result, I will no longer represent you in the event the IRS chooses to examine your return, or question information presented on the return. Should the IRS choose to initiate a possible tax evasion investigation, I am required by law to cooperate with the government. I may be required to turn over any evidence I have in my possession to the government, and nothing in my file concerning your tax information is privileged information.”

All of the above is true. None of it implies anything beyond the possibilities that could become reality. If the client reads something into it that isn’t there and decides to pay you, fine.

[Burke]

I rather like that approach.

[ED SMITH]

There is a way to legitimately get his bank account number. Have a friend send hima small check, say $10, with a little note 'thanks for your help'. He will scratch his head for a while and then deposit the check. Your friend will get the deposited check back, or at least a photo copy and on the backside his account number should be visible.

This was told to me by an old friend who was an attorney-in-fact and traced lost heirs and bank accounts.