Discussion:Disengagement Letter
From TaxAlmanac
Discussion Forum Index --> Tax Questions --> Disengagement Letter
| 23 March 2008 | |
| Does anyone have a good disengagement letter that you would be willing to share? I have a client that doesn't want to amend their 2006 partnership tax return which I know is incorrect. The ending balances on the Sch L are wrong. Plus there was a gain of 69K that was not included for the sale of one of their rental properties. I've had the file for a few weeks and have been working on it on and off because it is a complex 1031 exchange. It was taking longer because I had to go back over the numbers from the previous year. I explained to the client that there were errors in the 2006 return, and that we should amend it. They agreed at first, but now that they know the magnitude of the change they said that they don't want to amend it now. They said that "We will cast our fate to the wind on this matter."
I was going to start off with new corrected beginning balances for 2007 based on what should have been filed. But, I think this may still get me in trouble if they are ever audited. Any thoughts on the subject are welcome. | |
| 23 March 2008 | |
| Cindy:
I can not give you a copy of my termination letters because it may constitute legal advise and I am not am attorney. The source for my termination letters was my insurance carrier for errors and omissions. My suggestion is to check your insurance carriers web page to see if they have sample termination letters for you to use. You could also call them. However, it does sound to me like you have admitted error to your client. I would suggest you talk to your insurance carrier about the details of this whole issue. Often, they have a claim prevention program to assist their clients in avoiding legal claims. Good Luck | |
Southparkcpa (talk|edits) said: | 23 March 2008 |
| Why so formal?
Simply send them a letter/ E mail stating Dear client, after much consideration, I believe that you would be better served by a CPA that sees merit to your position. My professional judjement is that you may be taking on undue risk with your 2006 tax return and I am not in a good faith position to defend the return. You deserve to have someone who can. Accordingly, I wish you luck . Done!!! I fired a client Thursday who brought in unfiled 941's etc.... I simply can't have their problem become mine. It is difficult to throw a client out who thought you would help them but one year from today you will be glad you did. | |
| 23 March 2008 | |
| I didn't prepare the 2006 return so I'm not on the hook for that now, unless I proceed with the numbers from that return which I know is incorrect. I think I will call my insurance company tomorrow to get their advice before I move forward. This will teach me to take on a complex return during busy season!
Happy Easter! | |
| 23 March 2008 | |
| Southpark - how are unfiled 941s your problem? If the client files them & you take it from here forward its not really a problem for you. At least I don't see it. | |
Southparkcpa (talk|edits) said: | 23 March 2008 |
| SZ,
I understand your point perfectly. They are not my problem, I am simply , after 17 years in my own practice, in the fortunate position to pick and choose clients at times. My experience has shown that non filed 941's are a sign of poor management. I currently do no payroll nor bookkeeping. I do not need clients with headaches, notices etc.... If I were Cindy, I would not take the other client and I see no need for a formal letter. Please do not misunderstand, when I dropped the client I told her "you need a young or new CPA" who is in need of the work and challenge. 5 years ago I would not have dropped her. | |
| 24 March 2008 | |
| Cindy said "I was going to start off with new corrected beginning balances for 2007 based on what should have been filed. But, I think this may still get me in trouble if they are ever audited."
IF and that is a big if, you can do the 2007 return correctly without using the information from the previous return, what is the exposure? That is a question and not a rhetorical question. The old Cir 230 requirment was: '10.21 Knowledge of client's omission. A practitioner who, having been retained by a client with respect to a matter administered by the Internal Revenue Service, knows that the client has not complied with the revenue laws of the United States or has made an error in or omission from any return, document, affidavit, or other paper which the client submitted or executed under the revenue laws of the United States, must advise the client promptly of the fact of such noncompliance, error, or omission. The practitioner must advise the client of the consequences as provided under the Code and regulations of such noncompliance, error, or omission. (The IRS has not published the revised Cir 230 on thier website, and I cannot find this as a change in the Federal Register , so I think it is still current.) Provide the client in writing the previous errors and the consequences of the omisson with the recommendation to amend previous returns. I plan to do this with a return in which the previous preparer screwed up on asset recovery period big time. Although, things are easier for me ... being retired and working part time to keep busy. What is the IRS going to do ... prevent me from working :) | |
| 24 March 2008 | |
| I agree with Snowbird's thinking. I don't tell clients to amend. I let them decide to amend or not after I tell them the facts and consequences. If you can't do the 2007 return correctly, then the disengagement is done for that purpose. | |
| 24 March 2008 | |
| Look over the AICPA's Statements on Responsiblities in Tax Practice. You may find the answer there for what complies with the rules and what action you should take including writing the client about actions you recommend, etc. I don't think you would get in trouble for preparing a correct 2007 return. As for the client you could look at it a couple of ways. Either they have some questionable approaches to taxes that you may object to in the future and you are going to lose them anyway, or they figure that if the prior accountant messed things up that badly it may be best to let it lie. Its hard to know until you get to know the client. I see nothing wrong with making money on a correctly prepared tax return. You may get them back on the right path. | |
