Discussion:Fire a client

My client keeps good records and pays his employees. The problem is that he doesn't 'get bothered' with the payroll tax issues at all. He just pays his employees. No withholding, FICA, unemployment, w/c, or even w2s.

He came to me late last year. I prepared his return (sch c) and duly showed the wages paid on the proper line...much to his dislike (his old guy used to bury it in COGS - sight unseen). I informed him of the multitude of problems that would be coming his way as a result of his actions.

I decided during the off season that his was a grief that I don't want. Is a simple certified letter enough; stating that I can longer provide my services to him because of the 'payroll deficiencies' and the potential liabilties to myself that may result?

Why not just provide a reason: his payroll reporting deficiencies? Skip the potential liability issue altogether.

What dates would I need to provide him?

I shouldn't need to speak with his new firm though. I didn't do any bookkeeping for him. He provided QB reports. It was just straight tax prep.

After substantial deliberation, I have decided that I can no longer provide income tax preparation services to you. I do not provide the payroll reporting services that your business requires. I feel you would be better serviced by a firm that can address your payroll/wage issues.

Be advised that the due dates for such items as: tax deposits and employer payroll tax returns for federal, state, and local are due 01/31/08.

I'm looking for short and to the point.

I have been in this business 25 years and have never seen the service come after a preparer for something like this although I know it happens.

Just send the letter and sleep better.

Thanks for all of your. I'll get this letter in Monday's mail.

Happy New Year to all.

I want to be straight with him. The bottom line is that I don't provide payroll reporting. However, if he does nothing (despite my urging for compliance) and I continue to prepare his taxes with wages reported, he will get a letter from the IRS...then my phone will ring. It's not just the '06 reporting, but the prior years as well. This will become a nightmare and I want no part of it.

I don't see a problem with being upfront and explaining to him that I can't give him the service that he requires. What can the negative side be? I don't think negative about my plumber because he can't fix my electrical.

During last season's consultation I advised him that his old preparer had been incorrect in burying wages as COGS. I went to explain that I had to properly report the wages and in doing so it could open up a can of worms for him.

This has been sticking in my craw during the entire off season. The only reason I'm providing the letter is because he showed up last season on 4/2. I want to give him a heads up that I won't be providing him tax prep.

Please help me understand this a little better.

I understand RG's concerns about working with this client and his unwillingness to continue to do so. I wouldn't suggest he ignore his gut. He should fire his client if that's what he feels is the right thing to do.

My question...

Since,

• RG doesn't provide the payroll service, and
• RG has advised client about what he must do re: payroll (and has documented this),

... where is RG's potential liability if he either continues to work with client *or* if he fires him?

Just wish to clarify that - That is NOT totally incorrect IF the client is in the business involving direct labor. I have a few landscapers where I show the salaries for the employees directly involved in performing the services in the Cost of Goods Sold section - and put the administrative salaries on the face of the corporate return where they belong - or on the Wages and Salaries line of Schedule C.

What is really important is that you reconcile the total wages for the year and show them on the tax return on the appropriate lines for "Salaries and Wages".

Regarding the client's not paying the payroll taxes - I feel that it's incumbent on you to explain to him -preferably in writing - that based on the services you provided - it's clear that he would be subject to severe consequences of withholding trust fund money (whether payroll or sales taxes) and diverting the use and not turning it over to the government.

There are two important issues here. DZCPA hints at these.

1. Your client is living off the proceeds of crime. He is using money he should have paid over to the government. Therefore he is evading tax which is itself a criminal act. What requirements does your State law impose on you and what requirenents does any professional associations you belong to require of you (in this country, the UK, the adviser would automatically have to report the tax evader to the government's Serious Organised Crimes Office)?

2. Speak to your insurers before you act in case there is any legal possibility of you being held partly culpable.

At any rate, GREAT decision to resign. The situation just can't turn out well.

I can almost feel the lift you'll get when the letter of resignation is dropped in the mail! It will be a great start to the new year for you.

I never thought dropping a client could be such a hassle. It seems that there are two camps of thinking here: 1) General/Vague - Just inform client that I will no longer services. 2) Slightly detailed with mention of payroll issues and upcoming due dates.

Why do I get the impression that I'm damned if I do and damned if I don't? I know that I've done nothing wrong. Hell, I could forego the letter and if the client seeks me out during the season, I can decline then. That seems unprofessional though.

Kev - thanks for the link - I ordered the report to keep for future reference.

After substantial deliberation, I have decided that I can no longer provide income tax preparation services to you effective immediately.

It's a one liner with nothing more to say. This will go in tommorow's mail.

This is a bigger issue than (How do I word the letter"

KenS

On the other hand, if you have knowledge that a client pays a household cleaning person $50 per week, and has no plans to file 941's, then you WOULD be precluded from signing the 1040 because the return would be incompelte without a Schedule H to report the wages paid and compute the related tax liability.

The TP is reporting the wages paid. As a paid preparer, why would I be responsible for ensuring that the TP filed/paid the payroll taxes?

I am in California. Our State Corporate returns have a checkbox where the taxpayer certifies that all information returns (W2, 1099, etc.) have been filed. If they haven't been, the related expenses can be disallowed. If the preparer signs on the return KNOWING that they haven't been filed, then they are liable for state preparer penalties. The state takes the same stand ON ALL RETURNS, no matter what entity and whether or not there is a checkbox.

Upon IRS audit IN THIS AREA, they review this and tend to take the same stand. The hinge point is whether or not the preparer knows OR SHOULD HAVE KNOWN. We ask the question & request copies to aliviate any problems.