Discussion:Handling dishonest clients
From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.
From TaxAlmanac
Discussion Forum Index --> Tax Questions --> Handling dishonest clients
| 28 March 2007 | |
| What do you do about clients that you know are recording personal expenses as business expenses? I know that client has charged all of the fuel expenses for three big gas guzzlers to the business. Mostly they drive to and from work. Occasionally they might have to pick up parts. Also, charge all insurance costs to the business, but no way to know which is homeowners, which is shop and which is car insurance. Also charged truck payments for the son to vehicle expense. I just told them I cannot deduct the truck payments, only interest expense on the vehicle loan. I said last year I wasn't going to work with them this year because I didn't believe they were honest and here I am again!!!!! I didn't tell them that I wouldn't work with them. Argh!!!! | |
AugustaCPA (talk|edits) said: | 28 March 2007 |
| I would give them some soap-on-a-rope and tell them they will need it when they end up in a Federal Prison... | |
| 28 March 2007 | |
| Your response made me laugh. I really get frustrated with these clients who think they can charge all of their personal debts, etc to their business and it is okay. I think I have a soap on a rope at home, maybe I can give it to them at the next meeting when we discuss their taxes. It seems that a lot of people have been told they can charge all kinds of expenses to their businesses and get away with it. I had one guy who made purchases at the diamond store for his wife. Thank goodness, he prepared his own taxes. He didn't want me doing his accounting after I questioned several purchases including golfing tournaments, ski trips, etc. | |
Chris2lane (talk|edits) said: | 28 March 2007 |
| Shirley, you question that you don't know how their insurance expenses are made up. You can find out by looking at the cancelled checks and if that doesn't help, ask to see the policies. If any of my corp. clients bring in info and the #s don't seem right, I ask for verification. | |
AugustaCPA (talk|edits) said: | 28 March 2007 |
| The following happens to me at least five times a year: a client wants me to prepare his return one way to show the bank or mortgage company when he/she is trying to buy a house, etc.; then prepare the return another way when it comes time to file and pay taxes. Do they realize they are asking me to 1) break the law, 2) violate ethical standards, 3) flat out lie, and 4) risk losing my license? | |
Corptaxhelp (talk|edits) said: | March 28, 2007 |
| One of my good friends teaches advanced particle physics at an ivy-league university. On the first day of class, he explains his cheating policy. It is simply: if you want to cheat, go ahead. Cheating is the way of the world and if you can cheat and get ahead, go for it. However, if I catch you cheating, I will make it my life's work to see that you are expelled from this university and that my peers at every major university in the country will know why you were expelled. I'll make sure that the government contractors who call me looking for researchers know your story. The world of particle physics at this level is small and I have been at this long enough to know everyone. So, if you choose to cheat, don't get caught.
I have a similar policy with my clients: If you're going to lie to the IRS, you have to lie to me first. If you can fool me and you pass the sniff test, then more power to you. My liability policy only says I have to make a reasonable effort to ensure my clients are telling me the truth about their situation. It does not require me to give them a polygraph test. However, if I think you're lying to me, I won't work with you. And, if I have facts that show you are stealing money from the government, I have no problem with turning you in and collecting a reward. As an aside, never confuse avoidance with evasion nor aggressiveness with recklessness. | |
| 28 March 2007 | |
| Just to get some perspective. When most of you prepare returns for a Schedule C client, do you ask for a copy of their General Journal or just a trial balance and P&L?
With regards to their cancelled checks, I do not have access to those. However, I know from talking to the owner last year that they had their homeowner's policy charged to the business. | |
| March 28, 2007 | |
| Corptaxhelp, That is some good stuff there. I wonder if my partners would let me put that in our engagement letter.
So what does a Tax Pro and a Particle Physicist talk about over a beer? Or do you both just sit there and think? | |
| 28 March 2007 | |
| skq: The numbers are management's responsibility, get that engagement letter signed first off. If you see something that stands out, however, you have a duty to question it. A Sched. C business has a much better chance of drawing an audit, and I get the feeling that the IRS is going to be much more willing in the coming years to apply the negligence penalty. | |
Corptaxhelp (talk|edits) said: | March 28, 2007 |
| PVVCPA: When we were single, women and cars. Now it is wives and kids. Oh, how the mighty have fallen.
(I once explained the AMT to him as a spurious anomaly of a quantum irregularity in a parallel universe. After a couple beers, that explanation made about as much sense as anything Congress or the IRS has come up with.) | |
Chris2lane (talk|edits) said: | 28 March 2007 |
| Shirley, it all depends on the relation I have with the client. If the client has never given me the inclination that they're "hiding" something, I run with the trial and P&L. But if it's a newbie or a client that's giving off a vibe, then I ask for the GL and bank statements. You say you don't have access to cancelled checks. Is that because client refuses to give them to you or you haven't asked for them? At all costs, draw up the engagement letter. If you think he's cheating you may have to let him go. Good luck. | |
Bottom Line (talk|edits) said: | 30 March 2007 |
| You need to determine if the client is trying to cheat or simply doesn't know any better. If he's trying to cheat, fire him. If he doesn't know any better, educate him. I have a client that wants to run everything through his business. Fortunately his bookkeeper is very astute. She enters everything like he wants it. Then when I pickup his QuickBooks file, we review the transactions for the fat. We transfer that fat to distributions on my copy of the QuickBooks file. I then file the return using the corrected numbers. | |
| 4 April 2007 | |
| I think the best solution is to fire the client. They had a business before, and probably should know better. I don't have access to the cancelled checks because I am sure the wife will not let me near them. Even when I run off something in their office, she comes to see what I am printing and doesn't want me taking anything out of the office. I have, however, backed up the Quickbooks onto a flash drive. | |
| 4 April 2007 | |
| If you really don't trust them -fire them. However, I always give the benifit of doubt & assume that they need to be educated. I explain that business expenses must be related to the business- period. I use the common sense approach - is this something that you would pay for out of your own pocket if you worked for someone else? (auto costs & insurance, country club, vacation, medical procedures, etc) if it is then it is clearly personal. Also - who owns the vehicle, the owner personally - then related expenses are personal. I find that some clients will try everything but when questioned, they back off the business deduction. | |
Bottom Line (talk|edits) said: | 6 April 2007 |
| If they don't trust you that much, they'll turn on you if there's a problem. Fire them. Too many good ones out there. | |
Gmacdon167 (talk|edits) said: | 6 April 2007 |
| SKQ - I think you continue to answer your own question. You will never forgive yourself when the excrement hits the fan. | |
| April 6, 2007 | |
| Or tell them that you cannot prepare a return that you know is wrong, then let them fire you.
I met with a client to prepare their 2006 return and do some planning for 2007. She just called me back to thank me for the many years of service and to let me know I will be fired for next year. She also asked that I throw away those planning notes. | |
| 6 April 2007 | |
| WHAT??? Did you do something wrong??? People like that are NOT needed!! I hope you charged for the '07 info!!
DJ | |
| April 6, 2007 | |
| I did nothing wrong. She was unpleasantly surprised to find out that she did not get an increase in basis on her residence when she got divorced and had to buy her ex-husband's equity out.
She asked, "But who will know?" I replied, "The IRS will know when they audit you. And I already know so now I can't do next year's return." She was very understanding and apologetic. Soap on a rope. That is very funny! We all should have about 5 of these hanging in our office, so our clients will ask what those are for. | |
Michaelstar (talk|edits) said: | 6 April 2007 |
| Corptaxhelp - I have never seen it put into words in such a way but I agree with you and your buddy 100%. My only problem (and it is with me only on this) I do not believe I can turn in a client to the IRS for cheating (privacy issue) for one and two - even if I could I would not need to take any money because I would just feel good turning the xxxxxxx in. | |
| 6 April 2007 | |
| I have a new client, most income comes from share of family rental. Has a business appraising homes. Grosses about 18K, wants to expense about 12K, PLUS taking a home office deduction of 25% of her house. To top it off, she had 9K in mileage (where were these homes?!?). The best part was the envelope of receipts listed as 'Marketing'. They were all restaurant receipts. The last preparer put it under advertising. I won't do that. I'm also fighting her on the home office deduction. I have a feeling I'll get fired if I push it too hard though.
As far as the soap on a rope theme - we always ask if the TP looks good in stripes. :-) | |
Bottom Line (talk|edits) said: | 6 April 2007 |
| Never be afraid that you're going to get fired for doing the right thing | |
| April 6, 2007 | |
| Life gets so much better when they leave. Think of the poor schmuck that ends up with all of these clients. | |
Bottom Line (talk|edits) said: | 6 April 2007 |
Maybe they can go to JH and get help there 
| |
| 6 April 2007 | |
| I just handed a return to a client that showed his Sch C business has a $15k loss. Upon that he said he didn't want to report a loss. He then went on to say that he probably he more revenue than the $200k he told me because he had about $450k in bank deposits! I looked at him, read him the riot act about Sch C filers and how the IRS will be focusing on them to close the tax deficit over the next few years and told him to come back with the correct revenues for the last time. And I'll be charging him for all my extra time! | |
| April 6, 2007 | |
| Sounds like he is going out to get some financing. Everybody misses those days of stated income loans. When you could lie to both the bank and the IRS at once. | |
| 6 April 2007 | |
| Or he heard that the IRS is going after 'losses', so he'd like to claim just enough income to get rid of the loss. | |
Bottom Line (talk|edits) said: | 6 April 2007 |
| Of course the stated income days were when we were getting requests for what I called "stupid letters". | |
| April 6, 2007 | |
| LOL "Stupid Letters". I'm sure gonna miss those. I once had a lender request that I state that my client was "a man of good character." Or another lender wanted us to state that our client's access to his own business bank accounts would not hinder the ongoing operations of his business. Yeah! Right!
Who was coming up with this crap? | |
Bottom Line (talk|edits) said: | 6 April 2007 |
| As a former credit officer at a commercial bank, if a lender had come to me with one of those much less tried to tell me that it was a reason to make a loan, I would have gone straight to the Senior Lender and the loan officer would have been out the door before the day was over. Mortgage lenders are an entirely different beast and have no idea how to evaluate credit. Generally all they can think about is saying how many people they were able to get into houses. Who cares if they can make the payments. | |
| 6 April 2007 | |
| PVV - funny you should bring up the divorced client - I had someone come to me with the same scenario. After we talked & talked about what is & isn't basis, the 250K exclusion etc she cancelled her appointment & decided to go elsewhere. Didn't bill her for my tutalage either....just crossed her off the list | |
To join in on this discussion, you must first
log in.
