The American Society of Tax Problem Solvers TAX SPLASH

It’s time to wrap up this series of posts with some issues concerning terms of payment, collection issues, and structured fees for tax problem resolution cases. Collecting fees in advance is one of the most controversial areas of tax problem resolution work. This is because of the bad actors in the industry including JKH, Tax Lady, and the currently under suit Tax Masters.

There should be no issue with paid-in-advance fees, but thanks to the aforementioned rip-off artists there are such issues. The real problem isn’t paying in advance, it’s with the lack of performance of the promised services. If the bad actors had delivered as promised there would be no controversy around advance payment. In fact, people who owe the IRS expect to pay in advance. They know professionals cannot work without pay and that anyone who can get behind with the IRS might have little trouble ignoring our fee once the IRS problem is resolved.

So how should you handle getting paid? Well, the best advice is to get paid in advance. You will eliminate write-offs, time-wasting collection activity, and avoid unpleasant surprises for clients. Being a cautious practitioner, you should hold advance payments in escrow until earned or be prepared to refund unearned amounts should you decide to terminate the engagement before resolution. This might happen, for example, if your client is unresponsive or uncooperative with providing documents needed to properly represent their case.

Lawsuits to collect fees are proof that you failed to follow the above advice and, worse than that, they are dangerous. The most common defense to a suit to collect professional fees is that the practitioner did not do the work or that the work done was sub-standard. In other words, professional malpractice. This is why insurers always ask if a practitioner has ever sued for fees, they then view the practitioner as higher risk for a malpractice claim.

There are times when a client can’t advance pay because of an IRS levy. You have the dilemma that you want the case, but must violate your collect-in-advance policy. Ask the client to secure enough money to cover the release of levy work only. Once the levy is released he can pay the balance of the retainer quoted. The client may get a family loan or permission to put the initial amount on a family member’s credit card. Trust that they can be creative when they are committed to resolving their tax problem. At the least, if you decide to trust them, cease work after gaining the levy release until they honor the arrangement made with you.

Design your billing and case tracking system to assure that you are not working beyond the amount collected and that you collect additional funds before the amount on hand is exhausted. This will avoid interruption of the casework pending fee replenishment.

It’s apparent that taxpayers in trouble with the IRS have somehow managed to ignore one of the most powerful collection agencies in the world. So, what would make you think that you are so special that they would pay you once you have removed the IRS thorn? If they can’t come up with your fee – how much can the IRS get from them? Protect yourself, your family relies on you and they can’t eat accounts receivable and you will still be in business to serve the clients who understand your value.

In part one, I closed the topic of tax problem resolution fees with a promise to cover fixed fee approaches here in part two. Fixed fee simply means telling your client how much you will charge for your services. It also implies that the amount is quoted in advance, before
work starts.

A fixed fee, quoted in advance, allows the client to make an informed decision on engaging your services. They know in advance the extent of the obligation they are making and should never feel blind-sided by your billing. Terms of payment, collection issues, and structured fees will be the topic of a future posting. But, for now, just note that the fixed fee arrangement permits clarity in this area too.

For a fixed fee approach, you could trust your intuition and experience and quote based on your best guesstimate. That approach is likely to result in either not getting the case or in doing a lot of unintended free work. This approach has another problem as it is difficult to explain to clients or prospective clients.

A better approach is to create a menu of services offered and based on your experience assign a fee to each part of the engagement. For example, you might charge $75 for filing a POA or $25 for each year of transcripts needed. Breaking the engagement down into smaller pieces makes it easier to estimate your fee. When pricing an OIC, you might break it down into 433-A preparation, 433-A planning, 656 preparation, and IRS negotiation. The level of detail you include is up to you, but should include each major step in tax problem resolution casework. To confirm the reasonableness of your services and fees
menu, review your actual time on each ste p of cases completed in the recent past. Once you have your menu of fees, track your actual cases and tweak the menu as appropriate.

The suggested menu eliminates a problem in quoting fees in advanced fees. It is self-explanatory. During your fee discussion, lay the menu on the desk and build the fee with the client. You will lead them through the process by stating the services they will require and listing the fee for each item. Once you have gone through this step, the client will be aware of how you calculated his fee. It demonstrates that you have a basis for the quote and that you treat every case the same, it isn’t a “whatever the traffic will bear” situation.

One common concern with quoted-in-advance fees is feeling locked-in to a fee when it turns out that the case has complications that were undisclosed at the outset. This is easily handled by advising client that the fee is fixed based on the information provided, but is subject to change if other issues come to light. Assure them that you will explain the need for any changes before commencing work that would result in added charges. Further, you will issue a change order that they will have an opportunity to approve or disapprove prior to incurring the added expense. If the client does not approve of a change order, you may find it necessary to withdraw and even refund any unused retainer. This is still better than doing everything necessary and then finding the client unwilling to pay for the work.

Pro Bono services are commendable, but you should know they are pro bono at the start, you should not find out a job was pro bono at the end!

Next time: Terms of payment, collection issues, and structured fees will be discussed