Tax Problem Resolution Fees, Part 3 of 3

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.