Accountant charged me to respond to IRS Inquiry?

24 Replies

I received a CP2000 notice from IRS and send to my accountant who prepared taxes. The inquiry was resolved with a simple letter to IRS explaining where income (rents) were accountant for in LLC return.

The issue was resolved but I just received an invoice from accountant.  

It seems to me that since the accountant prepared the returns that I shouldn't have to pay for the response.  The fees the accountant charges for tax prep are very high.

Should I pay for the response service or not?

@Robert M. Sorry, but I disagree. You should pay the accountant. 

You hired the accountant to prepare your tax returns and defend those tax returns. It sounds like he defended the tax returns successfully, so I don't understand what the fuss is. 

Now, if his preparation resulted in an error in which was no fault but his own and you had to amend your tax return as a result, that's when I can understand balking at paying the fees to amend the tax return.

Defending you from the IRS is part of our job (normally). It's something we know how to over non-accountants and we ought to be compensated for that service, wouldn't you agree? 

If you received an engagement letter from the accountant, there is probably a section that discusses IRS defense. I'd review that. Otherwise he should have told you prior to taking it on that he was going to bill for the work. 

Mr. Hall is providing invaluable advice for you. Please keep in mind, you may face legal problems from failing to pay the amount depending on the terms of the engagement letter. Failure to pay could result in the account being sent to collections, your rating taking a nose dive, and all kinds of negative externalities could crop up. Review your engagement letter and if you are concerned, speak with an attorney in your state.

@Robert M.

Every CPA firm has their own approach to fees and billing structures. Some firms bill for every bit of time used to service their clients, and some don't. 

Personally, I don't see the necessity in billing clients for every small matter such as responding to the IRS. I've learned by now that having templates on file for boiler plate responses by the IRS (such as a CP 2000) are the best way to handle this sort of issue. Countering a boiler plate notice from the IRS with a boiler plate response from the firm accomplishes two things:

1.) Makes compliance with the IRS more streamlined and instantaneous and,

2.) Allows us to provide courtesy services to our clients without the fear of getting nickle and dime'd for every task we accomplish for them. 

In your case, I don't see the necessity in billing if the task takes less than 15 minutes. With CP 2000's, often a boiler plate response allows the CPA to accomplish the task in less than 15 minutes and as such, would allow them to not bill you.

That's my approach, at least.

Nathaniel Busch, CPA

An accountant sells his time and knowledge.  You took both from him.  There was no error in his work.  If you do not like being charged for those services then do them yourself or hire an accountant who works for free.  Do you expect your renters to get to stay in your houses for free?  That is the service you are selling.  If I was your accountant and charged for that service and you chose not to pay me, I would say no problem and redact the bill then send you all your files saying we no longer are your accountant.

Hard to know for sure because each situation is different, but I would bill for this service if it wasn't included in the original engagement letter. 

Next time you can try to respond yourself or ask them if they offer audit defense on next years tax return for a % of total fees.

Not an accountant so just my opinion as someone who pays a large amount each year to my accountant, I think I would switch accountants if they charged me to send a letter requested by the IRS requiring an explanation of how they actually prepared my taxes.  If it was something about incorrect information I had provided to them, that would be completely different.  If it's related to their work that I already paid them, the professionals, in order to avoid any confusion or error, then they should take care of it.   

Robert,

  I'd say pay the accountant, btw how much are they asking from you to send the irs a simple letter?

  Why did the irs not understand where the income/rent $ come from? Was it not properly documented in your return by the accountant? If that was the case, I'd question the accountant why he expects you to pay to fix his sloppiness? Perhaps he'd second think the billing to keep a happy customer, than to make an unsatisfied one. Bad news/will travels much, much faster than good news/will.

Thanks all for your insights.  I don't have a formal  engagement letter with the accountant.  I was refereed by a friend  and have employed their services for 8 years.  This is a high end firm and I am paying a significant premium for their services.  

I am guilty of not asking questions of fees etc.  My fault and I know it.  I just feel like as much as I am paying for tax prep this simple task should be included. @Nathaniel Busch  yes I do feel like I am being nickle and dimed and will be very weary of engaging the accountant moving forward.

Another question.. is it reasonable to assume that the the accountant should have informed my he was going to bill me $400 to send a simple letter at the time I engaged him?

I am not saying I am not going to pay...just doesn't feel right the way it was handled.  

When I charge for tax preparation, it is to prepare the current year's tax return.  If any of my clients were to ever receive an IRS inquiry letter due to my error or due to a questionable position that I advocated they take, I would respond to the IRS as a courtesy.  This arrangement is stated in my engagement letter.  This, by the way, is by far the most difficult scenario to resolve outside of an actual audit letter, so taking this on for free means that I truly stand beside the work I do.

However, for randomly generated letters of inquiry or IRS computer mismatch letters and other items that are not my error or fault, I first determine a few things:

1.  Am I likely to retain this client through the following year.

2.  How long will the response take me.

If this is a client with whom I have some longevity and whom is likely to be retained, I will sometimes prepare a response as a courtesy if it is the off-season and it will take me no longer than 20 minutes to document the issue, write the response and send it off.  If the issue will take longer than 20 minutes or it's a client who is tenuous for being a repeat client, or I am in the middle of tight deadlines, I will estimate the amount of time it will take me, give the client an estimate and ask them if they still want me to proceed.  Most people don't check their engagement letters, so I don't like to surprise them with a bill if I think they weren't expecting one.

The following year at tax time, before I prepare the client's bill, I will run a report of this type of unbilled time.  If there was a lot of unbilled time, I will occasionally increase their annual bill for tax prep, particularly if the amount of support they require throughout the year seems to be a trend.

But I try not to nickel and dime for tax work, although I do send out rather small bills on a monthly basis for bookkeeping work, I'm sometimes embarrassed.  But when your business is so simple that it only took me an hour to complete a month or even a quarter's worth of bookkeeping, a $25 invoice seems ok to me.

Hi @Robert M. ,

I'd give them a call and inquire as to the charge. They may respond with

1) Oh yeah we had to get 37 different forms in triplicate from the state and county which resulted in a review of a new tax thingie.... requiring all 7 partners to call a meeting with officials from Fish and Wildlife, but in the end we only had to send that form. And you can say "WOW, ok here ya go"

2) We charge a 1 hour minimum and even though it took 10 minutes that's what we do (And then you can decide if you want to stay ...after paying of course)

3) Oh gee, sorry that was supposed to be $40.. sorry typo... I am so not good with numbers.. my keyboard always adds an extra 0... such a pain... (then you pay them the $40 and look over all your paperwork again yourself).

:)

Good Luck!

@Robert M. in that I'd call them and ask what process they underwent to prepare that letter. It may not have been as simple as we think.

But again, the relationship is dictated by your engagement letter. If this is outlined in your engagement letter that you signed, you may be out of luck.

I agree with @Brandon Hall . Not only would I pay, but I would have expected to have received a bill. Whenever I ask any of the professionals who perform services for me, I never assume if I have them perform a new task that this would be covered for a prior payment of service, unless that was already outlined and agreed to.

Updated almost 6 years ago

I did just read through all the posts, and just saw the fee was $400. That does seem excessive. I was thinking it would be $100 or less for this service.

Lots of different answers/opinions above and yet they're all pretty much right.  There is no one way of handling this type of scenario.  With that being said, $400 sounds like a very high fee for the amount of work described, and I would think if the fee was going to be that high than they definitely should have informed you beforehand.

For what it's worth, I use a tax attorney (also expensive) to prepare my taxes, and this service would have been free to me.  It's included in the cost of tax preparation. 

Originally posted by @Robert M. :

I received a CP2000 notice from IRS and send to my accountant who prepared taxes. The inquiry was resolved with a simple letter to IRS explaining where income (rents) were accountant for in LLC return.

The issue was resolved but I just received an invoice from accountant.  

It seems to me that since the accountant prepared the returns that I shouldn't have to pay for the response.  The fees the accountant charges for tax prep are very high.

Should I pay for the response service or not?

You said their fees are very high, without knowing your situation we couldn't know that for sure.  You may just think they are high when in reality they may be national average. 

You need to read your engagement letter it is the terms of service and tells what is included. It may have specified that letter responses are billed at their hourly rate.

Reviewing an IRS or state letter is a completely separate service and extends beyond the tax return.  Not all returns are questions.  I will REVIEW a letter for my clients at no charge; however, if something must be done on my part I do charge for the work unless there was an error that I am at fault for. In that case I will pay the penalties and interest due to MY mistake only. If there are other issues because income was left off... etc, it becomes a bigger issue.

My engagement letter spells out that it is a separate service.  If you get brought into a civil suit and your income is questions and I'm called to testify about it, do you expect to have to compensate me for my time to show up to court as one of your witnesses?

This engagement is separate and his fees should have been discussed with you at the time you provided him the letter.

You also say it was a simple letter; however, without details knowing what all was included in the CP2000, we can't tell you if it was straight forward or not.  If it was for an allocation of wages etc, it may not have been a boilerplate letter needed.  What if it took him two hours to review and compile the information to be sent to the IRS.  My bill would be at my hourly rate to do so if they were not my client.

As many of the others said it depends. I review letters at no charge but may charge accordingly for additional work. However, I discuss that at the time of engagement and send out my engagement letter for such work.

@Robert M.   I guess if you don't want to use that accountant anymore..

really depends on the size and value of your business..  something like that I would not expect my accountant to bill me for... 3 to 5 meetings a year to discuss strategy he does not bill me for. however we have a 20 plus year relationship and a 20 to 30k a year account and when my credit lines at my local bank exceed certain limit then I have to have reviewed financials.. etc etc.

but if your just a one tax return dude then its fair to pay for their time.

Originally posted by @Brandon Hall :

@Robert M. in that I'd call them and ask what process they underwent to prepare that letter. It may not have been as simple as we think.

But again, the relationship is dictated by your engagement letter. If this is outlined in your engagement letter that you signed, you may be out of luck.

I'm right there with Brandon on this.

Originally posted by @Jay Hinrichs :

@Robert M.   I guess if you don't want to use that accountant anymore..

really depends on the size and value of your business..  something like that I would not expect my accountant to bill me for... 3 to 5 meetings a year to discuss strategy he does not bill me for. however we have a 20 plus year relationship and a 20 to 30k a year account and when my credit lines at my local bank exceed certain limit then I have to have reviewed financials.. etc etc.

but if your just a one tax return dude then its fair to pay for their time.

 Agreed completely.

If there had been a real issue I would not have been happy paying him.  That is because he should have known their would have been a problem before filing the return.

In this case, it seems like it was just a simple request for clarification.  They are common in complex returns.  It is not always a sign that he did anything at all substandard.