Representing Clients With Tax Delinquencies and Deficiencies

Real estate prices are declining, and some business tenants leasing their facilities may be considering purchasing the property instead. Here's why.

April 2009
by Donald Ariail, et al./Journal of Accountancy

It's not unusual for CPAs to encounter clients delinquent in filing individual, corporate or payroll returns. CPAs can establish a rewarding practice niche if they are prepared to offer a full range of tax resolution options and be a trusted ally to clients who need to atone for their lapses and get right with Uncle Sam.

This work often involves preparing a number of prior year tax returns. It requires knowledge and research of changing tax laws, the use of tax software from prior years, the interpretation of IRS taxpayer transcripts, and the ability to reconstruct income using various sources such as Freedom of Information Act (FOIA) requests. It requires CPAs to understand administrative tax law and learn new ways of client management. Thus it demands specialized skills that should command higher-than-usual hourly rates and often requires many billable hours.

Potential Criminal Problems

The CPA must be vigilant for any indications that clients are involved in willful tax evasion other than by not timely filing or paying their taxes (for example, not reporting illegal income, using fictitious Social Security numbers or filing as a tax protester). If there is even the slightest suggestion that the client has committed an illegal act, immediately stop the interview and have the client call a tax attorney. You must prevent the client from revealing any potentially incriminating information. The client needs legal representation, and if you are to continue working on the case, you need to be retained by the attorney under a "three-corner agreement."

This article has been excerpted from the Journal of Accountancy. Read the full article here.