Clients tend to expect their CPA to know how to quickly address any tax issue that arises. And even worse, some clients think that their CPA is the cause of the notice or problem – not knowing that the notice was more likely caused by the IRS’ 570% increase in notices sent since 2001. This creates a tenuous situation, in which the notice and the subsequent service provided by the CPA become a risk point for client retention.
Many times, process inefficiencies exacerbate billing and client retention issues for CPAs. Most firms are reactive in their approach, relying on their most recent interactions with the IRS and state taxing authorities to address post-filing notices and issues. These procedures are often inefficient and don’t provide the best outcome. Here are some unintended results:
- Missed deadlines
- Premature second notices
- Long post-filing engagements
- Unexpected outcomes
- Inability to bill for these services
In contrast, firms that excel in year-round client service approach post-filing services in a client-centric, systematic way. They combine process improvements with technology. This approach allows CPAs to be proactive, provide predictable actions and outcomes, strengthen client relationships and save time.
Here are some best practice tips that can improve your firm’s services in tax practice and procedure.
Educate your clients on increased compliance activity. CPAs routinely meet with their tax clients at least annually to discuss their tax return. Use this time to discuss the current compliance environment and let your client know about IRS and state notice activity. Explain that the IRS and states are trying to collect more taxes through compliance and that many individuals and businesses that never received a notice are now getting them. It’s not a matter of if your client will receive a notice – it’s when. You can also update your clients through a newsletter or other educational material.
As you educate your clients about increased compliance, also consider revising the scope of your tax engagement letters. Engagement letters that draw the distinction between tax preparation and compliance work can help avoid clients’ surprise when they are billed for that compliance work.
Be the first to know when your client receives a notice. Or, at least, you’ll find out at the same time. For federal tax issues, there’s a simple, client-centric solution to being proactive with notices and issues: IRS Form 8821, Tax Information Authorization. This authorization allows your firm to be copied on your clients’ notices without taking power of attorney. It shifts the burden off of your clients and prevents them from filtering any information you receive.
Also, being copied on IRS correspondence allows you the best opportunity to meet deadlines and get the full picture about any IRS activity on your client’s account, such as a tax return adjustment or a request for more information. Using this form sets you up to provide the best service, allowing you the maximum time to address the issue and avoid the second and third notice.
Know your clients’ facts – from the perspective of your client and the IRS. Most notices, with the exception of many collection notices, come as a surprise to CPAs and their clients. To accurately assess your client’s situation and determine next steps, you must understand the facts as the IRS sees them. It’s imperative to know whom to call, what to ask and how to verify the accuracy of the information. Develop a template document on how to interview the IRS and keep it updated. Include information such as how to pass IRS disclosure gates, which questions to ask and which documents to request to confirm actions taken.
Having a firmwide Form 8821, Tax Information Authorization, on file for your client will allow you or a member of your staff to immediately contact the IRS in the event of a notice or issue.
Some practitioners look to IRS transcripts as the answer to IRS account questions. But transcripts are best used to confirm some past IRS actions -- not to understand client history and pending actions. That’s because IRS transcripts have limited information, by year, and don’t provide a history across several years or information on your client’s IRS account, such as pending transactions.
Once you have the IRS’ perspective on your client’s situation, you can match it against your client’s facts and clearly understand the issue.