From the IRS Inside blog.
Confession: Like most practitioners, I had trouble successfully billing for post-filing work. The reasons are complicated. It’s often an issue of back-and-forth time with clients or the IRS/state taxing authorities.
This time is hard to quantify and even harder to bill for. And that’s not to mention the multitude of client concerns that arise: Clients may think the issue is the practitioner’s fault, they don’t understand the changing compliance environment, they get upset – and they don’t want to pay for research time associated with post-filing issues. All of this leads to low billing realization.
When it comes to the three main service areas in post-filing work – federal and state notice work, consultation and advisory services, and representation – there are some practical strategies and real-world tools to help you become more communicative with your clients and more efficient with your time and billing in this area.
The numbers also show us that firms are largely unsuccessful in billing for this work. In small and midsize firms, clients have more access to practitioners, who are seen as the trusted year-round adviser. As a result, a lot of time is spent on initial consultations and phone calls.
Larger firms usually have a better billing rate. Typically, larger firms have larger clients, whose dedicated staff (such as a CFO, controller or tax department) often handle most of the nonrepresentation and notice work.
The bottom line: We often underestimate the time involved with the initial steps of post-filing work – client consultations, notice assistance, and information gathering from clients and the IRS. Unfortunately, we’re spending the majority of our time in post-filing work on these areas, and we’re not billing enough for it.
Here is what you can do to improve your billing for post-filing work:
1. Educate your client.
Explain the increase in IRS and state compliance activity to your client. Simply put, the IRS has more information, and it is developing better technology to use the information. As a result, the IRS is sending more notices and initiating specific compliance activity to touch more taxpayers. If your client understands the landscape of compliance, your client is less likely to be surprised when he or she experiences an issue.
In the interest of client communication, you should also be transparent about the services you are including in your engagements. (I’ve learned the hard way before.) Ten years ago, this wasn’t a big deal, but times have changed.
2. Receive your clients’ notices.
Use Form 8821, Tax Information Authorization, to get copied on your clients’ notices when your clients receive them. This cuts out the client-initiated back and forth and allows you to offer proactive customer service that many practitioners are billing for. You can also offer this service without taking on the risk of a Form 2848, Power of Attorney.
3. Set clear expectations.
Use scoping engagements to define expectations, alternatives, work effort, range of fees, services and deliverable dates. Your goal here is to slow the process down, give your client an informed evaluation and get your client started providing information. A scoping engagement helps avoid the surprises that often go unbilled.
4. Equip your firm.
The old way of doing things – keeping old work and materials, and reinventing the wheel every time an issue arises – is an outdated and inefficient process that doesn’t help you bill more. Get the tools to stay current on the basics of practice and procedure and niche areas in your firm.
- Defined body of work for IRS issues
- Post-filing forms and document templates
- Current IRS procedure guidance
- Practice tips on specific post-filing issues
- Interpretation of IRS notices
- IRS interview scripts
- E-Services tools
As you think about how to bill for practice and procedure work, here are several approaches that are evaluated and explained in more detail in the webinar:
- Include in tax prep fee
- Offer notice monitoring service
- Offer year-round representation service
- Package all services in fixed fee
- Include explicit exclusion terms in engagement work
- Absorb work for client retention
Beyond 4/15 recently hosted a webinar on this topic which can be viewed here.