E-File authorization forms executed but no preparation fee payment

[The Real Halloween]

TP already reviewed the return and wanted to e-file by passing to us the signed e-file authorizations forms (federal form 8879 and CA form 8879) but TP did not settle our preparation fee. We did not collect any upfront fee.

We already sent emails (3 times) for the settlement of the payment of the return preparation fee. The return (2018 return with no extension) had a balance due and subject to late filing, payment penalties and interest.

Are we obligated to e-file when TP does not want to settle our fee? How do you handle this type of situation?

Thank you for your time and comment.

[itonewbie]

Read Pub 1345 for stockpiling in conjunction with Circular 230, §10.28.

[The Real Halloween]

@itonewbie Thanks for your comments and the references.

Circular 230 Section 10.28 - Return of client’s records: This is the first year we are preparing the return for this client and all the information were provided by email. There was no physical document ever provided. It seems that we are ok with this section. If client requests the e-materials provided, we will email back those materials. Is this ok?

Stockpiling Pub 1345: The e-file authorization forms were signed and dated on May 13, 2020 by TP. Based on the stockpiling rule, it seems that we must e-file on or before May 16, 2020 even though we are not paid. Are we stuck (ie obligated to e-file)?  Is this correct? Can we therefore terminate our engagement on or before May 16,2020.

Pub 1345: “ The IRS does not consider current filing year returns held prior to the date it accepts transmission of electronic returns stockpiled.” What does this mean?

[itonewbie]

Circular 230, Section 10.28 deals primarily with physical docs, not electronic docs, which are only copies of the originals your client never relinquished possession of.  On that basis, there should be nothing to return.  Your focus should be the last paragraph, which deals with the tax return and your client's contractual obligations.

Going strictly by Pub 1345, you would have already breached the requirement for stockpiling.  But that's why I suggested reading that in conjunction with Section 10.28 of Circular 230.

Your last question in not relevant to your case as that pertains only to current year returns that were prepared prior to the IRS accepting returns by e-filing.  For TY2019, that was Jan 27, 2020.  That is because you can't possibly e-file a 2019 F.1040 signed on Jan 3, 2020, for example, by Jan 6, 2020 before the IRS started accepting e-filed returns.

[The Real Halloween]

Again, many thanks for your time and comments.

Based on my reading on section 10.28 and the last sentence of that section as per your suggestion, it seems that we are clear on section 10.28.

As per your comments that if going strictly by Pub 1345, we would have breached stockpiling. As Pub 1345 stockpiling does not address the non-payment of fee, does the last sentence of section 10.28 override Pub 1345 stockpiling in regards to client not meeting his performance of his contractual obligation to pay fees with respect to 2018 return?

[itonewbie]

That's the idea.

[itonewbie]

Also check the terms of your EL.  We have it in ours.

[The Real Halloween]

@itonewbie Thanks for the comment.

Unfortunately. our EL does not have a clause that says non-payment or late payment of fees is considered a termination.  Our EL has a very wide termination clause that either party can terminate with or without cause.

Going forward, we will add a non-payment termination clause in our EL.

[itonewbie]

NP, @The Real Halloween.  Did you at least formally communicate with your client that the return will not be filed until full payment is received?

[The Real Halloween]

@itonewbie Yes, we did inform TP that in order for us to proceed with the e-filings we need to get paid.  But no payment is coming.  Would it help if we just email to disengage us at this time?  

[itonewbie]

Was it communicated over email or just verbally?  Before or after the F.8879 was signed?

Why do you think that no payment will be forthcoming?

[The Real Halloween]

It was communicated via email.

We asked for a payment before f 8879 were signed and told TP to email payment confirmation along with executed f8879.  Only signed f8879 were emailed but we did not receive payment nor its confirmation.  We sent a chaser via email.  Only at the third email we informed TP that we need the payment to be settled in order to proceed with the e-file.  

It seems likely that the payment is not forthcoming as 3 emails were already sent out and no response received whatsoever.  Furthermore, the 2018 return was very late with penalties and interest.  

[itonewbie · Accepted solution]

You should probably send an ultimatum before formal disengagement, referring to both your original communication about the requirement to receive full payment before e-filing the return and subsequent follow-up for payment.

Unfortunately, your client already has a copy of the full return, which he/she could easily replicate with a bit of work.

[Accountant-Man]

We all suffer a lesson once in a while. I think we should trust our clients since they trust us, but it happens.

In the future, be wary of clients who file so late. They will also probably pay late or not at all.

[The Real Halloween]

@Accountant-Man @itonewbie Thanks all for your comments and time.

Keep safe and healthy!