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Occasionally we have clients who ask us a “short” question about how to do something that’s very technical that could save them substantial taxes. Usually these are easy questions to respond to. However, many times these issues intertwine with other more important issues such as overall family wealth or estate planning, or just plain good business sense. Providing the answer to the question is not really serving the client well. In some cases it could be a disservice to the client.
A simple example is where a client will be starting a business and wants to know if he could put it in his minor children’s names. The straight answer is that he could as long as there is a custodian named for the children.
A more complicated answer would be formulated after we find out what the client is trying to accomplish. What’s the amount of the investment, the source of the funds and will there be any borrowing? Who will be taxed on the annual profits and possible long-term capital gains? Are initial losses expected? What are the projected profits and time frame? What type of business will it be? How will the client be protected if anything happens to the children or the custodian? What’s the client’s net worth and what does it comprise? What’s his cash position and liquidity. Does he have significant debt?
These are just some initial questions. When these questions are brought to the client’s attention, many times the response is he just wants the answer to his question and does not want to pay any accounting fees for additional discussions.
My question to you is whether we should answer the client’s question or pass on it.
I have had quite a few of these types of “short” questions asked of me and made a decision a long time ago that I would not provide any answers unless I was retained to do a thorough analysis of the client’s situation. The answers are simple, but the application or execution can be totally wrong for that client. They might not accomplish what the client wants or they could cause added tax. I can tell you that I have lost more of this “business” than I got, but I never provided an “answer” where things didn’t work out well and I was called on to explain why I “told the client what to do.”
Many clients perceive CPAs as an infallible Mr. or Ms. Answerperson. We are smart and well-informed, but without being aware of the client’s full situation and having the opportunity to apply our knowledge and experience to that client’s specific situation at that time for that project, we would be doing a disservice.
Another factor is that we sometimes feel a need or responsibility to probe and ask “some” questions so we could provide a “better” response. That is fooling ourselves. Either do the right job or pass on it. We cannot spend our clients’ money, but we should not commit our time when they don’t want to commit their money to further their benefit.
Do not hesitate to contact me at emendlowitz@withum.com with your practice management questions or about engagements you might not be able to perform.
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