Question

You prepared the tax return of Pete Kazda. After you delivered the tax return, Mr. Kazda refused to pay his bill for professional services rendered. He also requests that you return all of the documents he provided to you in preparation of the return. You do not want to return his documentation until he has paid his bill. What do you do?

Answer 1

Solution:-

It is not uncommon for a client to provide a tax return preparer with various records to substantiate his or her income, expenditures, deductions, etc. In general, when the client requests the return of such records the preparer must promptly do so.

Treasury Department Circular No. 230 addresses the requirement for a practitioner's return of client records and provides that, although a practitioner may retain copies of the records returned to a client, the practitioner must promptly return any and all requested records to the client that are necessary for the client to comply with his or her federal tax obligations.

A practitioner's reluctance to return a client's records may stem from the existence of a dispute over fees payable for the practitioner's work. The existence of such a dispute generally does not relieve the practitioner of his responsibility to return client records.

However, if applicable state law permits the practitioner to retain client records in the case of a dispute over fees for services rendered, the practitioner need only return those records that must be attached to the taxpayer's income tax return. In such a case, the practitioner must provide the client with reasonable access to review and copy any additional records of the client retained by the practitioner that are necessary for the client to comply with his or her federal tax obligations.

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