The other day I was speaking with another CPA firm’s leaders about opportunities to cross-refer – they don’t do audits or reviews and we don’t do taxes – and I was asked what one of my most uncomfortable professional issues was. I dislike airing my dirty laundry but at the same time, I have found that being forthright about these things helps me heal as well as hopefully provide a lesson for other professionals.
In 2002 I was “interviewed” by a joint task force investigating abusive tax practices. Even today I am upset with myself for having put myself in that position.
I was in my 7th year (2000) and was recently given responsibility for managing the tax team along with the accounting and auditing team. Beyond knowing what was, and more importantly wasn’t, allowed, the owners felt I could apply some of our audit processes to tax. It was fun redesigning the entire workflow to streamline the processes. I was also part of the local chamber and about that time I was asked to give a presentation on tax planning for small businesses.
After my presentation, I was approached by two gentlemen who wanted to discuss an idea they had. I am always game for a business conversation so I set an appointment with them. They gave me some materials they put together and asked if I would read them to plan for the meeting.
As I read their stuff, I became concerned about what they were trying to do. I made my notes, did lots of research and came to the conclusion that what they wanted to do wouldn’t fly. But…
And this is where things went sideways for me. I love a challenging problem. So I decided to change the scenario, restructured how it should work, Identified potential pitfalls and even created the basic literature to help them with sales. All told, I invested about 20 hours into this before we even met. But I felt good – I took a problematic process and modified it to where it would work.
When we finally met, they appreciated the information but were disappointed that I felt their plan wouldn’t work as they had originally conceived it. I walked them through my analysis and they seemed to have a response to every point. This seemed odd, so I asked them about how they had come to so much knowledge about this… and they divulged that they had been to 3 other firms who each had found flaws in their plan: I was the only one to offer a full rebuttal and a new concept though.
They asked me how confident I was in my research and I told them very confident. They then offered us $15,000 to help them formalize the documentation and issue a tax opinion on the plan. That was a good sized engagement and I felt I had convinced them that my way was superior to theirs – even if they couldn’t offer a huge tax benefit to participants.
The next week I met with their in-house accountant and their attorney, along with the owners. Once we got going they kept pushing to use their original plan as they felt it was bullet-proof. I told them that if they felt it was bullet-proof then they didn’t need me. I explained that their plan would never fly; they kept saying that it was being done by this firm on the east coast. They got another lawyer on the phone from back east who allegedly represented the firm who was “killing it”. He agreed that it was a “gray area” but he was certain it could pass an IRS challenge.
I did a lot of soul searching on the matter. They were certain they were right and I was certain they were too aggressive. I felt our more conservative approach would survive a challenge, which was most likely to happen since they were targeting larger corporations with their plan. In the end I wrote the opinion letter based upon the plan I outlined, not theirs. I wrote them a separate letter stating why their plan would not work, quoting chapter and verse of the tax code.
They thanked me, paid our bill and I never heard from them again. But I did hear from the task force about 2 years later in 2002. It seemed they decided to use our tax opinion letter to support their more aggressive plan. One of their customers used it to justify their participation, were audited, and showed the IRS auditor our opinion report who then pointed out that the plan they put in place was not the plan I wrote an opinion on.
Which led to my being interviewed.
I missed the warning signs. I understood opinion shopping but hadn’t really faced it before. I was quite proud of that research and how well we documented the situation. It was complex and challenging. But I failed to heed my own warning signs. I saw the problem and thought they could see the elegance and superiority of my plan. In the end they saw their greed and willingness to use people to get the results they wanted.
It was an uncomfortable experience and I don’t recommend it to any professional. It did, however, give me great life, and business lessons that I still use to this day.
- Go with your gut. As a professional advisor, you have to trust your instincts. Not every client is a perfect client and if you feel they are not a good fit, go with it. There are other client opportunities out there.
- Be wary when clients shop other advisors. I think a client interviewing several potential firms is a smart move, especially for business clients. I encourage it. But it is entirely different when they seem to have paid several firms for advice they don’t seem interested in heeding.
- If a client plans on using your work to stay out of trouble, make sure it is effectively documented. We had an engagement letter and I kept copies of all our drafts and research. We also kept all their correspondence which showed their thoughts and plans.
- Finally – slow down. I love a good juicy complex problem. I enjoy research, writing and presenting. But I jumped into it before I knew the client. I inadvertently talked myself into this engagement by buying into the solution I presented. Had I gotten to know them a little better, we would have likely turned down the work. Yes, a good sized engagement is always hard to turn down, but having to sit for an interview with law enforcement is almost always going to be uncompensated.
Be selective. I have come to understand me and my passion for problem solving. But I have also learned that not everyone’s problem is worth the energy. I like underdogs, I love winning. I have learned to love learning (losing) by choosing the work I want to do for clients I am passionate about working with. Having fewer, more engaging clients who value your input and expertise is much better than tons of clients who treat you as a commodity. Quality over quantity every time will help you become healthy, wealthy, and wise.