by Larry Goldsmith, JD, CPA, MAFF, and Julieann Chaet, CPA, MAFF
I’ve always looked at accountants, CPAs or not, as instruments or tools to be used by the IRS or the banks, or buyers and sellers of businesses. What I mean by that is, accountants working in public accounting firms complete the tasks for the Internal Revenue Service to collect its taxes. We provide the measuring stick used by bankers to lend money. We are the instrument that verifies income and assets for the buyers and sellers of businesses. We are important because we produce the tax returns the IRS looks for and the financial statements the banks require. We provide the verification to business that the company is profitable.
To our clients, we become the trusted individuals they depend on to prepare their tax returns or to prepare their company’s financial statement. But all too many times clients will make financial decisions without asking for their accountant’s opinion. I have to say my favorite clients are the ones who call me up to say “Are you busy?” or “Do you have a minute?” The truth is, I was busy, but that interruption when they ask for my opinion or ask me a question, can save them hundreds or even thousands of dollars.
It usually takes only minutes to answer a client’s question when they call or e-mail. It’s when clients don’t ask the questions, that it can cause problems that can cost more than money.
I prepared very few tax returns this tax season because I was thankfully busy with my forensics work. However, one of the tax returns that I did prepare was absolutely gut-wrenching. A month later, I still think about these particular clients who I’ve never personally met. As I was sorting through their data and inputting the numbers into our tax program, I became curious. I thought I must be missing something. I finished preparing the tax return. The couple owed what was for them a lot of money – thousands of dollars.
So I asked the partner whose name is on the return, “what’s the deal?” Apparently, this 62 year old couple was making over $100,000 a year for at least the last 5 years. Both husband and wife had their own careers. They owned a home. The husband had even gone back to school to further his professional degree while maintaining his career.
The problem started with a stroke – a stroke had debilitated the husband at the age of 59. The husband could no longer care for himself so a full-time nurse was brought in to care for him. After a couple years the wife could no longer afford the full-time nurse so she quit her job to care for her husband. They sold their house and moved into their daughter’s apartment.
By the time I was preparing the couple’s tax return, most of the couple’s savings including IRAs and proceeds from the house had been spent on living expenses and the husband’s medical care.
So what did I do? I saw Larry Goldsmith, the head of CJBS’s Financial Group’s litigation, asset protection and tax practices team walking past my desk. “Larry, you need to do something!”, I said. I didn’t care that he was just walking in from the polar vortex that we were having outside, and that maybe he wanted to take off his hat and defrost. This woman was going to live probably for another decade or two. Her husband could live years in his current condition, and all their money was squandered on medical bills. Where would the money come from to pay the tax return?
Unfortunately, even with his vast experience and resources for this sort of thing, Larry wasn’t able to provide a solution. It was too late. The truth is the couple was financially bankrupt and didn’t know it. Their liabilities (the monies they owed) far exceeded the monies and assets they possessed. They spent their savings along with their IRA’s that she would one day need because she didn’t know that there were taxes to pay on the IRAs.
Thousands of dollars of her savings were spent caring for her husband that didn’t need to be. The wife did not know about different agencies that could’ve helped or the benefits of financial planning. She did not know that creditors cannot seize her IRAs from her.
You see she never asked the questions of her accountant so the accountant wasn’t aware of all that was happening.
We became aware the day we called her to try to make sense of the documents in front of me. There is a solution, but it requires planning.
Julieann Chaet, CPA, MAFF
Julieann is the Manager of CJBS’ forensic accounting and litigation services practice.
Larry Goldsmith, JD, CPA, MAFF