Page 1 - When Client Relationships Don't End Amicably

COLUMNS | Tax Practice & Procedure

When Client

Relationships Don't

End Amicably

By Dan Davidson

t is never pleasant when a client relationship not been paying the business’s taxes, or even
ends on less than amicable terms. This filing returns, for a number of years. At the
Iis especially true when the relationship’s end of March, Kent and the CPA discussed
demise leads to litigation. A contract dispute these issues at length, and it became clear
that was recently litigated in bankruptcy court that Kent needed to recreate the business’s
[In re Kent, 615 B.R. 171 (Bankr. W.D. Pa. financial records and to file returns for the
2020)] highlights certain issues that CPAs past six years.
should be aware of. These issues may be The firm immediately undertook this chal-
particularly relevant in the current uncertain lenging assignment, even though it did not
economic climate, when there is a heightened have a written agreement with Kent. Another
risk that businesses will find themselves unable partner, a CPA with forensic accounting
to pay their bills. experience, also worked on the assignment.
This partner later testified that his overrid-
Background ing concern was with moving the project
John H. Kent was the sole proprietor of forward quickly—especially given Kent’s
a business that performed work for utility desire to rely on the anticipated work product
companies. In late 2016, Kent sought advice at upcoming alimony and divorce hearings—
from a partner and CPA at an accounting firm and that executing a formal agreement took
that Kent knew from prior work. Kent’s con- second priority.
cern was that he and his wife—who was the Obtaining the necessary information proved
business’s bookkeeper—might divorce. Kent an ongoing challenge. Virtually all of the
spoke with the CPA for an hour about some business’s records were on Kent’s wife’s lap-
of the business issues divorce might create. top, which she refused to provide. Kent was
The CPA did not bill Kent for this time, and unable to answer even basic questions, like
they did not enter into a written agreement. the nature of the business entity, or whether
In March 2017, Kent and his wife sepa- it had any employees or made any tax filings
rated. Then, Kent suspected that his wife had during the relevant time frame. Furthermore,

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