Obligation to pay fee from CPA

I currently live in PA, but have a question about a fee from a CPA in TN.

I have had a CPA prepare my income taxes for the past 3 years. I was audited by the IRS for my 2006 tax year. My CPA said he would work on taking care of the audit for me and that I had nothing to wory about. He submitted some copies of employment documents and asked me a few questions about my employment status. I just received notice from the IRS that the audit was resolved and that I didn't owe anything extra.

Out of the blue I receive a bill from the CPA for $395 for his services on the audit. I was under the impression his "services" were included in the $150 I payed to have my taxes prepared for that year. At no time did we discuss any charge or extra fee for his services with the audit. If I would have known he was planning on charging so much I would have submitted the paperwork myself.

What are my options?

Am I obligated to pay this fee?

Thanks for the advice!

Otitis said:

I currently live in PA, but have a question about a fee from a CPA in TN.

I have had a CPA prepare my income taxes for the past 3 years. I was audited by the IRS for my 2006 tax year. My CPA said he would work on taking care of the audit for me and that I had nothing to wory about. He submitted some copies of employment documents and asked me a few questions about my employment status. I just received notice from the IRS that the audit was resolved and that I didn't owe anything extra.

Out of the blue I receive a bill from the CPA for $395 for his services on the audit. I was under the impression his "services" were included in the $150 I payed to have my taxes prepared for that year. At no time did we discuss any charge or extra fee for his services with the audit. If I would have known he was planning on charging so much I would have submitted the paperwork myself.

What are my options?

Am I obligated to pay this fee?

Thanks for the advice!

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Your option is to pay the fee or be sued by the CPA (and he'll win).
Yes, you are "obligated" to pay the fee.

And now for a legal answer...

Otitis said:

Am I obligated to pay this fee?

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It depends on two factors:


In short, if a reasonable person would not have expected to pay a fee under the circumstances, then you do not owe anything. However, if you should have known that compensation was expected, then you do owe a fee (though not necessarily the amount requested).

Assuming that you do owe a fee because you should have known that compensation was expected, then you would only owe a reasonable fee based on the usual charges for such services. If $395 is reasonable, then that's what you owe.

The answer to what's reasonable (both whether you should have known that compensation was expected, and whether the requested fee is reasonable) is something decided by the judge/jury at a trial.

CameronNewport said:

And now for a legal answer...


It depends on two factors:

-Whether you reasonably should have known that the CPA expected the additional compensation; and

-Whether the fee was reasonable for the services rendered.​

In short, if a reasonable person would not have expected to pay a fee under the circumstances, then you do not owe anything. However, if you should have known that compensation was expected, then you do owe a fee (though not necessarily the amount requested).

Assuming that you do owe a fee because you should have known that compensation was expected, then you would only owe a reasonable fee based on the usual charges for such services. If $395 is reasonable, then that's what you owe.

The answer to what's reasonable (both whether you should have known that compensation was expected, and whether the requested fee is reasonable) is something decided by the judge/jury at a trial.

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And now for the legal AND experienced answer...
It is reasonable to expect a professional to be paid for his work.
$395 is reasonable for representation at an audit.

There is absolutely no documentation where we agreed to the fee he charged, nor did he inform me he would charge anything additional. I am not trying to get anything for free, I just think he should have been more upfront about the charge. In actuality, if I would have known he would charge so much I would have communicated with the IRS about the audit myself.

How is this unlike the following situation (which would be wrong)? One of my former students asks for my advice and more information on a certian matter, then I compile some info and send it to them along with my invoice of $400 and insist they pay it.

Or even better: someone asks me if I will help them move, then I charge them an unexpected amount and insist they pay me, or sue them if they don't.

I guess I need to start charging "realistic" fees.

I sure hope the respondents to these posts don't start charging me "realistic" fees for their time and advice.

Fee for audit

In my opinion, it is reasonable to expect that the fee for preparation of a tax return includes a fee for an audit ONLY if you expected to be audited at the time the return was prepared.

Otitis said:

There is absolutely no documentation where we agreed to the fee he charged, nor did he inform me he would charge anything additional. I am not trying to get anything for free, I just think he should have been more upfront about the charge. In actuality, if I would have known he would charge so much I would have communicated with the IRS about the audit myself.

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Assuming this went to court, you could certainly make that argument, and despite Zigner's remarks (I'm fairly certain that he is neither an attorney nor a CPA, and he is clearly unaware of possibly relevant facts), you may have a winning argument. It is not uncommon for a tax preparer to represent a client at an audit for no additional charge. In fact, that is a selling point for some tax services.

The bottom line is that your case could go either way depending on the facts (how was the offer of representation made? what words were used? what were your past experiences with the CPA with regard to extra fees? how much preparation was involved in the representation? etc.).

How is this unlike the following situation (which would be wrong)? One of my former students asks for my advice and more information on a certian matter, then I compile some info and send it to them along with my invoice of $400 and insist they pay it.

Or even better: someone asks me if I will help them move, then I charge them an unexpected amount and insist they pay me, or sue them if they don't.

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As mentioned, it depends on what was reasonable under the specific circumstances. Let's take two different scenarios:


In both scenarios you were presented with a bill after your move. If it went to court, how would the judge rule? More than likely, he'd rule that you do not owe the friend, but you do owe the moving service. Why? Because the moving service is in the business of helping people move for compensation, and you knew that. Your friend is [presumably] not in that business, and friends usually help for free.

Your case is in a gray area because clearly CPA's expect compensation for their services, but you did already pay a fee for tax preparation. Under your specific circumstances, should you have known that an additional fee was expected? Who knows. If it goes to court, then you'll find out.

CameronNewport said:

Assuming this went to court, you could certainly make that argument, and despite Zigner's remarks (I'm fairly certain that he is neither an attorney nor a CPA, and he is clearly unaware of possibly relevant facts), you may have a winning argument. It is not uncommon for a tax preparer to represent a client at an audit for no additional charge. In fact, that is a selling point for some tax services.

The bottom line is that your case could go either way depending on the facts (how was the offer of representation made? what words were used? what were your past experiences with the CPA with regard to extra fees? how much preparation was involved in the representation? etc.).


As mentioned, it depends on what was reasonable under the specific circumstances. Let's take two different scenarios:

-You ask a friend to help you move, and compensation was never discussed.

-You call a professional moving service for help with your move, and compensation was never discussed.​

In both scenarios you were presented with a bill after your move. If it went to court, how would the judge rule? More than likely, he'd rule that you do not owe the friend, but you do owe the moving service. Why? Because the moving service is in the business of helping people move for compensation, and you knew that. Your friend is [presumably] not in that business, and friends usually help for free.

Your case is in a gray area because clearly CPA's expect compensation for their services, but you did already pay a fee for tax preparation. Under your specific circumstances, should you have known that an additional fee was expected? Who knows. If it goes to court, then you'll find out.

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Oh brother...so your "advice" is that our OP may or may not have a case? I'll grant that this case may be in a gray area...but it's only one tiny shade variation away from black and white.

So, feel free to advise the OP to go to court, but be realistic. This is NOT a 50/50 proposition. The CPA CLEARLY has a better case.

Zigner said:

This is NOT a 50/50 proposition. The CPA CLEARLY has a better case.

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It would be foolish to make that guess because the answer could depend on facts that we don't know. For example, what words were used? Consider the following:


or


In both cases compensation is never mentioned, but the different words used could lead a reasonable person to different conclusions. Remember, some tax preparers do represent their clients for free if they're audited. Therefore, it's not unreasonable to make that assumption depending on the circumstances.

So no, at this point I don't think the CPA necessarily has the clear-cut case that you're assuming.

CameronNewport said:

It would be foolish to make that guess because the answer could depend on facts that we don't know. For example, what words were used? Consider the following:

"What? You're being audited on the tax return that I prepared? Don't even worry about the audit Mr. Smith. I'll take it from here."​

or

"I'm sorry to hear that you're being audited. If you'd like to retain me for the audit Mr. Smith, I can represent you."​

In both cases compensation is never mentioned, but the different words used could lead a reasonable person to different conclusions. Remember, some tax preparers do represent their clients for free if they're audited. Therefore, it's not unreasonable to make that assumption depending on the circumstances.

So no, at this point I don't think the CPA necessarily has the clear-cut case that you're assuming.

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We'll agree to disagree then

Zigner said:

We'll agree to disagree then

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Fair enough, but do you really believe that there can be no circumstance in which a reasonably objective person would conclude that the CPA did not intend to charge the OP (short of actually saying "this is free of charge")?

It was something like this:

I get the audit info in the mail. I call my CPA and inform him of the audit. He acted surprised and said it was probably just a simple mistake and asked me to send the IRS letter to him along with my 2007 tax documents (he prepared my most recent taxes). He assured me that I didn't have anything to worry about, and that I shouldn't have to owe anything extra. He said he would take a look at the letter and give me more info on why I was being audited. He later called me, said he was a little confused with the matter. I said I would call the IRS myself and see what I could find out. I called them, the person on the phone was no help at all, but did tell me that my CPA culdn't access my tax info to help me out unless he had power of attorney. I did some investigation of my specific matter online and called the CPA and told him of my findings. He said it was great work and asked me to send him printouts of the information I found regarding section 117 of the IRS tax code. I granted him power of attorney, then he contacted my previous employer, got copies of employment documents, and sent them to the IRS with an explanation of my situation.

This is a pretty good summary of our interactions. We did not discuss fees in the slightest. In-fact it felt more as if we were working on this matter as a team then me paying him to take care of it.

The only time we spoke of fees was when I initially asked how much he charged for tax preparation. He was vague and said it was reasonable and about the "going rate" and would depend somewhat on the complexity of the tax preparation. After my taxes were prepared I recieved a bill each year for about $105. This is another reason why I was surprised that he charged $400 for the audit work! I would think that he put more time in the original tax prep.

Thanks for listening.