Planning for Life

Penny Wise and Pound Foolish on Professional Fees?

Posted by Harry S. Margolis on October 21, 2014

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We have a client whose husband recently passed away unexpectedly. He left her in a difficult financial situation that includes claims by both the IRS and the Massachusetts Division of Revenue (DOR) for back taxes. Shortly prior to her husband's death, they had negotiated a settlement with the DOR which reduced the claim. They hadn't paid the reduced claim yet because money was short.

Unfortunately, in an effort to save fees, the new widow took over communications with the DOR from the couple's accountant and told the DOR claims representative that she could now pay the settlement amount because she had received a small life insurance payout upon her husband's death. Upon hearing that cash was now available, the DOR representative withdrew the settlement offer and is now demanding full payment of the back taxes.

While there is no guarantee that if the accountant had contacted the DOR to arrange for payment, she would not have said anything about the life insurance, it's less likely. Generally, professional accountants and attorneys are trained to say no more than they need to say. Also, they are more likely to have had similar experiences in the past and perhaps to have learned from past mistakes.

Without her husband's income, our client does not know how she will survive going forward. They were hardly making ends meet even with his income. This is why she is doing as much as she can herself, whether probating her husband's estate or dealing with the taxing authorities. Unfortunately, in this case the avoidance of paying accounting fees may cost our client many times what the accountant would have charged.

Of course, to blog about this situation is self serving -- it demonstrates why it can make sense and save money to use appropriate professional help. Unfortunately, it often can be hard to demonstrate the great value of professional services except by these negative stories. If our client had used her accountant to communicate with the DOR and everything had gone smoothly, she never would have known how much money she had saved. The payment to the accountant for carrying out what appeared to be a simple transaction might have seemed exorbitant. Yet, when compared to what it saved it would have been cheap indeed.

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