4

tl;dr

HR Block charged me $100 for a "review"—that is, entering in their system what I myself calculated my returns would be (via TurboTax), and seeing what they could come up with to beat that. If they were able to save me money (after deducing their fees, to my advantage), they said I was obligated to file my taxes with them.

Am I actually obligated? Or is it more an obligation out of courtesy?


Details

I'd done my own taxes on TurboTax for years, but this year, relocating from New York to California and working form home (for the same company), I knew my taxes were gonna be a little more complicated. For example I'd always taken standard deductions, and this year I'd have to itemize my deductions to expense Home Office costs.

I used TurboTax as usual, but was disappointed to see that I owed New York State nearly $3,000. I didn't outright reject this figure. How should I know? I'd filed taxes only a handful of times in my life, all in New York State. Plus, I live in California, but I still work for the same company in New York—and in New York City, nonetheless. Maybe I'm obligated to pay taxes in all these jurisdictions. Maybe it's just the cost of being a part-year resident between NYC and another state, and next year will be better. I had no clue.

Still, it seemed imprudent to accept without checking with someone, so I sought a tax professional. This late in the game though, no CPAs were taking clients. (Having never hired a tax professional before, I didn't realize there was such a crunch.) Only HR Block was willing to schedule a consultation.

So, as already summarized at top, HR Block was going to charge me $100 for a "review," where they'd see whether they could do any better. And if they could, they stated that I was obligated to file my taxes with them. Regardless the obligation, paying $100 to gain knowledge (and possibly a positive return) seemed more than worth it, so I scheduled a consultation.

Within the first 5 minutes of that consultation, the tax professional immediately noted that my employer made a mistake on my W-2, listing my entire income as New York State income, instead of only the portion earned while I was a resident of New York State. I never thought to question the very figures printed on a W-2.

Other than correcting that single numeric figure, everything else was entered exactly as I had on TurboTax. Later in fact, I logged into TurboTax again, corrected that one field, and found that I would have received even higher returns than HR Block filed for, because I was more meticulous about my itemized deductions at home.

Anyway, I was happy that instead of owing New York State nearly $3,000, New York State owed me nearly $500. A huge difference.

It's too late for me now—I already filed with HR Block. But I still wonder—could I have walked out in the first 5 minutes? (The thing is, even if I wasn't legally bound, I would have felt like an indecent human being to leave after finding out that critical piece of information. But are tax professionals used to that sort of thing?)

  • 1
    As an unrelated comment, if you found using TurboTax that you could owe even less, you can file an amended return and have the difference refunded to you. – Nate Eldredge Oct 6 '14 at 19:18
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    You paid for their "expertise" and from what you've written that "expertise" saved you thousands of dollars. Pay up and consider yourself fortunate Mr. Scrooge. – user34309 Oct 22 '15 at 22:06
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    @FatherThyme - I did "pay up." The consultation fee for their expertise. I'm talking about the filing fees. – Andrew Cheong Oct 23 '15 at 4:20
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The obligation is contractual, so you need to read the contract to answer your question.

However, since you paid for the service provided, I see no way they can force you buy any other service from them. They cannot file your tax returns without your explicit consent (on a form dedicated to that, dated and having the numbers matching the return filed - not something you can sign before the actual return is ready). Worst case they can claim you owe them more money, but since you paid for the services provided, I can't see how they can have that stand in court as well.

Bottom line - even if the contract has such an obligation, I cannot see how it can be enforced.

As to the mistake they noted... I wouldn't rely on H&R Block advice in any matter. Very likely, the person you were talking to was not even licensed to provide tax advice. You're lucky if the person has passed CRTP exams (in California they're legally required), but I seriously doubt their clerks are EAs or CPAs (the only designations other than a lawyer legally allowed to provide tax advice).

Tax preparers (CRTPs included) are only allowed to provide advice pertaining to the preparation of the tax return they're currently engaged to prepare. Claiming income is sourced or not sourced in NY is borderline, IMHO. If they got it wrong (and to me it sounds as they did) you can sue them for damages.

If your situation is tricky and it is too late to get an appointment with a proper adviser - file an extension (form 4868) and deal with it after the April busy season.

5

This is a legal issue, or possibly an ethical issue, and not really a finance issue. And I am not a lawyer. But for what it's worth:

Did you sign a written contract with H&R Block? If so, then the terms of that contract would govern. If you signed a contract saying that you agree to file your taxes through them if they meet such-and-such conditions, and they met these conditions, then you are legally obligated.

If there was no written contract, then I think any court would take the conversation between you and H&R Block as an oral contract. If H&R Block said, basically, "Okay, we'll calculate what we think your taxes are, and if we come up with something better than what you had before, then you agree to file your taxes through us", and you said "Oh, okay", then that's an oral contract. You agreed to their conditions. Legally, oral contracts are just as binding as written contracts. The only difference is that it is difficult to prove exactly what was said. If you really did agree to these conditions, I suppose you could lie and say you didn't and then try to convince a court that they are the ones lying. Obvious ethical problems there. There are also implied contracts. If HRB's advertising or paperwork says that you're agreeing to file through them if they meet the conditions, I thing that a court would likely rule that you implicitly agreed to their terms by doing the review.

In any case, when you go to some place like HRB mostly what you are paying for is their knowledge and expertise. So if they give you the benefit of their expertise -- they tell you how to reduce your taxes -- and then you don't pay them, that seems rather unethical to me. The situation is muddied by the fact that you paid $100 for the review. Is that paying for the basic information, the "tax tip", and paying for them to file is then a contract for additional work? Under some circumstances I'd say yes, that's additional work and thus an additional contract, so in the absence of a contract obligating me, I don't have to do that. The catch in this case is that at that point they must have already pretty much taken all your information and filled out all the forms. All that's left is to press the "send" button and submit the return, right?

2

It sounds like they want to enter you into a contract in which they are allowed to charge a flat fee for filing contingent on money saving results from a tax review service, paid in full.

Like those who answered before I have no legal experience. IRS Circular 230 defines the ethics for tax practitioners and the definition of a tax practitioner is broad enough (effective Aug 2011) to include those who are not EAs, CTRPs, CPAs as long as the person is compensated to prepare or assist in a substantial part of the preparation of a document pertaining to a taxpayer's liability for submission to the IRS.

Section 10.27 Fees: (b)(2)A practitioner may charge a contingent fee for services rendered in connection with the Service’s examination of, or challenge to — (i) An original tax return

Paragraph c defines what a contingent fee is basically a fee that depends on the specific result attained, in this case saving you money.

In the section above 'Service's examination' is an audit in plain speak. If your 2013 return has not been submitted and you have not received a written notice for examination, H&R block can not charge a contingent fee, period.

Furthermore, H&R Block cannot hold your tax documents, upon your request, they must return all original tax documents like W2s and 1099s ( they don't have to return the tax forms an employee prepared).

Like I said above, I'm not a lawyer, unless I missed a key detail, I don't believe they were permitted to charge you a filing fee contingent on saving you money.

1

As I have worked for H&R Block I know for a fact that they record all your activity with them for future reference. If it is their opinion that you are obligated to use their service if you use some other service then this, most likely, will affect your future dealings with them.

So, ask yourself this question: is reducing their income from you this year worth never being able to deal with them again in future years? The answer to that will give you the answer to your question.

protected by Chris W. Rea Feb 21 '18 at 2:16

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