David Heistein, of Profitwise Accounting, prepared and filed taxes for my LLC as a sole proprietorship on my personal taxes instead of as a partnership on the IRS 1065 form and did not send out K-1s to the partners.
I believe he was extremely negligent and/or incompetent in this regard and that he has cost me tremendously.
The IRS EIN letter I was sent when I formed the LLC clearly showed that it was a partnership. The LLC formation papers and operating agreement showed 3 partners. But Heistein never even asked for the IRS EIN letter, formation papers, operating agreement, or any other documentation that I believe he should have when filing taxes for such an entity which would have shown that it was a partnership. This information was subpoenaed (Attachment 3, C(2)) “All documentation showing the members of Copilotco, LLC”) from him and he failed to provide it, presumably because he did not have it. I believe he should have had it. Every other tax preparer I have dealt with since has asked for it without my prompting.
This was my first business entity. It was my first LLC. Knowing absolutely nothing about business taxes I was depending on Heistein of Profitwise Accounting to handle this properly. I went years oblivious to this problem not knowing that our taxes were being filed incorrectly. I did not learn of this problem until the opposing attorney in a legal matter pointed it out. This GREATLY complicated the legal matter and cost us dearly.
Heistein was deposed in the legal matter. At Heistein Dep. 21:9-24 Mar 3, 2022, we can see that Heistein was asked about what type of business entity it was.
“So when Tracy had first come to us and it was an LLC, you know, we had some questions about, you know, did he have this other partner or not. You know, and I think think – for some reason I think we decided to move forward with the single-member LLC, as opposed to a partnership, because that would have alleviated penalties, late filing penalties, for him. And I think, based on the information we had at the time, we decided to move forward with a single member. It was our understanding that there wasn’t another partner involved with the business.” - Heistein Dep. 21:9-24, March 3 2022
“…for some reason…”? How about going with what the government provided documentation says? “…alleviated penalties…” Does this imply that Heistein would file improper taxes to save his client from penalties?
Discussion of the documents submitted by Heistein in response to subpoena begins around page 68. Various tax returns, business income or loss, etc. Note the lack of EIN letter from IRS, formation documents, operating agreement, etc. My current tax preparer has all of that. Why didn’t Heistein?
The name of the partner, Hamby, appears first at Heistein Dep. 28:15, March 3 2022. “I mean, may be potential that, you know, that name was maybe brought up, you know, when we first met with Tracy originally.” If there is a question about a potential partner, wouldn’t you look to the formation papers?
And at Heistein Dep. 89:10, Mar 2 2022 we have:
Q And I know you don’t remember the name necessarily, Roderick Hamby, but you do recall a discussion about another potential participant in the LLC; correct?
A Correct.
Q And that was at the inception of the relationship; correct?
A Correct.
Furthermore, in an email dated July 15, 2020 (this is well before Heistein’s deposition testimony of 3/3/2022) I specifically call out that there are partners and that she was stealing money from the company. This should have been a big clue to Heistein that the taxes had been filed improperly all these years. Having been reminded of the partner situation in this email, I do not understand why it would appear that he testified to the contrary. I also do not understand why he did not mention the inconsistancy with how we had been filing taxes all these years when I sent him that email.
Note that the subpoena referenced above called for Heistein to provide “All documentation of communications, if any, of thefts of funds from Copilotco, LLC.” The above referenced email called out those thefts but Heistein did not provide it. I believe that he knew, or should have known, about the partners and the theft because of the email which I sent him.
The only option I was given when I called out this theft/embezzlment (breach of contract was the legal complaint) in a phone conversation was to account for her theft as owner draw for tax purposes. So I ended up paying big taxes on that. It turns out this was not only sub-optimal in terms of taxation but it also allowed the opposing attorney in our legal matter to claim that since we accounted for it as owner draw on our taxes and not some sort of theft or embezzlement and that this was therefore an authorized draw.
This, combined with the fact that Hamby was not shown as a partner on the tax forms (no 1065 filed or K1’s issues), allowed the opposing attorney to spend hours and many thousands of dollars arguing that Hamby was not a partner and that he had no standing. This allowed him to drag the matter out so far that it became uneconomical to continue and upon discussion with council we decided to dismiss the case.
We were forced to dismiss the case DESPITE THE FACT THAT THE PLAINTIFF ADMITTED TO EVERYTHING SHE WAS ACCUSED OF IN HER DEPOSITION TESTIMONY. Really, her deposition could not have gone any better for us. Upon defendant’s deposition, we thought this matter would be over quickly with a reasonable settlement.
She acknowledged that Hamby is a partner with an ownership interest in the company (Trang Dep. 179:4-24, Mar 23, 2022).
She would take money out without coordinating with anyone to the point that overdraft fees happened and she just relied on the bank teller to tell her when the account was empty. (Trang Dep. 106:9-14, Feb 4, 2022)
She would write checks to herself on the company account payable to cash without authorization. (Trang Dep. 108:15-110:10 Feb 4, 2022)
She bought herself an iPad/Macbook/etc (which she never provided to the company) (Trang Dep. 117:9-23, Feb 4, 2022).
She was paying off her personal Target card in the thousands which she used for personal expenses from the company account. (Trang Dep. 128-129:19-16, Feb 4, 2022)
This activity continued even after she was well aware that she should not be spending money from the company account and was to no longer be involved in company operations.
She made it very clear at Trang Dep. 133:3-11, Feb 4, 2022:
“I never treat Copilotco U.S. Bank account as a business account. In my mind, since the Day One we start the business and open that U.S. Bank account, it is always our joint account and I treat it just like the other Bank of America account I own and Tracy owned and we always take the money out in any account as our income and we file tax for it. So I don’t have that concept of the business account or use for personal account for personal things.” - Trang Dep. 133:3-11, Feb 4, 2022.
Throughout her deposition she explains how she paid personal expenses out of the company account, did not get authorization, and used the company account like her own personal piggy bank.
Q And Mr. Reed authorized that to be taken from the business?
A I don’t need his authorization to take cash out. I have never had that with him.
A “bill of particulars” was produced showing all of her personal expenditures on the company account. As far as I can tell, she was unable to produce authorization or a business case for any of them.
This is just a sampling. There is so much more crazy financial behavior in her deposition.
So this should be an open and shut case, right? But I believe that her attorney knew that he could make such a huge complicated mess out of the tax matters thanks to Heistein’s work that his client could freely tell the truth about her activities and even then we could never afford to see the matter through to completion.
Heistein’s name was mentioned SO MANY TIMES throughout the matter. We even had one particular deposition day where I was called upon to testify in my capacity as the person most knowledgable in Copilotco tax matters and it was all about the taxes Heistein had prepared.
Feb 4 2022 deposition of Trang Reed the word “tax” appears 37 times.
Mar 15 2022 deposition of Roderick Hamby the word “tax” appears 127 times.
Mar 16 2022 deposition of Tracy Reed in his personal capacity the word “tax” appears 188 times and “Heistein” appears 37 times.
Oct 31 2023 deposition of Tracy Reed as PMK of Copilotco the word “tax” appears 181 times and “Heistein” appears 168 times and “partnership” is mentioned 36 times.
And when we finally did dismiss it because it was now far too complicated and expensive to possibly make it to the end, she turns around and sues us (Reed, Hamby, AND the attorneys representing us) for malicious prosecution! So it’s not even over yet. The expenses continue to rack up, well into the hundreds of thousands of dollars. And it is my belief that Heistein is to blame for this matter not only not being resolved long ago, but that it continues.
I am no attorney, accountant, or tax expert. I did not know anything about business taxes, K1s, or legal entities. I created the LLC through LegalZoom. I was just a computer nerd trying to get my first small business and first serious entrepreneurial effort started. I’m not an MBA (although defendant Trang is, ironically). I rely on professionals to keep me out of tax trouble, particularly in these complicated business situations. And the way I see it, Heistein totally failed me.
This has cost me tens of thousands in penalties to the IRS, hundreds of thousands in legal fees, and thousands more to have the taxes prepared competently and correctly. The corrected taxes were prepared, filed, and accepted by the IRS.
DO NOT USE DAVID HEISTEIN OF PROFITWISE ACCOUNTING TO PREPARE YOUR TAXES UNLESS YOU WANT TO FIND YOURSELF IN AN INTRACTIBLY COMPLICATED AND RUINOUSLY EXPENSIVE LEGAL QUAGMIRE LIKE I DID.
All of the above is true to the best of my knowledge and I have done the best I can to support it all with documentation. Note that the truth is an affirmative defense to accusations of libel so I’m in good stead there. I’m also recently divorced, broke, had an insolvent business thanks to an embezzling partner, and have deeply negative net worth with no assets to speak of. So anyone coming after me for anything would be wasting their time anyway. This is published in the interest of preventing someone else in the community from befalling the same ill fate that I have.
Email me at treed@ultraviolet.org with questions.