For tax season

A tax preparation engagement letter for the season ahead

Tax preparation is the engagement with the hardest deadline and the least time to negotiate. Everything you have not written down by April you will be arguing about in April.

The letter has two jobs here. The obvious one is scope: which returns, which entities, which year. The less obvious one is allocating responsibility for the information the return is built on, because you are signing something based on numbers you did not audit.

It also needs to say what happens when the records arrive on April 15 minus three days, which is the single most predictable event in a practice's year.

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Tax preparation engagement letter

The full letter as a PDF, written for the United States, including extension and representation clauses.

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No email required. Or fill one in and we will complete it for you.

The clauses tax season depends on

1

Exactly which returns, for exactly which year

"Tax returns" is not a scope. Name each return — personal tax return, corporate return, Partnership return — the entity, the jurisdiction and the year. A client with a rental property in another state or province will assume it is covered.
2

That you rely on what you are given

You are preparing from the client's information without auditing it. Say it, and say that they are responsible for keeping the records that support every figure — mileage, home office, charitable donations, 1099-B basis.
3

What happens if records are late

Name a cut-off date after which you cannot guarantee the April 15 deadline, and say what you will do instead: file an extension, or not file at all. An extension is an extension of time to file, not to pay, and clients routinely believe otherwise.
4

Representation is a separate engagement

If the IRS examines the return, responding is not included in the preparation fee. Firms that do not say this end up doing it for nothing.

The tax preparation engagement letter

Written for United States. The download is the same text as a PDF you can put on your letterhead.

[Firm letterhead]

[Date]

[Client name]
[Client address]

Dear [Client contact],

The engagement

We will prepare the [personal tax return / corporate return] of [Client name] for the year ending [date], and [list any additional returns, jurisdictions or entities]. We will not prepare any other return unless we agree it with you in writing.

What we rely on

We will prepare the return from the information you provide. We will not audit or otherwise verify it, although we may ask you about it where something appears inconsistent or incomplete.

You are responsible for the completeness and accuracy of that information, and for keeping the records and documentation that support every position taken on the return. the IRS may ask to see them, and the burden of producing them is yours.

Timing

To file by April 15 we need your complete information by [date]. If it reaches us later, we may need to file an extension. An extension extends the time to file and not the time to pay, so any tax due remains payable by the original date and interest and penalties may apply.

What is not included

This engagement does not include bookkeeping or the preparation of year-end financials, sales tax filings, payroll filings, tax planning or advisory work, returns for any other entity or individual, or representation in any audit, examination or enquiry by the IRS. Each of those is available as a separate engagement.

Your review before filing

You will review the return before it is filed and tell us about anything that looks wrong. We will file only with your authorisation, and the return remains your responsibility once filed.

Fees

Our fee is [amount] in US dollars, invoiced [when] and payable within [number] days. It assumes complete and organised records. Additional work — reconstructing records, amending a filed return, responding to a notice — is charged at [rate] per hour after we have agreed it with you.

Confidentiality and retention

We keep your information confidential except where the law or our professional body requires disclosure, hold it in accordance with applicable state privacy law, and retain our files for [number] years.

Agreement

Please sign and return a copy before we begin.

[Name], [Firm name]

Agreed by [Client name]:

Signature ______________________ Date ____________

Before you use this

Supplied as-is, with no guarantee. These templates are general information, not legal advice, and not a substitute for it. Have your own legal adviser review and adapt one to your practice and your jurisdiction before you put it in front of a client. FirmHello accepts no responsibility or liability for any use made of them.

What goes wrong in April

The return nobody mentioned

A second property, a side business, a trust. Scope by naming returns, not by naming the client.

The extension misunderstood as a payment holiday

Say it in the letter and say it again in the email. It is the single most expensive misunderstanding in tax season.

The notice that arrives in August

Without an exclusion, answering it is assumed to be part of the original fee, five months after that fee was paid.

Other engagement letters

What it is Engagement letters Accounting Accounting Bookkeeping Bookkeeping

Questions about tax engagement letters

Do I need a separate letter for each family member?

For separate returns, yes — each taxpayer is a client. Spouses filing jointly are usually covered by one letter that both sign, which also settles who may give you instructions.

Should the letter mention audit representation at all?

Yes, to exclude it. Silence is read as inclusion, and an examination arrives long after the fee was agreed. Offer it as a separate engagement at a stated rate.

What if the client wants a position I am not comfortable with?

That is a professional standards question rather than a drafting one, and SSTS No. 1 is the place to start. The letter helps by recording that positions are taken on the basis of information the client warrants is complete.

Is an engagement letter needed for a simple return?

The simpler the return, the less time the letter takes to send. The arguments that arise from an undocumented engagement are not proportional to the complexity of the work.

The letter is the easy half

Sending it, getting it back signed, and finding it again in two years is the half that eats the week. That is what the portal is for.

No card and no sales call. If you would rather tell us about your firm first, use the longer form.