As a CPA, tax preparer, or member of a tax firm, you deal with complicated tax laws and policies. You also handle sensitive client information. As you know, it’s crucial for tax professionals to be detail-oriented and hyper-aware when it comes to tax and privacy practices. Not only does this keep you and your clients compliant—it helps you earn the trust of your clients. They’ll know they can count on you to be ethical, aware, and fully supportive.
TaxGlobal is here to help. Today, we’re running through some FAQs about something all tax firms and CPAs deal with: client engagement letters. Before continuing, we’d like to point out that the specifics of a client engagement letter will depend on the circumstances, and that you should have every engagement letter reviewed by an attorney.
- What should an engagement letter say?
An engagement letter spells out the responsibilities of both the client and the tax preparer. It also says what the tax preparer won’t be held responsible for: for example, tax fraud not disclosed by the client.
- Should the engagement letter specify that a tax firm relies on the info provided by a client?
Your engagement letter should state that the prepared tax returns will rely on info provided by your client, and that you won’t verify or audit this information, and therefore won’t be held responsible for errors or fraud.
- How much does an engagement letter really protect the tax preparer?
An engagement letter is a legal contract (which is why you want to have it reviewed by a lawyer), and as such, it provides legal protection for tax preparers. But to be protected in a certain situation, your letter has to detail that situation in advance. That’s why it’s important to list the services you’ll provide in detail, including the associated fees, along with the client’s responsibilities.
- Should I use an engagement letter for amended returns?
Yes, and in your engagement letter, be sure to state specifically which returns will be amended, along with any fees for that work.
- Should I return client records I received electronically?
Yes. You’re legally required to return all client records, both paper and electronic, by Section 10.28 of Circular 230.
Have more questions about client engagement letters or the legal ethics of preparing tax returns? Use Taby or ask our online network of tax providers and CPAs.