Tax preparer engagement letter checklist

Start with the client and the exact return

Name the party hiring the firm and the taxpayer whose return will be prepared. Those names may differ. A business owner can contact the firm about an entity return, a personal return, payroll filings, or several separate engagements.

Record the tax year, return type, entities, and jurisdictions covered. If a married couple expects a joint return, the letter should address who the clients are and how the firm will handle instructions, documents, delivery, and a later conflict. A preparer should get advice suited to the firm's professional status and state law before drafting those terms.

Write the service boundary in plain English

A useful scope can be checked against the finished file. List the returns and schedules included. Then identify work that needs separate approval, such as bookkeeping cleanup, amended returns, notice response, audit representation, tax planning, payroll filings, beneficial ownership work, or a return for another person or entity.

Avoid phrases such as "all tax services." They do not tell the client whether the fee includes a second state return, a Schedule C reconstruction, a late election, or three months of notice correspondence. If a new issue appears, stop long enough to document the added work, price, timing, and responsibility.

The IRS's ethical tax practice guidance specifically recommends a defined scope, stated limitations, and a new or updated agreement when new work arises.

State how the fee will be calculated

Write down the pricing method before preparation begins. A fixed fee needs a defined scope. A form-based or hourly fee needs the current schedule and a way to approve work outside the estimate. The letter should also address deposits, payment dates, out-of-pocket costs, card charges if any, collection activity, and whether unpaid work can be paused under applicable law and professional rules.

Do not make the fee depend on an expected refund or an unsupported tax result. Practitioners covered by Circular 230 should check its current fee restrictions. Other preparers may have separate state, credential, insurer, or contract rules.

Record what the client must do

The letter should tell the client what must arrive, how it must be sent, and when. Address complete records, truthful answers, notice of corrected forms, review of the finished return, signature authorization, payment, and retention of the client's copy.

Do not turn the client's duties into a disclaimer for careless preparation. A paid preparer still has applicable signature, PTIN, due diligence, knowledge, record, and return-copy duties. The IRS tells taxpayers that a reputable preparer signs the return, enters a PTIN, provides a copy, reviews records, and asks questions. See IRS Topic 254.

Keep Section 7216 consent out of the fine print

An engagement letter is not a shortcut around the federal rules for using or disclosing tax return information. Start by listing every intended recipient and purpose outside ordinary return preparation. Examples can include a separate financial service, marketing use, an outside contractor, or a provider located outside the United States.

Then determine whether an exception applies or the taxpayer must give a valid consent. The rules for Form 1040-series information can require prescribed wording and a separate written document. A broad confidentiality sentence or a general privacy-policy link does not answer that question.

Use the IRS Section 7216 information center and current revenue procedures for the intended use or disclosure. Keep the resulting consent record with the client file when consent is required.

Name the approved data channels

Tell the client where to upload documents, how the firm sends requests, and which channels are prohibited. If the firm uses a portal, tax software, e-signature provider, cloud storage service, answering service, or outside preparer, the actual workflow should match the letter and the firm's privacy and security records.

The FTC Safeguards Rule guidance identifies tax preparation firms among the financial institutions it covers. Covered firms must maintain an information security program and oversee service providers. A sentence in an engagement letter cannot replace those operational controls.

Decide how conflicts will be handled

Conflict language starts with a factual question: whom does the firm represent? Joint filers, related businesses, business partners, divorcing spouses, and a buyer and seller can create different answers.

Circular 230 contains conflict rules for practice before the IRS, including conditions for informed written waivers in situations where representation may continue. Its client-record rules can also apply when fees are disputed. Read the current Treasury Department Circular 230, then obtain advice for the firm's credentials, work, and jurisdictions. Do not paste a generic conflict waiver into every file.

Set the review, signature, filing, and delivery process

Explain when the client will receive a draft or summary, how questions are resolved, and what counts as approval to file. The engagement letter does not replace an IRS e-file authorization. Obtain the correct current authorization for the return type before transmission.

State how the firm will report an accepted return, a rejection, or an open item. Name the delivery method for the final client copy and the place where later questions should be sent. If post-filing work carries a new fee or scope, say so before that work begins.

Prepare for scope changes and withdrawal

Every office eventually receives a late brokerage statement, an undisclosed business, a new state, a missing prior-year return, or facts that put the work outside the preparer's competence. The process should allow the firm to pause, price added work, refer part of the matter, request an extension decision, or withdraw when permitted.

Use real calendar dates for the firm's document cutoff and response deadline. Explain what the firm will do if information remains missing. Avoid promising filing by a date when the client has not supplied the records needed for preparation and review.

Run this check before the letter is used

1. Confirm the correct client names, entities, tax year, return types, and jurisdictions.
2. Match the included services to the price or fee schedule.
3. Identify excluded work and the process for adding it.
4. Set document, response, review, signature, payment, and delivery responsibilities.
5. Compare the communication and storage language with the systems the firm actually uses.
6. Review each planned use or disclosure of tax return information under Section 7216.
7. Check joint-client, conflict, representation, and client-record questions.
8. Set a dated path for late information, extensions, changed facts, and withdrawal.
9. Remove clauses copied from another firm or an earlier year unless they were reviewed for this engagement.
10. Give the client time to read the letter, answer questions, and keep the signed version.

Send counsel the actual service list, client types, jurisdictions, fee method, insurance requirements, vendor list, Section 7216 uses and disclosures, record policy, and proposed letter. That package gives the reviewer facts to work with. A generic request to "approve our engagement letter" does not.

Federal sources used for this checklist

• IRS: Manage risk and client relationships with ethical tax practice
• IRS: Section 7216 information center
• IRS: Office of Professional Responsibility and Circular 230
• FTC: Safeguards Rule guidance
• IRS Topic 254: How to choose a tax return preparer