Engagement letter

No federal rule requires an engagement letter for preparing a tax return, so its contents are a matter of practice. Beyond the services, scope and fees, a letter commonly covers deadlines, record retention and who signs the return.

The AICPA’s Statements on Standards for Tax Services, in force since January 1, 2024, do not require one either. For representation before a taxing authority, they say an AICPA member should consider a written understanding with the client. It would set out the engagement’s objectives, along with the services, responsibilities and limits a letter covers.

A Section 7216 consent, which lets a preparer share or use a client’s tax information, can be attached to an engagement letter. For a Form 1040 filer, Rev. Proc. 2013-14 requires the consent to be a separate document, signed and dated before anything is shared. For other clients, such as a corporation, the consent may sit inside the letter itself.

A letter can also tell clients about outside service providers, as the AICPA Code asks. Before a member shares confidential client information with one, they should tell the client, preferably in writing. The Code does not ask for this notice for administrative support, such as record storage or e-file transmission.