Tax Preparation Engagement Letter: What to Include and How to Get It Signed

A tax preparation engagement letter is the annual tax return letter, not the monthly books letter. Send it before anyone opens last year's file. Track the signature. Do not start the return on a verbal yes.

The bookkeeping letter is a different page: bookkeeping engagement letter templates. The organizer that follows the tax letter is the tax organizer workflow. How you later end a file is the disengagement letter. What you keep after the season is the record retention policy for CPA firms. An amendment after the original job is the Form 1040-X amended return workflow. TaxDome stages that send the proposal are the TaxDome client onboarding pipeline.

This is not legal advice

This page is general information, not legal advice. Have your insurer or attorney review any outline or letter before it is your firm's letter. Circular 230 and, if you are an AICPA member, the Statements on Standards for Tax Services still govern the work.

A new letter every year

Circular 230 section 10.33 lists best practices for tax advisors, including communicating clearly with the client regarding the terms of the engagement: the expected purpose and use of the advice, and a clear understanding of the form and scope of the advice or assistance. (Circular 230 PDF)

The AICPA Statements on Standards for Tax Services are enforceable tax practice standards for AICPA members. The current SSTSs (No. 1 through 4) took effect on 1 January 2024. Read the standards. This page is not a substitute for them. (AICPA SSTS No. 1 through 4 (effective 1 January 2024))

The AICPA Annual Tax Compliance Kit treats an engagement letter as the contract that establishes the services you will provide. Their sample letters and terms addendum were developed in collaboration with CNA, the endorsed underwriter of the AICPA Professional Liability Insurance Program. AICPA tells you to review the letters with the firm's legal counsel and to consider consulting the firm's professional liability insurance carrier. The kit also includes Section 7216 sample consent forms to use with the letters when the services require them. Have your insurer or attorney review the outline below before you send it. (Annual Tax Compliance Kit)

What the letter has to cover

Section	What belongs on the page
Parties	Firm legal name. Client legal name. Related entities are named or they are not in this letter.
Scope	The returns you will prepare for [tax year]: 1040, 1120-S, 1065, states you listed. Nothing else is in scope.
Out of scope	Bookkeeping, payroll, notices, audit representation, amended returns, and planning memos unless a separate letter says so.
Client responsibilities	Complete organizer, source documents, and answers by the document deadline. They remain responsible for the information they give you.
Document deadline	A calendar date. Work after that date may go on extension. Name that.
Extension terms	Form 4868 (individuals) extends time to file, not time to pay. Pay by the original due date. The date itself is on IRS When to file.
Fees	Refer to the fee you already quoted, or to the attached schedule. Do not paste a number into a public template. Extra work is a new letter or a written addendum.
E-file authorization	You will not file until the signed authorization is back. A verbal ok is not enough.
Section 7216 consent	A separate document when Treas. Reg. 301.7216-3 requires it. Do not pretend the engagement letter is that consent for a Form 1040 series client.
When work starts	You will not open the return until this letter is signed.

Individual due dates live on IRS When to file. Confirm the current year page before you type a date into the letter. An automatic 6 month extension of time to file is Form 4868, filed by the original due date. It is not an extension of time to pay. When consent is required, collect it as its own file using the Section 7216 consent workflow. Monthly books are a different letter: use the bookkeeping engagement letter templates so a 1040 letter does not get books scribbled in the margin.

An outline to adapt

Have your insurer or attorney review this against your carrier, your state board, and Circular 230 before it is your firm's letter. Brackets are yours.

Subject

Not an email. This is the letter body.

[Date]

[Client legal name]

[Signer name], [Title]

You have asked [Firm] to prepare the federal [and listed state] tax return(s) named below for the year ended [Year end date] (the Work). This letter confirms the Work, your duties, our fee, and when we will start. Have your insurer or attorney compare this outline to the letter you actually send.

Work. We will prepare: [list each return]. We will deliver a draft for your review and, after you approve and we have a signed e-file authorization, we will submit the e-file. We will not start the Work until you have signed this letter.

Not in this letter. We are not hired to keep the books, run payroll, respond to an IRS or state notice, represent you in an examination, file an amended return, or write a planning memo. If you want any of those, we will send a separate letter first.

Your duties. You will complete the organizer, upload the source documents we name, and answer questions by [document deadline]. You remain responsible for the information you give us and for the positions on the return.

Deadline and extension. If the file is not complete by [document deadline], we may file Form 4868 (or the business equivalent we name) for an extension of time to file. An extension of time to file is not an extension of time to pay. Any amount due is still payable by the original due date on IRS When to file.

Fee. The fee we discussed is on [attached schedule or the proposal in the portal]. Work outside this letter is billed only after we write down the extra scope.

Consent. If we will disclose or use tax return information in a way Treas. Reg. 301.7216-3 requires you to approve in writing, that consent is a separate document in the portal. Signing this letter is not that consent.

Please sign and return this letter through [portal]. We will not open last year's file until we have it.

[Firm signer], [Title]

Accepted: [Client signer], [Date]

Send and track so no return starts unsigned

January is a tracker problem. One row per client. The preparer cannot mark the letter signed. Admin or the owner does.

Column	Done when
Client	Legal name. Related entities have their own rows or are listed on this letter.
Letter sent	Date it left the portal, not the date you meant to send it.
Signed	Date on the signed PDF. Work starts after this date.
Consent signed	Date on the Section 7216 document, or N/A if the decision table said you do not need one.
Organizer sent	Date. Chasing the organizer is a different workflow.

Email when you send the letter:

Subject

Your [Year] tax engagement letter from [Firm]

Hi [First name],

The engagement letter for your [Year] [return type] is in the portal at [Link]. It names the returns we will prepare, your document deadline ([Date]), and that we will not start until it is signed. If we need a Section 7216 consent, that is a separate document in the same packet.

Please read it, send any edits in a reply, and sign in the portal. Reply if a related entity should be on its own letter.

[Your name]
[Firm] | [Phone]

Put a reminder on unsigned letters. Do not let a preparer open the software on a file whose row still says blank. TaxDome can automove when a proposal is fully signed. Use that. In Canopy or Karbon, the signed document on the client is the gate, not a task someone ticked because they called.

Download the letter tracker

Download the engagement letter tracker. One row per client. The tax season operator can draft the chase on unsigned letters. Your staff approve what goes out. Your CPA reviews and signs every return.

Keep reading on Fabren

Bookkeeping engagement letter templates Tax organizer workflow CPA disengagement letter and client records TaxDome client onboarding pipeline Section 7216 consent workflow Record retention policy for CPA firms Form 1040-X amended return workflow

External references

AICPA SSTS No. 1 through 4 (effective 1 January 2024)Treasury Circular 230 PDF IRS: when to file AICPA Annual Tax Compliance Kit

Next step

Want unsigned engagement letters chased in January?

The tax season operator drafts that follow up from the blank tracker rows. Your staff approve what goes out. Your CPA reviews and signs every return.

See the tax season operator

Related guides

Tax season

A tax preparation engagement letter you send and track before anyone opens the return

This is not legal advice

A new letter every year

What the letter has to cover

An outline to adapt

Send and track so no return starts unsigned

Download the letter tracker

Keep reading on Fabren

External references

Want unsigned engagement letters chased in January?

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