[Date]
[Client Name]
[Client Address]
Re:
Engagement to Prepare Income Tax Returns for [Client Name(s)]
Dear [Client]:
We are pleased to confirm our engagement to prepare the income tax returns for
[Client Name(s)] (the “Compan[y/ies]”) for the year ended 20[XX].
We will prepare the income tax returns based on information and documents
you provide. We will accept the information you provide without verification unless in
our judgment it is incomplete or incorrect, in which case we may ask for additional
information or clarification. All information necessary to complete preparation of the
income tax returns must be received by us no later than [#] weeks prior to the
applicable due date of the income tax returns in order to ensure timely completion of
those returns.
Because of their special purpose, nature and format, income tax returns do not
constitute financial statements prepared in accordance with generally accepted
accounting principles. The tax returns will be used only for income tax purposes and
will not be used as a substitute for financial statements. Tax return preparation services
do not constitute accounting or auditing services, and are not designed to disclose
defalcations or other irregularities, should any exist. Accordingly, you cannot rely on
these services to uncover fraud, employee misconduct or other similar issues, and it is
your sole responsibility to safeguard your assets and establish an appropriate system of
internal controls. You will have the final responsibility for the income tax returns and,
therefore, we recommend you review them carefully before signing and filing them.
Please bring any questionable items or possible omissions to our attention.
The Internal Revenue Code (“IRC”) and the related Treasury regulations, as well
as certain other laws and regulations, require taxpayers to disclose various transactions,
sometimes specify the actual tax treatment, and frequently impose strict penalties for
2420664.1
noncompliance. The Compan[y/ies] agree[s] to use reasonable efforts to identify all
reportable transactions and promptly inform [Accounting Firm] if the Compan[y/ies]
are required to disclose any transaction covered by this engagement. [Accounting
Firm] will inform the Compan[y/ies] of any such transactions that come to our
attention, but the ultimate responsibility for identifying transactions lies with the
Compan[y/ies].
Some tax positions must be clearly disclosed in your returns if they meet certain
standards. If a return position relates to a transaction designated by the IRS or any
relevant state as a “listed transaction,” or if the principal purpose of a transaction is the
avoidance or evasion of tax (principal purpose transaction), we must arrive at a high
level of confidence that the position “should” be accepted by the taxing authorities if
scrutinized in order to complete preparation of the return. If the position does not
involve a federal or state “listed transaction” or a “principal purpose transaction,” we
must be able to determine that (1) an undisclosed return position is at least “more likely
than not” to be upheld, and (2) a disclosed return position has at least a “realistic
possibility” of being sustained on its merits. In determining whether a return position
meets the appropriate standard, we will not take into account the possibility that a tax
return will not be audited, that an issue will not be raised on audit, or that an issue will
be settled. We will inform you as soon as possible if, during our preparation, we
determine circumstances exist that prevent us from completing the tax return under
these standards and we will advise you of potential alternatives.
We do not anticipate that the communications provided under this engagement
letter will be a Covered Opinion as defined in Section 10.35 of Circular 230 (“Covered
Opinion”). Therefore, all of the written communications provided under this
engagement letter should contain the following legend:
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED
OR WRITTEN BY [ACCOUNTING FIRM] TO BE USED, AND CANNOT
BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR
THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE
IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR
RECOMMENDING TO ANOTHER PARTY ANY MATTERS
ADDRESSED HEREIN.
2420664.1
If you request that our services rise to the level of a Covered Opinion, we will issue a
separate engagement letter for the issuance of a Covered Opinion. To be of greater
assistance to the Compan[y/ies], we should be advised in advance of proposed
transactions. If such matters exceed the scope of this engagement letter, we will issue
separate engagement letters to confirm the scope and related terms of any additional
engagements.
The Compan[y/ies] further agree[s] that any advice, recommendations,
information or work product provided to the Compan[y/ies] by us in connection with
our engagement is for the sole use of the Compan[y/ies] and may not be relied upon by
any third party. If for any reason, the Compan[y/ies] provide such information to a
third party, the Compan[y/ies] shall provide the third party with the following written
notice, which must be acknowledged by the third party in writing:
The advice or other information in this document was prepared for the
sole benefit of the Compan[y/ies]. It is based on the specific facts and
circumstances of the Compan[y/ies], limited to the scope of [Accounting
Firm]’s engagement for the Compan[y/ies] and may not be relied upon by
any other person or organization.
[Accounting Firm] accepts no
responsibility or liability in respect of this document to any person or
organization other than the Compan[y/ies].
[Accounting Firm] may communicate with the Compan[y/ies] by electronic mail
or otherwise transmit documents in electronic form during the course of this
engagement.
The Compan[y/ies] accept the inherent risks of these forms of
communication (including the security risks of interception of or unauthorized access
to such communications, the risks of corruption of such communications and the risks
of viruses or other harmful devices) and agrees that it may rely only upon a final hard
copy version of a document or other communication that we transmit to the
Compan[y/ies].
Our fees for preparing the income tax returns for the Compan[y/ies] will be at
our standard hourly rates as they relate to the individuals performing the services, plus
out-of-pocket expenses (such as processing fees, Fast Tax charges, etc.).
In accordance with our firm policies, work may be suspended if your account
becomes 90 days or more overdue, and will not be resumed until your account is paid
2420664.1
in full. If we elect to terminate our services for nonpayment, our engagement will be
deemed to have been concluded upon our providing you written notification of
termination, even if we have not completed our work. You will be obligated to
compensate us for all time expended and to reimburse us for all out-of-pocket
expenditures through the date of termination. If we stop work based on your account
becoming delinquent, we will not be responsible for any additional tax, interest or
penalties arising out of any delay caused by the work stoppage.
In the event we are requested by the Compan[y/ies], or are required by
government regulation, subpoena, or other legal process, to produce our documents or
our personnel as witnesses with respect to our engagements for the Compan[y/ies], the
Compan[y/ies] will, so long as we are not a party to the proceeding in which the
information is sought, reimburse us for our professional time and expenses as well as
the fees and expenses of our counsel, incurred in responding to such requests.
Upon the completion of our engagement, we will return all original documents
to you. These original documents should be retained by you. We will retain copies of
your tax returns and the workpapers we create to prepare the returns for a period of
[number consistent with document retention policy] years. If you terminate your
relationship with our firm, we will retain our copies of your tax returns and the
associated workpapers for a period of [number consistent with document retention
policy] years from the date of termination.
This engagement, and any engagement to prepare income tax returns for
subsequent periods, ends upon delivery of the tax returns. Any related tax or
consultation services will also end with the delivery of the tax returns. Any follow-up
services such as representing the Compan[y/ies] in a tax audit will be confirmed in a
separate engagement letter. The terms and conditions of that new engagement will be
governed by a new, specific engagement letter for that service.
While we do not expect there to be any problems whatsoever with our
relationship, misunderstandings can occur. We believe that most disagreements can be
resolved to mutual satisfaction in a friendly, non-threatening environment.
Accordingly, in the event of any dispute arising out of, or relating to, this engagement,
the parties will first attempt in good faith to settle the dispute through non-binding
mediation administered by the American Arbitration Association under its mediation
rules, before resorting to litigation. In the event that the parties fail to settle the dispute
2420664.1
through mediation, all parties agree that any further action arising out of or relating to
this engagement shall be decided by a court of competent jurisdiction by a judge sitting
without a jury. WE BOTH ACKNOWLEDGE AND AGREE THAT WE ARE
WAIVING ANY AND ALL RIGHTS WE MAY HAVE TO HAVE SUCH DISPUTE
DECIDED BY A JURY [please check to see if this is permissible under local state
law].
Our liability relating to the performance of the services rendered under this letter
is limited solely to direct damage sustained by the Compan[y/ies]. In no event shall we
be liable for the consequential, special, incidental or punitive loss, damage or expense
caused to the Compan[y/ies] or to any third party (including without limitation, lost
profits, opportunity costs, etc.). Notwithstanding the foregoing, our maximum liability
relating to services rendered under this letter (regardless of form of action, whether in
contract, negligence or otherwise) shall be limited to the fees received by us for this
engagement. The provisions set forth in this paragraph shall survive the completion of
the engagement.
All claims relating to the performance of the services rendered under this letter
must be asserted within [3 years] of the delivery of the returns or they will be stale and
time-barred as a matter of law. This [3-year] limitation period shall be tolled and
extended during any period in which the parties are engaged in mediation.
The Compan[y/ies] hereby indemnif[ies/y] [Accounting Firm] and its partners,
principals, employees and agents, and holds them harmless, from all claims, liabilities,
losses and costs arising in circumstances where there has been a knowing or reckless
misrepresentation by a member of the Compan[y’s/ies’] management, regardless of
whether that person was acting in a manner adverse to the Compan[y’s/ies’] interests.
This indemnification will survive termination of this engagement letter.
If any provision of this letter is unenforceable, the remaining provisions shall be
enforced to the maximum extent possible. If any provision of this letter is overbroad or
unreasonable, such provision shall be given effect to the maximum extent possible by
narrowing or removing that aspect of the provision found overbroad or unreasonable,
and enforcing the remaining portions to the full extent reasonable.
For us to begin the work, please sign a copy of this letter as indicated below and
return it to us along with the retainer amount (if applicable). If a signed copy of this
2420664.1
letter is not returned, we reserve the right to: (1) delay commencement of any work or
the allocation of any personnel or other resources to your engagement, and/or (2)
terminate the services contemplated in this letter.
We look forward to working with you and enjoying a mutually beneficial
relationship.
Very truly yours,
[Accounting Firm]
Agreed and acknowledged:
[Client Representative]
[Client Name]
2420664.1