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Instructions
Disclaimer and Notice of Use
All sample engagement letters contained in the AICPAs Annual Compliance Kit are provided
as an exclusive benefit to Tax Section members. These letters may be used as templates to help
develop your firms engagement letters. It is strongly recommended that the content of all
engagement letters be reviewed with appropriate legal counsel for completeness and accuracy.
Also, consider consulting with your firms professional liability insurance carrier.
Collaboration with the AICPA-endorsed Underwriter of Professional Liability Insurance
These sample engagement letters have been developed and provided by CNA, the endorsed
underwriter of the AICPA Professional Liability Insurance Program. CNA policyholders may
access the comprehensive version of these engagement letters, as well as a sample terms and
conditions document. The exclusive policyholder content includes additional and more detailed
engagement letter provisions to help mitigate the risk and impact of a professional liability claim
against the CPA firm. As such, they should be considered for inclusion in engagement letters.
Exclusive provisions include many items that CPAs are required to disclose to clients (such as
records management and the use of third-party service providers) and risk allocation provisions
(such as limitation of liability, choice of venue, and alternative dispute resolution).
The AICPA Professional Liability Insurance Program is endorsed by the AICPA, administered by
Aon Insurance Services, and underwritten by CNA.
Tax Section members may be eligible to receive a no-obligation premium quotation by
completing a quick online application.
For more information about professional liability insurance coverage, please contact an Aon
representative at (800) 221-3023 or visit the AICPA Member Insurance Program.
Recommendations for Engagement Letters
The following items should be addressed when drafting engagement letters:
Describe the responsibilities of the client and your firm to disclose any potential conflicts
of interest.
Review and execute a new engagement letter annually.
Issue a separate letter to reflect changes in the nature or scope of a previously agreed
upon engagement, including the provision of additional tax compliance, tax consulting, or
tax planning services and representing the client before the IRS or other taxing authority.
If applicable, attach your firms terms and conditions to the engagement letter and
incorporate such by reference.
For assistance with and strategies to implement engagement letters at your firm, read the article:
Buckle Up: The Importance of Engagement Letters, Journal of Accountancy, Dec. 2014.
Tax Section members may refer to the Tax Practice Quality Control Guide for further
information on the use of engagement letters and other due diligence procedures. CNA
policyholders also have exclusive access to the resource guide: Preparing and Using
Engagement Letters, to aid in the understanding of various engagement letters provisions.
Professional Standards and Considerations
Tax professionals should refer to the following professional standards and regulations for
additional guidance regarding the content of engagement letters:
AICPA professional standards, rules, and interpretations including the AICPAs Code of
Professional Conduct and the AICPAs Statements on Standards for Tax Services (SSTSs)
AICPA practice aids and training materials
Treasury Department Circular No. 230 and various sections of the Internal Revenue Code
and related regulations
Rules promulgated by individual state licensing boards of accountancy and other
regulatory agencies
Other applicable laws and regulations, including laws and regulations applicable to the
clients industry
Many resources can be found on the AICPAs Tax Ethics and Professional Standards page.
Internal Revenue Code (IRC) Section 7216 Considerations
Engagement letters should not be used for compliance with IRC Section 7216, Disclosure or Use
of Information by Preparers of Returns, and the applicable regulations, which generally prohibit
the disclosure or use of tax return information without the clients express written consent. For
more information, including aids for preparing Sec. 7216 consent forms, see the AICPAs Sec.
7216 Guidance and Resources page.
We will not prepare any tax returns except those identified above, without your written request,
and our written consent to do so. We will prepare your tax returns based upon information and
representations that you provide to us. We have not been engaged to and will not prepare
financial statements. We will not audit or otherwise verify the data you submit to us, although we
may ask you to clarify certain information.
We will prepare the above referenced tax returns solely for filing with the Internal Revenue
Service (IRS) and state and local tax authorities as identified above. Our work is not intended
to benefit or influence any third party, either to obtain credit or for any other purpose.
Supplement to Preparing and Using Engagement Letters
Updated October 2016
Page 3 of 11
...
Reliance on Others (Optional, full text is available to CNA policyholders)
If you wish to take a tax position based upon the advice of another tax advisor, you agree to
obtain a written statement from the advisor..
.
Substantial Understatement Penalties (Optional, full text is available to CNA policyholders)
The IRS and many states impose penalties for substantial understatement of tax. To avoid the
substantial understatement penalty, you must..
Listed Transactions and Transactions of Interest (Optional, full text is available to CNA
policyholders)
You acknowledge your responsibility to inform us of any listed transactions or transactions of
interest as designated by the IRS.
..
Client Responsibilities
You will provide us with a trial balance and other supporting data needed to prepare your tax
returns. You must provide us with accurate and complete information. Income from all sources,
including those outside of the U.S., is required.
We rely upon the accuracy and completeness of both the information you provide in the trial
balance and other supporting data you provide in rendering professional services to you.
On-line access to information (Optional)
To the extent you provide our firm with access to electronic data via a local or online database
from which we will download your trial balance or other information, you agree that the data is
accurate as of the date and time you authorize it to be downloaded.
Supplement to Preparing and Using Engagement Letters
Updated October 2016
Page 6 of 11
Unrelated business taxable income (Optional, full text is available to CNA policyholders)
If your organization produces revenue from a trade or business activity not directly related to its
tax-exempt purpose, it may have unrelated.......
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Documentation
You are responsible for maintaining adequate documentation to substantiate the accuracy and
completeness of your tax returns. You should retain all documents that provide evidence and
support for reported income, credits, and deductions on your returns, as required under
applicable tax laws and regulations. You are responsible for the adequacy of all information
provided in such documents. You represent that you have such documentation and can produce it
if needed, to respond to any audit or inquiry by tax authorities. You agree to hold harmless our
firm and its partners, principals, shareholders, officers, directors, members, employees, agents or
assigns with respect to any additional tax, penalties, or interest imposed upon you by tax
authorities resulting from the disallowance of tax deductions due to inadequate documentation.
Personal expenses
You are responsible for ensuring that personal expenses, if any, are segregated from business
expenses and that expenses such as meals, travel, entertainment, vehicle use, gifts, and related
expenses are supported by necessary records required by the IRS and other tax authorities. At
your written request, we are available to provide you with written answers to your questions on
the types of supporting records required.
State and local filing obligations
You are responsible for determining your tax filing obligations with any state or local tax
authorities, including, but not limited to, income, franchise, sales, use, property or unclaimed
property taxes. You agree that we have no responsibility to research these obligations or to
inform you of them. If upon review of the information you have provided to us, along with
information that comes to our attention, we believe you may have additional filing obligations,
we will notify you of this responsibility in writing and ask you to contact us. If you ask us to
prepare these returns, we will confirm this representation in a separate engagement letter.
U.S. filing obligations related to foreign financial assets (full text is available to CNA
policyholders)
....
Worker classification (Optional, full text is available to CNA policyholders)
You acknowledge and confirm that you are responsible for determining the correctness of any
worker classification. Payroll tax withholding.
Ultimate responsibility
You have final responsibility for your income tax returns. We will provide you with a copy of
your electronic income tax returns and accompanying schedules and statements for review prior
to filing with the IRS and state and local tax authorities (as applicable). You agree to review and
examine them carefully for accuracy and completeness.