Key takeaways
- Name the entity, the form and the tax year in the scope, so 2026 work is not read as open-ended.
- Make the client responsible for the records it gives you, and say what happens when they are late.
- Get written consent before using return information for anything beyond preparing the return.
Decide what the letter covers
Settle four facts before drafting: the client's legal name from the formation documents and EIN letter, the services, the tax years or months, and the person who signs for the entity. A letter addressed to a trade name may not bind the entity that owns the account.
Use one letter per engagement type, each with its own fee line. A monthly bookkeeping fee should not quietly cover an S corporation return.
Decision rule: if the entity files a different return this year, issue a new letter instead of editing last year's.
Write the scope as deliverables
Write the scope as deliverables, each with its form and period. “Tax preparation” is not a scope. “Prepare Form 1120-S for calendar year 2026 from the records the Client provides by the document deadline” is one a client can check.
Name what is out: state returns, sales tax, payroll deposits, the filing of Forms 1099 and responses to IRS notices, unless you add them.
For calendar-year 2026, Form 1065 and Form 1120-S are due March 15, 2027. Form 7004 gives a 6-month extension for those returns. If the scope includes the extension, say so. If not, say the client must request it in writing by a date you set.
Client responsibilities and document clause
The principle: the client owns the records it gives you, and you may rely on them unless you have a specific reason not to. State that in the letter, and attach the document list.
Sample language: “The Client is responsible for the completeness and accuracy of the records it gives the Firm, including bank and card statements, payroll reports, and the vendor list with a tax ID for each payee. The Firm may rely on those records without independent verification unless it tells the Client in writing that it has found a problem. The Client will provide the items on the attached list by [date]. If an item is missing on that date, the Firm will tell the Client in writing and may complete the work on the information it has.” Keep the bracketed items and the last sentence.
Decision rule for vendors: if the client paid contractors in 2026, ask in November for the vendor list with a tax ID for each payee, so the Forms 1099-NEC for 2026 payments can be filed by January 31, 2027. The threshold is $2,000 for payments made in 2026, so a payee paid less than $2,000 in 2026 needs no form. Payments made before 2026 used $600, so the same payee could have needed a form for 2025 payments.
Failure mode: a folder of statements arrives a week before the deadline. The fix is a document date in the letter and a line stating that late documents can move the filing date.
Fees and billing
State the fee basis, the billing cycle and what sits outside the fee. A flat monthly fee should name the account count and monthly transaction volume it covers, and the hourly rate for anything above that volume.
Worked example: in March the client sends eight months of unreconciled card transactions, and the catch-up takes 6.5 hours. The charge is 6.5 times the hourly rate in the letter, billed separately from the monthly fee. Without that rate in writing, the client cannot check the invoice.
List fee triggers one line each: rush work after a stated date, a second request for a document already sent, a return re-prepared because records changed after the draft, and time spent on an IRS notice.
Set when invoices are due and whether you will hold a file until the balance is paid. Check your state board rules before writing that hold.
Consent to use return information
Treas. Reg. 301.7216-3 requires the taxpayer's written consent before a tax return preparer discloses or uses return information, subject to the regulation's exceptions. Using return data for a purpose other than preparing that return, such as a planning offer, needs a separate consent in the letter.
The consent must name the preparer and the taxpayer and specify the information involved. For a disclosure it also states the purpose and names the recipient. Sample: “I consent to [Firm name] using my [entity name] tax return information for [purpose], limited to [items]. [Firm name] will not disclose it to anyone else without a separate written consent.” Put this on its own signature line.
If the client declines, you may not ask again for a substantially similar purpose. Name any outside preparer as a recipient before the first transfer of data.
Records: what you return and what you keep
Under 31 CFR 10.28, a practitioner must promptly return client records the client needs for its federal tax obligations when the client asks. A dispute over fees does not excuse this, except where state law allows the practitioner to keep the records.
Sample clause: “On written request, the Firm will return the Client's records needed to meet its federal tax obligations. A dispute over fees does not change this, except where state law allows the Firm to keep those records.” Add a state citation only if state law applies.
For the client's own retention, the IRS recommends keeping most tax records for 3 years. The period is 6 years if income is underreported by more than 25% of the gross income shown on the return. Employment tax records are kept for at least 4 years after the tax is due or paid, whichever is later. If no return is filed, keep the records indefinitely.
Decision rule: the letter should say who keeps the originals and for how long. The client keeps its originals; the firm keeps working papers under its own retention policy.
Signatures, e-file and representation
Form 8879 is the e-file signature authorization for a return filed by an electronic return originator. Under the Practitioner PIN method, the taxpayer authorizes the firm to enter or generate the client's PIN on the return.
Form 2848 authorizes an individual to represent a taxpayer before the IRS. Say the firm will not contact the IRS for the client unless a Form 2848 for that matter is signed.
Failure mode: an IRS letter arrives and no Form 2848 is on file. The fix is to send the form with the letter.
Dates to cite for tax year 2026
For tax year 2026, Form 1065 and Form 1120-S are due March 15, 2027, and Form 1120 and Form 1040 are due April 15, 2027. Form 7004 gives a 6-month extension for business returns, and Form 4868 gives a 6-month extension for Form 1040.
Forms 1099-NEC for payments made in 2026 are due January 31, 2027, at the $2,000 threshold. Payments made before 2026 use $600, so a letter that covers Form 1099-NEC work for both 2025 and 2026 payments must state both amounts.
Decision rule: if the letter is signed after a due date has passed, name the extension that applies and say whether the firm will file it.
Disputes and liability
Start with written notice, a meeting within a stated number of days, and mediation before any suit. Name the governing state, usually the state where the firm is located.
Sample: “Any dispute about this engagement will first be discussed between the Firm's owner and the Client. If it is not resolved within [number] days after written notice, the parties will try mediation in [county and state] before either files suit.” Fill in the bracketed items.
A liability cap depends on state law and state board rules. Check both, and your malpractice carrier, before adding one.
Termination, renewal and sign-off
Either party can end the engagement with written notice. Name the effective date, what happens to work in progress, and how records are returned under the records clause.
Renew by year, not by default. An automatic renewal carries 2025 scope into 2026 work the client never discussed. Put the tax year and forms in the first paragraph and re-sign when the scope changes.
Failure mode: the client goes silent in February with a partly prepared return. Add a clause that says what happens to the file after 30 days without a response, and that the firm will give written notice first.
Before sending, check the legal name, EIN, tax year and both 2027 dates against this guide. Keep the signed copy with the date sent and the date returned.