cover letter

[gman]

Does anyone have a good agreement letter for clients. I have a new client this year that is taking a loss on horses---rather large. I would like to have her sign something making her aware hobby loss rules ----just something to make me feel a little more comfortable. Don't feel like she has made up any of her expenses and she has about $20,000.00 in income.

[taxmandan]

I don't change my engagement letter, it is the same for everyone. If they signed the engagement letter before you prepare the return, how could you know that there are big losses? If they didn't sign the engagement letter first, why are you preparing the return?

When I have that type of return I put an additional paragraph in the letter that accompanies the client's copy of the return:

"It should be noted that your Schedule F (C, E) has shown a significant loss. While this loss may be substantiated, it may cause this return to be audited by the IRS. You must be prepared to show that, even though you currently have losses, you have the intent of making a profit."

It puts them on notice that the losses may be questioned and disallowed.

[gman]

Thanks,

I like that reference. Just glancing at the return, it is obvious the expenses would be greater than the income. I do not want my clients returning to me once they receive an audit letter saying---"you never warned me these losses could cause an issue"

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