Engagement Letters

[Gretel]

I believe we agree that an Engagement Letter is a must, I use them since I started my business 15 years ago. I always tried to keep it as simple as possible and fit it on one page including the privacy policy. For years I created my own Engagement Letter integrating changes and ideas from other professionals, lately I used the one provided by TTB.

I am not sure that I feel comfortable with the one page Engagement Letter any longer, things have become so complex. I looked through sample Engagement Letters which are ranging from 3 full pages with very small font to 1 page. I do not want to go overboard but I also do not want to miss out on important things. Plus I recently learned that Engagement Letters might not even hold up in court.

I am interested in any and all opinions, I know I will need to do what feels right to me and my office. Thank you!

[The Mobile Tax Man]

Engagement Letters

I have been using them since the beginning of my business. It has saved me a couple of times. Mine is 3 pages and it includes everything I could think of. I do have separate ones for each service: Tax Prep, Tax Resolution, Accounting, & Consultations (Business & Tax). As far as holding up in court goes, I look at it like the lie detector tests. Not admissible in court, but the data does affect things in court. I can at least show proof the client signed off on things and I have clearly stated them in the engagement letter.

[Snaggletooth]

In general, I don't use them

For 1040 tax preparation, I intentionally don't use them. I won't defend my position from a legal stance, of course, and don't wish to impose my reasons on anyone else. For more complex encounters, I will use them, especially for representation. Most clients requiring representation are the designers of their own problems, and will blame anyone but themselves for their misery.

Reason: I have seen questionnaires so intricate and complicated that it would be easier for the customer to fill out his own return than to answer them. I believe this would drive some people to TurboTax, and to combine this with an uncomfortable engagement letter only hastens their departure.

Only taxpayers with basic W-2s should be using TurboTax, but many people don't know this. Especially engineers and well-educated people who fashion themselves as all-knowing on tax issues are sucked in by TT advertisements which tell them if they buy TT they will suddenly be as knowledgeable as a CPA. I have gone behind these self-prepared returns and recovered untold thousands of dollars.

I got a little off-topic with TT but with so many options available for taxpayers to do their own return, I wanted this to be explained why I don't use questionnaires or engagement letters.

[Rapid Robert]

Reason: I have seen questionnaires so intricate and complicated that it would be easier for the customer to fill out his own return than to answer them. I believe this would drive some people to TurboTax, and to combine this with an uncomfortable engagement letter only hastens their departure. [...], I wanted this to be explained why I don't use questionnaires or engagement letters.

Engagement letters and questionnaires are two entirely different things. I always use engagement agreements (won't provide service unless signed), but rarely use anything other than a Yes/No questionnaire, which is mostly just a memory jogger for the client (as in, "Oh yeah, I forgot, I did win a jackpot at a casino a year ago, glad you reminded me"). A few clients specifically want to fill out a questionnaire with everything that is going on their return, but unless they ask, I don't use it.

For reference, H&R Block offices always require a client service agreement (a.k.a. engagement letter) be signed up front before service is provided. In fact, I created my first engagement letter largely based on the Big Green Block template. I also am fairly certain that you can't use TurboTax or other online software without agreeing to some written terms and conditions. It doesn't seem an engagement letter alone would drive business away, it's industry standard.

The engagement letter serves several important functions for me. First, I won't waste any more time on a client who won't sign it (this has saved me grief several times). Second, it spells out important terms of service, such as I won't file their return until fee payment and signature are received, and I won't be responsible for any tax they legitimately owe (even if I made a mistake on their return and didn't include it -- I will take responsibility for penalties and maybe interest that is my fault). Third, it also spells out what I am not responsible for -- such as selecting a business entity, classifying workers as employees, or other types of tax beside income.

To the original question, I think you are going to need about 3 pages to cover the essentials, that is what mine is. (privacy policy is on separate page, I also have a checklist to indicate exactly which type(s) of returns I am agreeing to prepare). My tax software allows me to create customized engagement letters if needed, and also provides for a simple esignature process, which almost all of my clients used last year.

[The Mobile Tax Man]

Client Organizers/questionaires

I never use these for I like to do the interviews and feed further questions based off their answers. I also feel anything beyond basic questionnaire is a turn off for clients. DIY tax software is a joke and I have won over many clients who use these products by showing them where the programs failed them.

[ttbtaxes]

I use engagement letters for every client for every year because I believe it is critical. It is a three-page letter and the most important item is listed on the signature page of my engagement letter. It specifically states that I will only prepare the tax returns listed in the engagement letter and that I will prepare no other returns nor do any other work that is not covered by the engagement letter. If clients want any other services they must list so at the bottom of page 3.

In my opinion, what that does is prevent a client from claiming they thought, and/or I said, I would prepare 5500s, 1099s, gift tax returns, etc. If it is not specifically spelled out in the letter, I have not been engaged to do that work. Period.

You can bet that a client who is in a bind is going to claim you said you would do work for them. He said, she said. I won't put myself in that position.

[ToddFogelberg]

Engagement letter

I just updated mine..it has increased to 3 pages including the privacy policy. It is on the "checklists" page of my website and is available for download. Use at your own risk. (I have not had mine reviewed by an attorney).

Todd

https://www.toddstaxservice.com