The Engagement Letter Checklist: What Your Tax Representation Contract Should Say

The sales call is marketing. The engagement letter is the deal. When there is a gap between what you heard on the phone and what the letter says, the letter usually wins.

So read it like a contract, because it is one. Here is the checklist I would want any client to run on any engagement letter, including mine.

1. The responsible professional, by name

Circular 230 regulates individuals, not companies. The letter should name the licensed person responsible for your matter and state their credential: attorney, CPA, or enrolled agent. It should also say who will sign your Form 2848 power of attorney.

If the letter names only a company, or says your case will be handled by "our team," ask for a named professional. You cannot verify a team. See how to verify credentials.

2. The scope: matters, years, and goal

The letter should list the tax type, such as individual income tax on Form 1040 or employment tax on Form 941, the specific tax years or periods, and the goal, such as preparing missing returns and negotiating an installment agreement.

This mirrors how the power of attorney works. Form 2848 authorizes representation for listed tax matters and years. If the engagement letter covers more years than the power of attorney does, or the reverse, ask why.

3. What is excluded

Good letters say what is not included. Typical exclusions are state tax matters, Appeals or Tax Court proceedings, criminal matters, years not listed, and return preparation. Exclusions are not a trick. They are clarity.

The trap is a letter with no exclusions at all and a vague scope. That leaves every disagreement to be argued later, when you have less leverage.

4. The fee, in plain numbers

The letter should state the fee structure: flat, hourly with rates, or phased with separate amounts. It should say when payments are due and what they are for. If any part of the fee depends on the result, it should say so, and you should check it against the contingent fee limits in Circular 230 section 10.27.

Costs deserve their own line. Circular 230 section 10.30(b)(1)(ii) requires published fee information for matters where costs may be incurred to disclose whether clients will be responsible for those costs. Your letter should be at least that clear. The IRS's $205 application fee for an offer in compromise, for example, is a cost the IRS charges unless you meet its low-income qualification. Who pays it should not be a surprise. More in flat fee versus hourly and contingent fees.

5. Where your advance payment goes

If you hire a lawyer and pay in advance, ask where that money is held. Florida's Rule 5-1.1, for example, says funds, including advances for fees, costs, and expenses, must be kept in a separate trust account and applied only to their specific purpose. Other states have their own versions. Non-lawyer firms are not bound by bar trust account rules at all.

That difference matters if the relationship ends early. See advance fees and trust accounts.

6. The refund rule

The FTC tells consumers to ask whether fees are refundable if the service is not delivered. The letter should answer that in writing. How is the unearned portion calculated if you end the engagement? If the firm ends it? If the firm cannot do what it said?

Be wary of letters that call every dollar "earned upon receipt" while describing work that has not happened yet. Read refund policies and guarantees before you sign.

7. Your records

Circular 230 section 10.28 requires a practitioner, at the client's request, to promptly return any and all client records needed for the client to comply with federal tax obligations. A fee dispute generally does not change that, though state law can allow some records to be held during a fee dispute, in which case the practitioner still must return records that must be attached to a return and provide reasonable access to the rest.

The letter should acknowledge that obligation and say how records will be delivered. The detail is in getting your file back.

8. Conflicts of interest

If the firm represents someone whose interests may cut against yours, such as a spouse, an ex-spouse, a business partner, or the company you worked for, the letter should address it. Circular 230 section 10.29 allows representation despite a conflict only if the practitioner reasonably believes they can represent each client competently and diligently, the representation is not prohibited by law, and each affected client gives informed consent confirmed in writing, no later than 30 days after consent.

Joint cases between spouses are the classic example. One spouse may have an innocent spouse claim against the other. If that is possible in your case, read the innocent spouse chapter and ask about it before signing.

9. Communication

How often will you hear from the firm, and from whom? Will you get copies of everything sent to the IRS? Circular 230 section 10.21 requires a practitioner who learns of a client's noncompliance, error, or omission to tell the client promptly and explain the consequences. A good letter commits to that kind of communication in general, not just when the rules force it.

10. How it ends

Every engagement ends. The letter should say how you can end it, how the firm can end it, and what happens to your power of attorney when it does. The Form 2848 instructions describe both sides: a taxpayer revokes by writing "REVOKE" across the top of the form with a current signature and date, and a representative withdraws by writing "WITHDRAW" the same way, then sending it to the IRS.

A letter that makes leaving expensive, slow, or vague is telling you something about how the firm treats clients who leave. The process is covered in switching tax representatives.

Clauses that deserve a second look

Some contract terms are not illegal, but they shift risk onto you in ways a buyer should notice. Ask about each one before you sign.

• Automatic recurring charges with no end date or cap. The FTC's consumer advice warns about ongoing monthly fees that can run for months or years. See monthly fee tax relief programs.
• A right for the firm to change fees or scope by notice alone, without your signature.
• A requirement that every dollar of the resolution fee be paid before anything is submitted to the IRS.
• Broad language calling all fees "non-refundable" or "earned on receipt" while describing work that has not been done.
• Any term that conditions a refund on your agreement not to complain to a regulator or post a review.
• Authorization for the firm to receive IRS refunds or payments on your behalf. Circular 230 section 10.31 bars practitioners from negotiating government checks issued to you or directing that payment into an account they control. See never pay the IRS through your representative.

None of these automatically means the firm is dishonest. Each one is a place where a dishonest firm would hide. Ask for an explanation in writing, and ask for the clause to be changed if the explanation is not good enough.

Ask for changes before you sign

An engagement letter is a draft until you sign it. Professionals revise them all the time. If a term is unclear, ask for a clarifying sentence. If the scope is missing a year, ask for it to be added. If the refund rule is vague, ask for a formula.

A firm that refuses every change, or tells you the letter is a standard form nobody ever edits, is telling you how flexible it will be when your case gets complicated.

A one-page checklist

• Named responsible professional and credential.
• Tax types, years, and the goal.
• Exclusions stated.
• Fee structure, payment schedule, any contingency.
• Who pays costs such as IRS user fees.
• Where advance payments are held.
• Refund rule for unearned fees.
• Return of records on request.
• Conflicts of interest and written consent if needed.
• Communication commitments.
• Termination by either side and handling of the power of attorney.