We look forward to providing you with tax return preparation services this year! The purpose of this letter is to specify the terms of our engagement and clarify the nature and extent of the services we will provide. This way, you know what to expect from us, and we can endeavor to delight you with high-quality, seamless services.
What Services Are Covered under This Engagement?
Preparation of U.S. Federal and State Returns
With this letter, you are engaging us to prepare your 2023 U.S. and state income tax returns, with all required accompanying forms, statements, and schedules. We will do so with the information you furnish to us as described below. If you have taxable income or loss in a state or locality other than your resident state, we will generally prepare your nonresident state or locality returns, as well, unless you indicate in advance that you prefer we not prepare these nonresident filings.
Preparation of Foreign Bank Account Reports (FBARs)
If based on the information you have provided to us, we believe that you have a requirement to file FinCEN Form 114 (otherwise known as a Foreign Bank Account Report or “FBAR”), the preparation of your 2023 FBAR(s) will be covered under this engagement. If you prefer that we not prepare your FBAR(s), you may opt out by checking the appropriate box in your annual tax questionnaire or notifying us in writing.
What Is the Scope of This Engagement?
This engagement is limited to the professional services outlined above. We will not prepare any tax returns other than those identified above, without your written request, and our written consent to do so. We will prepare the above-referenced tax returns solely to assist you with your tax filing obligations with the IRS and applicable state and local tax authorities. Our work is not intended to benefit or influence any third party, including any entity or investment which may seek to evaluate your creditworthiness or financial strength.
Note on Bookkeeping Assistance
In some cases, we may determine that you require accounting and bookkeeping assistance solely for the purpose of preparing the tax returns. These services are typically outside the scope of tax return preparation. As such, in most cases, we will provide you with referrals to bookkeepers. In limited cases, we may provide you with such assistance directly. In those cases, these services will fall under the scope of this engagement letter and will be performed solely in accordance with the AICPA Code of Professional Conduct. In the event we conclude that such services are necessary to prepare your tax returns, we will bill you for the required services. You agree to pay for those required services.
What Services Are Not Covered under This Engagement? (Most Are Offered as a Separate Engagement.)
The following services are examples of services that are outside the scope of this engagement. However, we regularly assist clients with many of these matters. Should you request these additional services, and we agree to provide them, we will send you a separate engagement letter for those services.
During the course of preparing the tax returns identified above, we may bring to your attention potential tax savings strategies for you to consider as a possible means of reducing your taxes in subsequent tax years. However, we have no responsibility to do so, and will take no action with respect to such recommendations, as the responsibility for implementation remains with you, the taxpayer. If you ask us to provide tax planning services, and we agree to provide them to you, we will confirm this engagement in a separate agreement.
Corporate Transparency Act Beneficial Ownership Information Disclosures
You may have a requirement to file beneficial ownership information (BOI) reports to comply with the Corporate Transparency Act (CTA). You have sole responsibility for your compliance with the CTA, including its BOI reporting requirements and the collection of relevant ownership information. We shall have no liability resulting from your failure to comply with CTA. Information regarding the BOI reporting requirements can be found at https://www.fincen.gov/boi. Consider consulting with legal counsel if you have questions regarding the applicability of the CTA’s reporting requirements and issues surrounding the collection of relevant ownership information. If you ask us to provide BOI services, and we agree to provide them to you, we will confirm this engagement in a separate agreement.
If for the preparation of your current-year returns, you provide us with a copy of your prior-year returns, our review of the prior year’s tax return will necessarily be limited and may not find all errors. If you become aware of any information impacting prior year tax returns, please contact us. If you ask us to prepare amended tax returns, and we agree, we will confirm this engagement in a separate written agreement.
Foreign Tax Returns
You may have a filing requirement or tax liability in a foreign country. Generally, you are responsible for determining whether you must file and pay taxes in a foreign country and to comply with any requirements. In some cases, upon request, we may agree to assist in making these determinations. Should we agree, this would be covered under a separate engagement. We do not prepare foreign tax returns. Should you need assistance with your foreign tax filings, or with confirming filing requirements, we would be happy to refer you to a provider in that country. See information below on referrals.
Your transactions with related parties are subject to the transfer pricing rules of IRC §482, Allocation of Income and Deductions Among Taxpayers, which require that such transactions are conducted in an arm’s length manner IRC §482 permits Treasury to reallocate income and expense (“transfer pricing”) if it determines taxable income of commonly-owned or commonly-controlled businesses is not “clearly reflected,” or intercompany transactions between those businesses are not conducted at arm’s length. In transfer pricing, “arm’s length” is understood to infer a price at which unrelated parties would buy or sell, assuming no compulsion to transact. Treasury Regulations require documentation of inter-company transactions and payments (including intercompany debt/interest), and failure to substantiate those transactions may result in significant understatement and accuracy-related penalties. Analysis of transfer pricing is outside the scope of this engagement. Although we may inquire as to your documentation of intercompany transactions, it is your responsibility to assess your transfer pricing and complete/maintain any necessary documentation.
What Are Your Responsibilities during the Tax Preparation Process?
Timely Information and Clarifications
You must provide all the information required for the preparation of complete and accurate returns. Our team is committed to getting your return done as efficiently as possible, but to do so, we need you to deliver all records and information we request in a timely manner. You are responsible for fully and accurately disclosing to us all relevant facts affecting your returns.
To help you assemble the information needed for your returns, we will provide you with a questionnaire, organizer, and/or other document requesting specific information. Our questionnaires include deadlines for sending us your information, based on the type of return(s) you file and whether you hope to file by the original deadline, by the extended deadline, or after the deadlines.
Once your information is assembled and organizers and questionnaires are complete, you will submit your complete information to us. Please know that failure to provide information via completed questionnaires and organizers may require an extraordinary effort on our part, which may be reflected in our fee for service.
If, during the course of your tax return preparation, we determine that additional information or clarifications are needed in order to complete your returns, we will let you know. You are responsible for providing such additional information in a timely manner so that we can prepare your returns efficiently and timely. Please know that lack of responses on your part may result in extraordinary follow-ups and efforts on our part, which may be reflected in our fee for service.
We will provide you with guidance on the timeline for submitting your tax information to us. It is your responsibility to provide your complete tax information to us in a timely manner so that we can prepare your tax returns in time for you to file them by the due dates. You also have the final responsibility for the tax returns, and therefore, once you receive them, you should carefully review the returns (to determine that there are no omissions or misstatements) before signing them and submitting them to the tax authorities, or authorizing e-filing of the returns.
Please know that a fundamental term of this agreement is that you will provide us with all information relevant to the services to be performed and to provide us with any reasonable assistance as may be required to properly perform the engagement. You agree to bring to our attention any matters that may reasonably be expected to require further consideration to determine the proper treatment of any relevant item. You also agree to bring to our attention any changes in the information as originally presented as soon as such information becomes available. Unless otherwise indicated, any deliverables are solely for your internal use and benefit.
You are responsible for ensuring that personal expenses, if any, are segregated from business expenses and that expenses such as meals, travel, vehicle use, gifts, and related expenses are supported by documentation and 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. If upon review of the information you have provided to us, including information that comes to our attention, we believe that you may have additional filing obligations, we will generally notify you. You acknowledge that the scope of our services under this agreement does not include any services related to your compliance with tax obligations other than those identified in the Engagement Scope section of this agreement. If you ask us to prepare any other returns, and we agree to do so, we will confirm this engagement in a separate agreement.
What Are Your Responsibilities Related to Foreign Assets, Foreign Ownership & Digital Assets?
Both U.S. tax residents and non-residents may be required to disclose ownership of, or transactions in, digital assets (such as Bitcoin, other cryptocurrency, NTFs, etc.), as well as certain foreign assets, transactions, or ownership.
We will send you an annual tax questionnaire, to identify the information, forms, and schedules that must be included in your U.S. tax return for the year. Please be aware that if we determine that you need to file certain forms, we may request further information needed to prepare the forms, including completion of specialized supplemental questionnaires specific to your forms. You are responsible for completing each questionnaire, in addition to any supplemental questionnaires we send you.
FinCEN Form 114 (FBAR)
Based on the information you provide, you may be required to file FinCEN Form 114, also known as the Foreign Bank Account Report or FBAR.
You are responsible for informing us of all foreign financial assets and interests, including any financial interest in, or signature authority over assets, or financial accounts located in a foreign country. This information includes but is not limited to savings accounts, checking accounts, current accounts, securities accounts, custodial accounts, certificates of deposit, time deposits, mutual funds, annuities, insurance policies with cash surrender values, retirement accounts, and pension accounts. In addition, any ownership interests you directly or indirectly hold in an entity or company located in a foreign country such as a corporation, partnership or trust must be reported. Please disclose all items that may possibly fall within this broad definition. You are responsible for asking us if you have any questions about what is required to be reported.
You are responsible for maintaining adequate documentation to substantiate the accuracy and completeness of your FBAR. Our records are not a substitute for yours. You should retain all documents that provide evidence and support for reported balances on your FBAR, as required under applicable laws and regulations. You represent that you have such documentation and can produce it, if necessary, to respond to any audit or inquiry by FinCEN, or other tax authorities. You will be responsible for any liability, including but not limited to, civil or criminal penalties, interest and related professional fees, due to inadequate documentation.
Failure to file an FBAR when required, or to fully and accurately disclose all information requested in the report, may result in the imposition of civil or criminal penalties, and interest charges on unpaid penalties. If you have income earned on your accounts outside of the United States, additional penalty and interest charges can be assessed by the IRS and other tax authorities on such income if it is not reported on your income tax returns. These penalties and related interest charges may be significant. You will be responsible for the payment of any additional tax, penalties, and interest charges imposed by tax authorities.
U.S. Filing Obligations Related to Foreign Financial Interests or Investments
Based on the information you provide, you may be required to file Foreign Informational Reports, either within your tax returns or separately. Examples include, but are not limited to:
- Ownership of or an officer relationship with respect to certain foreign corporations (Form 5471);
- Foreign-owned U.S. corporation or domestic disregarded entity (Form 5472);
- Foreign corporation engaged in a U.S. trade or business (Form 5472);
- U.S. transferor of property to a foreign corporation (Form 926);
- Ownership in a foreign partnership (Form 8865);
- Ownership in a foreign disregarded entity (Form 8858);
- U.S. shareholders of controlled foreign corporations (Form 8992);
- Ownership of stock (or holds an option to purchase stock) of a foreign corporation and election to treat such stock as the stock of a qualifying electing fund (Form 8621);
- Schedules K-2 and K-3 (for Forms 1065, 1120-S, and 8865); and
- FinCEN Beneficial Ownership Information (BOI) disclosures.
You are responsible for informing us of all foreign assets owned directly or indirectly, including but not limited to financial accounts with foreign institutions, other foreign non-account investments, and ownership of any foreign entities, regardless of amount, so that we may accurately reflect them in the preparation of your tax returns. Once we identify a potential filing requirement, we may send you a follow-up questionnaire specific to that requirement. If we send you a follow-up questionnaire, you are responsible for completing it and returning it to us in a timely manner.
Failure to timely file the required forms may result in substantial civil and/or criminal penalties. By your signature below, you agree to provide us with complete and accurate information regarding any foreign investments in which you have a direct or indirect interest, or over which you have signature authority, during the above referenced tax year.
Please note that these forms may be required to be included as part of your tax returns. If they are required and you decline to provide the necessary information or you prefer not to file the forms, we may no longer be able to proceed with the engagement.
The foreign reporting requirements are very complex. If you have any questions regarding the application of the reporting requirements for your foreign interests or activities, please ask us and we will respond in writing. Only advice that is in writing may be relied upon. We assume no liability for penalty and interest charges associated with the failure to file or untimely filing of any of these forms.
Schedules K-2 and K-3
Certain pass-through entities may be required to produce Schedule K-2, “Partners’/Shareholders’ Distributive Share Items – International,” and Schedules K-3, “Parter/Shareholder’s Share of Income, Deductions, Credits, etc. – International.” In some cases, the requirement is based on the pass-through entity’s facts and circumstances, and in other cases, these schedules must be produced if any partner or shareholder requires a Schedule K-3 for their respective filings. As such, it is our firm’s policy to produce these schedules for all pass-through entity returns, unless the entity specifically confirms in advance that no partner or shareholder has items of international tax relevance (e.g., foreign tax credits, foreign derived intangible income (FDII), Section 951(a) and 951A inclusions, etc.) and the entity’s own facts and circumstances do not require the preparation of such forms.
There are specific tax implications of investing in digital assets (e.g., virtual currencies such as Bitcoin, non-fungible tokens, virtual real estate and similar assets). The IRS considers these to be property for U.S. federal income tax purposes. As such, any transactions in, or transactions that use, digital assets are subject to the same general tax principles that apply to other property transactions.
If you transacted in digital assets during the tax year, you may have tax consequences and/or additional reporting obligations associated with such transactions. You agree to provide us with complete and accurate information regarding any transactions in, or transactions that have used, digital assets during the applicable tax year. If you have any questions regarding your digital assets and/or transactions, please ask us, and we will respond in writing.
Our firm reserves the right to use our internal company policies and procedures to report income, expenses, credits, deductions, and foreign financial asset declarations should there not be an expressly stated method in the Internal Revenue Code, Regulations, or IRS Frequently Asked Questions (FAQs).
What Other Responsibilities Should You Be Aware of?
Compensation and Withholding Compliance
If you or your business compensates individuals for services performed, there are various federal, state, and/or local filing requirements affecting payroll and income tax obligations of both payor and payee. We will not provide employment, labor, or immigration law advice to you as part of our engagement, including the classification of workers as employees or independent contractors. You should seek the advice of an appropriate professional, such as an employment attorney, in order to address any classification or employment eligibility questions.
Further, you acknowledge it is your responsibility to both timely obtain and/or file any and all requisite regulatory forms related to payroll and withholding regardless of jurisdiction, and to maintain all necessary documentation to support those filings. Such forms may include, but are not limited to, Forms I-9, W-2, W-4, W-8, W-9, 941, 1042, 1096, 1099, and similar state forms. Some of these filings are due as early as January 31, 20YY, and significant penalties may be assessed for late filing, non-filing, and filing of incorrect information. In some cases, penalties may also be assessed against responsible individuals, such as owners and officers, in their personal capacity. Preparation of these forms is not within the scope of this engagement.
Pass-Through Entity Tax Election
Several states now permit eligible entities to elect to pay income tax on passed through income for the benefit of their owners (“pass-through entity tax” or “PTET”). A PTET election may be beneficial for entity owners whose maximum amount of deductible state taxes for federal income tax purposes is limited. The timing and requirements for each state’s pass-through entity tax regime varies and may be fact-specific. Analysis related to making a PTET election is not within the scope of this engagement. You are responsible for deciding whether to opt in or out of any PTET which may apply to you.
Changes in Ownership
A change in ownership may have unanticipated tax consequences if that change is not analyzed prior to completing the transaction. You are responsible for advising us of any changes in ownership, including the death of a partner or owner, so that it may be accurately reflected on the tax returns.
A change in ownership also may be required to be reported on your return. You should understand the effects of any transaction involving new or existing ownership interests prior to completion, including the impact on the entity and/or other partners, and any additional elections, calculations, and reporting required. Assistance with analysis of any change in ownership transaction is not within the scope of this engagement.
For Entities Classified as Partnerships:
Allocation of partnership income and expenses
You are responsible for verifying the accuracy of both the allocation of partnership income in accordance with the terms of the partnership agreement and the partnership income calculations used in the preparation of the tax returns.
You are responsible for reviewing partner Schedules K-1 and K-3 prior to filing, including verifying recipient identifying information, and agreeing to the accuracy of both the allocation of partnership income in accordance with the terms of the partnership agreement for capital account purposes and the allocation of partnership taxable income, deduction, credit, and other allocable items presented on partner Schedules K-1 and K-3 for tax purposes.
The Treasury Department has proposed regulations under IRC §752, Treatment of Certain Liabilities, concerning transactions between partners and the partnership, on the allocation among partners of partnership level debt and disguised sales under IRC §707, Transactions Between Partner and Partnership. If you ask us to evaluate compliance with IRC §707 and/or §752, and we agree to do so, we will confirm this evaluation in a separate agreement.
Tax basis schedules
The partnership return discloses partner capital accounts and partner’s share of partnership debt on Schedule K-1. However, Schedule K-1 does not disclose the partner’s share of allocable loss which may be deducted at the individual level or track partner tax/at-risk basis. Differences between a partner’s capital account and tax basis in their partnership interest may exist which also affect allocations to the partners as presented on Schedule K-1. The IRS may examine any or all of these tax attributes to determine whether a partner is allocated the proper amount of partnership items, entitled to reduce taxable income as a result of tax losses allocated from a partnership, or avoid tax on certain distributions of cash from the partnership.
Properly understanding and calculating these attributes is necessary for preparation of both partnership and partner tax returns. We will rely upon the historical balances disclosed on last year’s Schedule K-1, as well as the most recent executed partnership/operating agreement you provide to us.
You are responsible for providing any necessary documentation to support transactions between the partnership and its partners, including sale/redemption of partnership interests and loans between the partnership and its partners. You are also responsible for providing any necessary documentation to support transactions between partners involving partnership interests, as these may impact your partnership return. Additional analysis, such as recreating historical balances or analyzing proposed partner transactions is not within the scope of this engagement.
A partner or LLC member receiving a guaranteed salary payment is not regarded as an employee of the entity for the purpose of withholding or Social Security taxes. Any additional fringe benefits a partner or LLC member receives are not subject to withholding. These fringe benefits may, however, be included in the income of the partner or LLC member. You are responsible for informing us of the total guaranteed payments, including fringe benefits, received by each partner or LLC member.
Schedule K-1, K-2, and K-3 distribution
You are responsible for distributing a copy of the partnership or LLC’s Schedule K-1, K-2, and K-3s to each partner or member.
For Entities Classified as S Corporations:
S corporation election
You are responsible for retaining a copy of your S corporation election and/or the IRS’s acceptance of it.
S corporation shareholder agreements
You should review your corporate buy-sell agreement and other stock agreements with your attorney to ensure these documents meet your goals for the transfer of corporate stock.
Salaries and wages for S corporation shareholders
You are responsible for determining the appropriate salary or wage to pay shareholders. If the IRS determines that the S corporation made distributions in lieu of an appropriate shareholder salary or wage, the IRS may reclassify the payments. As a result of the reclassification, the shareholder and S corporation may be responsible for employment taxes on the reclassified amounts in addition to penalties and interest. You agree to hold our firm harmless with respect to any liability, including but not limited to, additional tax, penalties, interest and professional fees resulting from changes to S corporation shareholder salaries and wages.
Tax basis schedules
The S corporation return discloses historical and adjusted balances in the Accumulated Adjustment Account (AAA), Other Adjustments Account (OAA) and Accumulated Earnings and Profits (E&P). However, it does not disclose each shareholder’s tax basis in S corporation stock or tax/at-risk basis in loans made to the S corporation. The IRS may examine any or all of these tax attributes to determine whether a shareholder is entitled to reduce taxable income as a result of tax losses allocated from an S corporation, or avoid tax on certain distributions of cash from the S corporation.
Properly understanding and calculating these attributes is necessary for preparation of both S corporation and shareholder tax returns. We will rely upon the historical balances disclosed on last year’s tax return.
You are responsible for providing any necessary documentation to support transactions between the S corporation and its shareholders, including sale/redemption of S corporation stock and loans between the S corporation and its shareholders. You are also responsible for providing any necessary documentation to support transactions between shareholders involving S corporation stock, as these may impact your S corporation tax return. Additional analysis, such as recreating historical balances or analyzing proposed shareholder transactions is not within the scope of this engagement.
S corporation distributions
Distributions from the S corporation to shareholders should be made according to IRS rules and regulations. This is generally on a per share/per day basis. Other factors, such as transfers or redemptions of S corporation stock, state non-residency withholding, incentive compensation plans, and shareholder notes, may affect distributions for one or several shareholders. If distributions do not comply with IRS rules and regulations, the IRS may take corrective action, including the revocation of the entity’s S corporation election. Revocation of an entity’s S election may result in unfavorable tax consequences, including double taxation. It is your responsibility to ensure that shareholder distributions are made accurately under S corporation rules.
Schedule K-1, K-2, and K-3 distribution
You are responsible for distributing a copy of the S corporation’s Schedule K-1, K-2, and K-3s to each shareholder.
For Entities Classified as C Corporations:
You are responsible for determining the appropriate salary or wage to pay shareholder-employees. If the IRS determines that the C corporation paid salaries or wages in lieu of an appropriate taxable dividend, the IRS may reclassify the payments. As a result of the reclassification, the shareholder may be responsible for tax, penalties and interest on the taxable dividend in addition to potential employment taxes on the reclassified amounts. You agree to hold our firm harmless with respect to any liability, including but not limited to, additional tax, penalties, interest and professional fees resulting from any reclassification.
How Long Should You Keep Your Records?
You should retain all documents, canceled checks, and other data that are used when preparing your tax return. These may be necessary to prove the accuracy and completeness of the returns to a taxing authority. It is your responsibility to keep your tax records for 7 years in the event of an audit. Additionally, any records related to the purchase or sale of real property should be kept permanently.
What Are Our Responsibilities under This Engagement?
As a CPA firm, our work is held to high standards. We will prepare your returns in accordance with leading industry standards from the Statements on Standards for Tax Services (SSTSs), issued by the American Institute of Certified Public Accountants (AICPA), and the U.S. Treasury Circular 230.
We will perform our services based on the information you have provided, taking into account applicable federal, state or local laws, regulations, and associated interpretations relative to the appropriate jurisdiction as of the date the services are provided.
We will not audit or otherwise verify the information you provide us; however, we may ask for additional clarification of some information. You should maintain the documentation necessary to support the data used in the preparation of your tax returns should you be required to produce them upon examination by the taxing authorities.
Pursuant to the standards prescribed in Circular 230 and IRC §6694, we, as tax return preparers, are prohibited from signing a tax return unless we have a reasonable belief that there is substantial authority for a tax position taken on the tax return or we have a reasonable basis for the tax return position taken in the return.
What Positions Do We Take When Tax Law Is Not Clear?
We will use our judgment to resolve questions in your favor where a tax law is unclear, provided that we have a reasonable belief that there is substantial authority for doing so.
If there are conflicting interpretations of the law, we will explain the possible positions that may be taken on your return. We will follow the position you request, provided it is consistent with our understanding of tax reference materials. Tax reference materials include but are not limited to, the Internal Revenue Code (IRC), tax regulations, Revenue Rulings, Revenue Procedures, Private Letter Rulings, court cases, and similar state and local guidance. If the IRS, state or local tax authorities later contest the position you select, additional tax, penalties, and interest may be assessed. We assume no liability, and you hereby release us from any liability, including but not limited to, additional tax, penalties, interest, and related professional fees.
Reliance on Others
There may be times when another tax advisor is engaged to assist us in providing services. If you wish to take a tax position based upon the advice of another tax advisor, we must comply with Circular 230, §10.37(b) and AICPA SSTS No. 1 and related Interpretations 1-1 and 1-2, which require the position to meet the “realistic possibility,” “substantial authority,” or “more likely than not” standard, as applicable. You agree to obtain a written statement from the advisor confirming the standard that should apply so the position may be properly disclosed. If additional research or disclosure is required, you agree to pay for the additional charges necessary to complete the disclosure or research. Moreover, you understand that the IRS, state, or local tax authority could disagree with the position taken on the return. If this occurs, you will be responsible for any additional tax, penalties and interest, as well as any related professional fees, you may incur.
IRS Disclosure Statements, Form 8275 and 8275-R
The IRS and many states impose penalties for substantial understatement of tax. To avoid the substantial understatement penalty, you must have substantial authority to support the tax treatment of the item challenged by the IRS or have an adequate disclosure of the item. To fulfill the adequate disclosure requirement, you may be required to attach to your tax return a completed Form 8275, Disclosure Statement, or Form 8275-R, Regulation Disclosure Statement, which discloses all relevant facts.
You agree to advise us if you wish to disclose a tax treatment on your return. If you request our assistance in identifying or performing further research to ascertain if there is substantial authority for the proposed position to be taken on the tax item(s) in your returns, and we agree to perform the research, we will confirm this engagement in a separate agreement. It is your responsibility to contact us if additional assistance is required.
If we conclude as a result of our research that you are required to disclose a transaction on your tax return, you consent to attach Form 8275 or Form 8275-R to your tax return for filing after we discuss the matter with you. If the IRS, state or local tax authorities later contest the position taken, additional tax, penalties, and interest may be assessed. We assume no liability, and you hereby release us from any liability arising from such contest, including but not limited to, additional tax, penalties, interest, and related professional fees for the position taken.
Aggressive Tax Strategies
Certain tax positions or strategies, while not currently identified as a reportable transaction by the IRS, may ultimately be determined to be so in the future. Consequently, you agree to advise us of any transaction you enter into that entitles you to disproportionate tax benefits (deductions, credits, or refunds), that generates significant income deferral or non-recognition, or that generates significant tax losses without corresponding cash impacts (“aggressive tax strategy”). If you fail to timely notify us, in writing, of any aggressive tax strategy you have entered into, you will be responsible for any liability, including but not limited to, additional tax, penalties, interest and related professional fees.
The law imposes substantial penalties on taxpayers and tax advisors for failure to disclose listed and other reportable transactions on Form 8886, Reportable Transaction Disclosure Statement and, in some cases, extends the statute of limitations tax authorities have to contest any tax return claiming those tax positions. In general, reportable transactions are potentially abusive transactions identified by the IRS that have a primary purpose of tax avoidance, including but not limited to listed transactions, confidential transactions, transactions with contractual protection, loss transactions, and transactions of interest (a definition of “reportable transactions” is located at https://www.irs.gov/instructions/i8886 and includes a link to a summary of listed transactions).
If you do not consent to a required disclosure, we may be unable to proceed.
What Do We Do with Your Information? What Don’t We Do?
We take care to safeguard your information. In addition, we are prohibited by law and by professional standards from sharing your information (subject to certain limitations, described below) and from using it for unauthorized purposes.
In some cases, you may wish to grant us a specific legal authorization that enables us to share your tax information with a family member, investment advisor, or other party, for a specific purpose. If we agree, we will send you the requisite form to sign. (There is a separate fee for this service.)
Federally Authorized Practitioner – Client Privilege
IRC§7525, Confidentiality Privileges Related to Taxpayer Communication, provides a limited confidentiality privilege applying to tax advice embodied in taxpayer communications with federally authorized tax practitioners in certain limited situations. This privilege is limited in several important respects. For example, the privilege may not apply to your records, state tax issues, state tax proceedings, private civil litigation proceedings, or criminal proceedings.
While we will cooperate with you with respect to the privilege, asserting the privilege is your responsibility. Inadvertent disclosure of otherwise privileged information may result in a waiver of the privilege. Please contact us immediately if you have any questions or need further information about this federally authorized practitioner-client privilege.
Financial Comfort Letters
We will not respond to any request from banks, mortgage brokers, or others for verification of any information reported on these tax returns. We do not communicate with such third parties or provide them with copies of tax returns.
Method of Communication
Our firm may utilize electronic communications (e.g., fax and e-mail) during this engagement. You consent to our firm’s use of electronic communications and recognize and accept the inherent risks related to these forms of communication (including the security risks of interception of or unauthorized access to such communications, the risks of corruption of such communications, and the risks of viruses or other harmful intrusions).
Electronic Data Communication and Storage
In the interest of facilitating our services to you, we may send data over the Internet, temporarily store electronic data via computer software applications hosted remotely on the Internet, or utilize cloud-based storage. Your confidential electronic data may be transmitted or stored using these methods. In using these data communication and storage methods, our firm employs measures designed to maintain data security. We use reasonable efforts to keep such communications and electronic data secure in accordance with our obligations under applicable laws, regulations, and professional standards.
You recognize and accept that we have no control over the unauthorized interception or breach of any communications or electronic data once it has been transmitted or if it has been subject to unauthorized access while stored, notwithstanding all reasonable security measures employed by us. You consent to our use of these electronic devices and applications during this engagement.
Newsletters and Similar Communications
We may send newsletters, emails, explanations of technical developments or similar communications to you. These communications are of a general nature and should not be construed as professional advice. We may not send all such communications to you. These communications do not constitute a client relationship with you, nor do they constitute advice or an undertaking on our part to monitor issues for you.
Brokerage, Investment Advisory or Digital Asset Statements
If you provide our firm with copies of brokerage, investment advisor, or digital asset statements Form 1099-DA, we will use the information solely for the purpose described in the scope section of this agreement. We will rely on the accuracy of the information provided in the statements and will not undertake any action to verify this information. We will not monitor transactions, investment activity, provide investment advice, or supervise the actions of the entity or individuals entering into transactions or investment activities on your behalf. We recommend that you receive and carefully review all statements upon receipt, and direct any questions regarding account activity to your banker, broker or investment advisor.
How Do We Handle Extensions of Time to File Tax Returns?
Extensions of Time to File Tax Returns
Each year, the tax package we send you includes the original filing deadline for your tax return(s), the extended due date, and other important dates. We also include the dates by which we need to receive your complete information, in order to complete your returns by the deadlines.
Due to the high volume of tax returns prepared by our firm, you must provide the information needed to prepare the tax returns no later than the dates specified in the questionnaire. Failure to do so may result in the inability to complete your returns by the original filing due dates.
It may become necessary to apply for an extension of the filing deadline if there are unresolved issues or delays in processing, or if we do not receive all of the necessary information from you on a timely basis. Applying for an extension of time to file may extend the time available for a government agency to undertake an audit of your return or may extend the statute of limitations to file a legal action. All taxes owed are due by the original filing due date. Additionally, extensions may affect your liability for penalties and interest or compliance with governmental or other deadlines.
To the extent you wish to engage our firm to apply for extensions of time to file tax returns on your behalf, you must notify us of this request in writing. In some cases, your signature may be required on such applications prior to filing. Failure to timely request an extension of time to file can result in penalties for failure to file tax returns, which accrue from the original due date of the returns, and can be substantial.
We reserve the right to unilaterally file and place any client on extension if we determine that our firm will be unable to complete a true, accurate, and complete tax return by the filing deadline.
Penalties and Interest Charges
Federal, state, and local tax authorities impose various penalties and interest charges for non-compliance with tax laws and regulations, including failure to file extensions or returns, late filing of returns, and underpayment or late payment of taxes. You will be responsible for the payment of any additional tax, penalties, and interest charges imposed by tax authorities.
How Do We Handle Calculation of Estimated Tax Payments?
Estimated Tax Payments
You may be required to make quarterly estimated tax payments in various tax jurisdictions. Our organizer/questionnaire allows you to indicate whether you would like us to prepare these estimates and on what basis (“safe harbor” or tailored). We will calculate these payments for the 2024 tax year based upon the information you provide to prepare your 2023 tax returns. Updating recommended quarterly estimated tax payments to more closely reflect your actual current year’s income is not within the scope of this engagement, unless requested by you, and agreed to by us, in writing. These services will be billed at our standard hourly rates and will be subject to the terms of this agreement.
What Happens Once We Deliver Your Returns to You?
Ultimately, you have the final responsibility for your income tax return, along with Schedules K-1, Schedules K-3, all other attachments provided to support the filing, and any payments due. Once we send you your returns, you should review everything carefully for accuracy and completeness before signing the returns. If you have questions, you should reach out to your preparer timely, and we would be happy to assist.
When we deliver your returns to you, we will send you filing instructions. If your returns qualify for e-filing, you are responsible for timely signing the e-file authorization forms and returning them to us by the cut-off times specified in our communications. You are also responsible for making any tax payments directly to the tax authorities. If we receive your signed e-file authorization forms, we will send you confirmation of e-file acceptance. You are responsible for maintaining proof of timely filing.
If part or all of your forms or return(s) must be paper filed, you are responsible for timely signing those forms/returns and mailing the returns by the deadlines. You are also responsible for maintaining proof of timely filing. To be timely filed, any mailed returns must be U.S. postmarked by the deadline (or clear U.S. customs by the deadline). In some cases, the IRS disregards the postmarked date and will issue late-filing penalties if they do not receive your returns by the deadline. Although you can fight these penalties by showing proof of timely mailing, we recommend sending your returns as early as possible to avoid any uncertainty. In addition, we recommend that you make copies of any final signed returns and mail your returns certified mail with return receipt (or your country’s equivalent), so that you have proof for your records. We are unable to mail your returns or send payments to the tax authorities on your behalf.
Additional Information Provided after the Fact
In reviewing their returns, some clients discover that they forgot to send us certain forms or information or inadvertently sent us incorrect information. We highly encourage you to be thorough in the original data you provide to us. If you provide us additional information after we send you your returns, we must re-do already completed work. Given our heavy workload, we understandably do not want to re-do work that we have already completed.
If you provide additional information after we have delivered your return, we will assess a fee to update your return with the new information. If you provide such information close to a deadline, we may not be able to update your return by the deadline. In such a case, we may advise you to may payments before the deadline, to minimize interest and penalties, and we will update your returns as soon as we are able to do so.
What Are Our Fees for This Engagement? When and How Are They Charged?
Our fees are based on the complexity of your returns, the tax forms prepared, and the amount of time required at our standard hourly billing rates. Some hourly forms are subject to minimum fees. Please note that the manner in which the data are presented to us and any necessary tax research on a particular subject can affect the final fee.
Fees are considered earned when payment is received, or services concluded, whichever is earlier. Invoices are due and payable on presentation. Past due balances may be subject to finance and collection charges. The Wolf Group reserves the right to progress bill (on an hourly basis) any returns that are delinquent (past the original or extended due date), as well as any returns where our incurred time charges exceed $5,000. Overdue or outstanding invoices may result in work being put on hold.
We require a retainer to get started. In addition, we require a credit card to be placed on file with our office. Once your returns are completed, we will send them to you, along with a copy of your invoice for services rendered. If your returns qualify for e-filing (and we receive your signed e-file authorizations within 2 weeks of delivery), we will charge the balance of your invoice to your credit card upon receipt of your signed e-file authorization forms. If your returns must be paper filed or e-filed later, we will charge the balance of your invoice to your card upon delivery of your returns to you.
When and How Do Our Services Conclude under This Engagement?
Timing of the Engagement
We expect to begin our services upon receipt of this executed agreement, the completed 2023 income tax questionnaire/organizer, and all documents requested either in the questionnaire/organizer or by our office.
Our services will conclude upon the earlier of:
- For e-filed returns, the e-filing and e-acceptance of your 2023 tax returns by the appropriate tax authorities and mailing or delivery of non-electronically filed tax returns (if any) to you, or
- For paper-filed returns, mailing or delivery of your 2023 tax returns to you, or
- Written notification by either party that the engagement is terminated, or
- Eighteen (18) months from the execution date of this agreement.
Changing Tax Laws, Regulations, and Guidance
Tax laws and regulations and/or their interpretation are subject to change at any time, and such changes may be retroactive in effect and may be applicable to advice given or other services rendered before their enactment dates. We do not assume responsibility (and will have no liability) for such changes occurring after the date we have completed our services.
Any advice we may provide is based upon tax reference materials, facts, assumptions, and representations that are subject to change. We will not update our advice after the conclusion of the engagement for subsequent legislative or administrative changes or future judicial interpretations. To the extent we provide written advice concerning federal tax matters, we will follow the guidance contained in Circular 230, §10.37, Requirements for Written Advice.
Disassociation or Termination of Engagement
Either party may terminate this agreement at any time upon written notice of termination to the other party. In the event of termination, you will be responsible for fees earned and expenses incurred through the actual date of termination. Should termination occur prior to the completion and delivery of the tax returns, then we will invoice you (on an hourly basis) for any work conducted between the time services were authorized (by the signing of this engagement letter) and the termination of the engagement. We will also return any original documents to you.
What Happens If You Are Later Audited?
As you may be aware, tax returns and other filings are subject to examination by taxing authorities. We will generally be available to assist you in the event of an audit or any issue for which we have provided services under this agreement. However, unless otherwise indicated, our fees for these additional services are not included in our fee for the services covered by this agreement.
Support for Examinations by Tax Authorities
Not every interpretation of promulgated tax rules is straightforward and/or without uncertainty. Accordingly, we will use our professional judgment in preparing your returns. If a tax authority should later contest a position taken, or otherwise impose penalties and/or interest for non-compliance with tax laws and regulations, there may be an assessment of additional tax plus interest and/or penalties. We assume no liability for any such additional assessments. Any items resolved against you by the examining agent are subject to certain rights of appeal. In the event of an examination, we may be available to represent you. Since the selection of your return for review or examination is beyond our control, our fee to prepare your returns does not include responding to inquiries or examination by tax authorities.
In the event we are required by law, government regulation, subpoena, or other legal process, to produce documents or testimony with respect to this engagement, so long as we are not a party to the proceeding in which the information is sought, you agree to reimburse us for our professional time and expenses, as well as the fees and expenses of our counsel incurred in responding to such demands.
Additional Legal Terms
You agree to indemnify and hold us harmless from any and all claims arising from the use of the tax returns for any purpose other than complying with your tax filing obligations regardless of the nature of the claim, excepting claims arising from our gross negligence or intentional wrongful acts.
The services performed under this agreement do not include the provision of legal advice, and we make no representations regarding questions of legal interpretation. You should consult with your attorneys with respect to any legal matters or items that require legal interpretation, under federal, state or other type of law or regulation.
In the course of providing services to you, you may request referrals to products or professionals such as attorneys, brokers, foreign tax preparers, or investment advisors. We may identify professional(s) or product(s) for your consideration. However, you are responsible for evaluating, selecting, and retaining any professional or product and determining if the professional or product meets your needs. You agree that we will not oversee the activities of and have no responsibility for the work product of any professional or the suitability of any product we refer to you or that you separately retain. Further, we are not responsible for any services we perform that fail to meet the intended outcomes as a result of relying on the services of other professionals or products you may retain.
Limitation of Liability
Except to the extent finally determined to have resulted from the gross negligence or other intentional misconduct of The Wolf Group, The Wolf Group’s liability to pay damages for any losses incurred by the client as a result of breach of conduct, negligence or other tort committed by The Wolf Group, is limited to the total amount of fees charged by The Wolf Group for the particular service provided under this agreement to which such claim relates.
Limitation of Actions (Statue of Limitations)
In accordance with the Code of Virginia § 59.1-508.5, you agree to a modified Statute of Limitations to bring an action for breach of contract. The action for breach of contract must be commenced within the later of three years after the right of action accrues or one year after the breach was or should have been discovered, but not later than three years after the right of action accrues.
Neither party shall be liable to the other for any delay or failure to perform any of the services or obligations set forth in this agreement due to causes beyond its reasonable control.
This agreement shall be governed by and construed, interpreted and enforced in accordance with the laws of the State of Virginia, without giving effect to the provisions relating to conflict of laws.
The Wolf Group, PC is a member of Nexia International, an international network of independent accounting and consulting firms. Nexia International does not accept any responsibility for the commission of any act, or omission to act by, or the liabilities of, any of its members. Membership of Nexia International, or associated umbrella organizations, does not constitute any partnership between members, and members do not accept any responsibility for the commission of any act, or omission to act by, or the liabilities of, other members.
Acceptance of Engagement Terms
If you authorize The Wolf Group, PC to prepare your 2023 income tax returns pursuant to the terms set forth above, please sign below. Retain a copy of this letter for your records.
We want to express our appreciation for this opportunity to serve you.
Very truly yours,
The Wolf Group, PC