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Write the Perfect Engagement Letter in 7 Easy Steps

Sick of creating engagement letters from scratch for every new client? Create your perfect template in seven easy steps.

1 min read

Canopy

Canopy

You know you should be using engagement letters in your tax resolution cases, but you're just not sure what your engagement letter should look like. Or maybe you’ve finally decided to update the same old letter you’ve been using for years. Perhaps you're just fine-tuning your current letter, intent on taking it from great to flawless. Regardless, you’re in the right place to learn how to properly construct an engagement letter in seven simple steps.

1. Introduction

The introduction of your engagement letter has two purposes — to lay out the purpose of the letter to the client, and to set the tone of the letter. The introduction doesn’t need to be complicated. Simply state that the purpose of the letter is to document key components of the engagement such as scope and pricing. In fact, it’s better if you keep the tone of the entire letter simple and to-the-point. Just because this is a legally binding document doesn’t mean it needs to read like fine print.

2. Scope of the engagement

One of the most important functions of an engagement letter is to define the scope of the engagement.

You should be as specific as you need to be for each individual engagement, but at a minimum, your engagement letter should detail:

    • The services offered. The more specific you can be, the better. For instance, stating that you will prepare and submit a doubt as to liability offer in compromise is far more useful than offering generic “tax resolution.”
    • The term of the engagement. Generally, this is a specific length of time (e.g. one year) or until services are completed, whichever is first.
    • A disclaimer/limitation of liability statement. This is your chance to be perfectly clear on what you don’t guarantee or what related services are not a part of the engagement (e.g. appeals representation).

3. Pricing

No matter how you choose to structure your fees, your pricing for each engagement should be clearly stated in the engagement letter. Your clients want desperately to trust you but will likely be hesitant to extend that trust initially. By detailing the fees and expenses the client can expect over the course of the engagement, you can ensure that you never — even unintentionally — break the client’s trust by springing an unexpected expense on them.

Your engagement letter should include information such as:

    • The total they can expect to pay to your practice
    • Fees due upfront
    • Available discounts (e.g. for full payment upfront)
    • Potential penalties (e.g. for late payments)
    • Expenses paid to the IRS (e.g. application fees)

It’s also a good idea to include language explaining that in rare, extraordinary cases, the engagement will prove to be significantly more complicated than expected. In such cases, you can reserve the right to adjust your fees to reflect the additional time or expertise required, promising to notify the client promptly if their case will require such an adjustment.

4. Termination and refund

If, for whatever reason, you and your client need to terminate your arrangement early, it’s nice to have a built-in eject button. If your firm offers a refund for any unperformed services, be sure to make the terms of the refund clear as well.

5. Client expectations

It’s impossible for us to cover every potential clause your practice might need to include your engagement letters. Consider your policies and the needs of your practice, and include language that addresses them as necessary.

If you find that certain things tend to break down in your relationship with your clients, consider building provisions that mitigate those risks into your engagement letter. For example, if you constantly have to wait for weeks for a client to respond with needed information, then build in a communications clause into your engagement letter. If you are insistent that the client defer all contact with the IRS to you and others within your practice, make that clear in the engagement letter. The engagement letter is the place to put all your expectations in writing.

6. Signature block and date

There’s nothing complicated going on here,  just don’t forget to leave a space for signatures and dates at the end of the document.

7. Save yourself some time

Once you’ve put together a great engagement letter, save it. Use it as a template for all of your future engagement letters. Adjusting the specifics of each letter should take you less than 10 minutes for each new engagement if you have a good template in place.

Engagement letters are an important piece for any firm and take the guesswork out of your relationship with your clients and create a good roadmap for communication. By following these seven steps, you will quickly become an expert in writing your letters. 

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