The Purpose of a Tax Client Correspondence
A tax client letter is sent after the completion of a tax case. It is typically written in the business letter format, the most common style that can be used. An important aspect of the tax client letter is that it should be written in clear and concise terms to not confuse the client. The information should be direct and to the point to avoid any ambiguity in its meaning.
The purpose of a tax client letter is to communicate with clients and keep them informed about their tax case. It also provides an opportunity for the professional to outline the terms of their engagement of services and expectations with their client. A tax client letter should be written by the paid professional service provider and includes certain elements for it to be effective.
First, the tax client letter should be written so that the professional briefly explains the issues of the client’s case. This is usually accomplished in the introduction of the letter. The letter should be written in clear language and should set out the terms of the representation and the expectations of the relationship at the outset . This section of the letter should be completed in a manner so that even those with no knowledge of the financial area in question will be able to understand the issues that were discussed and any ensuing actions that been taken.
The body of the tax client letter should contain a complete explanation of all issues, advice, or recommendations that were made or will be made in connection with the services provided. Among these issues include: the steps that were taken to accomplish or further the services provided (or that will be provided); changes in position that may be forthcoming; alternative solutions to problems that may occur; the pros and cons of the aforementioned; and any unresolved questions regarding the matter. This part of the letter should be completely responsive to the client’s issues and should provide any other necessary information.
Lastly, the tax client letter should express the courtesy that is required by the ethical rules of the legal profession. It also reminds the client of the terms of payment for services by the professional. A tax client letter should be written in a courteous and respectful tone, and its content should be presented in an appropriate manner. A tax client letter should be dated and signed by the professional.
Elements of a Tax Client Correspondence
Some tax practitioners consider a tax client letter to be a way to stave off malpractice claims. However, I believe that the tax client letter is not intended to be a work of art, unlike a lawyer’s demand or a lawyer’s pleading. Instead, it is primarily a summary of the service being provided in a manner which will both inform the client and remind the client of anything he or she must do as well. It is also intended to convey important information about the nature of the service, the timing of the service, who is actually doing the work, and how the client can contact the preparer if he or she has any questions.
Here are some key components, in my opinion, of a good tax client letter:
The Introduction. It is always helpful to start a tax client letter with a few words identifying the service being provided. For instance, if the service is the preparation of the client’s new tax returns, the beginning sentence of the letter could read: "This letter will confirm that you have engaged our firm to prepare your federal and state income tax returns for the year."
Scope of Work. The next paragraph or two could remind the client of the scope of the work being provided and how much work is actually being performed (i.e., whether the engagement extends further than just preparing the returns). Most tax planners do not limit themselves to preparing income tax returns. Instead, they often meet with the client to discuss planning ideas to defer or eliminate income, or the best way to pass along wealth to the next generation while minimizing capital gains or estate taxes. Accordingly, the scope of work must indicate how long the engagement will last, whether additional meetings or phone calls will include issues other than simply the tax return preparation, and whether there are separate fees involved with those other tax planning matters.
When Work is Due. The next component of a tax client letter is when the return itself is due. If the return is due, then the letter should so advise, and discuss the date to which an extension may need to be filed (if appropriate).
Who is Preparing the Return. The client closing should include specific information about who is preparing the return. For instance, is the return being completed by a supervisor and a junior staff member?
How to Reach People Beyond the Due Date. Contact information is another key component of a tax client letter. For example, if after April 15 a client has a question about his return which must be addressed quickly, how does the client reach the tax preparer? Does the client engage the partner in charge of the engagement, the tax manager, or the junior person who has been busy solving other tax problems all month long? This information should spell out for the client how to reach the right person, and when.
Common Examples of Tax Client Letters
Engagement Letter Example:
Dear Jaguar Tax Services:
We are pleased to confirm our arrangements with your firm to provide professional services during the year. We will perform accounting, tax compliance, and consulting services as you may request.
Request letter example:
Dear Valued Client:
After reviewing your 2012 tax return, we have a few items that we need more information on to finalize the return. We have attached the IRS schedule 8867 for your review and response, as well as the Education Tax credits 8863 and 8880. Once we have received this information, we will be able to complete your return.
Tax Return Summary Example:
Dear Valued Client:
We have completed your requested 2012 tax return. It has been a pleasure to work with you throughout the past year and on your tax return. We reviewed your return for accuracy and compliance, in addition to checking for the possible to maximize tax credits and minimizing tax liability.
We have listed your return as follows:
Return is attached for your review. Please let us know if you have any questions or comments regarding. If the return is to your satisfaction, please sign the enclosed copy, return it to us with payment of our invoice within 10 days to avoid interest and penalties.
Thank you for allowing us to be of service. Please contact us again for any reason and have a prosperous coming year.
Tax Client Letter Best Practices
The importance of a professional and clear tone to a tax client letter cannot be overstated. The letter is a document that can be used by IRS examiners as an indication of the taxpayer’s position, and a miscommunication through the letter can lead to increased time fighting with examiners over the substance of a return. Therefore it is important to utilize clear language, good sentence structure, and a tone that conveys confidence, professionalism, and common sense. As the attorney drafting the letter become familiar with the underlying technical issue, it can be easy to forget that the reader is starting from scratch, and the issue does not make sense without some primer. This is especially the case when considering litigation . Failure to clearly lay out the legal bases for a position could result in an examiner simply denying a claim for refund. It is critical to understand how the claim for refund may be viewed by an examiner and make sure to provide sufficient background and legal authority in your initial correspondence. While tax client letters are critical to a practitioner’s ability to advance a case with the IRS, they are also important from a professional liability standpoint. Practitioners should take care to ensure that tax client letters are written and proofread in a professional manner. Writers should avoid slang, bad grammar and misspellings. Careful attention to these matters ensures that letters will have the best chance of success.
Tax Client Letter Pitfalls
The most prevalent mistake stemming from unclear client letters is clients assuming that delivery of the letter accomplishes the work for them – they don’t know or don’t care whether a CPA signed off on the representation. Others have a particular CPA in mind when talking to a firm, and if a letter doesn’t specify the partner on the case, they assume there isn’t one. A San Francisco, CA-based CPA used Clio’s template for tax client letters and found he needed to get clarifying information from the client. His lesson learned was that being specific helps avoid assumptions.
Another mistake is failing to align on deliverables and expectations for getting the work done. It’s critical to explain and confirm the scope of work to be done. You also need to protect yourself and your practice from being expected to do more than you signed up for. A well-crafted letter should make the client’s expectations clear for how long certain tasks will take and what kind of contact they can expect with their professional.
As mentioned earlier, a third common mistake is not listing all the required documentation from the client. It’s important to dot all your i’s and cross all your t’s here. Otherwise, you’ll need to spend valuable time following up with clients to get the information you need.
Substitutes and Tools for a Tax Client Letter
Several tools are available to assist tax professionals in crafting effective tax client letters. These include template libraries, comprehensive software tools, and guidelines provided by tax professional organizations.
Template libraries are a resource that provides letter-writers access to a repository of letters, memos, and documents for a variety of topics and conforming to different criteria. These are typically subscription services, and their content is routinely updated. While useful, it must be noted that the use of prefabricated letters is not ideal from a marketing or relationships perspective. Templates are, however, often helpful as a base from which to work. In particular, they are often useful for finding the right tone or basic structure . However, any letter used from a template should be written or amended to be specific to the client.
Comprehensive software suites for tax professionals include modules or components for letter-writing. These can be especially helpful to large offices. Just as with templates referred to above, software likely has pre-written forms or templates available, but will also allow a level of customization that may be lacking with template libraries.
Professional Associations and Groups also provide resources to assist in letter-writing. These groups often publish guidelines on letter-writing and letter types, vocabulary choices, document organization, and other items that can help a practitioner improve his or her craft as well as providing critiques on letter effectiveness and examples of poor letters.