Audit Engagement Representation Rider
As per the terms of our engagement, we will represent you before the [Internal Revenue Service or Name of Other Taxing Body] (“Tax Agency”) in connection with the audit of your [Federal or Name of Other Taxing Body] tax returns for the tax years, 20[XX] through 20[XX]. Our engagement does not include any other periods, jurisdictions or matters.
Upon receipt of an executed copy of this Agreement, we will provide you with a completed Power of Attorney and Declaration of Representative form (“POA”) for your signature, and request a time to discuss the authority being granted under the POA, as well as how it will be utilized during the audit process. The POA will set forth the years and tax forms subject to audit.
Please note that we will be unable to render services or proceed with your representation until we receive executed copies of both this Agreement and the POA. [CPA Firm] is not responsible for any damages or other adverse results you may suffer as a result of delays in providing us with these signed documents.
Before we communicate with the agent responsible for the audit, we will endeavor to evaluate the tax returns and supporting schedules subject to audit, and communicate our findings and recommendations to you. If, based upon our review of these documents, we determine that additional or corrected returns should be filed, or that other tax filing obligations exist, we will explain these matters to you. In addition, we will provide an estimate of any change in tax, penalties and interest that may apply, as well as the estimated cost to prepare and file the applicable returns and forms. If you ask us to prepare additional or amend existing returns, we will confirm this in a separate engagement letter.
In connection with the audit, we will communicate with the agent to arrange a time and place for the audit and to obtain the list of documents requested, if it has not been provided. [For desk audits: We will contact the agent about the list of documents requested for the audit.] We will evaluate the documents to be provided by you for adequacy and relevance.
We will not verify or audit the data you submit to us, although we may ask you to clarify certain information.
Our engagement does not include any procedures designed to detect errors, fraud, or theft. Therefore, our engagement cannot be relied upon to disclose such matters.
This engagement is limited to the professional services outlined above.
Statute of limitations and waivers
The statutory period for assessment of tax is typically three years from the filing date of the return (“Limitations Period”). If the Limitations Period is about to expire, the agent may ask you to extend the Limitations Period. As a result, both you and the agent will have additional time to address the audit and reach an amicable settlement.
While you are not required to consent to a time extension, a refusal to do so may trigger an adverse action. In such case, the Tax Agency generally assesses tax immediately and for an amount that may be greater than what may have been assessed if the Limitations Period had been extended. In addition, a refusal to consent typically creates an adversarial environment, making it more difficult to present and negotiate your case without resorting to appeals procedures at a higher level within or outside the Tax Agency. Such procedures will require additional time and expenses and may not achieve a better outcome. Therefore, your decision to refuse an extension of time should be made only after considering the potential consequences.
If this situation arises, we will provide a general explanation of the advantages and disadvantages of accepting or refusing to consent to an extension of the Limitations Period. However, the decision is your sole responsibility. Therefore, we recommend you consult with legal counsel before making a final decision.
Proposed adjustments and appeals rights
During the course of the audit, the agent may propose adjustments. If you agree to the proposed adjustments, the agent will ask you to consent to an assessment whereby you waive your right to appeal or file a tax court petition. If you disagree with the proposed adjustments, you will receive a “30 day letter” which states that you have the right to file an appeal with the Tax Agency within 30 days of the letter. If you appeal and lose, or fail to appeal within the initial 30 day period, you will receive a “Notice of Deficiency,” which explains that you have 90 days within which to file a petition with the U.S. Tax Court to seek a re-determination of your tax. Similar procedures are generally available with respect to state and local audits. It also should be noted that a final decision in a federal tax audit is likely to affect your state tax filing obligations.
If you decide to appeal an adverse finding in a tax audit, we may represent you at your request. If you ask us to represent you, we will confirm this representation in a separate engagement letter.
While we will exercise due professional care during this engagement, we cannot guarantee a favorable result. Please note the outcome of your audit is based upon the facts presented, supporting schedules, and other supporting records as well as the Tax Agency’s evaluation of this information.
CPA Firm Responsibilities
We will perform our services in accordance with the Statement on Standards for Consulting Services issued by the American Institute of Certified Public Accountants (“AICPA”) and the AICPA Code of Professional Conduct. It is our duty to perform services with the same standard of care that a reasonable income tax preparer would exercise in this type of engagement. It is your responsibility to safeguard your assets and maintain accurate records pertaining to transactions. We will not hold your property in trust for you, or otherwise accept fiduciary duties in the performance of the engagement.
[CPA Firm], in its sole professional judgment, reserves the right to refuse to take any action that could be construed as making management decisions or performing management functions on your behalf.
You have informed us of your [pending (optional)] divorce. As you may have conflicting interests, you will both be required to sign a conflict of interest waiver. We have advised each of you to seek independent tax advice regarding your tax audit. Consequently, we will require a letter of instruction from both of your divorce attorneys explaining how to address Tax Agency inquiries in order to represent both of you on this jointly filed individual income tax audit.
Tax Advice (Optional)
Our advice is based upon tax reference materials, facts, assumptions, and representations that are subject to change. Tax reference materials include but are not limited to the Internal Revenue Code (“IRC”), tax regulations, Revenue Rulings, Revenue Procedures, private letter rulings and court decisions. 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.
Arguable Positions (Optional)
We will use our judgment to resolve questions in your favor where a tax law is unclear provided there is sufficient support for doing so. If there are conflicting interpretations of the law, we will explain the possible positions that may be taken in your examination. We will follow the position you request, provided it is consistent with our understanding of the Internal Revenue Code (“IRC”), tax regulations, Revenue Rulings, Revenue Procedures, private letter rulings and court decisions. If the Tax Agency later contests the position taken, additional tax, penalties, and interest may be assessed. We assume no liability, and you hereby release us from any liability for any such additional tax, penalties, interest, and related professional fees.
In preparation for the audit, you agree to provide us with complete copies of previously filed tax returns, supporting schedules and other supporting records that the Tax Agency or our firm may request.
Various supporting documents must be produced in accordance with the deadlines set for the audit by the Tax Agency (generally, 30 days from the request date). To that end, you agree to provide such documents to us in advance of those deadlines in order to provide us with adequate time to review the materials. This procedure permits us to determine whether the documents are complete prior to submission to the agent. You also agree not to disclose any information to the Tax Agency or any third party without first consulting with us.
You authorize us to accept instructions from your representative, [Representative’s Name], for this engagement (Optional).
Timing of Engagement
We expect to begin our services upon receipt of an executed Agreement and a signed copy of the POA.
Our services will conclude upon the earlier of:
- Your acceptance of the adjustments contained in the final Revenue Agent’s Report (“RAR”) and your consent to assessment of any tax,
- Filing of a protest with the Tax Agency, or your indication that you intend to appeal the findings in the final RAR,
- Written notification by either party that the engagement is terminated,
- We provide you with a closure letter , or
- Issuance of a Statutory Notice of Deficiency by the Tax Agency.
Our professional fee for the services outlined above is estimated to be $[X], of which [X]% is due upon execution of this Agreement as a retainer (Optional). This fee is based upon the complexity of the work to be performed, and our professional time, as well as out-of-pocket expenses. In addition, this fee depends upon the timely delivery, availability, quality and completeness of the information you provide to us. You agree that you will deliver all records requested and respond to all inquiries made by our staff to complete this engagement on a timely basis. You agree to pay all fees and expenses incurred regardless of the audit result.
* * * * * *
We appreciate the opportunity to be of service to [Client Name]. Please date and execute the enclosed copy of this Agreement and return it to us to acknowledge your acceptance. We will not initiate services until we receive the executed POA and Agreement.
Very truly yours,
[Title of Client Representative]