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AI Generated Client Engagement Letter

A good client engagement letter is the start of a great client relationship. This letter defines the services that the CPA provides to their clients and its limitations. This letter should be clear, concise and simple enough. If you are starting a new Tax Practice or just want to refresh your customer onboarding processes, here is how ChatGPT can get you started.

At first, I set the stage with ChatGPT with the following prompt:

You are a writer focused on tax law in the United States. I am a CPA. Please write a client engagement letter that I can send to my clients when onboarding them to my Tax Practice.

To which ChatGPT responded:

Sure! Here's a professional client engagement letter for onboarding clients to your tax practice:

[Your Name or Firm Name] [Your Address] [City, State, ZIP Code] [Your Email] | [Your Phone Number] [Date]

[Client’s Name] [Client’s Address] [City, State, ZIP Code]

Subject: Engagement Letter for Tax Services

Dear [Client’s Name],

Thank you for choosing [Your Firm Name] to assist you with your tax needs. We appreciate the opportunity to serve you and are committed to providing professional and reliable tax services. This letter outlines the terms of our engagement and the scope of services we will provide.

Scope of Services

We will prepare the following tax returns for the tax year [Year]:

  • Federal Income Tax Return ([Form Number(s)])
  • [State] Income Tax Return
  • [Other applicable returns, if any]

We will rely on the information you provide to complete these returns accurately and timely. It is your responsibility to provide all necessary records, receipts, and supporting documentation. We will not audit or verify the information provided, but we may ask for clarification where necessary.

Responsibilities

Your Responsibilities:

  • Provide complete and accurate financial records and tax-related documents.
  • Maintain adequate records to support deductions, credits, and other claims.
  • Review your tax returns before filing and notify us of any discrepancies.
  • Pay all required taxes, penalties, and interest, if applicable.

Our Responsibilities:

  • Prepare your tax returns based on the information provided.
  • Apply tax laws and regulations to the best of our professional knowledge.
  • Electronically file or provide completed tax returns for filing (as applicable).
  • Maintain confidentiality of your information per professional standards.

Fees and Payment Terms

Our fees for tax preparation services are based on the complexity of the returns and the time required for preparation. An estimate of fees will be provided upon request. Payment is due upon completion of the tax return and before filing. Additional services beyond the agreed scope may be subject to separate billing.

Confidentiality & Data Security

Your personal and financial information will be handled with strict confidentiality. We comply with applicable privacy laws and professional standards regarding the protection of client data.

Limitations and Liability

While we strive for accuracy, we are not responsible for errors or omissions in the information you provide or for changes in tax laws that may affect your return after filing. You are responsible for maintaining appropriate records to support your tax positions in case of an audit.

Acknowledgment & Agreement

By signing below, you acknowledge that you have read, understood, and agree to the terms outlined in this engagement letter.

Client Signature: ___________________________ Date: _______________ Printed Name: _____________________________

Please return a signed copy of this letter before we begin work on your tax return. If you have any questions, feel free to contact us. We look forward to working with you.

Best regards,

[Your Name] [Your Firm Name] [Your Contact Information]

Would you like any modifications based on your specific practice?

I say that is a great starting point, but I see a few things missing. Let's add those missing things.

Here is my next prompt:

Can you add terms for a nexus study?

ChatGPT promptly added nexus study terms.

Absolutely! Here’s a revised version of the engagement letter with terms added for a nexus study:

[Your Name or Firm Name] [Your Address] [City, State, ZIP Code] [Your Email] | [Your Phone Number] [Date]

[Client’s Name] [Client’s Address] [City, State, ZIP Code]

Subject: Engagement Letter for Tax Services, Including Nexus Study

Dear [Client’s Name],

Thank you for selecting [Your Firm Name] to assist you with your tax compliance needs. We appreciate the opportunity to serve you and are committed to delivering professional and thorough tax services. This letter outlines the terms of our engagement, including the scope of services, responsibilities, and related conditions.

Scope of Services

We will provide the following services for the tax year [Year]:

  • Tax Preparation Services:
  • Federal Income Tax Return ([Form Number(s)])
  • [State] Income Tax Return
  • [Other applicable returns, if any]
  • Nexus Study:
  • We will conduct a multi-jurisdictional nexus study to determine whether your business has sufficient presence (nexus) in various states or tax jurisdictions, which may trigger tax reporting or filing obligations.
  • This study will include an analysis of your business activities, sales, payroll, property locations, and other relevant factors.
  • We will provide a report summarizing our findings and outlining any filing or compliance requirements.

Responsibilities

Your Responsibilities:

  • Provide complete and accurate financial records, tax-related documents, and any data necessary for the nexus study (e.g., sales records, employee locations, inventory data, contracts, etc.).
  • Disclose all business activities in other states or jurisdictions that may impact nexus.
  • Review your tax returns and the nexus study report before filing and notify us of any discrepancies.
  • Pay all required taxes, penalties, and interest, if applicable.

Our Responsibilities:

  • Prepare your tax returns based on the information provided.
  • Conduct the nexus study and deliver a report with our findings.
  • Advise you on any new or existing tax filing obligations resulting from nexus determination.
  • Apply tax laws and regulations to the best of our professional knowledge.
  • Electronically file or provide completed tax returns for filing (as applicable).
  • Maintain confidentiality of your information in accordance with professional standards.

Fees and Payment Terms

  • Tax Preparation Services: Our fees for tax return preparation are based on the complexity of the returns and the time required.
  • Nexus Study: The fee for the nexus study is based on the number of jurisdictions analyzed and the complexity of the review. We will provide an estimate of the total cost before commencing the study.
  • Payment is due upon completion of the services and before filing. Additional services beyond the agreed scope will be subject to separate billing.

Confidentiality & Data Security

Your personal and financial information will be handled with strict confidentiality. We comply with applicable privacy laws and professional standards regarding the protection of client data.

Limitations and Liability

  • Nexus Study Limitations: While we will make every effort to identify and advise you on nexus-related tax obligations, it is ultimately your responsibility to comply with multi-state tax requirements.
  • Tax Law Changes: We are not responsible for changes in tax laws that may affect your compliance requirements after the completion of the nexus study or tax return filing.
  • Audit or Examination: In the event of an audit or tax examination, our services under this engagement letter do not include representation before tax authorities unless separately agreed upon.

Acknowledgment & Agreement

By signing below, you acknowledge that you have read, understood, and agree to the terms outlined in this engagement letter.

Client Signature: ___________________________ Date: _______________ Printed Name: _____________________________

Please return a signed copy of this letter before we begin work on your tax return and nexus study. If you have any questions, feel free to contact us. We look forward to working with you.

Best regards,

[Your Name] [Your Firm Name] [Your Contact Information]

✅ This version includes the terms for the nexus study, specifying the scope, responsibilities, and fee structure. Let me know if you want any additional details or revisions!

Oops! I realized that the new nexus study terms are for businesses - I wanted this to be for individual tax returns. Let's fix that with this prompt:

Sorry, I meant nexus study for individual income taxes, not business. Can you please replace the business tax nexus study with individual income tax nexus study?

Here is the response from ChatGPT with Individual Tax nexus study terms:

No problem! Here’s the revised engagement letter with terms for an individual income tax nexus study:

[Your Name or Firm Name] [Your Address] [City, State, ZIP Code] [Your Email] | [Your Phone Number] [Date]

[Client’s Name] [Client’s Address] [City, State, ZIP Code]

Subject: Engagement Letter for Tax Services, Including Individual Income Tax Nexus Study

Dear [Client’s Name],

Thank you for selecting [Your Firm Name] to assist you with your tax compliance needs. We appreciate the opportunity to serve you and are committed to delivering professional and thorough tax services. This letter outlines the terms of our engagement, including the scope of services, responsibilities, and related conditions.

Scope of Services

We will provide the following services for the tax year [Year]:

  • Tax Preparation Services:
  • Federal Income Tax Return ([Form Number(s)])
  • [State] Income Tax Return(s)
  • [Other applicable returns, if any]
  • Individual Income Tax Nexus Study:
  • We will conduct a multi-jurisdictional nexus study to determine whether you have potential state tax filing obligations due to residency, employment, or other income-related activities.
  • This study will involve an analysis of factors such as:
  • Residency status (primary and secondary residences, days spent in each state)
  • Employment location(s) and remote work arrangements
  • Income sources (e.g., rental properties, partnerships, stock sales)
  • State-specific filing thresholds and residency rules
  • We will provide a report summarizing our findings and advising on any necessary state filings or potential exposure.

Responsibilities

Your Responsibilities:

  • Provide complete and accurate financial records, tax-related documents, and details regarding your residency, travel, and income sources.
  • Disclose any remote work arrangements, part-year or multiple-state residency, or other activities that could trigger filing obligations.
  • Review your tax returns and the nexus study report before filing and notify us of any discrepancies.
  • Pay all required taxes, penalties, and interest, if applicable.

Our Responsibilities:

  • Prepare your tax returns based on the information provided.
  • Conduct the nexus study and deliver a report with our findings.
  • Advise you on any new or existing state tax filing obligations resulting from nexus determination.
  • Apply tax laws and regulations to the best of our professional knowledge.
  • Electronically file or provide completed tax returns for filing (as applicable).
  • Maintain confidentiality of your information in accordance with professional standards.

Fees and Payment Terms

  • Tax Preparation Services: Our fees for tax return preparation are based on the complexity of the returns and the time required.
  • Nexus Study: The fee for the individual income tax nexus study is based on the number of states analyzed and the complexity of the review. We will provide an estimate of the total cost before commencing the study.
  • Payment is due upon completion of the services and before filing. Additional services beyond the agreed scope will be subject to separate billing.

Confidentiality & Data Security

Your personal and financial information will be handled with strict confidentiality. We comply with applicable privacy laws and professional standards regarding the protection of client data.

Limitations and Liability

  • Nexus Study Limitations: While we will make every effort to identify and advise you on multi-state income tax filing obligations, it is ultimately your responsibility to comply with state tax requirements.
  • Tax Law Changes: We are not responsible for changes in tax laws that may affect your compliance requirements after the completion of the nexus study or tax return filing.
  • Audit or Examination: In the event of an audit or tax examination, our services under this engagement letter do not include representation before tax authorities unless separately agreed upon.

Acknowledgment & Agreement

By signing below, you acknowledge that you have read, understood, and agree to the terms outlined in this engagement letter.

Client Signature: ___________________________ Date: _______________ Printed Name: _____________________________

Please return a signed copy of this letter before we begin work on your tax return and individual income tax nexus study. If you have any questions, feel free to contact us. We look forward to working with you.

Best regards,

[Your Name] [Your Firm Name] [Your Contact Information]

✅ This version reflects the individual income tax nexus study with detailed responsibilities and terms. Let me know if you want any further revisions or additions!

We are still missing Bitcoin and FBAR terms. Let's add those one at a time.

Start with Bitcoin with the following prompt:

Can you add a short paragraph to the engagement letter above to remind the client that they should let me know about their bitcoin transactions in accordance with Federal law?

Here is the updated engagement letter with bitcoin terms.

Sure! Here’s the revised engagement letter with a paragraph reminding clients about bitcoin and cryptocurrency transactions:

[Your Name or Firm Name] [Your Address] [City, State, ZIP Code] [Your Email] | [Your Phone Number] [Date]

[Client’s Name] [Client’s Address] [City, State, ZIP Code]

Subject: Engagement Letter for Tax Services, Including Individual Income Tax Nexus Study

Dear [Client’s Name],

Thank you for selecting [Your Firm Name] to assist you with your tax compliance needs. We appreciate the opportunity to serve you and are committed to delivering professional and thorough tax services. This letter outlines the terms of our engagement, including the scope of services, responsibilities, and related conditions.

Scope of Services

We will provide the following services for the tax year [Year]:

  • Tax Preparation Services:
  • Federal Income Tax Return ([Form Number(s)])
  • [State] Income Tax Return(s)
  • [Other applicable returns, if any]
  • Individual Income Tax Nexus Study:
  • We will conduct a multi-jurisdictional nexus study to determine whether you have potential state tax filing obligations due to residency, employment, or other income-related activities.
  • This study will involve an analysis of factors such as:
  • Residency status (primary and secondary residences, days spent in each state)
  • Employment location(s) and remote work arrangements
  • Income sources (e.g., rental properties, partnerships, stock sales)
  • State-specific filing thresholds and residency rules
  • We will provide a report summarizing our findings and advising on any necessary state filings or potential exposure.

Cryptocurrency and Digital Asset Transactions

In accordance with federal tax laws, you are required to disclose any cryptocurrency transactions (e.g., Bitcoin, Ethereum, or other digital assets), including purchases, sales, exchanges, conversions, or payments made with digital currency. Please ensure that you provide us with all relevant records and documentation related to your cryptocurrency activity. Failure to report such transactions may result in penalties or additional tax assessments.

Responsibilities

Your Responsibilities:

  • Provide complete and accurate financial records, tax-related documents, and details regarding your residency, travel, and income sources.
  • Disclose any remote work arrangements, part-year or multiple-state residency, cryptocurrency transactions, or other activities that could trigger filing obligations.
  • Review your tax returns and the nexus study report before filing and notify us of any discrepancies.
  • Pay all required taxes, penalties, and interest, if applicable.

Our Responsibilities:

  • Prepare your tax returns based on the information provided.
  • Conduct the nexus study and deliver a report with our findings.
  • Advise you on any new or existing state tax filing obligations resulting from nexus determination.
  • Apply tax laws and regulations to the best of our professional knowledge.
  • Electronically file or provide completed tax returns for filing (as applicable).
  • Maintain confidentiality of your information in accordance with professional standards.

Fees and Payment Terms

  • Tax Preparation Services: Our fees for tax return preparation are based on the complexity of the returns and the time required.
  • Nexus Study: The fee for the individual income tax nexus study is based on the number of states analyzed and the complexity of the review. We will provide an estimate of the total cost before commencing the study.
  • Payment is due upon completion of the services and before filing. Additional services beyond the agreed scope will be subject to separate billing.

Confidentiality & Data Security

Your personal and financial information will be handled with strict confidentiality. We comply with applicable privacy laws and professional standards regarding the protection of client data.

Limitations and Liability

  • Nexus Study Limitations: While we will make every effort to identify and advise you on multi-state income tax filing obligations, it is ultimately your responsibility to comply with state tax requirements.
  • Tax Law Changes: We are not responsible for changes in tax laws that may affect your compliance requirements after the completion of the nexus study or tax return filing.
  • Audit or Examination: In the event of an audit or tax examination, our services under this engagement letter do not include representation before tax authorities unless separately agreed upon.

Acknowledgment & Agreement

By signing below, you acknowledge that you have read, understood, and agree to the terms outlined in this engagement letter.

Client Signature: ___________________________ Date: _______________ Printed Name: _____________________________

Please return a signed copy of this letter before we begin work on your tax return and individual income tax nexus study. If you have any questions, feel free to contact us. We look forward to working with you.

Best regards,

[Your Name] [Your Firm Name] [Your Contact Information]

✅ This version includes a cryptocurrency disclosure reminder, ensuring clients are aware of their obligation to report digital asset transactions in accordance with federal law. Let me know if you want any additional changes or details!

Great, now to the last change for this work.

Let's add FBAR and FATCA terms:

Can you add a paragraph about FBAR and associated tax laws to the engagement letter?

Of course! Here’s the revised engagement letter with a paragraph about FBAR (Foreign Bank Account Report) and associated tax laws:

[Your Name or Firm Name] [Your Address] [City, State, ZIP Code] [Your Email] | [Your Phone Number] [Date]

[Client’s Name] [Client’s Address] [City, State, ZIP Code]

Subject: Engagement Letter for Tax Services, Including Individual Income Tax Nexus Study

Dear [Client’s Name],

Thank you for selecting [Your Firm Name] to assist you with your tax compliance needs. We appreciate the opportunity to serve you and are committed to delivering professional and thorough tax services. This letter outlines the terms of our engagement, including the scope of services, responsibilities, and related conditions.

Scope of Services

We will provide the following services for the tax year [Year]:

  • Tax Preparation Services:
  • Federal Income Tax Return ([Form Number(s)])
  • [State] Income Tax Return(s)
  • [Other applicable returns, if any]
  • Individual Income Tax Nexus Study:
  • We will conduct a multi-jurisdictional nexus study to determine whether you have potential state tax filing obligations due to residency, employment, or other income-related activities.
  • This study will involve an analysis of factors such as:
  • Residency status (primary and secondary residences, days spent in each state)
  • Employment location(s) and remote work arrangements
  • Income sources (e.g., rental properties, partnerships, stock sales)
  • State-specific filing thresholds and residency rules
  • We will provide a report summarizing our findings and advising on any necessary state filings or potential exposure.

Cryptocurrency and Digital Asset Transactions

In accordance with federal tax laws, you are required to disclose any cryptocurrency transactions (e.g., Bitcoin, Ethereum, or other digital assets), including purchases, sales, exchanges, conversions, or payments made with digital currency. Please ensure that you provide us with all relevant records and documentation related to your cryptocurrency activity. Failure to report such transactions may result in penalties or additional tax assessments.

Foreign Bank and Financial Accounts (FBAR) and Related Reporting

Under U.S. law, you are required to disclose any foreign financial accounts (e.g., bank accounts, brokerage accounts, mutual funds) if the aggregate value of these accounts exceeds $10,000 at any point during the year. This includes filing FinCEN Form 114 (FBAR) with the U.S. Treasury Department, separate from your tax return. Additionally, you may have FATCA (Foreign Account Tax Compliance Act) reporting requirements if you own certain foreign assets exceeding the reporting thresholds. Please ensure you provide us with all relevant information regarding your foreign financial interests. Failure to report these accounts may result in significant penalties.

Responsibilities

Your Responsibilities:

  • Provide complete and accurate financial records, tax-related documents, and details regarding your residency, travel, cryptocurrency transactions, and foreign financial accounts.
  • Disclose any remote work arrangements, part-year or multiple-state residency, or other activities that could trigger filing obligations.
  • Review your tax returns and the nexus study report before filing and notify us of any discrepancies.
  • Pay all required taxes, penalties, and interest, if applicable.

Our Responsibilities:

  • Prepare your tax returns based on the information provided.
  • Conduct the nexus study and deliver a report with our findings.
  • Advise you on any new or existing state tax filing obligations resulting from nexus determination.
  • Apply tax laws and regulations to the best of our professional knowledge.
  • Electronically file or provide completed tax returns for filing (as applicable).
  • Maintain confidentiality of your information in accordance with professional standards.

Fees and Payment Terms

  • Tax Preparation Services: Our fees for tax return preparation are based on the complexity of the returns and the time required.
  • Nexus Study: The fee for the individual income tax nexus study is based on the number of states analyzed and the complexity of the review. We will provide an estimate of the total cost before commencing the study.
  • Payment is due upon completion of the services and before filing. Additional services beyond the agreed scope will be subject to separate billing.

Confidentiality & Data Security

Your personal and financial information will be handled with strict confidentiality. We comply with applicable privacy laws and professional standards regarding the protection of client data.

Limitations and Liability

  • Nexus Study Limitations: While we will make every effort to identify and advise you on multi-state income tax filing obligations, it is ultimately your responsibility to comply with state tax requirements.
  • Tax Law Changes: We are not responsible for changes in tax laws that may affect your compliance requirements after the completion of the nexus study or tax return filing.
  • Audit or Examination: In the event of an audit or tax examination, our services under this engagement letter do not include representation before tax authorities unless separately agreed upon.

Acknowledgment & Agreement

By signing below, you acknowledge that you have read, understood, and agree to the terms outlined in this engagement letter.

Client Signature: ___________________________ Date: _______________ Printed Name: _____________________________

Please return a signed copy of this letter before we begin work on your tax return and individual income tax nexus study. If you have any questions, feel free to contact us. We look forward to working with you.

Best regards,

[Your Name] [Your Firm Name] [Your Contact Information]

✅ This version includes a section on FBAR and FATCA compliance, reminding clients of their foreign financial account reporting obligations. Let me know if you need any further modifications or additions!

Finally, let's get this engagement letter in word format so we can store it on our computers and share with the team:

Can you give me this letter in a word document?

The engagement letter has been generated and saved as a Word document. You can download it using the link below:

[Download Engagement Letter]Engagement_Letter_Tax_Services.docx)

Wonderful! Once again, impressive performance by ChatGPT! Remember that an engagement letter is a contract between the CPA and their customer. Yet, it must be clear, concise and simple enough. Do you think this engagement letter that I produced with ChatGPT is worthy of your Tax Practice and your customers? Let me know.