What is an engagement letter?
Short answer
An engagement letter is the written agreement between a tax firm and a client that sets the scope of the work, each side's duties, fees and timing before the work starts.
What it is
An engagement letter says what the firm will do (for example, prepare the 2026 federal and Colorado returns from the information the client provides), what it will not do (audit the figures, represent the client in an examination), what the client must deliver and by when, how fees are set, and how the engagement ends. It often includes record retention terms, consent language and how the firm communicates.
Circular 230 lists communicating clearly with the client about the terms of the engagement as a best practice, and professional liability insurers usually expect one for every engagement.
Why it matters for a tax firm
Most fee disputes and most malpractice claims start with an unclear scope. A letter signed at intake also fixes the deadline for client documents, which is the lever a firm has when the file is still half empty in March.
Related terms
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Sources
Questions about Engagement letter
Do I need a new engagement letter every year?
Best practice is yes: scope, fees and law change each season, and a dated letter for each year is what protects the firm.
Can the engagement letter be signed electronically?
Yes. It is a private agreement covered by e-signature law. Keep the signed copy and its audit trail with the client file.
Last reviewed: October 16, 2026. This glossary explains terms; it is not legal or tax advice. Check the cited source for the current rule.
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