Tax Engagement Letters and Section 7216 Consent: A Guide for Preparers

Quick answer: A tax engagement letter is the written agreement that defines what a firm will and won't do for a client, what the client must provide, the fees, and the deadlines both sides must meet. A separate but related document, the Section 7216 consent, is required before a tax return preparer can use or disclose a client's tax return information for purposes other than preparing the return. Under Rev. Proc. 2013-14, consents for Form 1040 clients must follow specific required language and must be affirmative, so a broad clause buried in an engagement letter is not enough.

Key takeaways

• An engagement letter protects both the firm and the client by setting scope, responsibilities, fees and deadlines in writing.
• The client's responsibility to provide complete and accurate documents on time should be explicit, along with what happens when they don't.
• Section 7216 makes it a crime for a preparer to knowingly or recklessly disclose or use tax return information without consent, unless an exception applies.
• For Form 1040 clients, consents must use the mandatory language in Rev. Proc. 2013-14, and consents to use and consents to disclose must be separate documents. Several disclosures can share one consent if the client can opt in to each one separately.
• A firm can't make tax preparation conditional on the client agreeing to an unrelated use or disclosure.

Why every tax client needs an engagement letter

Most disputes between firms and clients come down to mismatched expectations: the client assumed a service was included, didn't realize a deadline was theirs to meet, or was surprised by a bill. An engagement letter settles these questions before work begins.

It also protects the firm. If a client sends documents late and the return goes on extension, or an omission leads to an IRS notice, the engagement letter shows what each side agreed to do.

What to include in a tax engagement letter

1. The parties and the period

Name the client, including a spouse on a joint return, and any entities covered. State the tax years and returns included, for example "2026 federal Form 1040 and the related state return for California."

2. Scope of services

List exactly what's included: preparation of specific returns, estimated tax calculations, extension filings and so on. Then state what's excluded. Common exclusions include:

• Representation in IRS examinations or collections
• Bookkeeping or cleanup of unreconciled records
• Amended returns for prior years
• Tax planning beyond the return itself
• Additional state, local or foreign filings not listed

Out-of-scope work can still be offered, but under a separate engagement or at a stated rate.

3. Client responsibilities

This section matters most for day-to-day operations. Spell out that the client is responsible for:

• Providing complete, accurate and timely information and documents
• Keeping records that support the items on the return
• Reviewing the completed return before signing
• Telling the firm about significant changes, such as a new business, foreign accounts, a home sale or a change in marital status
• Responding to questions within a stated time

4. Document deadline and extension policy

State the date by which documents must be received for the return to be filed by the original deadline, and what happens after it. For example, returns with incomplete documents after a stated cutoff will be placed on extension, and an extension extends the time to file but not the time to pay. Our guide to tax extensions explains the penalty difference clients need to understand.

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5. Fees and billing

• The fee or how it's calculated
• When invoices are issued and when payment is due
• Rush fees for documents received close to the deadline, if you charge them
• Rates for out-of-scope work
• Whether the return is released before payment

6. Records and retention

Explain that original documents belong to the client, how long you'll keep copies, and when you'll return or securely dispose of them.

7. Electronic filing and signatures

If you e-file, the client will need to sign an e-file signature authorization, such as Form 8879, before the return is transmitted. Mention how signatures will be collected.

8. Communication and privacy

State how you'll communicate with the client, how they should send sensitive information, and that you won't use or disclose their tax return information beyond what's permitted without their consent.

9. Termination

Explain how either side can end the engagement and what happens to work in progress and fees already incurred.

10. Signatures

Have the client sign before work begins. For joint returns, get both spouses' signatures.

Section 7216: the consent rule every preparer needs to know

Internal Revenue Code Section 7216 governs how tax return preparers may use and disclose information they obtain while preparing returns. According to the Internal Revenue Bulletin, the general rule prohibits the disclosure or use of tax return information unless a written consent is obtained or an exception applies.

What counts as tax return information?

Broadly, any information a preparer obtains in connection with preparing a return, including the documents clients send, the client's name and contact details, and the return itself.

When consent is not required

The regulations permit certain disclosures and uses without consent. For example, disclosure within the United States to assist the preparer in preparing, processing or electronically filing the return generally doesn't require consent, as the AICPA's Tax Adviser explains. Always check the specific exception in the regulations before relying on it.

When consent is required

Common situations where firms need consent include:

• Using tax return information to market non-tax services, such as bookkeeping, financial planning or insurance
• Disclosing information to a lender, a financial adviser or another third party at the client's request
• Disclosing information to a preparer or service provider located outside the United States (and even with consent, the client's SSN can't be sent offshore unless adequate data protection safeguards are in place)
• Sharing information with an affiliated business that isn't preparing the return

Rules for Form 1040 consents

For individual clients filing Form 1040-series returns, Rev. Proc. 2013-14 sets specific format and content requirements:

• Mandatory language. Consents must include the required statements set out in the revenue procedure.
• Affirmative consent. The taxpayer must actively agree. Opt-out consents aren't permitted, according to the Tax Adviser.
• Separate documents. Consents to use and consents to disclose must be separate documents. One consent can cover several disclosures (or several uses) if the client affirmatively selects each one, as The CPA Journal summarizes.
• Specific content. The consent should identify the information, the purpose and the recipient, and it must be signed and dated before the disclosure or use happens.

No conditioning services on consent

Consent must be knowing and voluntary. A preparer can't require a client to agree to a use or disclosure as a condition of preparing their return, except for disclosure to another preparer to assist with the return itself, according to The CPA Journal's summary of the regulations.

Timing

A preparer may not ask for consent to disclose tax return information for soliciting unrelated business after providing the completed return to the taxpayer for signature, as tax software provider TaxAct notes in its preparer guidance. Collect consents early, during onboarding.

Penalties

Section 7216 is a criminal provision targeting preparers who knowingly or recklessly disclose or use tax return information. In addition, Section 6713 imposes a civil penalty of $250 for each unauthorized disclosure or use, up to $10,000 per calendar year (a violation of Section 7216 itself is a misdemeanor carrying up to a $1,000 fine and one year in prison), according to the IRS.

Why broad engagement letter language isn't enough

A common shortcut is to add a sentence to the engagement letter saying the client agrees to the firm's use and disclosure of their information. For Form 1040 clients, that typically won't meet the requirements: Rev. Proc. 2013-14 requires mandatory language, affirmative selection by the client, and a consent that is its own written document, separate from the engagement letter text (it can be attached to the letter). Keep 7216 consents as separate documents, collected alongside the engagement letter.

Collecting engagement letters and consents efficiently

Engagement letters and consents are documents like any other: they need to be sent, signed, returned and filed before work starts. When they're chased by email, they often arrive unsigned, missing a spouse's signature or after the return is already underway.

Add them to the start of each client's onboarding checklist and don't start preparation until they're in. Correctdocs includes signed agreements in the same checklist as tax documents, checks each upload as it arrives so a missing page or the wrong document is flagged right away, and follows up automatically until everything is complete.

Correctdocs is in early access. The first 10 US accounting, bookkeeping and tax firms get a free 30-day pilot on real client requests. Request early access.

Frequently asked questions

Is an engagement letter required for tax preparation?

Firms aren't generally required by federal tax law to use engagement letters for every engagement, but they're widely considered best practice, and professional liability insurers often expect them. They're the clearest evidence of what both sides agreed to.

What is a Section 7216 consent?

It's a written consent a taxpayer signs to allow a tax return preparer to use or disclose their tax return information for a purpose not otherwise permitted by the regulations, such as marketing non-tax services or sharing information with a third party.

Can Section 7216 consent be included in the engagement letter?

For Form 1040 clients, consents must follow the format and content rules in Rev. Proc. 2013-14, including mandatory language in a separate written consent document. Rev. Proc. 2013-14 allows that document to be attached to the engagement letter, but the consent can't simply be a clause in the letter.

What is the penalty for violating Section 7216?

Section 7216 is a criminal provision for knowing or reckless unauthorized disclosure or use, and Section 6713 adds a civil penalty of $250 for each unauthorized disclosure or use.

When should engagement letters be signed?

Before any work begins, ideally as the first step of onboarding or at the start of each tax season for returning clients.

Sources

• IRS, Rev. Proc. 2013-14
• IRS, Internal Revenue Bulletin 2013-3
• IRS, IRC Section 7216 questions and answers
• The Tax Adviser (AICPA), The many implications of Sec. 7216
• The CPA Journal, Getting taxpayers' consent to disclose or use tax return information under IRC Section 7216

This article is general information, not legal advice. Have your engagement letters and consent forms reviewed by a qualified professional or your liability insurer.