What a business tax return engagement letter should cover.
Who the client is
Address the entity, not the owner personally. The letter should direct responsibilities to management and authorized representatives, and the signer should confirm they are authorized to sign for the entity.
The return and tax year
Name the form: 1120-S for an S corporation, 1120 for a C corporation. State the tax year, and that the completed return will be provided for review before filing.
Exclusions
Payroll, sales tax, audit representation, and financial statements are not included unless separately engaged. Say so, and say how the client can ask for them.
Fees and expenses
State the fee, how it is paid, and whether out-of-pocket costs such as travel and filing fees are billed in addition. A staged payment, such as half up front and half on completion, belongs in the letter.
Standard protections
Client responsibilities and reliance, tax position standards, confidentiality under IRC §7216, a limit on liability tied to fees paid, mediation before litigation, termination on written notice, and record retention.
Generate the letter in minutes.
Choose Business Income Tax Return, enter the entity name and type (S-corp, C-corp, or LLC), the fee, and payment terms. Check the expenses box if you bill out-of-pocket costs, and use the excluded services field for anything outside the return. EngageDraft generates a letter that covers the sections above, designed around AICPA guidelines.
Review the output. Edit anything that needs adjusting. Send for e-signature. Your client signs from their device. The signed record is stored in your dashboard.
Sample Business tax return engagement letter
This is a complete engagement letter generated by EngageDraft for an S corporation return. Firm, preparer, and client names below are placeholders; the scope, terms, and structure match real output for this engagement type.
Download this sample as a Word document (.docx). No signup required.
Dear Harbor Street Design, LLC,
This letter confirms the terms under which Cedarline Tax & Advisory, represented by Riley Marsh, CPA, will provide professional tax services to Harbor Street Design, LLC for the 2025 tax year. This letter is intended to establish a mutual understanding of the scope of services, responsibilities, and terms that will govern our engagement. The specific service covered by this engagement is the preparation of the Business Income Tax Return for Harbor Street Design, LLC. The completed return will be provided to you electronically for your review prior to filing.
Scope of Services
Business Income Tax Return
This engagement covers the preparation of Form 1120-S, the U.S. Income Tax Return for an S Corporation, for Harbor Street Design, LLC for the 2025 tax year. Harbor Street Design, LLC is a two-shareholder design studio, and this return will reflect the income, deductions, credits, and other tax attributes of the business for the period covered. As part of this service, we will prepare the Schedule K-1 for each of the two shareholders, which reflects each shareholder's allocable share of the company's income, deductions, and credits for the year. The completed return will be provided to you electronically for your review before any filing takes place.
This engagement does not include the preparation of individual income tax returns for the shareholders, payroll tax filings, sales tax returns, audit representation, or the preparation of financial statements. These services may be provided under a separate engagement if requested.
Client Responsibilities
You are responsible for providing complete, accurate, and timely information necessary for the preparation of the return. This includes, but is not limited to, financial records, prior year returns, ownership information, and any other documents reasonably required to complete the engagement. We will rely on the information you provide and will not independently audit, verify, or otherwise examine the underlying data for accuracy or completeness. You accept full responsibility for the accuracy and completeness of all information provided to us.
Regarding tax positions, if you request that we take a position on the return that does not meet the standard of having substantial authority under IRC §6662, we will advise you of that fact before proceeding. We will not recommend a position that lacks a reasonable basis, and we will not prepare a return that reflects a position we have advised you is improper.
Fees and Payment
The agreed fee for this engagement is $1,800. Payment is due on the following schedule: 50% ($900) is due upon execution of this engagement letter before work begins, and the remaining 50% ($900) is due upon completion of the return. Work on your engagement may be paused if your account becomes past due. Please note that fees are not contingent on the outcome or results of the engagement in any manner.
Out-of-pocket expenses — including travel, filing fees, and other direct costs incurred on your behalf in connection with this engagement — will be billed to you in addition to the professional fees described above.
Confidentiality
All information you provide to us in connection with this engagement will be kept strictly confidential in accordance with IRC §7216, applicable state law, and applicable professional standards. We will not disclose your information to any third party without your consent, except as required by law or professional standards. This confidentiality commitment extends to any data that is stored or processed through third-party technology platforms that we use in the delivery of services to you.
Limitation of Liability
Our liability to you for any cause of action arising out of or related to this engagement is limited to the total fees you have paid to us for the specific services giving rise to the claim. We are not liable for any consequential, indirect, or punitive damages of any kind. This limitation applies regardless of the form of the action or the theory of recovery asserted.
This sample was generated by EngageDraft, including its limitation of liability paragraph. It is a starting point, not legal advice, and has not been reviewed by an attorney. Confirm with your own counsel before use.
Dispute Resolution
If a dispute arises out of or relates to this engagement or these terms, both parties agree to submit the dispute to mediation before either party initiates litigation. Mediation will be conducted in the jurisdiction where Cedarline Tax & Advisory is located, under the rules of a mediator mutually agreed upon by both parties. Both parties agree to participate in the mediation process in good faith before pursuing any other legal remedy.
Termination
Either party may terminate this engagement at any time upon written notice to the other party. Fees for all work completed up to the date of termination will be due and payable at that time. Upon receipt of payment for completed work, we will return any documents you provided to us in connection with this engagement. We will retain all engagement documentation for a period of seven years following the termination or completion of the engagement, whichever occurs later.
Agreement and Acknowledgment
By signing this letter, you confirm that you have had the opportunity to read and review all of the terms set forth herein, that you have had the opportunity to ask questions before signing, and that you agree to be bound by the terms of this engagement. This letter, once signed by both parties, constitutes the entire agreement between Harbor Street Design, LLC and Cedarline Tax & Advisory with respect to the services described herein.
Frequently asked questions
What should a business tax return engagement letter include?
The entity, the form and tax year, what is excluded, what management must provide, the fee and expenses, and how the engagement ends. The sample on this page also covers tax position standards, confidentiality, a limit on liability, and mediation before litigation.
Who signs an engagement letter for a business client?
An authorized representative of the entity. The letter is addressed to the entity, and the closing paragraph should have the signer confirm they are authorized to enter into the agreement on its behalf.
What is the difference between an S corporation and a C corporation engagement letter?
The scope names the form: 1120-S for an S corporation and 1120 for a C corporation. The responsibilities, fees, confidentiality, liability, and termination sections are otherwise the same.
Should a business return engagement letter exclude payroll and sales tax?
Say clearly whether they are included. Unless you agree to prepare them, name payroll, sales tax, and financial statements as excluded, so the client does not assume they come with the return. The sample letter on this page treats them as excluded unless separately engaged.
How should out-of-pocket expenses be handled in the letter?
State whether travel, filing fees, and other direct costs are billed in addition to the fee. In EngageDraft, checking the expenses box adds a sentence to the fee section saying they will be billed in addition. The sample on this page has it checked.