The following are some documentation tips to follow for tax season:
- Always document significant meetings, communications and follow-up. Follow up with written communication in the following circumstances, such as:
- Change in the scope of an engagement (may require a new engagement letter)
- Negative information (e.g., tax return is already late, client’s failure to timely provide information, client is facing an audit)
- Judgment calls (e.g., the former CPA took an aggressive position that client is aware of and has consented to)
- Client needs to take material action on discussion
- Conversations regarding transactions or amounts used for extension payments
- Obtain written confirmation of the amounts used for calculations. For example, a confirmation can be sent to the client with the tax extension payment form, giving the client an opportunity to review the information and to change any information that appears incorrect, prior to April 15. The confirmation then serves as a record of the client’s representations in case the client incurs a late payment penalty.
- If you need information at the last minute to complete a return, have the client send the data via email or fax. The email or fax becomes part of your records, support and documentation. Remind the client that their return may need to be extended if they fail to cooperate with the request.
- Use informed consent letters in engagements such as S Corporation elections or conversions, estate tax planning, and aggressive or gray tax strategies, clarifying that the CPA advises and informs, while the client decides. With this letter, it is difficult for claimants to make it appear that the CPA made the decisions and is responsible for the results.
- Aggressive or gray tax positions may call for the client to provide you with an opinion from tax counsel confirming that the position has a realistic possibility of being sustained on its merits if challenged. If you’re advising a client on a complex transaction or exchange, you may want to have your legal counsel review the documentation before passing it on to your client.
- Documentation should be factual, professional, and without personal comments, which may be inappropriate and damaging to the integrity of the documentation. Ask yourself whether you or your client would be harmed if the documentation was presented to the "ladies and gentlemen of the jury."
Remember, be proactive, not reactive, as you work with your clients this tax season. It is important to recognize that you may have some clients that are no longer the “right fit” for your firm; disengaging from those clients may be in everyone’s best interests in the long run.
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