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January Tip of the Month – Helpful Documentation during Tax Season

CAMICO has been developing risk management solutions for CPAs for more than 37 years, and we recognize and understand the challenges facing CPA firms navigating each tax season’s nuances. 

Below are helpful documentation tips to get you through tax season:

  • Engagement letters. While engagement letters won’t immunize you from lawsuits, they can be your first line of defense if a client makes a claim against you. Although you likely already have executed engagement letters in place with your tax clients, for those engagements that have had some engagement creep, memorialize the additional services by updating your engagement letter or obtaining a signed addendum clarifying the revised scope and limits.

Numerous CAMICO engagement letter templates are available on the Members-Only Site’s Engagement Letter Resource Center.

  • Always document significant meetings, communications and follow-up. Follow up with written communications in circumstances including, but not limited to:
    • Change in engagement scope (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., aggressive tax positions taken by your predecessor)
    • Client agreement to take significant action
    • Conversations regarding transactions, extensions, or estimated tax payments
  • “Advise” clients of opportunities and “warn” clients about risks. Consider obtaining a tax representation letter or stand-alone certification letter to mitigate high-risk scenarios such as the following:
    • If your firm is preparing amended income tax returns to reflect the ERC adjustments as required by the taxing authorities, and the firm is NOT responsible for assessing or opining on the client’s eligibility for the ERC, CAMICO strongly recommends that in addition to having a signed engagement letter for such services, firms also insist the client sign a tax representation letter (this letter can be found on the Members-Only Site in the Tax Resource Center). This added defensive documentation will help protect the firm if clients later allege that the firm should have opined regarding eligibility for the credit, and/or if clients later allege the firm did not appropriately advise them of the potential risk given the extended statute of limitations afforded by the IRS for assessments without a corresponding extension for taxpayers to pursue refunds on the income tax returns.
    • For those clients with known extensive digital asset transactions, it may be prudent to have them sign a tax representation letter or a stand-alone certification letter at the conclusion of the engagement addressing cryptoasset implications (these letters can be found on the Members-Only Site in the Tax Resource Center). The additional defensive documentation provides evidence of the client’s understanding and acceptance of their responsibilities regarding digital asset transactions and the limitations of the services your firm provided.

In addition to the above examples, there is a new area of potential risk associated with the Corporate Transparency Act (“CTA”). The CTA introduces a new and expansive reporting regime for entities deemed to be Reporting Companies to report “beneficial owner” information to the Financial Crimes Enforcement Network (“FinCEN”). CAMICO strongly recommends that CPA firms inform and advise their clients of the beneficial ownership reporting requirements under CTA. (Refer to CAMICO’s article, “Corporate Transparency Act / Beneficial Ownership Information Reporting — Risk Management Considerations for CPA Firms”).

  • Written documentation should be factual, professional, and without personal commentary or unsubstantiated opinions. Unprofessional and/or inappropriate comments can damage the integrity of documentation. Ask yourself whether your documentation would be helpful or harmful if presented at trial.

CAMICO policyholders with questions regarding this article or other risk management topics should contact the Loss Prevention department at, or call our advice hotline at 1.800.652.1772 and ask to speak with a Loss Prevention Specialist.

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