In the pivotal moment of a football game, the play call is paramount. Like a football team, CPA firms have a playbook that guides the provision of tax compliance and consulting advice based on a client’s situation. One play that should be in every CPA firm’s playbook — but is often left uncalled — is the engagement letter.

When asked, most tax practitioners would say they obtain an engagement letter for every service they are engaged to perform. However, the claim experience of the AICPA-endorsed Professional Liability Insurance Program indicates CPA firms often fumble.

We’ve already discussed strategies to increase engagement letter use for compliance services. (See “Blocking and Tackling: Engagement Letters for Tax Compliance Services,” JofA, Nov. 1, 2025.) Engagement letters for other tax services present a more challenging situation.

Let’s walk through several game-time decisions made by CPAs in which using an engagement letter may have been the difference between calling the right play or committing a costly turnover. We will also share why an engagement letter was not used, how it would have helped the CPA’s defense, and what accounting professionals should learn from each scenario.

INELIGIBLE RECEIVER: TAX CREDITS

Quarterback CPA assisted a friend in obtaining the employee retention tax credit (ERTC) for a business the friend owned. Unbeknownst to Quarterback CPA, the friend had another similar business and applied the same ERTC methodology to it. When the credit was denied because the other business did not qualify, the friend sued Quarterback CPA for providing improper advice.

Why was no engagement letter used? Quarterback CPA said he had never been sued before, so he didn’t think he needed an engagement letter, especially from a friend.

Replay review: Identifying the specific business client in the engagement letter and stating that the services are for the use and benefit of only that business client may have helped Quarterback CPA better defend the claim.

Final call: Prevent an ineligible receiver from relying on your services by identifying the client in the engagement letter. Obtain an engagement letter from every client, no matter how good your relationship with them may be.

DELAY OF GAME: IRS EXAMINATION

Offensive Lineman CPA represented a longtime client in an IRS examination but missed a critical due date to appeal the initial assessment. That required the client to hire a tax attorney and take the case to Tax Court to obtain a no-change resolution. The client sued Offensive Lineman CPA for the significant attorneys’ fees and expenses and the emotional toll the client was forced to endure.

Why was no engagement letter used? Offensive Lineman CPA believed his compliance engagement letter included assistance with IRS examinations.

Replay review: Although a separate examination-specific engagement letter would not have prevented Offensive Lineman CPA’s mistake, the inclusion of limitation-of-liability and damages clauses may have helped lessen the amount of his ultimate settlement payment.

Final call: A delay-of-game penalty for a missed deadline can turn teammates into rivals. An engagement letter for preparing a tax return covers only compliance. Answering questions, responding to notices, and assisting the client with an IRS or state examination all require additional documentation.

HOLDING: STOCK-OPTION CONSULTING

Linebacker CPA’s individual tax client hit it big, earning nonqualified stock options from her tech startup employer. With her newfound wealth, the client called Linebacker CPA and asked for advice on how to minimize her taxes. Linebacker CPA told her that after she converted the options to stock, the appreciation would receive long-term capital gains treatment if she held the stock for a year after exercising the options. The client forgot this advice and, when she was fully vested, exercised the options and immediately sold the stock. The client sued Linebacker CPA for improper advice when the realized gain was taxed as ordinary income.

Why was no engagement letter used? Linebacker CPA stated that it would have taken longer to write an engagement letter than to provide the advice, so she didn’t document the service.

Replay review: If obtaining a signed engagement letter was deemed too time-consuming, Linebacker CPA could have documented key engagement parameters, such as the scope and any limitations of the service, in an email. At a minimum, Linebacker CPA could have sent a follow-up email to the client stating that any advice provided via phone call was preliminary and should not be relied upon.

Final call: CPAs answer client questions daily, which can increase the risk of a claim, especially if advice and limitations of that advice are not documented. Holding yourself accountable for documenting critical client conversations is a great way to mitigate the risk of improper advice, a scope dispute, and more.

TWO-MINUTE WARNING: AMENDING A TAX RETURN

In a casual conversation, Free Safety CPA’s client mentioned a previously unreported charitable contribution. After receiving the client’s approval, Free Safety CPA quickly amended the impacted federal and state tax returns before the statute of limitations expired. Later, the client called Free Safety CPA to confirm that the amended returns also included the impact of a recent court decision they had previously discussed. Unfortunately, they did not, and it was too late to amend again. The client sued Free Safety CPA for the loss of the additional refund opportunity, stating that she thought the returns were being amended for both the donation and the court decision.

Why was no engagement letter used? Because the statute of limitations to amend the returns was looming, Free Safety CPA decided to forgo the engagement letter to save time.

Replay review: Take care of your most important client first — your firm. A well-drafted engagement letter could have identified the specific reason or reasons why the amended returns were filed and limited the engagement’s scope solely to those reasons. This would have allowed the client to review and approve the scope before it was too late.

Final call: Free Safety is not the only CPA to begin services before obtaining a signed engagement letter, especially if it’s the two-minute warning before the deadline. Consider implementing a firm policy to obtain an engagement letter before providing services, even if the clock is running out.

OFFSIDE: CHARITABLE CONTRIBUTION RESPONSIBILITIES

A client worked with Defensive Tackle CPA on the charitable contribution of a large tract of appreciated land. Unfortunately, the client did not obtain an appraisal for the land, as they believed this was Defensive Tackle CPA’s responsibility. The deduction was ultimately disallowed, and the client held Defensive Tackle CPA responsible.

Why was no engagement letter used? Defensive Tackle CPA included “limited tax planning” in the scope of his compliance engagement letter and believed planning for the charitable contribution was part of the tax return preparation engagement.

Replay review: Identifying when a separate engagement letter is needed challenges many CPAs, but a separate engagement letter for specific tax planning items could have included the client’s responsibility to obtain the appraisal for the asset being contributed.

Final call: When CPAs do not realize where tax compliance ends and tax consulting begins, they commit an offside penalty. Creating a separate engagement letter or other documentation when additional services are requested may help avoid a penalty flag.

FUMBLED HANDOFF: SALE OF REAL ESTATE

A client’s financial adviser and Running Back CPA helped the client structure the disposition of real estate in a tax-efficient manner. After an audit, the IRS found that the transaction did not qualify as the planned like-kind exchange. The client sued Running Back CPA and the financial adviser for providing improper advice.

Why was no engagement letter used? Although Running Back CPA considered obtaining an engagement letter, he was unsure how to approach the scope of services because his role and the financial adviser’s role were often discussed in tandem and specific responsibilities were not identified.

Replay review: Many misunderstandings, including this one, may be avoided by defining the CPA’s scope of service and responsibilities in the engagement letter. If Running Back CPA was engaged solely to “run the numbers,” as was maintained in his defense, any attempt to expand his planned scope may have been mitigated.

Final call: Without an engagement letter, CPAs sometimes fumble a handoff, especially when multiple service providers, such as attorneys or financial advisers, are involved. To help ensure you and the client are on the same page, draft what you believe to be the requested services and ask the client to confirm. If the scope is not what the client needs, it can be changed.

TOUCHDOWN: PPP CONSULTING

During the COVID-19 pandemic, Wide Receiver CPA assisted several clients in obtaining Paycheck Protection Program (PPP) loans and loan forgiveness, obtaining a signed engagement letter from each client for each service. One client threatened to sue Wide Receiver CPA when their PPP loan was not forgiven.

Replay review: Although the client asserted that Wide Receiver CPA had “guaranteed” that the loan would be forgiven, the engagement letter clearly stated that the PPP loan may not be ultimately forgiven, and the client dropped the matter.

Final call: Wide Receiver CPA’s firm scored a game-winning touchdown, and a claim was never even asserted after the client reviewed the engagement letter.

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Better engagement

49%: The portion of the tax claims in 2025 asserted against CPA firms in the AICPA Professional Liability Insurance Program that lacked an engagement letter related to the service underlying the claim, down from 56% in 2024.

Source: CNA Accountants Professional Liability Claim Database, underwritten by Continental Casualty Company. Copyright © 2026. All rights reserved.

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Deborah K. Rood, CPA, MST, is a risk control consulting director at CNA in Chicago. For more information about this article, contact specialtyriskcontrol@cna.com.

Continental Casualty Company, one of the CNA insurance companies, is the underwriter of the AICPA Professional Liability Insurance Program. Aon Insurance Services, the National Program Administrator for the AICPA Professional Liability Program, is available at 800-221-3023 or visit cpai.com.

This article provides information, rather than advice or opinion. It is accurate to the best of the author’s knowledge as of the article date. This article should not be viewed as a substitute for recommendations of a retained professional. Such consultation is recommended in applying this material in any particular factual situations.

Examples are for illustrative purposes only and not intended to establish any standards of care, serve as legal advice, or acknowledge any given factual situation is covered under any CNA insurance policy. The relevant insurance policy provides actual terms, coverages, amounts, conditions, and exclusions for an insured.