Why Tax Professionals Insist on Engagement Letters and Organizers?




Yes organizers are annoying and many clients do not like them.  What's more, there are some smaller, more "flexible" firms that do not insist on them.  There are the obvious reasons for engagement letters and organizers.  Primarily -
1. They define and make clear who is responsible for what
2. The client has a guide on what is required to reduce her own liability and meet reporting requirements
3 Questions are asked/answered that may often be overlooked.



But for more established firms, there is also the issue of professional liability.  I refer you to the case of  Miksic v. Boeckerman Grafstrom Mayer, LLC, 2017 U.S. Dist. LEXIS 46906 (D MN 2017).  Here's a short summary of the case:

The Internal Revenue Service ("IRS") assessed substantial taxes, monetary penalties, and interest against Plaintiff Boris Miksic for his failure to file U.S. tax forms during tax years 2005 to 2010, and not disclosing his interests in and income from foreign trusts, businesses, and bank accounts. Miksic filed this accounting malpractice action alleging those errors were due to negligent tax preparation by Defendants Boeckermann Graftstrom Mayer LLC, formerly known as Johnson, West & Co. P.L.C., Boeckermann Graftstrom Mayer, P.A., and Johnson West & Co. P.L.C. (collectively "Defendants"). Miksic also contends that as a result of Defendants' negligence, he changed accountants and retained legal counsel to respond to the IRS audit and to bring this action.

Now taxpayer did sign engagement letter but apparently he refused to complete the organizers.  He left whole sections blank and the accounting firm did not challenge him on it.  Based on this incomplete data, returns were submitted to the IRS which omitted substantial overseas investments.

So in short,
1. Taxpayer did not properly complete organizers
2. Based on incomplete / erroneous organizers, firm prepares returns to the IRS which omits certain overseas assets, overseas interests and/or sources of income.
3. Taxpayer is assessed certain penalties by the IRS. 
4. Taxpayer turns around and sues the tax consultants for negligence.  Presumably for not insisting on taxpayer properly completing the organizers.


So now, this tax firm is facing a law suit, charges of negligence, attorney fees etc.  Was it worth it?  That's why we say, if a client does not want to use an organizer?  Don't just walk but run......run fast and run far....

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