This addendum to the engagement letter describes the responsibilities of LT CPAs & Company, Inc. and your client responsibilities related to services covered under the scope our engagement. This addendum, the accompanying engagement letter, and Terms & Conditions Addendum, comprise your agreement with us (“Agreement”). If there is any inconsistency between the engagement letter, this CPA Firm & Client Responsibilities Addendum, and the Terms & Conditions Addendum, the engagement letter will prevail to the extent of the inconsistency.
For the purposes of this CPA Firm & Client Responsibilities Addendum, any reference to “firm,” “we,” “us,” or “our” is a reference to LT CPAs & Company, Inc., and any reference to “you,” or “your” is a reference to the party or parties that have engaged us to provide services. References to “Agreement” mean the engagement letter or other written document describing the scope of services, any other attachments incorporated therein, and this CPA Firm & Client Responsibilities Addendum.
CPA Firm Responsibilities
It is our duty to prepare your returns based on the same standard of care that a reasonable tax return preparer would exercise in this type of engagement. Unless otherwise noted, the applicable standard of care for a “reasonable tax return preparer” shall be based upon the following pronouncements:
- the Statements on Standards for Tax Services (“SSTS”) issued by the American Institute of Certified Public Accountants (“AICPA”);
- U.S. Treasury Department Circular 230 (“Circular 230”); and
- the Internal Revenue Code, Treasury Regulations, and any applicable state/local corollaries (collectively, “the Code”).
As tax return preparers, these pronouncements also prohibit us from signing a tax return unless we have a reasonable belief that there is substantial authority for tax positions taken on the tax return, or we have a reasonable basis for tax return positions taken on the return which are disclosed as
required by the Code. If you request that we report a tax position on your return which we feel is contrary to published guidance, frivolous, or a willful attempt to evade tax, we will be unable to proceed. If you are unwilling to disclose a position where required or we conclude that your failure to disclose does not permit us to sign your tax return, we will be unable to proceed.
It is your responsibility to safeguard your assets and maintain accurate records pertaining to transactions. We will not hold your property in trust for you, or otherwise accept fiduciary duties in the performance of the engagement.
We will prepare your tax returns based upon your filing status (single, married filing jointly, married filing separately, head of household, or qualifying widow(er) with dependent child) as reflected in your income tax returns for last year. If your filing status has changed, you wish to change your filing status, or you have questions about your filing status, please contact us immediately.
LT CPAs & Company, Inc. will not make management decisions or perform management functions on your behalf.
We will use our professional judgment to resolve questions in your favor where a tax law is unclear, provided there is substantial support for doing so. If there are conflicting interpretations of tax law, or if tax law is unclear, we will explain the possible positions that may be taken on your return. We will follow the position you request, provided it is consistent with our understanding of the Internal Revenue Code (“IRC”), tax regulations, Revenue Rulings, Revenue Procedures, Private Letter Rulings and court cases and similar state and local guidance. If the IRS, state or local tax authorities later contest the position you select, additional tax, penalties, and interest may be assessed. You will be responsible for these amounts, as well as any related professional fees,
you may incur to respond to the tax authority.
Confidentiality for filers of joint tax returns
If the tax returns prepared in connection with this engagement are filed using the married filing jointly filing status, both spouses are deemed to be clients of the firm under the terms of this Agreement. Both spouses acknowledge that any tax return information, including supporting documents provided to us, used in the preparation of your joint return, and any communications made to us by either of you in connection with the preparation of your joint return, may ultimately be shared with either spouse, without prior consent of the other.
We may deem it necessary to provide you with accounting and bookkeeping assistance solely for the purpose of preparing the tax returns. These services will be performed solely in accordance with the AICPA Code of Professional Conduct. Additional charges will apply for such services.
Estimated tax payments
You may be required to make quarterly estimated tax payments. We will calculate these payments for the 2024 tax year based upon the information you provide to prepare your 2023 tax returns (the prior year “safe harbor” rule). We will not provide recommended payments to more closely reflect your actual current year’s income unless otherwise specified in the services listed in your Pricing Agreement. If you would like us to provide this service, additional charges will apply.
Tax planning services
Our engagement does not include tax advice which would impact future tax years unless otherwise specified in the services listed in your Pricing Agreement. However, we may communicate potential tax strategies to you, and you may ask high-level questions of us. It is your responsibility to communicate to us, in writing, any interest in pursuing a tax strategy identified, or if you require more than a cursory response to your question. If we determine that assisting you with the implementation of any proposed tax strategy, or responding to your question requires additional research, analysis, discussion, or documentation, we will confirm our understanding with you in writing prior to proceeding.
We shall not be liable for any forgone tax or other benefits if you fail to advise us of your desire to investigate or pursue any tax strategy communicated to or by us. Any tax advice described in this paragraph and provided to you shall be governed by this Agreement and billed at our standard hourly rates.
This engagement does not include responding to inquiries by any governmental agency or tax authority unless otherwise specified in the services listed in your Pricing Agreement. If your tax return is selected for examination or audit, you may request our assistance in responding to such an inquiry. If you ask us to represent you, we may confirm this representation in a separate engagement letter. Additional charges will apply for such services.
We will not respond to any request from banks, mortgage brokers or others for verification of any information reported on these tax returns. We do not communicate with third parties or provide them with copies of tax returns without your written consent. You will be provided with an electronic copy of your returns when your return has been completed for filing. If you request to have us provide additional copies or provide copies to third parties, we may charge you $25 per return copy.
Any advice we may provide is based upon tax reference materials, facts, assumptions, and representations that are subject to change. Tax reference materials include, but are not limited to, the Internal Revenue Code (“IRC”), tax regulations, Revenue Rulings, Revenue Procedures, Private Letter Rulings and court decisions. We will not update our advice after the conclusion of the engagement for subsequent legislative or administrative changes or future judicial interpretations. To the extent we provide written advice concerning federal tax matters, we will follow the applicable guidance contained in the SSTS.
Reliance on others
There may be times when another tax advisor is engaged to assist us in providing services. If you wish to take a tax position based upon the advice of another tax advisor, we must comply with the applicable provisions of the Code and the SSTS.
We will review the other advisor’s work, including a written statement from the advisor describing the statutory basis for the position and the suggested disclosure standard to appropriately report the position. If additional research or disclosure is required, you agree to pay for the additional charges necessary to complete the disclosure or research.
Moreover, you understand that the IRS, state, or local tax authority may disagree with the position taken on the return. If this occurs, you will be responsible for any additional tax, penalties, and interest, as well as any related professional fees, you may incur.
If, after review of the work prepared by your other advisor, we determine that we are unable to sign the tax return, we will be unable to proceed.
Substantial understatement and other penalties
It is important for you to know that tax law imposes a penalty if a taxpayer makes a substantial understatement of tax liability. For individual and fiduciary taxpayers, a substantial understatement is when the understatement for the year exceeds the greater of 10% of the tax required to be shown on the return, or $5,000. The penalty is 20% of the tax underpayment.
We will use our professional judgment and expertise to assist you given the guidance on tax law as currently promulgated at the time our services are rendered. Subsequent developments issued by the applicable tax authorities may affect the information we have previously provided, and these effects may be material. Whenever we are aware that a possibly applicable tax law is unclear or that there are conflicting interpretations of the law by authorities (e.g., tax agencies and courts), we will share our knowledge and understanding of the possible positions that may be taken on your return. In accordance with our professional standards, we will follow whatever position you request, as long as it is consistent with the codes, regulations, and interpretations that have been promulgated.
In addition to the above penalty, for underpayment of tax attributable to transactions entered into after March 30, 2010, there is a 20% penalty for any transaction lacking “economic substance”. The penalty rate is increased to 40% if the relevant facts affecting the tax treatment are not disclosed in the tax return.
A transaction is treated as having “economic substance” only if-apart from Federal income tax effects – (1) the transaction changes in a meaningful way the taxpayer’s economic position; and (2) the taxpayer has a substantial purpose for entering into such transaction.
If you have entered into any transaction you believe may not have economic substance, please notify us immediately so we may disclose the transaction.
Aggressive tax strategies
Certain tax positions or strategies, while not currently identified as a reportable transaction by the IRS, may ultimately be determined to be so in the future. Consequently, you agree to advise us of any transaction you enter into that entitles you to disproportionate tax benefits (deductions, credits, or refunds), that generates significant income deferral or non-recognition, or that generates significant tax losses without corresponding cash impacts (“aggressive tax strategy”). If you fail to timely notify us, in writing, of any aggressive tax strategy you have entered into, you will be responsible for any liability, including but not limited to, additional tax, penalties, interest and related professional fees.
You acknowledge and agree that your failure to comply with the responsibilities enumerated in this section may result in economic or other loss to you, such as disallowance of tax deductions or credits claimed, additional tax, penalties or interest assessed against you, or loss of administrative rights. You agree to accept responsibility for any consequences of your failure to fulfill your responsibilities.
We will provide you with an income tax organizer to help you compile and document the information necessary to prepare your income tax returns. You are responsible for fully and accurately completing the income tax organizer, including any activities in which you engage outside of the U.S. or your home state.
Online access to information
To the extent you provide our firm with online access to download your financial information, you agree that the data is accurate as of the date and time you authorize it to be downloaded.
You are responsible for maintaining adequate documentation to substantiate the accuracy and completeness of your tax returns. Our records are not a substitute for yours. You should retain all documents that provide evidence and support for reported income, deductions, credits, and other information on your returns, as required under applicable tax laws and regulations.
You agree that you will deliver all records requested and respond to all inquiries made by our staff to complete this engagement on a timely basis.
You are responsible for the adequacy of all information provided in such documents. You represent that you have such documentation and can produce it, if necessary, to respond to any examination or inquiry by tax authorities. You will be responsible for any liability, including but not limited to, additional tax, penalties, interest and professional fees resulting from the disallowance of tax deductions due to inadequate documentation.
Because of the importance of oral and written representations to the effective performance of our services, you release and indemnify our firm and its personnel from any and all claims, liabilities, costs and expenses attributable to any misrepresentation by you and/or your representatives.
Gift tax returns
The preparation of gift tax returns is not within the scope of this engagement unless otherwise specified in the services listed in your Pricing Agreement. The IRS considers a gift to be any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return. Under federal tax law, certain gifts are taxable and subject to an annual gift tax exclusion amount, which for 2023, is $17,000 per taxpayer. You are responsible for informing us if gift tax returns are required to be filed. If you ask us to prepare these returns, we may confirm this representation in a separate engagement letter. Additional charges will apply for such services.
Gifts received from foreign persons
The preparation of IRS Form 3520 is not within the scope of this engagement. If you transferred property to or received property from a foreign person or trust, or are a U.S. person who “owns” assets in a foreign trust, you may be required to file a separate IRS Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts or Form 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner. You are responsible for providing us with details of any cash, property, or value exchanged with foreign persons or trusts, or of ownership of foreign assets, including access to foreign bank or investment accounts. If you ask us to prepare this return, we may confirm this in a separate engagement letter. Additional charges will apply for such services.
You are responsible for ensuring that personal expenses, if any, are segregated from business expenses. Business expenses such as meals, travel, vehicle use, gifts, and related expenses must be supported by necessary records required by the IRS and other tax authorities. At your written request, we are available to provide you with written answers to your questions on the types of supporting records required. Note that as of January 1, 2018, entertainment expenses are not deductible for federal business purposes and are limited to 50% for CA business purposes.
State and local filing obligations (for business owners)
On June 21, 2018, the U.S. Supreme Court reversed the long-standing physical presence nexus standard in South Dakota v. Wayfair, Inc. et. al. This decision significantly changes the landscape of sales and use tax compliance, especially for online sellers. If you wish to understand the impact of the decision on your business, we will confirm this in a separate engagement letter. The scope of our services under this engagement letter does not include services related to your compliance with other tax obligations. Additional charges will apply for such services.
You are responsible for fulfilling your tax filing obligations with any state or local tax authorities, including, but not limited to income, franchise, sales, use, property, or unclaimed property taxes. If upon review of the information you have provided to us, including information that comes to our attention, we believe that you may have additional filing obligations, we will notify you. You will be responsible for any additional filing obligations that are not within the scope of this engagement as well as tax due and penalties associated with the failure to file or untimely filing of any form for which we were not engaged to prepare. If you ask us to prepare these returns, we may confirm this representation in a separate engagement letter. Additional charges will apply for such services.
In addition, if your individual return includes a business, and that business has employees working remotely in another locality, state and/or foreign country, even on a temporary basis, your company may be viewed as having “nexus” in that location for tax purposes. If a business is deemed to have “nexus” for that location, the business may be obligated to pay additional franchise, income, sales or use tax; payroll or other business tax; and to comply with other tax or reporting requirements. By your signature below, you understand that Management is responsible for tracking the locations where company employees live and work and determining the tax compliance requirements in those respective locations. If you require our assistance to assess your potential tax exposure in locations other than your normal place of business where you may have employees residing, please let us know. Any additional services will be covered under a separate engagement letter.
Management Responsibilities (for business owners)
While LT CPAs & Company, Inc. can provide assistance and recommendations, you are responsible for management decisions and functions, and for designating an individual with suitable skill, knowledge or experience to oversee any services that LT CPAs & Company, Inc. provides. You are responsible for evaluating the adequacy and results of the services performed and accepting responsibility for such services. You are ultimately responsible for establishing and maintaining internal controls, including monitoring ongoing activities.
U.S. filing obligations related to foreign investments and activities
U.S. citizens and residents generally must report income and activities related to both domestic and foreign assets (worldwide income). You are responsible for fulfilling your filing obligations related to foreign activity where required. U.S. reporting requirements related to foreign activity are very complex.
Contact us immediately if you have:
- Ownership of, investment in, or officer responsibilities for a corporation, partnership, or other business entity formed under the laws of another country;
- Fiduciary, grantor, or beneficiary relationships in connection with an entity formed under the laws of another country;
- Ownership of, signature authority over, or control over any financial account held in a financial institution located in another country;
- Citizenship or government-approved employment/visa status with a country other than the U.S. (including anyone in your immediate household, or your parents who live outside the U.S.);
- Transferred property, including cash, offshore either directly or through the purchase of or investment in an entity formed under the laws of another country;
- Received or have legally-recognizable rights to receive property, including cash, from a trust, business, or investment formed under the laws of another country or individual residing in another country;
- Conducted business with any entity or person physically located in another country, regardless of whether such business is for-profit, not for-profit, or informal/irregular;
- Received property, including cash, or income from a source outside of the U.S. which is not reported on a brokerage statement (such as a 1099-B or similar report); or
- Any other activity or economic arrangement which takes place outside of the U.S.
Based upon the information you provide, we will use this data to inform you of any additional filing requirements, which may include FinCEN Form 114, Report of Foreign Bank and Financial Accounts (“FBAR”). The FBAR is not a tax return, and its preparation is not within the scope of this engagement unless otherwise specified in the services listed in your Pricing Agreement.
Failure to timely file the required forms may result in substantial civil and/or criminal penalties. By your signature below, you agree to provide us with complete and accurate information regarding any foreign investments in which you have a direct or indirect interest, or over which you have signature authority, during the above referenced tax year.
If you have any questions regarding the application of the reporting requirements for your foreign interests or activities, please ask us and we will respond in writing. You will be responsible for tax due, penalties, and interest associated with the failure to file or untimely filing of any of these forms.
Foreign filing obligations
You are responsible for complying with the tax filing requirements of any other country. You acknowledge and agree that we have no responsibility to raise these issues with you and that foreign filing obligations are not within the scope of this engagement.
There are specific tax implications of investing in digital assets (e.g., virtual currencies such as Bitcoin, non-fungible tokens (NFTs), virtual real estate, and similar assets). The IRS considers these to be property for U.S. federal income tax purposes. As such, any transactions in, or transactions that use, digital assets are subject to the same general tax principles that apply to other property transactions.
If you transacted in digital assets during the tax year, you may have tax consequences and/or additional reporting obligations associated with such transactions. Depending on the nature or volume of those transactions, a change to the scope of our services may be required. You are responsible for providing us with complete and accurate information, including basis, regarding any transactions in, or transactions that have used, digital assets during the applicable tax year. If you have any questions regarding your digital assets and/or transactions, please ask us, and we will respond in writing. Please note that the additional reporting requirements will increase your fee to prepare complete and accurate tax returns.
Worker classification (for business owners)
You acknowledge and confirm that you, in consultation with other professional advisors, as needed, are responsible for determining the correctness of any worker classifications. Payroll tax withholding and related employer payroll tax implications result from this determination. We cannot advise you with respect to worker classification and will rely upon your determination of same.
We recommend obtaining a signed contract and signed Form W-9, Request for Taxpayer Identification Number and Certification, for all independent contractors prior to commencement of services.
You should also issue a Form 1099-NEC, Nonemployee Compensation, to all unincorporated domestic independent contractors to who you pay $600 or more for services. In addition, state rules should also be reviewed to determine if state taxes are required to be withheld and separate returns completed for any independent contractor. At your written request, we are available to provide written answers to you questions on required documentation and only written responses may be relied upon.
Forms 1099-NEC are due by January 31, 2024 or the following Monday if the due date falls on a weekend, and significant penalties are assessed for late filing, non-filing, and filing of incorrect information. Preparation of these forms is not within the scope of this engagement unless otherwise specified in the services listed in your Pricing Agreement. If you ask us to prepare these forms, and we agree to prepare them, we will confirm this engagement in writing. If you fail to adhere to the filing deadlines, you will be responsible for any penalties, interest, and related professional fees for the improper filing.
You have final responsibility for the accuracy of your tax returns. We will provide you with a copy of your electronic tax returns and accompanying schedules and statements for review prior to filing with the IRS and state and local tax authorities, as applicable. You agree to review and examine them carefully for accuracy and completeness.
Once your return is complete (e-file acceptance or provision of a paper copy to you), we shall have no obligation to update your returns for subsequent legislative or administrative changes or future judicial interpretations under this Agreement.
E-filing returns and opting out
The IRS and all states require us to e-file your personal returns, unless you elect to opt-out of e-filing. Opting out of e-filing when you otherwise qualify to e-file may increase your tax preparation fees. If you do not wish to have your tax returns filed electronically, please contact our firm.
E-file signature authorizations
You will be required to verify and sign a completed Form 8879, IRS e-file Signature Authorization, and any similar state and local equivalent authorization form before your returns can be filed electronically. You may sign by hand or use an electronic signature (with our approved service provider).
For joint returns, both spouses must sign the e-file authorization in order to ensure its validity. We shall not be liable for any penalties or interest resulting from your failure to timely sign and return Form 8879 or state equivalents. We will not file an extension on your behalf if you fail to timely sign and return Form 8879 or state equivalents.
Our e-signature service providers comply with the IRS requirements to separately identify and authenticate each taxpayer on the form with an acceptable level of assurance. Knowledge Based Authentication (KBA) is the most widely used method to obtain such assistance. KBA is a multiple choice question and answer based method of authentication that pulls questions from public records. You may be asked about prior address, name of mortgage lender(s), type of car financed, etc.
If we are unable to file your return(s) electronically, we will deliver to you a paper copy suitable for mailing to the taxing authorities. Once delivered to you, you bear full responsibility for reviewing the paper returns for accuracy, and either signing and timely filing them, along with any payments due, or notifying us of any issue which may need to be addressed prior to filing.
Payment of Taxes
You have final responsibility for the payment of your taxes in whatever amount ultimately determined. If you choose, you may opt to have funds automatically withdrawn from a designated account and transmitted when your tax return is electronically filed. We will not transmit partial payments. It is your responsibility to provide us with correct account and routing numbers, to review this information for accuracy prior to submission of your return, and to ensure that sufficient funds are available at the time of payment. We shall have no liability for any tax due, penalties, interest, or overdraft charges which may result from your failure to ensure sufficient funds are available at the time of payment.