Tax resolution engagement letter for back taxes, offers and payment plans
By Arthur Teboul, DokuTrak · Published
In brief
A tax resolution engagement letter splits the work into an investigation phase and a resolution phase, names the path chosen, such as a payment plan or an offer in compromise, and lists the financial records the client must produce. It also says plainly that the IRS, not your firm, controls the outcome.
The template: Tax resolution engagement letter
Use phase one as written, then complete phase two once the client picks a path. Keep the gift tax rider only if you prepare Form 709. Check the current IRS fees before you send it, and have your counsel review the template once.
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[Firm name] [Firm address] [Date] [Taxpayer name(s) or business name] [Address] Re: Resolution of federal tax balances, [tax types and years]
Dear [Taxpayer name(s)],
Our role
[Firm name] will act for you in resolving the federal tax balances listed below. [Representative name], [attorney / CPA / enrolled agent], [license or enrollment number], is responsible for your case.
Balances and notices in scope
This letter covers: [tax type], [form number], [years or periods], and the notices you gave us: [notice numbers and dates]. Other years, other taxes and state balances are not included unless we add them in writing.
Phase one: investigation
Once you sign Form 2848 [and Form 8821], we will obtain your IRS account transcripts, confirm the balances and any unfiled years, review your finances and send you a written recommendation within [number] days of receiving your records. The fee for phase one is [amount].
Phase two: resolution
After you agree in writing to the path we recommend, we will pursue: [short-term payment plan / long-term payment plan / offer in compromise / currently not collectible status / penalty relief]. The fee for phase two is [amount or rate]. A different path needs an amendment to this letter.
Not included
Unless added in writing, we will not: prepare unfiled or amended returns (covered by a separate letter); handle an appeal or a Tax Court case; represent you in a trust fund recovery penalty interview; or deal with state tax agencies.
Staying compliant
While your case is open, you agree to file every required return on time, make your estimated tax payments [and your federal tax deposits as an employer], and send us any IRS letter within [number] business days of receipt. If a final notice of intent to levy arrives, send it to us the same day, because a hearing request is due within 30 days of receiving it.
Financial records
By [date], you will send the records we need to complete [Form 433-A (OIC) / Form 433-B (OIC) / Form 433-F / Form 433-H], including: pay stubs for the last [number] months; statements for every bank, investment and retirement account for the months that form asks for; your mortgage or rent and vehicle loan statements; and proof of monthly expenses. For a business: the receivables aging, a current profit and loss statement and business bank statements.
Accuracy of your statements
You will sign the financial statements we prepare for the IRS under penalties of perjury. They must be complete and true. A false or incomplete statement can cause the IRS to reject or later void an agreement.
Offer costs(optional)
If we file an offer in compromise, the IRS charges an application fee and requires a first payment unless you qualify as low income. If the IRS rejects the offer, it does not return the application fee and applies your payments to the balance. These amounts are separate from our fees.
No guarantee
The IRS makes the final determination on every request. We cannot promise that an offer or plan will be accepted, the amount you will pay, or that collection will stop during the case.
Fees and payment
Fees are due as each phase starts [or in (number) monthly payments of (amount)]. Our fees do not depend on the amount the IRS accepts. If you do not pay, we may stop work after written notice.
Your records
When you ask, we will promptly return the records you need to meet your federal tax obligations, even if you owe us fees.
Gift tax return rider(optional)
We will also prepare Form 709 for gifts made in [year] to: [donee, date, description of gift]. You will provide appraisals, trust instruments, deeds and the statements that show each transfer. If you and your spouse elect to split gifts, both of you will sign the consent. We will describe each gift fully on the return.
Ending the engagement
Either of us may end this engagement by written notice. We will withdraw our Form 2848, send you a letter on the status of each balance and any deadlines ahead, and return your records.
Signing
Please sign and return this letter with Form 2848 and the phase one fee. For joint balances or split gifts, both spouses sign.
Sincerely yours, [Representative name], [Designation] [Firm name] Signature: ____________________ Date: __________ Taxpayer: [Name] Signature: ____________________ Date: __________ Spouse: [Name] Signature: ____________________ Date: __________
Write the engagement in two phases
Resolution clients arrive with a balance and a stack of notices, but rarely with a clear picture. You do not know yet which years are open, which returns are missing, or what the client can pay. So do not promise a path on day one.
Phase one is the investigation. You file Form 8821 or Form 2848, pull the account transcripts, list the unfiled years and the balances, and give a written recommendation. Phase two starts only when the client signs off on a path in writing. Price each phase on its own, so a client who stops after phase one has paid for what they got.
A collection alternative is any IRS arrangement that resolves a balance short of full payment now. The common ones are a payment plan, an offer in compromise, currently not collectible status and penalty relief. Your scope clause should name the one chosen and exclude the others until the letter is amended.
Each path and the IRS conditions behind it
Every path has entry conditions the client must keep meeting while the case is open. Put them in the letter as client duties. If the client stops filing or paying current taxes, the plan or the offer can fail, and your fee does not change that.
| Path | What the client gets | Conditions and costs to state |
|---|---|---|
| Short-term payment plan | Time to pay the balance in full | Balance paid in 180 days or less, with no setup fee (IRS: Payment plans, installment agreements) |
| Long-term payment plan | Monthly payments over time | A setup fee unless waived for low income, plus penalties and interest until paid (IRS: Payment plans, installment agreements) |
| Offer in compromise | Settlement for less than the full balance | All returns filed, estimated payments made, no open bankruptcy (IRS: Offer in compromise) |
| Offer, money terms | An application the IRS reviews | A $205 application fee and a first payment, unless the client meets the low-income rules (IRS: Offer in compromise) |
| Offer, lump sum option | One payment option for the offer | 20% of the offer amount paid with the application (IRS: Offer in compromise) |
What the client must hear about an offer
The offer is the path clients ask for by name, so set expectations early. Your letter should state the costs of a rejection in the client’s own terms. If the IRS rejects the offer, it keeps the application fee, and any payments go toward the balance (IRS: Offer in compromise). The client can appeal a rejected offer to the IRS Independent Office of Appeals (IRS: Offer in compromise).
Employers face one more condition. The IRS requires an employer to make the required federal tax deposits for the current quarter and the last two quarters before it will consider an offer (IRS: Offer in compromise). For a business client with payroll, make current deposits a named client duty, with a date.
Then add the accuracy clause. An offer goes in on Form 656 with a collection information statement: Form 433-A (OIC) for individuals and Form 433-B (OIC) for businesses (IRS Form 656-B, Offer in Compromise booklet). A payment plan may call for Form 433-F, Form 433-H or Form 433-B instead (IRS: Payment plans, installment agreements). The client signs these statements, and the facts in them must be true and complete. Ask for the records that back each line, such as pay stubs, bank statements and loan statements, rather than taking totals on trust.
Watch for levy notices. A Collection Due Process hearing is the Appeals review a taxpayer can request after a lien notice or a final notice of intent to levy. After a levy notice, the request is due within 30 days of receipt, on Form 12153 (IRS: Collection Due Process (CDP) FAQs). Make forwarding that notice the same day a named client duty.
Fees, guarantees and the records rule
Resolution marketing is full of promises about cents on the dollar. Keep them out of your letter. The IRS reviews the offer and the facts, and your firm cannot promise acceptance, an amount, or that collection will stop.
Contingent fees are limited too: Circular 230 § 10.27 allows them only in the cases it lists, as the IRS representation engagement letter explains (31 CFR 10.27, Fees (Circular 230)). A CPA firm that audits or reviews the client may not charge it a contingent fee for any service (AICPA Code of Professional Conduct, ET 1.510.001). Charge a fixed fee per phase or an hourly rate, and if the client pays over time, write the schedule in the letter.
If the client stops paying you, you still return the records they need for their federal tax duties when they ask (31 CFR 10.28, Return of client’s records (Circular 230)). Say so in the letter, so nobody treats the file as security for the bill.
A gift tax return rider for the same client
Resolution work often uncovers a gift that was never reported, for example a parent who paid a child’s house deposit. If the client asks you to prepare Form 709, add a short rider instead of a new letter.
The rider should list each gift by donee and date, and the annual exclusion for the year of the gift. The IRS lists an exclusion of $19,000 per donee for gifts made in 2026 (IRS: Frequently asked questions on gift taxes). If spouses split gifts, both sign the consent. Ask for appraisals, trust documents and the statements that show each transfer, which the IRS lists as attachments (IRS: Frequently asked questions on gift taxes).
Questions people ask
What is a tax resolution engagement letter?
It is the agreement between a representative and a taxpayer who owes back taxes. It covers the investigation, the resolution path chosen, the records the client must provide, the conditions the client must keep, and the fee for each phase.
Do I still need Form 2848 if the client signed the letter?
Yes. The letter binds you and the client. Form 2848 is what lets you represent the client before the IRS for the listed matters, so file it before you negotiate.
Can a tax resolution firm guarantee an offer in compromise?
No. The IRS reviews each offer, and if it rejects one, the application fee is not returned and payments go toward the balance (IRS: Offer in compromise). A letter should say that no outcome is promised.
What must a client do while an offer is under review?
Keep filing required returns and making estimated payments, and for employers, federal tax deposits (IRS: Offer in compromise). The client should also send you every IRS letter as soon as it arrives.
Sources
- IRS: Offer in compromise: Offer eligibility conditions, the $205 application fee, the 20% lump sum payment, and what happens to the fee and payments if an offer is rejected.
- IRS: Payment plans, installment agreements: A short-term plan pays the balance in 180 days or less with no setup fee; a long-term plan carries a setup fee unless waived and accrues penalties and interest.
- 31 CFR 10.27, Fees (Circular 230): Contingent fees are barred on IRS matters except in the cases the section lists.
- 31 CFR 10.28, Return of client’s records (Circular 230): A practitioner must return client records needed for federal tax compliance on request, even in a fee dispute, subject to state law.
- IRS: Frequently asked questions on gift taxes: The annual exclusion is $19,000 per donee for 2026, and Form 709 attachments include appraisals and documents about the transfer.
- IRS Form 656-B, Offer in Compromise booklet: An offer application includes Form 656 and a signed Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses.
- IRS: Collection Due Process (CDP) FAQs: A taxpayer has 30 days from receipt of a final notice of intent to levy (LT11 or Letter 1058) to request a CDP hearing on Form 12153.
- AICPA Code of Professional Conduct, ET 1.510.001: A member may not perform any professional service for a contingent fee for a client for whom the firm performs an audit or review, certain compilations or an examination of prospective financial information.
About the author
Arthur Teboul (Founder, DokuTrak) is building DokuTrak after watching professionals lose hours chasing clients for documents over email. Arthur Teboul.
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How this page was made (methodology): it is built from the primary sources listed under Sources, and every rule and figure on it links to the source it comes from. Last updated October 25, 2026. Spotted an error or a rule that changed? Contact us.
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