Practitioners spend significant time planning for client retention, but many overlook planning for client disengagement. Failure to develop a disengagement plan can expose the practitioner to litigation risk and long-term professional consequences.
A disengagement plan serves the practitioner and the client by providing a road map for a consistent and defensible process. A planned process establishes a clear path for disengagement that is predictable and executable.
The decision to formally disengage from a client relationship rarely results from a single issue; therefore, a practitioner should start with a factual evaluation of the client relationship by reviewing related documentation, remediation efforts, and all communications. The practitioner should document patterns, not isolated events, and should evaluate the frequency, severity, and impact on accuracy or deadlines.
Most practitioners will not be surprised that the common reasons for disengaging often fall into three categories.
After a practitioner decides to disengage with a client, the practitioner should review the engagement letter. The engagement letter defines the practitioner’s scope and should include the practitioner’s responsibilities, billing terms, and termination rights. The practitioner should confirm that the disengagement process aligns with these terms. If the engagement letter does not clearly address termination, disengagement becomes harder to defend.
Before communicating disengagement, the practitioner should clearly determine what has and has not been completed. This includes work delivered, work in process, and work that will not be completed. For example, a return may be prepared but not filed, or an IRS notice response may be incomplete. These distinctions must be communicated clearly to avoid misunderstandings.
Although at times practitioners have thought about handing a client their documents and never looking back, practitioners need to remember that timing drives risk. Disengagement near a filing deadline introduces significant exposure to the practitioner if the practitioner fails to communicate the disengagement terms in writing.
If disengaging cannot be postponed until after the deadline, the practitioner should include in the disengagement letter that the client may need to file an extension or take immediate action. The practitioner should clearly state that the practitioner will not process any filings or perform any additional work.
Practitioners should always keep in mind that unplanned communication introduces risk. Before contacting the client during the disengagement process, practitioners should ensure the message is structured, neutral, and fact-based. The practitioner should reference engagement terms and provide a clear, high-level reason for disengagement.
Managing the communication is key when disengaging with the client; however, choosing the communication method can be difficult. A conversation allows for explanation and can reduce misunderstanding; however, it puts a practitioner at risk because it lacks a formal record and may become emotional. A written letter allows a practitioner to control the narrative, and it creates a permanent record, though it may feel abrupt and may be misinterpreted. A combined approach works best. It is suggested that a brief conversation to communicate the decision, followed by the official disengagement letter to document the terms, is the best approach.
If deadlines are approaching and the practitioner still decides to disengage, the practitioner may suggest that the taxpayer engage another professional and take prompt action on upcoming deadlines. Guidance should remain general and limited. The practitioner should avoid creating new obligations or extending involvement beyond disengagement.
Records and authorizations require careful handling. Practitioners should consult with the client on the best way to return documents. Original records should generally be returned; however, copies can be provided in accordance with firm policy and applicable laws. Access to client portals should also be addressed specifically, including how long portal access will be allowed.
Federal and state laws may govern what records must be returned versus retained. It is important that the practitioner does not overlook these laws. After determining which laws apply, the practitioner should document what was provided, when it was delivered, and how it was received.
Practitioners should also review any power of attorney authorizations, including Form 2848, Power of Attorney, and Form 8821, Tax Information Authorization, to withdraw their authorizations.
Withdrawing the authorizations is a critical step in the disengagement process. The practitioner should submit to the IRS a copy of the original authorization form, which should contain the practitioner’s signature, the date, and the practitioner should write “REVOKE” across the top. If the original copy is unavailable, the IRS also accepts separate revocation statements.
A final invoice should be included with the disengagement letter. The final invoice should reflect work performed and should note any upcoming deadlines. If the practitioner has partially completed work or is not able to meet a deadline, this information should be clearly stated on the final bill to ensure there are no misunderstandings regarding the scope or timing.
After reviewing the disengagement process, it is time to write and review the disengagement letter. The letter should be professional and nonconfrontational. The letter should state the effective date of the disengagement, describe completed and partial work, clarify what needs immediate attention, and confirm that no further services will be provided.
At a minimum, the letter should include the following information.
A closing statement wishing the taxpayer well maintains professionalism. The letter serves as the official record, and practitioners need to understand that this is not the place to lay blame or point fingers.
As practitioners, we know that documentation is a part of our processes, and disengagement is no exception. Documentation protects the practitioner both professionally and ethically and protects the client from any adverse actions that could happen. The file should include notes pertaining to verbal discussions, copies of written communications, and a clear timeline of events. If the decision, timing, and communication are not documented, they cannot be defended.
Disengagement reflects professional judgment applied at the right time, not after risk has already developed and becomes a larger issue. You may be playing Hit the Road Jack on repeat in your office during the process, but with a plan, you can remain calm, professional, and reduce risks, and no one will know what you are singing in your head.
By Kim Tipsord, EA
Tax Materials Specialist, U of I Tax School
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Disclaimer: The information referenced in Tax School’s blog is accurate at the date of publication. You may contact taxschool@illinois.edu if you have more up-to-date, supported information and we will create an addendum.
University of Illinois Tax School is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information in this site is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information. This blog and the information contained herein does not constitute tax client advice.
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