File Memo vs. Client Letter

File Memo:

• Purpose: Internal communication within a company, typically for documentation purposes.
• Audience: Colleagues, partners, or superiors within the organization.
• Content: Summarizes information, research findings, or decisions related to a specific client or project. Can include details not suitable for a client (e.g., internal discussions, disagreements).
• Format: Less formal, often uses bullet points, headings, and concise language.
• Example: A tax advisor might create a file memo summarizing research on a new tax law and its implications for a specific client’s situation.

Client Letter:

• Purpose: External communication with clients, conveying information, advice, or requests.
• Audience: Clients of the company.
• Content: Formal document presenting information or recommendations relevant to the client. Avoids overly technical language and focuses on clarity for the recipient’s level of understanding.
• Format: Follows a traditional letter format with a salutation, body paragraphs, and a closing.
• Example: A tax advisor might send a client letter outlining the key findings from the research mentioned above, explaining the impact on the client’s taxes, and suggesting potential strategies.

CPA Communication Requirements

Yes, CPAs are generally required to communicate tax advice and research results to clients in writing. This documentation serves as a record of the advice given and protects both the CPA and the client. The specific format (file memo or client letter) depends on the situation.

File Memo vs. Client Letter Examples for Tax Communication:

• Tax-Sophisticated Client:

For a client with a strong understanding of tax concepts, a client letter would be the primary communication tool. It would explain the research findings, potential tax implications, and recommended strategies in a clear and concise manner, avoiding overly technical language.

Example Client Letter:

Dear [Client Name],

This letter follows up on our recent discussion regarding the impact of the new tax law on your financial situation.

Based on our research, [ Briefly explain the relevant aspects of the new law]. In your specific case, this could potentially lead to [Explain the potential tax implications for the client].

To minimize your tax burden, we recommend exploring strategies such as [ Briefly outline a few potential strategies]. We can discuss these options in more detail at your convenience.

Sincerely,

[Your Name]

• Unsophisticated Client:

For a client unfamiliar with tax concepts, a combination of a file memo and a client letter might be appropriate.

• The file memo would document the research findings and detailed analysis for internal reference.

• The client letter would be written in simpler terms, focusing on the key points and offering clear explanations. It might also include additional resources or suggest a meeting to discuss the implications further.

Example Client Letter (Unsophisticated Client):

Dear [Client Name],

Following our conversation about your taxes, we wanted to provide a summary of how the recent tax law changes might affect you.

Think of it like this: [Explain the new law and its implications using simpler language and analogies]. For you, this means [Explain the potential impact on the client’s taxes in a clear and concise way].

To help you manage your tax situation, we can explore options like [ Briefly explain a few potential strategies in basic terms]. We’d be happy to answer any questions you might have and discuss these strategies further in a meeting.

Sincerely,

[Your Name]