An AI disclosure in an engagement letter is the paragraph that tells a client which parts of the work use AI, under which terms, and who reviews the result. Once a firm uses AI on client work, the engagement letter is the document clients read to learn how their matter or return will be handled. This article looks at AI disclosure in the engagement letter for law firms and CPA firms: what the ABA, two state bars, the AICPA and the IRS say, and what a paragraph that matches your actual process needs to cover.
We do not offer clause language to copy. The aim is a checklist of points, so that the wording your counsel approves describes what your firm really does.
Why the engagement letter is where this lands
The letter sets scope, staffing, fees and confidentiality. AI touches all four: it changes who does a task, how long it takes, what it costs and where client information goes. Firms that already use AI on intake, drafting or correspondence usually find that their current template says nothing about it, or says something general that no longer matches the process.
Preparing an engagement letter is also one of the processes we suggest as a first candidate for review, as described in Choosing the first process to review.
Law firms: what ABA Formal Opinion 512 asks
ABA Formal Opinion 512 asks lawyers to obtain informed consent before putting client information into self-learning AI tools, to tell clients about AI use when the situation calls for it, and to bill AI-assisted work for actual time. ABA Formal Opinion 512, issued on July 29, 2024, is the reference point for lawyers. It interprets the ABA Model Rules; each state adopts its own rules and guidance, so check your jurisdiction as well.
Informed consent before inputting client information
For generative AI tools that learn from what users enter, the opinion says “a client’s informed consent is required prior to inputting information relating to the representation into such a GAI tool.”
Why a general clause is not sufficient
The opinion addresses engagement letters directly: “merely adding general, boiler-plate provisions to engagement letters purporting to authorize the lawyer to use GAI is not sufficient.” Our reading is that the client needs to understand the specific risks and benefits of the tool as the firm uses it, which a generic sentence does not explain.
When to tell the client even without consent
Under Rule 1.4 the opinion notes: “It is not possible to catalogue every situation in which lawyers must inform clients about their use of GAI.” The factors it lists include “the client’s needs and expectations, the scope of the representation, and the sensitivity of the information involved.”
Fees for work done with AI
On billing, the opinion says “lawyers who bill clients an hourly rate for time spent on a matter must bill for their actual time,” that “a lawyer may not charge a client to learn about how to use a GAI tool or service that the lawyer will regularly use for clients,” and that general office overhead cannot be charged as an expense. It also expects lawyers to “read and understand the Terms of Use, privacy policy, and related contractual terms and policies of any GAI tool they use.”
State guidance that goes further
The State Bar of California’s 2026 Practical Guidance says a lawyer “must not input any confidential information of the client into a generative AI solution that may present material risks to confidentiality or security, absent informed client consent,” and that “A lawyer must consider disclosure to their client that they intend to use AI in the representation.” It adds that “Reasonable efforts require more than reliance on generalized marketing assurances,” and that general-purpose AI subscriptions “typically constitute overhead expenses.”
Texas Opinion 705 (February 2025) concludes that lawyers “should always ensure that the tool does not imperil confidential client information,” “should always verify the accuracy of any responses,” and “should not charge clients for the time “saved” by using a generative AI program.”
CPA firms: what the AICPA code and the IRS ask
CPA firms need to inform clients about third-party providers under the AICPA code, obtain a separate section 7216 consent for tax return information where one is required, and bill in line with the IRS OPR guidelines.
Informing the client about third-party providers
Under section 1.150.040 of the AICPA Code of Professional Conduct, “before disclosing confidential client information to a third-party service provider, the member should inform the client, preferably in writing, that the member may use a third-party service provider.” The same section excludes administrative support services such as data storage, software hosting and e-file transmission.
Section 1.700.040 then requires either a confidentiality agreement with the provider or the client’s specific consent. An engagement letter is a natural place for the written notice, while the agreement with the AI vendor is a separate matter between the firm and the vendor.
Why the 7216 consent is a separate document
For tax work, a sentence in the letter does not replace the section 7216 consent. The regulation says “A single written document, however, cannot authorize both uses and disclosures” (Treas. Reg. § 301.7216-3(c)(1)), and the consent has its own mandatory text. We cover the details in Section 7216 and AI tools at CPA firms.
Billing and the IRS OPR guidelines
The IRS Office of Professional Responsibility’s AI guidelines of June 24, 2026 state: “Cost savings should be passed on openly, with billing practices that reflect the efficiencies gained from the use of GAI.” A fee section written before the firm used AI may need a second look in light of this.
What a useful AI disclosure in the engagement letter covers
Across these sources, the same five points come up. A paragraph that covers them, in plain language and specific to your firm, gives the client something they can actually agree to.
Which tasks use AI and which stay with people
Name the kinds of work, for example first drafts of routine correspondence, summaries of documents the client provides, or organizing intake information. Say which decisions stay with a named professional.
Which tools, under which terms
Say whether the tools are enterprise products under the firm’s contract and whether client information is used to train models. Microsoft and Google publish these commitments, and ABA 512 expects lawyers to have read them.
Who reviews the output
State that a qualified person reviews AI-assisted work before it reaches the client or a third party. The report of a process review records who reviews each step, which is the information this sentence needs.
How fees reflect the work
Explain how AI-assisted tasks are billed, consistent with ABA 512, your state’s guidance or the IRS OPR guidelines. Hourly firms should not describe time they did not spend.
What the client can refuse
Tell the client how to opt out of AI use on their matter, and what changes if they do. Where consent is required, this is also where the client learns it is a real choice.
Have your counsel review the final wording.
Updating your template in four steps
Most firms have one engagement letter template per service line, and each was written by a different person at a different time. A practical way to add an AI paragraph without rewriting everything is to work through the templates in four steps.
- List the AI uses the firm has actually approved, by service line, with the tool and the person who reviews the output for each one.
- Read each template and mark the sections that the AI uses touch: scope, staffing, confidentiality, fees and client responsibilities.
- Draft one paragraph per service line that covers the five points above, in the same plain style as the rest of the letter, and send it to counsel.
- Set a date to reread the paragraph, for example at the start of each busy season, and name the person who owns that check.
For CPA firms that prepare returns, step three also includes checking which steps need a separate section 7216 consent, so that the letter and the consent forms do not contradict each other. For law firms, it includes checking whether any planned use involves a self-learning tool, since that is where ABA 512 requires informed consent.
Two drafting habits help. First, describe the tasks in the words the client would use, such as “first drafts of routine letters” or “summaries of the documents you send us.” Model types mean little to most clients. Second, keep tool names out of the letter unless counsel wants them there, because tools change faster than templates. The internal AI policy is the better place for the list of approved products.
Keeping the letter and the process aligned
A disclosure paragraph is only accurate if it matches what staff do. When the intake or drafting process changes, the letter should change with it. A simple routine helps: each time the firm approves a new AI use, the person who owns the engagement letter template checks whether the paragraph still describes it.
Compare our current engagement letter template with the attached list of approved AI uses. List every approved use that the letter does not describe, and every sentence in the letter that describes a use we no longer have. Do not rewrite the letter.
Our own work includes a second round of Copilot training at a law firm, built around each role; the same attention to who does what applies to the letter.
Frequently asked questions
Do I need to tell clients I use AI?
For lawyers, ABA Formal Opinion 512 says it depends on factors such as the client’s needs and expectations, the scope of the representation and the sensitivity of the information, and California’s 2026 guidance says a lawyer must consider disclosure. For CPAs, AICPA 1.150.040 says the client should be informed, preferably in writing, before confidential information goes to a third-party service provider.
Is a clause in the engagement letter enough to get client consent for AI?
ABA Formal Opinion 512 says general, boilerplate provisions in engagement letters are not sufficient for informed consent. For tax return information, the section 7216 consent must be a separate written document with the text required by Rev. Proc. 2013-14.
Can lawyers bill for time saved by AI?
ABA Formal Opinion 512 says hourly billing must reflect actual time, and Texas Opinion 705 says lawyers should not charge clients for time saved by using a generative AI program.
Does the AICPA require client consent to use AI tools?
AICPA 1.700.040 requires either a confidentiality agreement with the third-party service provider or the client’s specific consent before sharing confidential client information, and 1.150.040 asks members to inform the client, preferably in writing.
Is the 7216 consent the same as the engagement letter?
No. Treas. Reg. § 301.7216-3 requires its own signed and dated consent with mandatory wording, and one document cannot authorize both uses and disclosures.
What should an AI clause in an engagement letter say?
It should describe which tasks use AI, which tools and terms apply, who reviews the output, how fees reflect the work and how the client can refuse. Your counsel should approve the final wording.
Sources
- ABA Standing Committee on Ethics and Professional Responsibility, Formal Opinion 512, Generative Artificial Intelligence Tools, July 29, 2024 (PDF)
- State Bar of California, Practical Guidance for the Use of Generative Artificial Intelligence in the Practice of Law, 2026 version (PDF)
- Professional Ethics Committee for the State Bar of Texas, Opinion 705, February 2025
- AICPA Code of Professional Conduct, ET sections 1.150.040, 1.700.001 and 1.700.040 (PDF)
- 26 CFR § 301.7216-3, Disclosure or use permitted only with the taxpayer’s consent (LII)
- IRS Office of Professional Responsibility, Introductory Guidelines for Responsible AI Use in Federal Tax Practice, June 24, 2026, Issue Number 2026-19
This article is general information. It is not legal or tax advice. For your own situation, ask your counsel, your tax adviser or the professional body that governs your practice.