This topic is in the wrong forum; hopefully a moderator will come along and take care of that. Any moderators reading or participating in this thread? [fixed]
As for the question, I include such a clause in my engagement. (I also state that the taxpayer is responsible for paying any additional tax they legitimately owe, I'm only responsible for penalties but not interest due to my error). I don't know if Frankly's legal opinion is valid, especially the part about "one-sided", but I didn't write my engagement letter for a judge, and I didn't hire an attorney to write it (although I used industry templates and the H&R Block service agreement as models). Rather, I write it to communicate and set expectations with the client. Basically I'm telling them, if I make a mistake, and I can't get penalties abated (requires your cooperation), and you pay the penalties, then I will reimburse you up to a certain amount without a fight.
Of course, I always have the option to resolve any dispute more favorably for my client than stated in my engagement. Obviously I will try to follow the instructions of my E&O insurer when I file a claim, which I is something I have not needed to do.
The only time I can recall where this may have been an issue is with one prospective client, not high-end, who seemed ready to hire me until he read my engagement, then said he didn't think we would be a good fit, I couldn't have agreed more.