Cir 230 Fee Charged

[AZ-Tax]

Does anyone see this to be a violation of Cir. 230, Sec. 10.27(c)(1)? I briefly looked into amending a tax return for TP who feels he should have claimed his daughter on his 2011 tax return. It’s 50/50 after my brief research of whether the TP will be successful. What I am considering is to charge him a flat fee with 50% upfront. If I am not successful, then I would waive the remaining 50% fee. I did prepare the TP's 2011 tax return.

[taxea]

Did he tell you about the daughter when he did the 2011 return? Did you ask if he had any dependents. If your answers are no and yes provided the daughter qualifies as a dependent, prepare a 1040X and charge the normal fee.

[Koss]

Contingent Fee

What you have proposed meets the definition of a contingent fee, in that a portion of the fee "depends on the specific result attained."

But section 10.27 of Circular 230 prohibits contingent fees except under very limited circumstances.

Basically, it says that you can only charge a contingent fee in connection with an examination, a judicial proceeding, or a claim that is filed "solely in connection with the determination of statutory interest or penalties."

BMK

[AZ-Tax]

Yes he told me back in 2011

Yes, I e-filed his 2011 tax return and it was rejected due to his ex already claimed his daughter on her tax return. I just want to know if my fee structure is a violation?

[New York Enrolled Agent]

What you have proposed meets the definition of a contingent fee, in that a portion of the fee "depends on the specific result attained."

But section 10.27 of Circular 230 prohibits contingent fees except under very limited circumstances.

You might want to look at IRS Notice 2008-43. It does offer further guidance on §10.27 and provides for the ability to charge a contingent fee on an amended return.

[AZ-Tax]

Does or does not the 120 days come into play?

You might want to look at IRS Notice 2008-43. It does offer further guidance on §10.27 and provides for the ability to charge a contingent fee on an amended return.

Does or does not the 120 days come into play? My client's orginal return (2011) was filed early April 2012. No communications from IRS. This would be the first amended return and the only reason for the amending is client believes he should be able to claim his daughter (therefore claim for a refund).

§ 10.27 Fees.

* * * * *

(b) * * *

(2) A practitioner may charge a contingent fee for services rendered in connection with the Service’s examination of, or challenge to—

(i) An original tax return; or

(ii) An amended return or claim for refund or credit filed before the taxpayer received a written notice of examination of, or a written challenge to, the original tax return; or filed no later than 120 days after the receipt of such written notice or written challenge. The 120 days is computed from the earlier of a written notice of the examination, if any, or a written challenge to the original return.

(3) A practitioner may charge a contingent fee for services rendered in connection with a claim for credit or refund filed solely in connection with the determination of statutory interest or penalties assessed by the Internal Revenue Service.

(4) A practitioner may charge a contingent fee for services rendered in connection with a claim under section 7623 of the Internal Revenue Code.

(5) A practitioner may charge a contingent fee for services rendered in connection with any judicial proceeding arising under the Internal Revenue Code

[Koss]

Notice 2008-43

New York Enrolled Agent wrote:

You might want to look at IRS Notice 2008-43. It does offer further guidance on §10.27 and provides for the ability to charge a contingent fee on an amended return.

I was not aware of the "interim guidance" in this notice. It provides a very different interpretation of the rules in Section 10.27 of Circular 230.

A-Z Tax wrote:

Does or does not the 120 days come into play? My client's orginal return (2011) was filed early April 2012. No communications from IRS. This would be the first amended return and the only reason for the amending is client believes he should be able to claim his daughter (therefore claim for a refund).

The 120 days is not applicable in this case because the taxpayer has not been notified of an examination or challenge to the return.

But apparently, you may charge a contingent fee. The relevant section of Circular 230 says that you are permitted to charge a contingent fee--

- - - -
for services rendered in connection with the Service's examination of, or challenge to, an amended return or claim for refund or credit where the amended return was filed within 120 days of the taxpayer receiving a written notice of the examination of, or a written challenge to the original tax return (emphasis added).
- - - -

On the surface, this clearly means that a contingent fee is only permitted when an examination or written challenge is involved.

But Notice 2008-43 appears to say something very different. It says that a contingent fee may be charged if an amended return is filed before the taxpayer received a written notice of an examination or challenge to the original tax return.

The language still doesn't really make sense, because it is still embedded in a clause that allows a contingent fee in connection with the examination of amended return. The whole thing is very poorly written.

The clarification appears to be meant to allow tax pros to charge a contingent fee for an amended return, even if the taxpayer has not received written notice from the IRS that the original return is under examination or challenge. This sounds like the IRS wants to encourage taxpayers to "come forward" and file an amended return to correct an error, without waiting for the IRS to identify the error and challenge the return.

In your case, the taxpayer is attempting to correct an error, which, if accepted by the IRS, will result in a refund. But I don't see how that really makes a difference. The fact remains that the taxpayer is trying to correct an error before having received any notice from the IRS.

The guidance in Notice 2008-43 is so ambiguous that I don't think the IRS Office of Professional Responsibility would have any interest in disciplining a tax pro for taking a contingent fee on any amended return.

Maybe your client should just do nothing, and see if the IRS sends him a Notice CP4432, Notice of Unclaimed Dependents. LMAO

BMK

[erchess]

The way I read what is here

it would apparently not be a violation. I would have thought it would be but I guess I need to review the issue lol.

[Lion]

Why didn't you prepare his return with a dependent? (Yes, you would've had to have handed him a paper return to mail.) You might want to consider preparing the amendment for free.

[AZ-Tax]

Lion this is why

Why didn't you prepare his return with a dependent? (Yes, you would've had to have handed him a paper return to mail.) You might want to consider preparing the amendment for free.

Lion, at the time he did not want to wait for his refund.

[Lion]

If the client chose to file without the dependent, I would charge full price for the amendment.

And, I would've told him to contact me as soon as he received his refund for me to prepare the amended return after 2011 tax season. At this point, I would put off preparing any amendments until after the rush of 2012 tax season. Or, charge a premium for a Rush job.

[Burke]

And you don't say why you think his chances of prevailing are only 50/50. It should be pretty cut and dried under the dependency rules, as you (he) will have to substantiate the case.

[taxea]

Yes, I e-filed his 2011 tax return and it was rejected due to his ex already claimed his daughter on her tax return. I just want to know if my fee structure is a violation?

You should also want to know which, by code, had the authority to take the daughter.

[NotEasy]

The way I handle this kind of situation is that I would explain to the client clearly the possibility that the exemption would not be allowed. And if I think the chance is 50/50, I would tell that to him too. Now it's his decision to more forward or not. If he decides to file the amended return, I would charge my standard fee to prepare an amended tax return, whether it is successful or not. To cut a long story short, I would make sure the client knows all the facts and leave it up to him to make the decision as to whether to file the amended tax return or not.