Many tax preparers pay referral fees to individuals who refer prospective clients. This payment may be cash or a reduction of future preparation fees. I have learned that many reputable tax attorneys and one national tax research service are of the opinion that such payments are barred by §162(c)(2):
(2) Other illegal payments. No deduction shall be allowed under subsection (a) for any payment (other than a payment described in paragraph (1) ) made, directly or indirectly, to any person, if the payment constitutes an illegal bribe, illegal kickback, or other illegal payment under any law of the United States, or under any law of a State (but only if such State law is generally enforced), which subjects the payor to a criminal penalty or the loss of license or privilege to engage in a trade or business. For purposes of this paragraph, a kickback includes a payment in consideration of the referral of a client, patient, or customer. The burden of proof in respect of the issue, for purposes of this paragraph, as to whether a payment constitutes an illegal bribe, illegal kickback, or other illegal payment shall be upon the Secretary to the same extent as he bears the burden of proof under section 7454.
Opinions, please.
(2) Other illegal payments. No deduction shall be allowed under subsection (a) for any payment (other than a payment described in paragraph (1) ) made, directly or indirectly, to any person, if the payment constitutes an illegal bribe, illegal kickback, or other illegal payment under any law of the United States, or under any law of a State (but only if such State law is generally enforced), which subjects the payor to a criminal penalty or the loss of license or privilege to engage in a trade or business. For purposes of this paragraph, a kickback includes a payment in consideration of the referral of a client, patient, or customer. The burden of proof in respect of the issue, for purposes of this paragraph, as to whether a payment constitutes an illegal bribe, illegal kickback, or other illegal payment shall be upon the Secretary to the same extent as he bears the burden of proof under section 7454.
Opinions, please.
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