Contingency Fees on Refund Claims

Some tax preparers still charge contingency fees for refund claims – taxpayers beware. It is astonishing that some tax preparers continue to charge contingent fees claiming a constitutional right to petition the government to redress grievances.

The IRS generally prohibits refund claims preparers from charging fees that are contingent on obtaining such refunds. A federal court ruled that the restrictions the IRS imposes do not unfairly limit taxpayers right to petition the government. The taxpayers can still exercise that right but not on a contingency basis. We agree and uphold the notion that a tax professional should maintain integrity and independence and avoid being influenced by the outcome of a tax filing. Moreover, we warn taxpayers to avoid any tax preparers who offer contingency fee services. Many professional organizations such as state boards of accountancy -which govern the Certified Public Accounting profession -specifically prohibit accountants from charging contingency fees for professional services.

Some practical advice for taxpayers. If a tax professional offers to represent you on a contingency basis, inquire what the professional’s flat fee or hourly estimated fee range would be absent the contingency arrangement and compare the fees to the amount of proposed refund. It is likely that the contingent fee is higher than the preparer would otherwise earn. Of course, the taxpayer may cite the convenience of having to pay only for favorable result i.e. refund claim, as is the case with many contingency based law suits. It is common knowledge that the ease of retaining attorneys on contingency basis is correlated with the proliferation of frivolous lawsuits. That is precisely why we believe tax professionals should avoid contingency based engagements. Instances of frivolous refund claims will be minimized as a result.

For more on the federal court decision please see Ryan LLC v. Lew, D.C., D.C. This article contains only general information and may contain our opinion and O’Brien & Panchuk LLP is not, by means of this article, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for professional advice, nor should it be used as a basis for any decision or action that may affect your business or individual financial position.

Before you make any decision or take any action that may affect you or your business, you should consult a qualified professional advisor. We shall not be responsible for any loss sustained by any person who relies on this article.