Question

A contingent fee is:

a. always allowed by Circular 230
b. a fee that is out of line with the value of the service provided
c. a fee based on a percentage of a taxpayer's refund on a tax return
d. all of the above

Answer 1

A contingent fee is defined as a fee based on a percentage of a taxpayer’s refund on a tax return. It is specifically regulated by Circular 230, with certain restrictions on its usage by tax professionals.

Step-by-step explanation:

A contingent fee is c. a fee based on a percentage of a taxpayer's refund on a tax return. Circular 230 regulates practice before the Internal Revenue Service (IRS) and includes specific provisions about when contingent fees are permissible. Generally, contingent fees for services rendered in connection with any matter before the IRS are not allowed, especially if they relate to an IRS audit, the claim for refund, or any tax matter covered under Circular 230. Therefore, option a. always allowed by Circular 230 is incorrect. Option b. a fee that is out of line with the value of the service provided is not a proper definition of a contingent fee, which focuses on the conditional nature of the fee on a particular outcome rather than the fee's relationship to the service provided.