Under Circular 230, a practitioner may charge a contingent fee in which of the following situations?

Answer options:

For preparing an original tax return.

For services rendered in connection with an IRS examination of an original return.

For preparing an amended return claiming a refund, where the claim is not related to an IRS examination or challenge.

For providing financial planning advice.

How to approach this question

Recall the 3 contingent fee exceptions: 1) IRS Audit/Challenge, 2) Refund of Interest/Penalties, 3) Judicial Proceeding.

Full Answer

B.For services rendered in connection with an IRS examination of an original return.✓ Correct

Generally, contingent fees are prohibited for tax preparation. Exceptions exist for: (1) Services in connection with an IRS examination or challenge to an original return, (2) Claims for refund of interest/penalties, and (3) Judicial proceedings.

Common mistakes

Thinking contingent fees are allowed for amended returns (only if responding to IRS challenge).

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Practice the full CPA REG Practice Exam 2

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