Circular 230 governs those who "practice before the IRS", defined broadly to include representation and submission of documents , including preparation of significant portions of returns or amended returns.
Recent amendments have limited the circumstances in which contingent fees can be charged. Karen Hawkins, the Director of the Office of Professional Responsibility (fondly known by its acronym of OPR) indicated today in a Tax Talks session that OPR has become aware that contingent fees continue to be charged for filing amended returns, particularly in the case of refundable tax credits, such as the R&D credit. She announced that OPR would be focusing on those practitioners. BNA Daily Tax RealTime, May 8 at 7 pm. I expect there will be more information on this issue at the Standards of Tax Practice Committee meeting at the ABA Tax Section's annual meeting this week in DC.
OPR's discussion of this issue comes at a time when at least one practitioner is upset that he can no longer make the kinds of lucrative deals for contingent fees with respect to some of the work he used to do. Ryan LLC has filed a complaint (http://www.ryan.com/Assets/Downloads/Complaint.pdf) claiming that the contingent fee regulation in Circular 230 violates due process and the First Amendment rights of practitioners who want to charge contingent fees.
Certainly, many practitioners have complained about the constraints in Circular 230 on the use of contingent fees and even those who support some regulation of such fees may differ with the particulars included in the regulations. It cannot be denied, however, that in some contexts contingent fees can incentivize overly aggressive advocacy that may shortchange the attorney’s duty to uphold the integrity of the law. It seems doubtful that a due process or First Amendment challenge to the constitutionality of the Treasury Department’s authority to regulate such payment schemes under its general authority to regulate practice before the IRS would succeed.
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