Lawsuit Challenges IRS's Authority to Ban Contingent Fees in Tax Cases

Accounting Today, Firm Sues IRS over Contingent Fee Ban:

Global tax services firm Ryan has filed suit in a federal court in Washington against Treasury Secretary Tim Geithner and IRS Commissioner Doug Shulman challenging Circular 230 provisions governing contingency fee arrangements.

In 2007, Circular 230 was revised to generally prohibit attorneys, CPAs and other practitioners from entering into contingent fee arrangements for services rendered in connection with any matter before the IRS, including the preparation and filing of claims for refunds after a taxpayer has filed its original tax return, but before the IRS has initiated an audit of the return. Before the 2007 revision, the firm noted, Circular 230 prohibited contingent fee arrangements for preparing original returns, but permitted the use of contingent fee arrangements for services rendered in connection with the preparation and filing of refund claims if the practitioner reasonably anticipated that the claim would receive substantive review by the IRS.

Ryan's legal challenge seeks a declaratory judgment that the Circular 230 provisions prohibiting the use of contingent fee arrangements in the preparation and filing of ordinary refund claims and any related representation before the IRS are unconstitutional, exceed the scope of the authorizing statute, and thereby warrant a permanent injunction against the prohibition.