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Part 3 Practitioner Duties and Sanctions (Circular 230) question: EA offers to prepare original

Part 3Practitioner Duties and Sanctions (Circular 230)

An EA offers to prepare original 2025 returns for 10% of each client's refund. Under Circular 230, this fee arrangement is:

A Permitted for returns with refunds under $10,000 in total
B Permitted if each client agrees to it in writing in advance
C Prohibited, as it depends on the refund on an original return
D Permitted if it is clearly disclosed in the signed engagement letter

Show the answer and explanation

Answer: C. Prohibited, as it depends on the refund on an original return

A contingent fee includes any fee based on a percentage of the refund reported on a return. Contingent fees for preparing an original return are not within any exception in section 10.27(b), so the arrangement is prohibited regardless of disclosure or client consent. Source: 31 CFR 10.27(b)-(c); Circular 230 (31 CFR Part 10, Rev. 6-2014). Tax year: 2025 (law as of 31 Dec 2025).

Common mistake

Assuming client consent cures a prohibited contingent fee.

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Study note: Practitioner Duties and Sanctions (Circular 230)Part 3practice questions & mock exams

Related Part 3 practice questions

While preparing a 2025 return, an EA learns that his client omitted $20,000 of income from her 2023 return, which another firm prepared. What must the EA do under Circular 230?During an examination of a client's original 2023 return, an EA agrees to charge 25% of any tax reduction he obtains. Is this fee permitted?Under Circular 230, practice before the IRS includes all of the following EXCEPT

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Original study material mapped to the public IRS SEE content outlines; not a real exam question.Not affiliated with or endorsed by the IRS or PSI. Verify figures and rules against current guidance before relying on them.