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SEE-3 - Practices and Procedures - Section 1.3

Apply the Circular 230 duties and restrictions governing practitioner conduct, including due diligence, conflicts of interest, contingent fees, and the handling of client records.

Apply the Circular 230 standards of conduct: the duty of due diligence as to accuracy, the prompt-submission and best-information duties, the bar on knowingly giving false information to the IRS, and the obligation to advise a client of any noncompliance, error, or omission. Recognise the rules on conflicts of interest, the limited circumstances permitting contingent fees, and the duty to return client records on request even when a fee dispute exists.

Due diligenceConflict of interestContingent feesClient recordsCircular 230 Subpart B

Practice question for this objective

Free samplePractices and Procedureshard

Under Circular 230, which statement correctly describes what makes a practitioner's fee a contingent fee subject to the Section 10.27 restriction?

  • AA fee is contingent only when it is expressed as a flat percentage of the refund obtained, so an hourly engagement that the client agrees to pay solely if a refund is secured falls outside the contingent-fee rule.
  • BA fee is contingent whenever the practitioner and client agree on the amount after the engagement concludes rather than at the outset, because deferring the fee figure ties it to the eventual result of the matter.
  • CA fee is contingent only where the client has no obligation to pay anything unless the Service issues a refund, so any arrangement requiring a minimum non-refundable retainer is excluded from the definition entirely.
  • DA fee is contingent if it is based, in whole or in part, on whether a position avoids challenge by the Service or is sustained, and the term includes a fee the practitioner agrees to refund or reimburse if the matter is not resolved in the client's favour. Correct
Recognise that a Circular 230 contingent fee is any fee based in whole or in part on the result obtained, including a refundable or reimbursable fee tied to the outcome. The definition is deliberately broad so practitioners cannot evade the restriction through structure: what matters is whether the fee depends on the position being sustained or avoiding challenge, and refundable or reimbursable arrangements that share the client's risk are swept in regardless of label.

Why A is wrong: A percentage of the refund is the obvious case, but Section 10.27 defines a contingent fee by its dependence on the result obtained, so an hourly fee payable only on success is still contingent; limiting the rule to percentages understates it.

Why B is wrong: Setting the figure later feels like it links pay to outcome, but Section 10.27 keys on whether the fee depends on the result, not on the timing of agreeing the amount, so a late-set fixed fee is not automatically contingent.

Why C is wrong: A pure no-win-no-fee deal is clearly contingent, but Section 10.27 also reaches fees based only in part on the result, so attaching a small retainer does not remove an outcome-based fee from the definition.

Why D is correct: Section 10.27 defines a contingent fee as one based in any part on whether a position is sustained or avoids challenge, and expressly includes a fee that is refundable or reimbursable depending on the outcome; this captures the full definition.

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