The case of getting a Hedda yourself
Ethics
Charles Selcer, CPA, MBA | October/November 2022 Footnote
Editor's note: Updated September 30, 2022
Hedda Lechuga, CPA met with her new tax return client, Frankson Beans. He brought copies of his open year individual income tax returns for Hedda’s records and perusal. She noted that Frankson, who prepared his own returns, neglected to take the QBI deduction on his 2021 Form 1040. It was significant and would have amounted to a $300,000 QBI deduction. Hedda told Frankson she would prepare a 2021 Form 1040X for a fee of $12,000 — 10% of his federal tax refund.
Q. Is this a permitted fee?
A. No. Permitted contingent fee arrangements are at 1.510.04:
The following are examples of circumstances in which a contingent fee is permitted under the “Contingent Fees Rule” [1.510.001]:
- Representing a client in connection with a revenue agent’s examination of the client’s federal or state income tax return.
- Filing an amended federal or state income tax return claiming a tax refund based on a tax issue that is the subject of a test case involving a different taxpayer or with respect to which the taxing authority is developing a position.
- Filing an amended federal or state income tax return (or refund claim) claiming a tax refund in an amount greater than the threshold for review by the Joint Committee on Taxation or state taxing authority.
- Requesting a refund of either overpayments of interest or penalties charged to a client’s account or tax deposits that a federal or state taxing authority improperly accounted for in circumstances in which the taxing authority has established procedures for the substantive review of such refund requests.
- Requesting, by means of a protest or similar document, the state or local taxing authority’s consideration of a reduction in a property’s assessed value under an established taxing authority’s review process for hearing all taxpayer arguments relating to assessed value.
- Representing a client in connection with obtaining a private letter ruling or influencing the drafting of a regulation or statute.
None of the aforenoted examples apply.
Given the definition of receipt of a contingent fee at 1.510.020, this unethical fee arrangement is considered to be received when the refund is calculated pursuant to the preparation of the amended Form 1040X.
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