Challenges with contingency fees and the ERC

The employee retention credit (ERC) has been a significant lifeline to struggling businesses in the wake of the COVID-19 pandemic. The refundable credit was first established in March 2020 with the enactment of the Coronavirus Aid, Relief and Economic Security (CARES) Act. Since then, is has been expanded in various other relief legislation, most recently in the American Rescue Plan Act, H.R. 1319 enacted in the first quarter of 2021.

While at its core the mechanics may appear straightforward, its practical application has shown to be complex and tax preparers have been an integral part of making it a reality for clients. Meanwhile, some professionals debate whether contingent fees should be considered in this area.

On this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager – AICPA Tax Section and Ed Karl, CPA, CGMA, Vice President – AICPA Tax Policy & Advocacy, delve into the intricacies of what is considered a contingent fee and how the AICPA Code of Professional Conduct and other regulatory rules address its usage.

What you'll learn in this episode

• What is a contingent fee (0.40)
• AICPA Code of Professional Conduct surrounding acceptability of contingent fees for original and amended returns (2.04)
• Alternative acceptable fee arrangements (5.39)
• History and evolution of contingent fee usage (6.51)
• Treasury Department Circular No. 230 considerations for contingent fees (9.48)

AICPA resources

• AICPA Code of Professional Conduct – Dedicated hub for the AICPA Code of Professional Conduct which provides guidance and rules to all members in the performance of their professional responsibilities
• COVID-19 tax resources – Resources and information to help CPA tax practitioners navigate the tax world in the COVID-19 pandemic
• Getting to the Bottom Line about Contingent Fees – Blog post by Edward Karl, CPA, CGMA on Oct. 16, 2014
• Tax advocacy – Consolidation of the AICPA Tax Policy & Advocacy team efforts as they advocate for legislative, regulatory and administrative tax matters on behalf of members. See also AICPA advocacy news and recent comment letters.
• Treasury Department Circular No. 230 – Consolidated information and a link to the rules governing the recognition of attorneys, certified public accountants, enrolled agents, enrolled retirement plan agents, registered tax return preparers and other persons representing taxpayers before the IRS.

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