Fees and Contracts
"We Only Get Paid If You Save": Contingent Fees and the IRS Rules
By Darrin T. Mish, Attorney · 5 min read · October 9, 2026
The short answer
Circular 230 generally bans contingent fees for matters before the IRS. The exceptions are narrow: examinations of original returns, some amended returns and refund claims, interest and penalty refund claims, and court cases. A fee based on a percentage of the tax you save on a collection case does not appear on the list.
"You don't pay us unless we save you money." It sounds like the most buyer-friendly offer in the world. It is also a pitch that federal rules restrict for most of the work a tax relief firm actually does.
This chapter walks through the rule, the exceptions, and what it means when someone offers you a percentage deal on an IRS collection case.
The general rule: no contingent fees
Circular 230 section 10.27(b)(1) says that, except in specified situations, a practitioner may not charge a contingent fee for services rendered in connection with any matter before the IRS.
The definition is broad. Under section 10.27(c)(1), a contingent fee is any fee based, in whole or in part, on whether a position taken on a return or other filing avoids challenge by the IRS or is sustained by the IRS or in litigation. The regulation spells out that this includes a fee based on a percentage of a refund, a fee based on a percentage of the taxes saved, or a fee that otherwise depends on the specific result attained.
The definition of a "matter before the IRS" in section 10.27(c)(2) is broad too. It includes tax planning and advice, preparing and filing returns and refund claims, and all matters connected with a presentation to the IRS about a taxpayer's rights, privileges, or liabilities. Collection negotiations, offers in compromise, and penalty requests are presentations to the IRS about liabilities.
The four exceptions
Section 10.27(b) lists the situations where a contingent fee is permitted.
When Circular 230 allows a contingent fee
| Exception | Section | What it covers |
|---|---|---|
| Examination of an original return | 10.27(b)(2)(i) | Services in connection with the IRS's examination of, or challenge to, an original tax return |
| Amended return or refund claim filed after an exam notice | 10.27(b)(2)(ii) | An amended return or claim filed within 120 days after the taxpayer receives written notice of an examination of, or a written challenge to, the original return |
| Interest and penalty refund claims | 10.27(b)(3) | A claim for credit or refund filed solely in connection with the determination of statutory interest or penalties assessed by the IRS |
| Judicial proceedings | 10.27(b)(4) | Services in connection with any judicial proceeding arising under the Internal Revenue Code |
That is the whole list. Notice what is missing. There is no exception for negotiating an installment agreement, for an offer in compromise, for a collection due process hearing before Appeals, or for stopping a levy.
What that means for "percentage of savings" pitches
Suppose a firm offers to negotiate an offer in compromise and charge you a percentage of the difference between what you owe and what the IRS accepts. That is a fee based on a percentage of the taxes saved, in a matter before the IRS, and it does not fit any of the four exceptions on the face of the regulation.
Now suppose a firm offers to handle your audit of an original return and charge a percentage of the proposed adjustment it gets eliminated. That fits the first exception, and it may be perfectly proper.
The difference is not the size of the fee. It is the kind of matter. Ask what kind of matter you are buying help with, then check it against the table.
Refund-if-it-fails deals can count too
The definition reaches further than a simple percentage. Section 10.27(c)(1) says a contingent fee also includes any arrangement where the practitioner will reimburse the client for all or part of the fee if a position taken on a return or other filing is challenged by the IRS or not sustained, whether through an indemnity agreement, a guarantee, rescission rights, or anything with a similar effect.
So a "money back if the IRS rejects it" promise is not automatically the consumer protection it sounds like. Depending on how it is structured, it may itself be a contingent fee under the regulation. Refund policies in general are covered in refund policies and guarantees.
Why the rule exists
Contingent fees push the professional's interest toward the result, and a result can be manufactured. A practitioner paid on savings has a reason to understate assets on a financial statement, to take aggressive positions, or to tell you that you qualify when you do not. The regulation keeps that incentive out of most IRS matters.
The exceptions make sense against that backdrop. In an examination of a return already filed, or in a court case, there is an adversary process. The IRS or a judge tests the position. The risk of a practitioner gaming the result is lower.
Who the rule binds
Section 10.27 binds practitioners: attorneys, CPAs, enrolled agents, and others who practice before the IRS. Section 10.8 also extends Circular 230's Subpart B duties to anyone who prepares all or substantially all of a return for compensation.
A tax relief company is not itself a practitioner, but the licensed people it puts on your power of attorney are. If a company's sales contract includes a percentage-of-savings fee on a collection case, ask the licensed professional who will sign your Form 2848 how that fee squares with section 10.27. Their answer will tell you a lot.
Attorneys face a second layer: their state bar's own rules on contingent fees and fee agreements. Those rules differ by state, so ask your attorney which rules apply to your engagement.
Contingent fees and conflicts
A related problem shows up when a fee depends on a result and the practitioner also controls what the IRS sees. Section 10.22 requires due diligence in determining the correctness of representations made to the Treasury Department, and section 10.51 lists giving false or misleading information to the Treasury as disreputable conduct.
If your representative's paycheck rises when your financial statement shows less, you want to know that. Ask directly whether any part of the fee changes based on what the IRS accepts.
Where contingent fees can make sense
None of this means contingent fees are bad. In the permitted situations, they can be a fair way to share risk. A taxpayer facing a large proposed adjustment in an examination of an original return may not have the cash to fund a full defense. A fee tied to the result can open the door to representation that would otherwise be out of reach.
The same goes for a refund claim filed solely over interest or penalties the IRS assessed. If the claim fails, the client pays little or nothing. If it succeeds, the fee comes out of money the client would never have seen. That alignment is exactly why the regulation allows it.
If you are in one of those situations, ask the professional to point to the specific subsection of 10.27(b) the fee relies on. A practitioner who uses contingent fees properly will know the answer immediately. The audit defense chapter covers what representation in an examination involves.
Questions to ask before you sign
- Is any part of your fee based on the result, the amount saved, or the amount refunded?
- If so, which exception in Circular 230 section 10.27(b) does it rely on?
- Does the fee change based on anything in my financial statement?
- Is there any refund or reimbursement tied to what the IRS decides?
Clear answers are a good sign. Defensiveness is not. The ethical limits chapter covers other lines a good practitioner will not cross.
How to read a fee proposal for contingencies
- Find every number in the fee section. For each one, ask: does this amount change based on the outcome?
- Look for words like "savings," "reduction," "success fee," "bonus," or "percentage of."
- Look for refund-if-rejected or money-back language tied to the IRS's decision.
- Identify the matter: audit, refund claim, collection, offer, appeal, or court case.
- Compare the matter against the four exceptions in section 10.27(b).
If the fee is contingent and the matter is collection, ask questions before you sign. The engagement letter checklist covers what else should be in the contract.