A contingent charge is any charge that is based, in whole or in part, on whether a position taken on a tax return or other filing avoids challenge by the Internal Revenue Service or whether it is sustained by the Internal Revenue Service or in litigation. However, it turns out that tax advice or contingent fee representation is the exception, not the norm. One place where contingent charges can be especially useful is where the taxpayer is trying to get money from the IRS in a lawsuit. Tax refund claims can lend themselves to contingent charges, and the IRS has approved contingent charges in that context.
Yes, that's right, this is an area regulated by the IRS. For starters, whether your tax advisor can offer you services in the event of a contingency depends on the contingent charges allowed by the IRS. In regulations known as Circular 230, the IRS says that a professional cannot charge a contingent fee for services provided in connection with any matter before the IRS, with three exceptions.
