The Internal Revenue Service has softened its opposition to contingent fees charged by Circular 230 practitioners. Originally, the IRS proposed permitting a contingent fee only in connection with an IRS examination or the challenge of an original return, or an amended return filed before a notice of examination was received.Under the final rules, a tax practitioner will be allowed to charge a contingent fee for services rendered in connection with the IRS examination of, or challenge to, an original return, or an amended return or claim for refund or credit where it was filed within 120 days of the taxpayer receiving a written notice of the examination, or a written challenge to the original return.

The final regs also permit the use of contingent fees for services rendered in connection with a claim for credit or refund filed solely in connection with the determination of statutory interest or penalties, according to the IRS, because, "There is no exploitation of the audit lottery in these situations, as they are generally completed on a post-examination basis."

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