Contingent Fees

EROs (Electronic Return Originators) vs. tax preparers, as the IRS treats them differently:

Fee Rules: EROs vs. Tax Preparers

1. ERO-Specific Restrictions

(Applies ONLY to the electronic transmission portion of the fee)

• ❌ No contingent fees for e-filing:

  • Cannot charge based on:

    • Refund amount ("10% of your refund").

    • Time spent preparing the return ("$50/hour for e-filing").

    • Tax outcome ("Pay only if you get a refund!").

• ❌ No separate fees for direct deposit:

  • EROs cannot charge extra to process a taxpayer’s direct deposit request.

Why? The IRS regulates EROs strictly to prevent exploitative pricing tied to e-file services.

2. Tax Preparer Fees (General Rules)

(Applies to tax preparation services, not just e-filing)

• ✅ Can charge hourly/preparation fees:

  • Example: "$200 to prepare your return" is allowed.

• ❌ Still no refund-based fees:

  • Circular 230 prohibits all tax preparers (including EROs) from charging contingent fees for original tax returns.

  • Exception: Fees for audit defense or amended returns may be contingent.

Key Differences

*Except for specific exceptions like audit representation.

Example Scenarios

Legal Fee Structures

1. ERO: Charges $20 flat fee to e-file (no hourly/refund-based pricing).

2. Tax Preparer: Charges $150/hour for tax prep (but $0 extra for e-filing).

Illegal Fee Structures

1. ERO: "Pay 5% of your refund to e-file!" → ❌ Violates IRS rules.

2. Tax Preparer: "Our fee is 10% of your refund!" → ❌ Banned by Circular 230.

Why This Matters for Exams

• ERO fees are narrowly regulated (only for e-file transmission).

• Preparer fees have broader rules (Circular 230 applies).

• Contingent fees are always prohibited for original returns.

Exam Tip: If a question mentions "e-file fees," focus on ERO-specific rules. For general preparer fees, think Circular 230.