Tax legislation: contingency fees prohibited for tax matters.

• Author: Allen, Bruce C.
• Position: CapitolBeat

Senate Bill 342 (Wolk) was amended in laic March to include a provision that prohibits contingency fees in tax matters.

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"In today's fiscal crisis, state and local governments across the country have been forced to ask citizens for higher taxes and enacted significant cuts in public services," says Wolk. "We recently enacted billions of dollars in cuts, with several billion more on the horizon, often requiring sacrifices from the most vulnerable among us. SB 342 provides a way to make the tax system more honest by taking away the incentive for unregulated consultants to seek aggrcssive tax returns on a contingency fee basis.

"Contingency fees tie a consultant's compensation to the amount of a taxpayer's tax refund, providing a strong incentive to play fast and loose with rules, requiring pay outs of big lax refunds from taxes previously collected and spent, and often leading unsophisticated firms into audits. This bill doesn't affect a taxpayer's right to file a claim for refund for any tax; it only regulates the way they pay unrelated third parties seeking refunds on their behalf."

CRAs are only allowed to accept contingency fees when decisions arc made by third parties. Tax appeals are one of those areas where contingency fees are allowed and, in many instances, provide the only cost effective means for the unsophisticated taxpayer to obtain their rightful reimbursement from local, stale and federal taxing authorities.

CalCPA believes SH 342 will unfairly and inadvertently limit a taxpayer's options in seeking professional representation to advocate their interests in front of a taxing entity. Particularly affected by this restriction would be low-income taxpayers unable to afford an upfront fee or an hourly rate for tax services, and those taxpayers for whom the disputed amount would not justify the cost of retaining an expert.

Low-income taxpayers who believe they haw been incorrectly charged by the FIB, or must defend themselves against a tax position taken by the FTB. would lose an affordable option to rectify claims against them or seek refunds lost due to mistakes by tax preparers or the taxing entity.

The bill also would reduce attorney fees for lax litigation cases. Under current law; California taxpayers can have their attorney lees and expenses paid by the state if they are successful in litigating tax matters. Some attorneys have chosen to pursue reimbursement under the Private Attorney General doctrine...