Assume Jim agreed to pay half of your normal hourly rate for the first meeting, if the first 30
minutes is free. So at the end of the 2 hour meeting he would owe you $225. Assume you
thoroughly discussed the pros and cons of the tax filing options, how to minimize tax problems
for 2019 and beyond with his corporate tax return, and how Jim might be able to solve his 2010
tax problem.

How much should you quote for:

1) Preparation of the 2019 tax returns (personal and corporate)?
2) Preparation of 2020 and future tax returns ?
3) Solving his 2010 tax problem for “pennies on the dollar,” and how would you structure the
fees:

i) hourly, with an up-front amount; and, if so, how much up front? Or,

ii) flat fee, and if so, how much up front and how much over time assuming the case will
take 24 months to complete? Or,

iii) a flat fee expressed as a percentage of the reduction of the tax liability [note: a
percentage fee is only permitted under IRS regulations (as reprinted in IRS Circular 230) when
there is a known tax liability. Such a fee is not permitted if a tax return has not yet been filed and
you are filing the tax return or consulting about a tax return to be filed; also see California Board
of Accountancy’s official pronouncement on contingent fees:
http://www.dca.ca.gov/cba/consumers/commission_fee…

The actual California CPA Society Rule of Professional Conduct is reprinted below:

Rule 302: A member in public practice shall not:
1. Perform for a contingent fee any professional services for, or receive such a fee from, a client for whom the member or the member’s firm performs:

1. An audit or review of a financial statement; or
2. A compilation of a financial statement when the member expects or reasonably should expect that a third party will use the financial statement
   and the member’s compilation report does not disclose a lack of independence; or
3. An examination of prospective financial information; or
4. Any other attest engagement when the member expects or reasonably should expect that a third party will use the related attestation report; or
5. Any other services requiring independence.

4. Perform an engagement as a testifying expert for a contingent fee.
The prohibition in (1) above applies during the period in which the member or the member’s firm is engaged to perform any of the services listed under (1) above and the period

covered by any historical financial statements involved in any such listed services.

Except as stated in the next paragraph, a contingent fee is a fee established for the performance of any service pursuant to an arrangement in which no fee will be charged

unless a specific finding or result is attained, or in which the amount of the fee is otherwise dependent upon the finding or result of such service.

Solely for purposes of this rule, fees are not regarded as being contingent if fixed by courts or governmental entities acting in a judicial or regulatory capacity, or in tax matters if
determined based upon the results of judicial proceedings or the findings of governmental agencies acting in a judicial or regulatory capacity or there is a reasonable

1. Prepare an original tax return for a contingent fee for any client.
2. Prepare an amended tax return, claim for tax refund, or perform other similar tax services for a contingent fee for any client.

expectation of substantive review by a taxing authority.
A member’s fees may vary depending, for example, on the complexity of services rendered.

The applicable portion of Circular 230 is reprinted below:

§ 10.27 Fees.
(a) In general. A practitioner may not charge an unconscionable fee in connection with any matter before the Internal Revenue
Service.

(b) Contingent fees —
(1) Except as provided in paragraphs (b)(2), (3), and (4) of this section, a practitioner may not charge a contingent fee for

services rendered in connection with any matter before the Internal Revenue Service.

(2) A practitioner may charge a contingent fee for services rendered in connection with the Service’s examination of, or
challenge to —

(i) An original tax return; or

(ii) An amended return or claim for refund or credit where the amended return or claim for refund or credit was
filed within 120 days of the taxpayer receiving a written notice of the examination of, or a written challenge to the original
tax return.

(3) A practitioner may charge a contingent fee for services rendered in connection with a claim for credit or refund filed
solely in connection with the determination of statutory interest or penalties assessed by the Internal Revenue Service.

(4) A practitioner may charge a contingent fee for services rendered in connection with any judicial proceeding arising under the
Internal Revenue Code.

(c) Definitions. For purposes of this section — (1) Contingent fee is any fee that is based, in whole or in part, on whether or not a
position taken on a tax return or other filing avoids challenge by the Internal Revenue Service or is sustained either by the Internal
Revenue Service or in litigation. A contingent fee includes a fee that is based on a percentage of the refund reported on a return,
that is based on a percentage of the taxes saved, or that otherwise depends on the specific result attained. A contingent fee also
includes any fee arrangement in which the practitioner will reimburse the client for all or a portion of the client’s fee in the event that
a position taken on a tax return or other filing is challenged by the Internal Revenue Service or is not sustained, whether pursuant to
an indemnity agreement, a guarantee, rescission rights, or any other arrangement with a similar effect.

4) Should you prepare a written engagement agreement? If so, in your own words, write some
key terms you would include in such an agreement. Hint: you can find sample CPA engagement
agreements online.

5) Would you limit the scope of the work? Why? If so, write some language in your own words
you would include in your engagement agreement which limits the scope of your work.