United States: Circular 230 section 10.27 | Research Credit Integrity Alliance

This page sets out the text of section 10.27 of Treasury Department Circular No. 230, the federal rule on contingent fees for practice before the IRS. It explains what the rule prohibits and permits, how a 2014 court decision limited its reach, and the replacement Treasury proposed in December 2024. The wider federal picture is on United States: Fee rules.

Where the rule comes from

Federal law allows the Secretary of the Treasury to regulate the practice of representatives of persons before the Treasury Department. After notice and an opportunity for a proceeding, the Secretary may suspend, disbar or censure a representative who is incompetent or disreputable, or who violates the regulations made under that authority, and may impose a monetary penalty.1 Those regulations are published at 31 CFR part 10 and are known as Circular 230.2

Circular 230 applies to practitioners. A practitioner is an individual described in section 10.3: attorneys, certified public accountants, enrolled agents, enrolled actuaries, enrolled retirement plan agents and registered tax return preparers.3 For Circular 230 purposes, a tax return includes an amended tax return and a claim for refund.3

What section 10.27 says

Section 10.27 has two operative rules.4

Unconscionable fees. A practitioner may not charge an unconscionable fee in connection with any matter before the IRS. The rule does not set a figure.
Contingent fees. Except as the section allows, a practitioner may not charge a contingent fee for services rendered in connection with any matter before the IRS.

A matter before the Internal Revenue Service includes tax planning and advice, preparing or filing (or assisting in preparing or filing) returns or claims for refund or credit, and all matters connected with a presentation to the IRS about a taxpayer's rights, privileges or liabilities.4

A contingent fee is any fee based, in whole or in part, on whether a position taken on a tax return or other filing avoids challenge by the IRS or is sustained by the IRS or in litigation. The definition expressly includes:4

a fee based on a percentage of the refund reported on a return;
a fee based on a percentage of the taxes saved;
a fee that otherwise depends on the specific result attained; and
any arrangement under which the practitioner reimburses all or part of the client's fee if a position is challenged or not sustained, whether through an indemnity, a guarantee, rescission rights or any similar arrangement.

The section applies to fee arrangements entered into after 26 March 2008. Its current text dates from Treasury Decision 9359, published on 26 September 2007.4

What the rule permits

Service	Contingent fee under the text of section 10.27
Services connected with the IRS's examination of, or challenge to, an original return	Permitted4
Services connected with the IRS's examination of, or challenge to, an amended return or refund claim filed within 120 days of the taxpayer receiving written notice of the examination or a written challenge	Permitted4
A refund claim filed solely about statutory interest or penalties assessed by the IRS	Permitted4
Any judicial proceeding arising under the Internal Revenue Code	Permitted4
Preparing or filing an original return, amended return or refund claim, outside the cases above	Not permitted for practitioners4

In Notice 2008-43 the IRS issued interim rules, which it said it would follow in enforcing section 10.27 until further guidance. They extend the examination exception to an amended return or refund claim filed before the taxpayer received written notice of examination or a written challenge, as well as one filed no later than 120 days after it. They also add an exception for services connected with a whistleblower claim under section 7623 of the Code.5 The notice says Treasury and the IRS intended to revise section 10.27 to reflect these changes.5 The eCFR text of section 10.27 does not include them.4

Sanctions

Treasury may censure, suspend or disbar a practitioner who fails to comply with Circular 230, under the prohibited conduct standards of section 10.52, and may impose a monetary penalty of up to the gross income derived from the conduct.6 Under section 10.52, a practitioner may be sanctioned for willfully violating any of the regulations in part 10, apart from section 10.33.7

Ridgely v. Lew

In Ridgely v. Lew, a practicing CPA challenged section 10.27 as applied to what the court called "Ordinary Refund Claims": refund claims filed after the taxpayer has filed the original return but before the IRS has started an audit of it.8 The plaintiff's counsel explained at the hearing that a CPA preparing and filing such a claim does not legally represent the taxpayer until the IRS responds and the CPA submits a power of attorney.8

The court relied on the Court of Appeals decision in Loving v. IRS, which it treated as controlling precedent on the meaning of "representative" and "practice" in 31 U.S.C. 330.8 It reasoned that a person preparing and filing an Ordinary Refund Claim, before holding any power of attorney, does not act as a representative and does not practice before the IRS.8 It concluded that the IRS lacks statutory authority to regulate the preparation and filing of Ordinary Refund Claims, granted the CPA's motion for summary judgment and granted a permanent injunction against enforcement of the regulation.8 The opinion is dated 16 July 2014.8

Three further points from the opinion:

The court said it expressed no view on the IRS's authority to issue and enforce standards of practice under other subsections of section 330, as the parties had not raised them.8
It noted that, on the IRS's reading, the IRS "would impose no contingent fee restrictions on the preparation and filing of Ordinary Refund Claims by non-CPAs and those who never 'practice' before the IRS".8
It rejected the argument that the IRS could regulate all conduct of CPAs simply because they practice before it at some point.8

Treasury later summarized the effect: the IRS cannot prohibit contingent fees for ordinary refund claims on the basis of its authority to regulate practice under 31 U.S.C. 330(a), and the court did not otherwise address the propriety of contingent fees.9

Research credit claims

A business that claims or increases a research credit after filing its original return does so by refund claim. A corporation makes that claim on Form 1120-X, and a properly executed amended return is a claim for refund.10 The court's description of an Ordinary Refund Claim covers refund claims filed after the original return and before an audit.8 The decision did not concern contingent fees for preparing original returns.8

The 2024 proposal

On 26 December 2024 Treasury and the IRS published proposed regulations that would remove section 10.27.9 Proposed section 10.51 would instead treat as disreputable conduct:9

charging an unconscionable fee; and
charging a contingent fee in connection with the preparation of an original or amended tax return or claim for refund or credit prepared before the examination of the return.

Preparation would include advice directly relevant to determining the existence, character or amount of an item or entry on the return or claim. The proposed definition of a contingent fee follows the current one.9 Treasury stated that the proposal relies on the sanction power in 31 U.S.C. 330(c), which applies to disreputable conduct whether or not the conduct is representation of a client, so that it would not depend on return preparation being practice before the IRS.9 Treasury gave as its reason that a practitioner with a direct financial interest in a client's tax benefits may be incentivized to increase them.9 Comments were due by 24 February 2025, and a public hearing was scheduled for 6 March 2025.9

As at 11 October 2026 the Federal Register listed only the proposed rule under its regulation identifier, RIN 1545-BQ12, and the eCFR still showed section 10.27 in its 2007 form.11 4

Summary

Question	Position at 11 October 2026
Is section 10.27 still in the regulations?	Yes, in its 2007 text4
Does it bar practitioners from contingent fees for preparing original returns?	Yes, by its text4
Can the IRS enforce it against preparers of refund claims filed before an audit?	No, under the Ridgely injunction and Treasury's reading of it8 9
Is a replacement in force?	No; the December 2024 proposal had not been finalized11

Sources

Office of the Law Revision Counsel, 31 U.S.C. 330, Practice before the Department, subsections (a) and (c), United States Code 2024 edition published by the Government Publishing Office. https://www.govinfo.gov/content/pkg/USCODE-2024-title31/html/USCODE-2024-title31-subtitleI-chap3-subchapII-sec330.htm (accessed 11 October 2026). Back
Treasury Department, Circular No. 230, 31 CFR 10.0, Scope of part, paragraph (a). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-A/section-10.0 (accessed 11 October 2026). Back
Treasury Department, Circular No. 230, 31 CFR 10.2, Definitions, paragraphs (a)(5) and (a)(6), read with 31 CFR 10.3, Who may practice. https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-A/section-10.2 (accessed 11 October 2026). Back
Treasury Department, Circular No. 230, 31 CFR 10.27, Fees, paragraphs (a) to (d), with source note T.D. 9359, 72 FR 54548 (eCFR text up to date as of 8 October 2026). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-B/section-10.27 (accessed 11 October 2026). Back
Internal Revenue Service, Notice 2008-43, Contingent Fees Under Circular 230, Internal Revenue Bulletin 2008-15, sections "Interim Guidance" and "Effective Date for Interim Guidance". https://www.irs.gov/irb/2008-15_IRB (accessed 11 October 2026). Back
Treasury Department, Circular No. 230, 31 CFR 10.50, Sanctions, paragraphs (a) and (c)(1) to (c)(2). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-C/section-10.50 (accessed 11 October 2026). Back
Treasury Department, Circular No. 230, 31 CFR 10.52, Violations subject to sanction, paragraph (a)(1). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-C/section-10.52 (accessed 11 October 2026). Back
US District Court for the District of Columbia, Ridgely v. Lew, Civil Action No. 1:12-cv-00565 (CRC), Memorandum Opinion, 16 July 2014, pages 1, 3, 7 (note 3), 8 to 10 and 12 to 15. https://www.govinfo.gov/content/pkg/USCOURTS-dcd-1_12-cv-00565/pdf/USCOURTS-dcd-1_12-cv-00565-1.pdf (accessed 11 October 2026). Back
Treasury Department and Internal Revenue Service, Regulations Governing Practice Before the Internal Revenue Service, notice of proposed rulemaking, 89 FR 104915 (26 December 2024), Dates, Background part B, Explanation of Provisions part B and proposed section 10.51. https://www.federalregister.gov/documents/2024/12/26/2024-29371/regulations-governing-practice-before-the-internal-revenue-service (accessed 11 October 2026). Back
Treasury Department and Internal Revenue Service, 26 CFR 301.6402-3, Special rules applicable to income tax, paragraphs (a)(3) and (a)(5). https://www.ecfr.gov/current/title-26/section-301.6402-3 (accessed 11 October 2026). Back
Office of the Federal Register, Documents associated with RIN 1545-BQ12, Regulations Governing Practice Before the Internal Revenue Service (one document listed, the proposed rule of 26 December 2024). https://www.federalregister.gov/api/v1/documents.json?conditions%5Bregulation_id_number%5D=1545-BQ12 (accessed 11 October 2026). Back