Why is a contingent fee risky when a CPA prepares a tax return?

Question

AcadiFi · Accepted Answer

A contingent fee is risky because the CPA's compensation depends on the tax result. If the fee is a percentage of the refund or tax savings, the CPA has a financial incentive to push the result higher.

That incentive can impair objectivity, even when the CPA believes the position is supportable. For original return preparation, the safer exam answer is usually to restructure the fee as fixed, hourly, or otherwise not dependent on the tax outcome.

```mermaid
flowchart TD
    A["Tax return engagement"] --> B{"Fee based on refund"}
    B -->|Yes| C["Contingent fee risk"]
    B -->|No| D["Evaluate ordinary fee reasonableness"]
    C --> E["Objectivity and professional standards issue"]
```

Why is a contingent fee risky when a CPA prepares a tax return?

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