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SB 342: Contingency Fees

SB 342 was amended by Senator Wolk on April 25 to disallow the use of contingency fee agreements between tax advisors (including lawyers, consultants, etc.) and taxpayers for any matters involving tax and “for services rendered in connection with any matter before the State Board of Equalization, Franchise Tax Board, or assessment appeals board, or for any other tax imposed under state law.”

The Senate Governance and Finance Committee analysis quotes Senator Wolk’s rationale for the bill:

“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. 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 aggressive 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 tax 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, only regulates the way they pay unrelated third parties seeking refunds on their behalf.”

The bill was heard in Committee yesterday and passed 7-2. Senator Wolk agreed to amend the bill to allow more flexibility to local governments to utilize contingency fees when hiring outside consultants. Even Senator Huff voted to move the bill forward on the condition of that change. Senator Wolk said, “We’ll make sure you are comfortable, Senator Huff.”

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