Written By: Michael Vale
Reviewed By: Bridgette Austin, Esq., EA, Co-Founder and Tax Attorney
Last Reviewed: November 8, 2026
A tax attorney retainer agreement is the contract that says what you are paying for, who holds your money before it is earned, and what comes back to you if the work stops early. Most people sign it the same day they get it. Then the IRS rejects the offer, the money is gone, and they read the agreement for the first time.
Read it first. Read these 9 clauses specifically.
Every other guide to this document is written for the firm drafting it. This one is written for the taxpayer signing it, because the clause that decides whether any money comes back is almost never the fee clause.
What is a tax attorney retainer agreement?
A tax attorney retainer agreement is a written contract between a taxpayer and a law firm that defines the scope of tax work, the fee and how it is calculated, where the advance payment is held, how either side can end the relationship, and what portion of unearned money is refunded when it does.
That is the whole job of the document. Everything below is a test of whether yours actually does it.
Michigan’s rules put a floor under the fee itself. Rule 1.5(a) of the Michigan Rules of Professional Conduct says a lawyer “shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee,” and sets 8 factors for judging it, including the time required, the customary fee in the locality, and the amount involved. Rule 1.5(b) adds that when the lawyer has not regularly represented you, the basis or rate of the fee “shall be communicated to the client, preferably in writing,” before or within a reasonable time after the work starts.
Preferably. Not must. So if the firm has told you the fee over the phone and nothing else, Michigan’s rule is technically satisfied and you are technically unprotected. Get it in writing anyway.
Where your retainer money sits depends on who you hired
Your advance payment goes into a client trust account if you hired a lawyer. It may go straight into the company’s operating account if you did not.
Michigan Rule of Professional Conduct 1.15 is direct about this: “Legal fees and expenses that have been paid in advance shall be deposited in a client trust account and may be withdrawn only as fees are earned or expenses incurred.” The comment to Rule 1.5 says the same thing from the other side: a lawyer “may require advance payment of a fee, but is obliged to return any unearned portion.”
Enrolled Agents and CPAs can represent you before the IRS, and many do excellent work. But they are not governed by the state bar’s trust account rule. Neither is a national tax relief company whose staff holds no license at all. The word on your contract reads “retainer” in every one of those cases. The protection behind the word is not the same.
Who may represent you before the IRS is set by federal regulation. Who must hold your money in trust is set by state bar rules. Those are 2 different lists, and that is the whole problem.
| Who you hire | May practice before the IRS | Advance fee held in a client trust account |
|---|---|---|
| Attorney | Yes, 31 CFR 10.3(a) | Yes in Michigan, required by MRPC 1.15 |
| Certified Public Accountant | Yes, 31 CFR 10.3(b) | Not under the Michigan attorney trust rule |
| Enrolled Agent | Yes, 31 CFR 10.3(c) | Not under the Michigan attorney trust rule |
| Salesperson at a tax relief company | No | No |
So the question to ask is not “what is your retainer?” It is “which account does my money sit in until you earn it, and who is licensed to answer for it?” If the answer is vague, that is your answer. A licensed Michigan tax firm can tell you both in one sentence, and you can check the credentials behind your case before you sign anything. Our breakdown of who you can hire walks through what each credential actually permits.
The 9 clauses to read before you sign
These 9 clauses decide what you get for your money and what you get back. Read them in this order, because the later ones only matter once the earlier ones hold up.
1. The parties
Names the firm and you. If the entity on the contract is not the entity whose reviews you read, stop.
2. Scope of services, and what is excluded
This is where most tax resolution agreements do their damage. Look for whether the scope covers only an “investigation” or “discovery” phase. If the resolution work itself needs a second agreement and a second payment, the number you were quoted is not the number you will pay.
3. Which tax years and which agencies
Federal only, or Michigan Treasury too? 2 tax years or 6? A scope that says “your IRS matter” without listing years is not a scope. Read it against the services the firm actually offers and confirm the ones you need are named in the document.
4. The fee and how it is calculated
Flat fee, hourly with a drawdown, or phased. Each is fine. What is not fine is a number with no method attached.
5. Where advance payments are held
Covered above. Ask for the answer in the document, not on the call.
6. Billing and replenishment
If the agreement has an evergreen clause, it will name a floor balance that triggers a refill and the size of that refill. Know both numbers before you sign, not when the invoice arrives.
7. Termination and notice
How you end it, how they end it, how much notice either side owes.
8. Final accounting and refund
What happens to the unspent balance, how fast, and who calculates it. A firm that will not put a refund timeline in writing has told you something.
9. Your records
31 CFR 10.28 requires a practitioner to promptly return, at your request, any records of yours that you need to comply with your federal tax obligations, and a fee dispute generally does not excuse that. State law can allow a practitioner to hold some records during a fee fight, but you still get reasonable access to review and copy them. Your W-2s and your bank statements are yours.
Confidentiality, amendments in writing, dispute resolution and governing law belong in the document too. They are standard, they are worth reading, and they are not where tax resolution agreements go wrong.
Can a tax firm charge a percentage of what it saves you?
Usually not. Federal regulation restricts it, and a firm offering it is either working in one of a few narrow exceptions or is not following the rules.
31 CFR 10.27, part of Circular 230, opens by barring any practitioner from charging “an unconscionable fee in connection with any matter before the Internal Revenue Service.” It then prohibits contingent fees for services rendered in connection with any matter before the IRS, with 4 exceptions: an IRS examination or challenge to an original return; an amended return or refund claim filed within 120 days of written notice of an examination or challenge to the original return; a claim for credit or refund covering only statutory interest or penalties; and a judicial proceeding under the Internal Revenue Code.
Collection work, which is what most people mean by tax relief, sits outside all 4. An installment agreement is not a judicial proceeding. Neither is an offer in compromise. So a pitch built on “25 percent of whatever we save you” is a reason to ask which exception the firm thinks applies, and to get the answer in writing.
What happens to your retainer if the IRS rejects your offer?
The work was still performed, so the fee is usually still earned. That is why this clause matters more than the price.
The numbers explain why. In fiscal year 2025, taxpayers proposed 38,797 offers in compromise and the IRS accepted 5,464 of them, worth $98.1 million, according to the IRS collections data tables. Roughly 1 in 7. Those are not the same offers moving through in one year, so treat it as a shape rather than a cohort rate, but the shape is the point: rejection is the common outcome, not the rare one.
A well-written agreement says what happens next. Does the fee cover an appeal to the IRS Independent Office of Appeals? Does it cover a second offer, or a pivot to an installment agreement or currently not collectible status? Or does the engagement end at rejection, with a new agreement and a new fee to continue?
There is no wrong answer to that question. There is only the wrong version, which is silence. Before you sign, it helps to know your real odds on an offer and to understand how an offer in compromise works in the first place.
The IRS also publishes a free Offer in Compromise Pre-Qualifier Tool. Per the IRS offer in compromise FAQs, an offer costs a $205 application fee plus an initial payment of either 20 percent of the offer amount or the first periodic payment, and the investigation “can take up to 24 months.” Anyone charging you to find out whether you qualify at all is charging for something the IRS gives away.
What a tax attorney retainer fee should be attached to
A fee is a quote when it arrives with a scope. It is a deposit when it does not.
Flat, hourly with a drawdown, and phased are all legitimate structures. Ask what the fee covers by tax year and by agency, what triggers a second payment, and how the balance is calculated if you cancel in week 3. A number with no method behind it answers none of that.
If a firm prices your case before it has pulled your IRS transcripts, it is quoting a case it has not read. Transcripts show the assessed balance, the filing gaps, the collection statute expiration dates, and whether a lien or levy is already moving. None of that is knowable from a 10 minute intake call, and all of it changes the work.
The OIC mill retainer pattern the IRS named in 2026
The IRS put tax debt resolution companies on its 2026 Dirty Dozen list, and the retainer structure is the tell.
In release IR-2026-30, issued March 5, 2026, the agency wrote that the Offer in Compromise program “can help certain eligible taxpayers resolve tax debt when they are unable to pay in full, but ‘OIC mills’ often overpromise results and charge high fees to taxpayers who don’t qualify.” The full 2026 Dirty Dozen list is worth 10 minutes of your time.
In a retainer agreement, that pattern looks like this. The scope covers an investigation phase only. The fee is due in full up front. There is no refund clause, or the refund is at the firm’s discretion. Nobody licensed is named anywhere in the document. And the person who sold it to you was a salesperson, not the person who will do the work.
You will also see the reverse tell, which is a guarantee. No firm can promise an IRS outcome, and a retainer agreement that promises one is describing something the signer does not control. Our look at how tax relief companies work covers the sales structure behind those agreements, and the 10 mistakes that get an offer rejected covers what actually decides the case.
Questions to ask before you sign
Ask these out loud, and write down the answers next to the clause they belong to.
Which licensed person will handle my case, and what is their credential? Which account holds my money until it is earned? What exactly does this fee cover, by tax year and by agency? What triggers another payment? If the IRS says no, what happens to the engagement and to the balance? If I cancel next month, how is the refund calculated and when do I get it? Can I have a copy of this agreement to read overnight?
That last one matters most. A firm that will not let you sleep on it is telling you what kind of firm it is.
If you are working through a tax attorney retainer agreement right now and something in it does not read clearly, bring it in. We will read it with you, including the ones we did not write.
FAQs
What is a tax attorney retainer agreement?
A tax attorney retainer agreement is the written contract between you and a law firm that sets the scope of the tax work, the fee and how it is calculated, where your advance payment is held, and what is refunded if the work ends early. Michigan Rule of Professional Conduct 1.5(b) says the basis or rate of the fee should be communicated to you, preferably in writing, before or soon after the representation starts.
Is a tax attorney retainer refundable?
The unearned portion is. Michigan Rule of Professional Conduct 1.15 requires advance legal fees to be held in a client trust account and withdrawn only as fees are earned, and the comment to Rule 1.5 states that a lawyer who requires advance payment “is obliged to return any unearned portion.” Money already earned by work performed is generally not refundable, which is why the scope clause matters as much as the fee.
Where does my retainer money go before the work is done?
Into a client trust account, if you hired a licensed attorney in Michigan. Rule 1.15 also bars the lawyer from taking any interest earned on that account. Enrolled Agents, CPAs and non-attorney tax relief companies can represent taxpayers before the IRS but are not bound by the state bar trust account rule, so ask in writing which account holds your payment.
Can a tax relief company charge a percentage of what it saves me?
Usually no. 31 CFR 10.27 prohibits a practitioner from charging a contingent fee for services in connection with any matter before the IRS, with narrow exceptions for examinations, amended returns or refund claims filed within 120 days of a written notice of examination, interest and penalty only refund claims, and judicial proceedings. Most collection work, including offers in compromise, falls outside those exceptions.
What happens to my retainer if the IRS rejects my offer in compromise?
It depends on what your agreement says, and the odds make that clause worth reading. The IRS reported 38,797 offers proposed and 5,464 accepted in fiscal year 2025. A clear agreement states whether the fee covers an appeal, a second offer, or a switch to an installment agreement, or whether the engagement ends at rejection.
How do I spot an OIC mill retainer agreement?
Look for a scope limited to an investigation phase, full payment up front, no written refund terms, no named licensed professional, and a promised outcome. In release IR-2026-30 on March 5, 2026, the IRS warned that “OIC mills” often overpromise results and charge high fees to taxpayers who don’t qualify. You can check your own eligibility first with the free IRS Offer in Compromise Pre-Qualifier Tool.
Do I get my documents back if I fire the firm?
Yes. 31 CFR 10.28 requires a practitioner to promptly return, on request, any records of yours needed to meet your federal tax obligations, and a dispute over fees generally does not change that. If state law permits the firm to hold certain records during a fee dispute, you are still entitled to reasonable access to review and copy them.
Bridgette Austin, Esq., EA, spent three years at Michigan State University’s Tax Clinic representing low-income taxpayers before the IRS – two as a student clinician, one as a post-graduate fellow. That work shaped her practice. A Bellaire, Michigan native with a Northern Michigan University bachelor’s and an MSU law degree, she now resolves IRS and State of Michigan tax debt cases at Austin & Larson.
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