Gross fee penalty

Definition

A penalty on the firm itself, capped at every dollar the offending work earned it.

Why It Matters

Realization asks how much of the standard rate a practice collects. Its twin asks how much of what it collected can be taken back, and the ceiling is all of it: Treasury's practice rules cap a monetary penalty at the gross income derived from the conduct that gave rise to it. The penalty can run against the firm and not only the person, on a knew-or-should-have-known standard, so it travels with the entity in a share purchase and is measured by fees banked and distributed years ago. The commonest trigger is a fee that was not flat or hourly, because those rules bar a contingent fee for work before the tax authority and define one to include a percentage of a refund or of taxes saved. Ask for every engagement letter whose fee was neither, across three years.