Information gaps for businesses | Research Credit Integrity Alliance

Key points

A business that hires an adviser for a research credit claim usually knows less about the rules than the adviser does, yet the business, as the taxpayer, carries the burden of proving the claim and keeping the records.12
Four things are often hard to see at signing: how the fee is calculated, what happens to the fee if the claim is reduced, who prepared and reviewed the claim, and what documentation will exist.
Treasury's fee rule for tax practitioners restricts contingent fees but does not require the fee basis to be disclosed to the IRS.3
Each gap can be narrowed with direct questions, set out below. The answers belong in writing in the engagement letter.

Why gaps arise

This article starts from a simple observation. A business usually hires an adviser for a research credit claim because the rules are technical and the business does not apply them every day. That is a sensible reason to hire help. It also means the business is often not in a position to judge the work, or the terms on which the work is offered.

The points below are general observations about how engagements can be structured. They do not describe any adviser's practice and do not say how often any situation arises. Where we state a rule, it is cited.

Two facts frame everything that follows. First, the IRS audit guide for the credit states that "the burden is on the taxpayer to establish that all of the section 41(d)(1) requirements have been met".1 Second, the regulations require a taxpayer claiming the credit to keep records "in sufficiently usable form and detail to substantiate that the expenditures claimed are eligible for the credit".2 The adviser prepares the claim, but the business has to stand behind it.

Gap 1: How the fee is calculated

A fee described as "a percentage of the credit" can mean different things, and each changes the amount owed.

Credit claimed or credit allowed. A fee on the credit as claimed is fixed at filing. A fee on the credit as allowed depends on what survives any review. See How success fees work.
Which credit computation. The statute offers a regular credit and an elective alternative simplified credit, calculated in different ways.4 An election of the alternative simplified credit applies to the year it is made and all later years unless revoked with the IRS's consent.4 A decision made in one engagement can therefore shape the credit, and any fee based on it, in later years.
How many years. A refund claim can generally be filed within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever is later.5 An engagement that covers several open years may produce a fee on each.
Gross or net. A fee may be calculated on the gross credit or on the tax benefit the business actually receives. These can differ, for example where some or all of the credit is carried forward rather than used in the year.

Questions to ask

What exactly is the percentage applied to: the credit claimed, the credit allowed, or the cash or tax benefit received?
Does the fee apply to each year covered, and to future years?
Is there a minimum fee, a cap, or both?
When is the fee payable, and is it payable before the business receives any benefit?

Gap 2: What happens to the fee if the claim is reduced

When a credit is reduced, the business owes the tax the credit offset, interest from the original payment date, and possibly a penalty.67 The federal rules on interest and penalties say nothing about the adviser's fee.67 Whether any of the fee is refunded is a matter for the engagement letter.

Some letters include a refund or clawback term. A business should know that Treasury's rules for practitioners treat a promise to reimburse the client's fee if a position is challenged or not sustained as a form of contingent fee.3 A refund promise is not the same as protection: refunding the fee does not repay the tax, interest or penalty. The full picture is in Who bears the risk of an overclaim.

Questions to ask

If the IRS reduces or disallows the credit, is any part of the fee refunded? All of it, or only the share for the disallowed amount?
What triggers a refund: a proposed adjustment, a final decision, or something else? Is there a time limit?
Does the fee include support during an IRS examination? Up to what stage, and at what cost after that?
Does the letter contain any promise about tax, interest or penalties, or only about fees? What conditions or caps apply?

Gap 3: Who prepared and reviewed the claim

A business may meet a sales contact, receive a report and sign a return without knowing who applied the technical tests to its activities or who checked the numbers.

Federal law gives some reference points. A "tax return preparer" is any person who prepares for compensation, or employs others to prepare for compensation, any return or claim for refund, including a substantial portion of one.8 Preparers face a penalty for understatements due to unreasonable positions that they knew or reasonably should have known about.9 Treasury's rules say that any individual who for compensation prepares, or assists with the preparation of, all or substantially all of a tax return or claim for refund must have a preparer tax identification number.10

Treasury's rules on practice before the IRS, Circular 230, apply to practitioners: attorneys, certified public accountants, enrolled agents and certain others.1112 Whether those rules, including the rule restricting contingent fees, apply to a particular adviser depends on who that adviser is and what work is being done.3 A 2014 federal court decision held that the IRS lacked statutory authority to regulate the preparation and filing of refund claims made before an audit begins.13 See Amended and refund claims.

Questions to ask

Who will prepare the claim, and what are their qualifications? Are they an attorney, certified public accountant or enrolled agent?
Who reviews the technical analysis of whether each activity meets the tests, and who reviews the numbers?
Who signs the return or claim as paid preparer, if anyone?
If the IRS examines the claim, who will deal with the IRS, and will they be authorized to represent the business?

Gap 4: What documentation exists

A research credit claim is only as strong as the records behind it. The business may not know, at signing, what records the adviser will create, what records the business must provide, and who will hold them afterwards.

The rules point to specific information:

For refund claims. The IRS requires a research credit refund claim to identify all the business components the claim relates to, the research activities performed for each, and the total qualified wage, supply and contract research expenses for the year. From 18 June 2024 it waived the requirement to provide, at filing, the names of the individuals who performed each activity and the information each sought to discover, but says that information may be requested if the claim is examined.14 IRS Chief Counsel has said that a mere volume of documents will not satisfy the requirement; if a credit study is provided, the taxpayer must point to the exact pages that support each fact.15
On Form 6765. The instructions for Form 6765 say that Section G, which reports information by business component, is optional for all filers for tax years beginning before 2026 and required for tax years beginning after 2025, subject to exceptions. The exceptions include a qualified small business that elects the reduced payroll tax credit, and a filer whose total qualified research expenses are $1.5 million or less and whose average annual gross receipts are $50 million or less, reporting the credit on an original return.16
Under the regulations. The duty to keep records that substantiate the claim rests with the taxpayer.2

Questions to ask

What written analysis will the business receive for each business component and research activity?
How will wages be allocated to qualified services, and what records support the allocation?
Which documents will the business need to keep, and for how long?
Will the adviser keep working papers, and will the business have access to them if the claim is examined after the engagement ends?

Putting the questions together

The four gaps are connected. A fee that rises with the claim, a refund term that is unclear, a reviewer the business never meets, and documentation that sits with the adviser can each be harmless on their own. Together they can leave a business signing a claim it cannot explain, on terms it did not fully see. That is a general observation about how risk can build up, not a finding about any engagement.

A short list for any engagement:

Ask for the fee basis in writing, with a worked example using round numbers.
Ask what happens to the fee if the credit is reduced, and when.
Ask who prepares, who reviews and who signs.
Ask what documentation the business will receive and keep.
Ask what audit support is included, and what is not.

Our model fee disclosure statement shows one way the answers could be set out in a single document. More guidance for businesses is on our For businesses page.

What questions cannot do

Questions narrow the gaps. They do not close them. A business can ask about the fee basis but still has to rely on the adviser's judgement on the technical tests. And no answer changes where the law places the consequences: on the taxpayer.67

Our position

Swanson Reed, the publisher of this site, is a fixed-fee R&D tax adviser with a direct commercial interest in this debate. Our position is that Congress should prohibit contingent fees in federal research credit engagements under Section 41. Better disclosure helps a business see the terms it is signing, but in our view it does not remove the pull that a percentage fee creates on judgement calls the business cannot check. See Our position.

Sources

Internal Revenue Service, Audit techniques guide: Credit for Increasing Research Activities (i.e. Research Tax Credit) IRC 41, Qualified research activities, chapter 5 (publication date June 2005). https://www.irs.gov/businesses/audit-techniques-guide-credit-for-increasing-research-activities-ie-research-tax-credit-irc-ss-41-qualified-research-activities (accessed 11 October 2026). Back
Treasury Department and IRS, 26 CFR 1.41-4, Qualified research for expenditures paid or incurred in taxable years ending on or after December 31, 2003, paragraph (d). https://www.ecfr.gov/current/title-26/section-1.41-4 (accessed 11 October 2026). Back
Treasury Department, Circular No. 230, 31 CFR 10.27, Fees, paragraphs (a) to (c). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-B/section-10.27 (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 41, Credit for increasing research activities, subsections (a)(1) and (c)(4)(A) and (C), United States Code 2024 edition published by the Government Publishing Office. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleA-chap1-subchapA-partIV-subpartD-sec41.htm (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 6511, Limitations on credit or refund, subsection (a), United States Code 2024 edition published by the Government Publishing Office. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap66-subchapB-sec6511.htm (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 6601, Interest on underpayment, nonpayment, or extensions of time for payment, of tax, subsection (a), United States Code 2024 edition published by the Government Publishing Office. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap67-subchapA-sec6601.htm (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 6662, Imposition of accuracy-related penalty on underpayments, subsection (a), United States Code 2024 edition published by the Government Publishing Office. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap68-subchapA-partII-sec6662.htm (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 7701, Definitions, subsection (a)(36)(A), United States Code 2024 edition published by the Government Publishing Office. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap79-sec7701.htm (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 6694, Understatement of taxpayer's liability by tax return preparer, subsection (a), United States Code 2024 edition published by the Government Publishing Office. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap68-subchapB-partI-sec6694.htm (accessed 11 October 2026). Back
Treasury Department, Circular No. 230, 31 CFR 10.8, Return preparation and application of rules to other individuals, paragraph (a). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-A/section-10.8 (accessed 11 October 2026). Back
Treasury Department, Circular No. 230, 31 CFR 10.2, Definitions, paragraph (a)(5). 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 10.3, Who may practice, paragraphs (a) to (d). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-A/section-10.3 (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 and 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
Internal Revenue Service, Research credit claims (Section 41) on amended returns frequently asked questions, question 21 (page last reviewed or updated 1 October 2026). https://www.irs.gov/businesses/corporations/research-credit-claims-section-41-on-amended-returns-frequently-asked-questions (accessed 11 October 2026). Back
IRS Office of Chief Counsel, Memorandum 20214101F, I.R.C. 41 Research Credit Refund Claims, dated 17 September 2021, released 15 October 2021, Short Answers, answer 2. https://www.irs.gov/pub/irs-lafa/20214101f.pdf (accessed 11 October 2026). Back
Internal Revenue Service, Instructions for Form 6765 (Rev. December 2025), Section G. https://www.irs.gov/instructions/i6765 (accessed 11 October 2026). Back

This article discusses fee practices in general terms. It is not a statement about any particular adviser.

Key points

Why gaps arise

Gap 1: How the fee is calculated

Questions to ask

Gap 2: What happens to the fee if the claim is reduced

Questions to ask

Gap 3: Who prepared and reviewed the claim

Questions to ask

Gap 4: What documentation exists

Questions to ask

Putting the questions together

What questions cannot do

Sources

Related