What good practice looks like | Research Credit Integrity Alliance

Key points

Treasury and the AICPA both treat a fee that depends on the result, including a percentage of a refund, as a contingent fee. The AICPA Code also says fees may vary with, for example, the complexity of the work.12
A promise to refund the fee if a position is challenged is itself a contingent fee under Circular 230.1
Circular 230 requires practitioners to tell clients about penalties reasonably likely to apply, and the Internal Revenue Code imposes a 20 percent penalty on the person making an excessive refund claim unless there is reasonable cause.34
Treasury regulations require a taxpayer claiming the research credit to keep records in sufficiently usable form and detail to substantiate the claim.5
The IRS requires research credit refund claims to identify the business components and research activities claimed, and Section G of Form 6765, required for tax years beginning after 2025 with exceptions, reports original return information by business component.67

How to read this article

This article describes four features that make it easier for a business to understand what it is paying for and to support its claim if the IRS asks. They are general observations about how engagements can be structured. They are not a statement about how any adviser works, and nothing here suggests that an adviser who structures an engagement differently is acting improperly.

Where a point rests on a rule or official guidance, it is cited. Where it is an observation, it is presented as one. The position of Swanson Reed, the publisher of this site, is set out separately at the end.

1. A fee based on the work, fixed or capped

What the rules say

Treasury's Circular 230 defines a contingent fee as any fee based, in whole or in part, on whether a position taken on a return or other filing avoids challenge by the IRS or is sustained. It includes a fee based on a percentage of the refund reported on a return, a fee based on a percentage of the taxes saved, and a fee that otherwise depends on the specific result attained.1

The AICPA Code of Professional Conduct uses a similar definition: a fee is contingent if no fee will be charged unless a specified finding or result is attained, or if the amount of the fee otherwise depends on the finding or result.2 The same rule adds that a member's fees may vary depending, for example, on the complexity of the services rendered.2

Observations

A fee set in advance for a defined scope of work, or calculated from time spent at agreed rates, does not depend on the size of the credit. A cap on such a fee gives the business certainty about the most it will pay.

It helps to be clear about what a cap does not change. A fee calculated as a percentage of the credit remains a fee that depends on the result, even if it is subject to a maximum, because below the cap it still rises and falls with the credit.12

As an illustration only, using round numbers: on a credit of $100,000, a fee of 20 percent of the credit would be $20,000, and on a credit of $150,000 it would be $30,000. A fixed fee of $20,000 for the same work would be $20,000 in both cases.

2. The fee basis disclosed in the engagement letter

What the rules say

Circular 230 treats some fee terms as contingent even if the headline fee looks fixed. A contingent fee includes any arrangement under which the practitioner will reimburse all or part of the client's fee if a position on a return or other filing is challenged by the IRS or not sustained, whether through an indemnity agreement, a guarantee, rescission rights or any similar arrangement.1

Circular 230 also requires a practitioner to inform a client of any penalties reasonably likely to apply to a position the practitioner advised on, or to a return the practitioner prepared or signed, and of any opportunity to avoid those penalties by disclosure.3 That duty applies even if the practitioner is not itself subject to a penalty.3

The penalties that can follow a research credit claim fall on the taxpayer. Under section 6676 of the Internal Revenue Code, if a claim for refund or credit of income tax is made for an excessive amount, the person making the claim is liable for a penalty of 20 percent of the excessive amount, unless the excess is due to reasonable cause.4

Observations

An engagement letter that states the fee basis in plain words lets a business compare offers and see the incentive the fee creates. Points that an engagement letter can make clear include:

whether the fee is fixed, time based, capped, or calculated from the credit;
what is included, for example responding to IRS letters or an examination, and what is charged separately;
whether any part of the fee is refundable if the IRS challenges or reduces the claim, since such a term is itself a contingent fee under Circular 230;1 and
the penalties that could apply to the business if the claim is reduced, consistent with the duty in section 10.34(c).34

For more on what a business may not see when it signs, see Information gaps for businesses.

3. Named people responsible for the technical and financial review

What the rules say

Circular 230 requires a practitioner to exercise due diligence in preparing, approving and filing returns and other papers.8 A practitioner who relies on the work of another person is presumed to have exercised due diligence only if they used reasonable care in engaging, supervising, training and evaluating that person.8 Practitioners must have the competence the matter requires, which can be gained by, for example, consulting experts in the relevant area.9 Those with principal authority for a firm's tax practice must take reasonable steps to ensure the firm has adequate procedures for complying with Circular 230.10

Every return or claim for refund prepared by a paid tax return preparer must bear the preparer's identifying number.11

Observations

A research credit claim draws on two kinds of judgment. One is technical: whether the activities meet the tests for qualified research. The other is financial: whether the wages, supplies and contract research expenses claimed are properly attributed to those activities. Naming, in the engagement letter, the individual responsible for each review gives the business a person to ask and makes the supervision that Circular 230 contemplates visible.810

This also matches the direction of IRS guidance. Since 2022 the IRS has required research credit refund claims to identify the research activities performed for each business component.6 A named reviewer who has checked that information is in a better position to answer questions about it.

4. Records made at the time

What the rules say

Treasury regulations state that a taxpayer claiming a credit under Section 41 must retain records in sufficiently usable form and detail to substantiate that the expenditures claimed are eligible for the credit.5

For refund claims, the IRS requires the claim to identify all the business components it relates to, the research activities performed for each, and the total qualified wage, supply and contract research expenses.6 The IRS has said that a submission which only repeats the legal definitions and requirements will be treated as insufficient, and it has published a best practice example of the information it expects.6 Where a claim is deficient, the IRS sends a letter and, during a transition period that runs through 10 January 2027, gives 45 days to perfect it.6

For original returns, the Form 6765 instructions make Section G, which reports information by business component, required for tax years beginning after 2025, subject to exceptions. They ask that each business component's identifier be consistent with how the taxpayer maintains the books and records that substantiate the research activities and expenses.7

Observations

Records made while the work is done, such as project plans, test results, design iterations and time records, are easier to rely on than accounts assembled after the year has ended. They also make it simpler to produce the business component information the IRS now asks for, and to answer a deficiency letter within the time allowed.67

An adviser's report is not a substitute for the business's own records. The duty to keep records rests with the taxpayer claiming the credit.5

Questions a business can ask

These follow from the four features above:

How is your fee calculated, and would it change if the credit were larger or smaller?
Is any part of the fee refundable if the IRS challenges the claim?
What is included if the IRS sends a deficiency letter or opens an examination?
Who will review the technical description, and who will review the expense calculation?
What records will you need from us, and will they meet the IRS's business component requirements?
What penalties could apply to us if the claim is reduced?

Our position

Our position is that good practice should not depend on each business knowing which questions to ask. Swanson Reed, the publisher of this site, is a fixed-fee R&D tax adviser and has a direct commercial interest in this debate. We believe Congress should prohibit contingent fees in federal research credit engagements under Section 41, so that advisers are paid for the work they perform rather than the size of the claim they produce. The fee features described above would then be the norm for every federal research credit claim. Our argument is that this is about the incentive a fee creates, not the conduct of the people who charge it. See Our position and Recommendations.

Sources

Treasury Department, Circular No. 230, 31 CFR 10.27, Fees, paragraph (c)(1). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-B/section-10.27 (accessed 11 October 2026). Back
American Institute of CPAs, Code of Professional Conduct (updated for all official releases through July 2026), ET 1.510.001, Contingent Fees Rule, paragraphs .03 and .04. Copy published by the Minnesota Board of Accountancy: https://mn.gov/boa/assets/AICPA%20Code%20of%20Professional%20Conduct_tcm1233-764395.pdf (accessed 11 October 2026). Back
Treasury Department, Circular No. 230, 31 CFR 10.34, Standards with respect to tax returns and documents, affidavits and other papers, paragraph (c). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-B/section-10.34 (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 6676, Erroneous claim for refund or credit, subsections (a) and (b), 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-sec6676.htm (accessed 11 October 2026). Back
Treasury Department, 26 CFR 1.41-4, Qualified research for expenditures paid or incurred in taxable years ending on or after December 31, 2003, paragraph (d), Recordkeeping for the research credit. https://www.ecfr.gov/current/title-26/section-1.41-4 (accessed 11 October 2026). Back
Internal Revenue Service, Research credit claims (Section 41) on amended returns frequently asked questions, introduction and questions 7, 20 and 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
Internal Revenue Service, Instructions for Form 6765 (Rev. December 2025), sections "Section G, Business Component Information", "Requirements To Complete Section G" and "Column 49(c)". https://www.irs.gov/instructions/i6765 (accessed 11 October 2026). Back
Treasury Department, Circular No. 230, 31 CFR 10.22, Diligence as to accuracy, paragraphs (a) and (b). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-B/section-10.22 (accessed 11 October 2026). Back
Treasury Department, Circular No. 230, 31 CFR 10.35, Competence, paragraph (a). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-B/section-10.35 (accessed 11 October 2026). Back
Treasury Department, Circular No. 230, 31 CFR 10.36, Procedures to ensure compliance, paragraph (a). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-B/section-10.36 (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 6109, Identifying numbers, subsection (a)(4), 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-chap61-subchapB-sec6109.htm (accessed 11 October 2026). Back

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

Key points

How to read this article

1. A fee based on the work, fixed or capped

What the rules say

Observations

2. The fee basis disclosed in the engagement letter

What the rules say

Observations

3. Named people responsible for the technical and financial review

What the rules say

Observations

4. Records made at the time

What the rules say

Observations

Questions a business can ask

Sources

Related