Limits on contingent fees for refund claims | Research Credit Integrity Alliance

The problem

Treasury's Circular 230 says that a practitioner may not charge a contingent fee for services in connection with any matter before the IRS, subject to limited exceptions.1 "Matter before the Internal Revenue Service" is defined to include preparing or filing returns or claims for refund or credit.1 A contingent fee includes a fee based on a percentage of the refund reported on a return or of the taxes saved.1 The exceptions allow contingent fees for services connected with an IRS examination of, or challenge to, an original return, or an amended return or claim filed within 120 days of the taxpayer receiving written notice of an examination or a written challenge; for claims filed solely about statutory interest or penalties; and for judicial proceedings.1

In 2014 the US District Court for the District of Columbia held that the IRS lacked statutory authority to restrict contingent fees for preparing and filing what the court called "Ordinary Refund Claims": refund claims filed after the original return but before the IRS has begun an audit. The court permanently enjoined the IRS from enforcing the restriction for those claims.2 The court relied on reasoning that the US Court of Appeals for the District of Columbia Circuit had applied earlier that year, when it held that the IRS's authority under 31 U.S.C. § 330 does not extend to regulating tax return preparers.3

A business that discovers qualifying research after filing can claim the credit on an amended return. The IRS requires specific information with such a claim for it to be considered valid.4 A claim of this kind, filed before any audit has begun, fits the description of an ordinary refund claim that the court used when it held the restriction unenforceable.

The proposal

Our position

Swanson Reed's position is that Congress should prohibit contingent fees in all federal R&D tax credit engagements under Section 41. This proposal is the part of that prohibition that can be acted on first, because it closes a gap that already exists between the text of Treasury's rule and its enforceable reach.

Congress should enact a statutory rule that no person may charge a fee calculated wholly or partly by reference to the amount of a research credit, refund or tax saved, for preparing or advising on an amended return or claim for refund or credit that includes a Section 41 credit. The rule should:

apply to any person who prepares or advises on such a claim for compensation, whether or not that person is a practitioner under Circular 230;
use a definition of contingent fee consistent with the one Treasury already uses in Circular 230;
give Treasury clear authority to issue regulations and to enforce the rule.

We support extending the same rule to original returns, so that the prohibition covers every Section 41 engagement. This page sets out the refund claim step separately because the case for it is the clearest.

Who would act

Congress. The 2014 decision rested on the limits of the IRS's statutory authority,2 so a durable rule for ordinary refund claims needs legislation. Treasury and the IRS would then implement it through Circular 230, forms and instructions, and enforcement.

Expected effect

Our position

For research credit claims filed on an amended return before an examination, the fee would no longer rise with the size of the claim. Advisers would still be paid for preparing amended claims, on a fixed, hourly or other basis that reflects the work. Businesses would face the same price whatever number the work supports, which removes the reason to prefer a larger figure over a better supported one. Treasury's existing rule would regain the practical effect its text describes for these claims.

Objections and response

"Smaller businesses cannot pay fees up front, and contingent fees give them access to advice." A business with little cash may only be able to afford a claim if the fee is paid from the refund.

Our position

We take this seriously. The proposal prohibits linking the fee to the size of the credit; it does not require payment in advance. A fixed fee can be payable in stages or on completion of the work. What changes is that the price is set by the work, not by the result.

"Businesses and advisers should be free to agree their own terms." Freedom of contract is a reasonable default.

Our position

Federal tax practice already limits that freedom: Treasury restricts contingent fees for practitioners in most matters before the IRS.1 The proposal does not create a new kind of restriction. It puts on a statutory footing a rule that already exists in Treasury's regulations, for the claims that rule can no longer reach.

"A contingent fee aligns the adviser with the client, because the adviser is paid only if the client benefits." This is the main argument for success fees.

Our position

The alignment is with the size of the claim, not with whether it holds. If a claim is later reduced, the business repays the credit with interest5 and may face a penalty of 20 percent of the excessive amount.6 An adviser paid on the original figure does not repay that cost unless the engagement letter says so.

Sources

Treasury Department, Circular No. 230, 31 CFR § 10.27, Fees, § 10.27(b)(1) to (4) and (c)(1) and (2). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/section-10.27 (accessed 11 October 2026). Back
United States District Court for the District of Columbia, Ridgely v. Lew, Civil Action No. 1:12-cv-00565, 55 F. Supp. 3d 89 (D.D.C. 2014), memorandum opinion pages 1 and 14 to 15. https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2012cv0565-48 (accessed 11 October 2026). Back
United States Court of Appeals for the District of Columbia Circuit, Loving v. Internal Revenue Service, No. 13-5061, 742 F.3d 1013 (D.C. Cir. 2014), slip opinion pages 2 to 3. https://media.cadc.uscourts.gov/opinions/docs/2014/02/13-5061-1479431.pdf (accessed 11 October 2026). Back
Internal Revenue Service, Instructions for Form 6765 (Rev. December 2025), Research Credit Claims on Amended Returns. https://www.irs.gov/instructions/i6765 (accessed 11 October 2026). Back
U.S. Government Publishing Office, United States Code, 2024 Edition, 26 U.S.C. § 6601, Interest on underpayment, nonpayment, or extensions of time for payment, of tax, § 6601(a). https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap67-subchapA-sec6601.htm (accessed 11 October 2026). Back
U.S. Government Publishing Office, United States Code, 2024 Edition, 26 U.S.C. § 6676, Erroneous claim for refund or credit, § 6676(a). https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap68-subchapB-partI-sec6676.htm (accessed 11 October 2026). Back

The problem

The proposal

Who would act

Expected effect

Objections and response

Sources

The other proposals