Engagement contract terms (brief) | Research Credit Integrity Alliance

Key points

IRS examiner guidance told examiners to obtain the engagement letter for research credit claims and noted that "Some fee agreements shift ultimate control over the resolution of the claim to the preparer."1
No federal tax rule found for this brief governs the length or renewal of an engagement. The CRA warns businesses to "Be cautious of contracts that make you commit to filing SR&ED claims for multiple tax years."23
A fee on the gross credit can exceed the benefit kept, because of the Section 280C reduction, carryforwards and later adjustment.45
Under Circular 230, a promise to refund the fee if a claim is challenged is itself a contingent fee, and contingent fees are allowed for examination work.2

Why the engagement letter matters

The 2008 IRS guide for examiners of research credit claims, which states that it is not an official pronouncement of IRS position, said claims are usually based on a study by an outside consultant under an engagement letter. It told examiners to request the letter and to consider a summons if it was refused.1 Form 6765 does not ask who prepared a claim or on what terms.4

Multi-year commitments and renewal

Circular 230 and the AICPA Code do not address how long an engagement may run or whether it renews.26 The CRA has advised businesses to read contracts in detail, understand fee and termination clauses, and be cautious of commitments to file claims for several years.3 HMRC's standard for agents, which is not law, says agents should explain the rights of both parties "to end the arrangement early" and offer "a reasonable cancellation period".7

Changing adviser depends partly on records. Circular 230 requires a practitioner to return a client's records needed for federal tax compliance on request, even where there is a fee dispute, although documents the practitioner prepared may be withheld pending payment of fees for them.2

Fees on the gross claim

A company claiming the credit must either elect a reduced credit under Section 280C or reduce its research expenditures by the amount of the credit.4 Unused credits are carried back one year and forward twenty.5 A credit can also be reduced on examination, and the company then repays the excess with interest.8

As an illustration only: a regular credit computed at $100,000 becomes $79,000 if the reduced credit is elected. A 20 percent fee on the gross figure is $20,000; on the credit claimed it is $15,800. If the claimed credit is later cut to $50,000, a fee on the original figure has been charged on $29,000 the company does not keep.

HMRC tells companies correcting an overclaim that "Some agents deduct their fees before paying clients the balance", and that they must repay the full overclaim, "not the net amount you received".9 For the employee retention credit, a different refundable credit, the IRS accepted 80 percent repayment because many promoters had taken a percentage fee from the payout.10

After an examination

HMRC has recorded that some agents are "unwilling to engage with a subsequent compliance check".11 Circular 230 allows contingent fees for services in connection with an IRS examination, and treats a promise to reimburse the client's fee if a position is challenged or not sustained as a contingent fee.2 It treats a significant risk that representation will be limited by the practitioner's personal interest as a conflict of interest requiring the client's written consent.2 UK professional guidance advises engagement letters to state whether the fee is repaid if the benefit is cancelled.12

Whatever the contract says, an excessive refund claim carries a penalty of 20 percent of the excess on the person making it unless there is reasonable cause.13 No federal rule requires a contingent fee to be repaid when a claim is reduced.

The case for these terms

Multi-year terms can spread the cost of learning a business and give continuity. Renewal saves effort. A fee on the gross figure is simple to compute. Examination support and fee refund promises take on risk that would otherwise fall on the company. These are legitimate considerations, and nothing in this brief suggests that advisers who use them act improperly.

The answer is that continuity can be priced year by year without a percentage; that the gross figure is not what the company keeps; and that a refund promise gives the adviser a stake in the result, which is why Treasury treats it as contingent.2 Treasury has said that a practitioner with a financial interest in a client's tax benefits "may be incentivized to increase such tax benefits", in a proposal that is not final.14

Our position

Congress should prohibit contingent fees, commonly called success fees, in federal research and development tax credit engagements under Section 41, so that advisers are paid for the work they perform rather than for the size of the claim they produce. Swanson Reed, which publishes this brief, is a fixed-fee R&D tax adviser with a direct commercial interest: it does not charge success fees, and a ban would remove a pricing model it competes against.

References

Internal Revenue Service, Large and Mid Size Business Division, Research Credit Claims Audit Techniques Guide (RCCATG): Credit for Increasing Research Activities Section 41, LMSB-04-0508-030 (May 2008), introductory note and Chapter II, "Additional areas to consider" and "The RC Claim Engagement Letter". https://www.irs.gov/businesses/research-credit-claims-audit-techniques-guide-rccatg-credit-for-increasing-research-activities-section-41 (accessed 11 October 2026). Back
Treasury Department, Circular No. 230, 31 CFR part 10, sections 10.27(b) and (c), 10.28(a) and (b), and 10.29(a) and (b). https://www.ecfr.gov/current/title-31/subtitle-A/part-10 (accessed 11 October 2026). Back
Canada Revenue Agency, SR&ED news and updates, item "Dentistry professionals: look out for third parties promising access to SR&ED tax incentives". https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/sred-updates.html (accessed 11 October 2026). Back
Internal Revenue Service, Instructions for Form 6765 (Rev. December 2025), "Item A, Section 280C Election", and the instructions for lines 13 and 26. https://www.irs.gov/instructions/i6765 (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 39, Carryback and carryforward of unused credits, subsection (a)(1), 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-sec39.htm (accessed 11 October 2026). Back
American Institute of CPAs, AICPA Code of Professional Conduct (updated for all official releases through September 2026), ET 1.400.200 Records Requests and ET 1.510.001 Contingent Fees Rule. https://pub.aicpa.org/codeofconduct/ethicsresources/et-cod.pdf (accessed 11 October 2026). Back
HM Revenue and Customs, The HMRC standard for agents (updated 9 February 2026), section 4.3.3. https://www.gov.uk/government/publications/hmrc-the-standard-for-agents/the-hmrc-standard-for-agents (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
HM Revenue and Customs, Tell HMRC if you've claimed too much Research and Development (R&D) tax relief (last updated 14 August 2026), section "Make your disclosure". https://www.gov.uk/guidance/tell-hmrc-if-youve-claimed-too-much-research-and-development-rd-tax-relief (accessed 11 October 2026). Back
Internal Revenue Service, IRS new Voluntary Disclosure Program lets employers who received questionable Employee Retention Credits pay them back at discounted rate, News release IR-2023-247, 21 December 2023. https://www.irs.gov/newsroom/irs-new-voluntary-disclosure-program-lets-employers-who-received-questionable-employee-retention-credits-pay-them-back-at-discounted-rate-interested-taxpayers-must-apply-by-march-22 (accessed 11 October 2026). Back
HM Revenue and Customs, Approach to Research and Development tax reliefs 2023 to 2024 (published 30 October 2024), section 2.5. https://www.gov.uk/government/publications/hmrcs-approach-to-research-and-development-tax-reliefs-2023-to-2024/approach-to-research-and-development-tax-reliefs-2023-to-2024 (accessed 11 October 2026). Back
Chartered Institute of Taxation and Association of Taxation Technicians, Professional Rules and Practice Guidelines (effective 9 November 2018, updated 1 January 2021), paragraph 8.2.3. https://www.att.org.uk/sites/default/files/PRPG%20%28Update%201.1.2021%29%20-%20Final.pdf (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 6676, Erroneous claim for refund or credit, 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-sec6676.htm (accessed 11 October 2026). Back
Treasury Department and Internal Revenue Service, Regulations Governing Practice Before the Internal Revenue Service, notice of proposed rulemaking, REG-116610-20, 89 FR 104915 (26 December 2024), Explanation of Provisions part B. https://www.federalregister.gov/documents/2024/12/26/2024-29371/regulations-governing-practice-before-the-internal-revenue-service (accessed 11 October 2026; a Federal Register docket search on that date showed only the proposed rule). Back