Policy options for Congress (brief) | Research Credit Integrity Alliance

Key points

Treasury's contingent fee rule binds only practitioners, and courts held in 2014 that it cannot reach paid preparers generally or ordinary refund claims filed before an audit.123
Treasury's 2024 proposal to respond would still apply only to practitioners and has not been finalized.4
In 2025 the House passed a provision that would have barred Treasury from restricting contingent fees on returns and refund claims; the enacted law does not contain it.56
Disclosure, identification, penalties, refund controls and data each address part of the problem but leave a fee calculated on the credit in place.

The gap

Circular 230 bars practitioners from charging contingent fees for preparing returns and refund claims, with exceptions for examinations, interest and penalty claims, and litigation.1 In Loving v. IRS the D.C. Circuit held that Treasury's authority over practice before it does not extend to regulating tax return preparers, and said wider regulation "is a decision for Congress and the President".2 In Ridgely v. Lew a district court held that the IRS cannot apply its contingent fee rule to ordinary refund claims.3 Treasury's December 2024 proposal would treat such fees as disreputable conduct, but only for practitioners; a Federal Register search on 11 October 2026 found no final rule.4

What Congress has considered

H.R. 1, section 112208 (2025). As passed by the House, it provided that the Secretary "may not regulate, prohibit, or restrict the use of a contingent fee" on returns and refund claims. Public Law 119-21 does not contain it.56
Treasury's fiscal year 2025 proposals. Explicit authority over all paid preparers, higher preparer penalties, and a $500 penalty on taxpayers who fail to disclose a paid preparer "and the fees paid to such a preparer".7
H.R. 1983 (2025). Authority to regulate tax return preparers with minimum competency standards. It was referred to the Ways and Means Committee, with no later action recorded.89

The options

Option	What it would do	What it would not do
1. Leave to Treasury	Discipline practitioners who charge contingent fees4	Reach preparers who are not practitioners
2. Fee disclosure on the claim	Create a record of how claims are paid for, as Canada has done since 2014710	Change the incentive
3. Identify the credit preparer	Name the person who prepared the credit, whom the regulations already treat as a preparer11	Address the fee
4. Stronger penalties or shared liability	Raise the preparer's cost of an overstated claim7	Act before the claim is filed
5. Refund paid to the taxpayer only	Stop fees being taken from the refund, as the UK has done for R&D credits12	Change how the fee is calculated
6. General preparer authority	Allow competency and conduct rules for all paid preparers8	Prohibit any fee by itself
7. Codify the practitioner rule	Restore the rule for ordinary refund claims prepared by practitioners3	Reach other preparers
8. Data and reporting	Let the debate rest on evidence; IRS research credit tables run only to 201413	Change any incentive
9. Statutory prohibition for Section 41 engagements	Apply to every paid preparer and to original and refund claims alike	Stop overstated claims prepared on fixed fees

The options can be combined.

Designing a prohibition

A statutory prohibition would need a definition, a scope, exceptions and enforcement. Circular 230's definition of a contingent fee already covers a percentage of the refund or taxes saved and a promise to refund the fee if a position fails.1 Treasury's 2024 proposal defines preparation to include advice directly relevant to an entry on a return, which would cover advisers who calculate the credit without signing.4 Congress would need to decide whether representation in an examination should stay open to contingent pricing, as Circular 230 now allows.1 Treasury's existing power to penalize representatives is capped at the gross income derived from the conduct, which offers a model for a penalty measured by the fee.14

The trade-offs

The main cost falls on businesses that value paying nothing upfront. In 2007 commenters told Treasury that restrictions would prevent some small and middle market taxpayers from requesting refunds.15 Fixed, capped or staged fees can meet that need without tying the fee to the size of the credit. Penalties and reporting, by contrast, act after a claim is filed and leave the fee unchanged. Treasury itself said in 2024 that leaving pre-examination refund claims unregulated "would not have met the objective to discourage unduly aggressive tax positions".4

No official data shows how many research credit claims are prepared on a contingent fee, so the effect of any option cannot be estimated from official sources.1316

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. Written into statute, the rule would not depend on how far Treasury's authority over practice extends. 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

Treasury Department, Circular No. 230, 31 CFR 10.27, Fees, paragraphs (b) and (c). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-B/section-10.27 (accessed 11 October 2026). Back
US Court of Appeals for the District of Columbia Circuit, Loving v. Internal Revenue Service, No. 13-5061, decided 11 February 2014, slip opinion pages 2 to 3 and 17 to 18. https://media.cadc.uscourts.gov/opinions/docs/2014/02/13-5061-1479431.pdf (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 14 to 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
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, Regulatory Flexibility Act analysis and proposed section 10.51. https://www.federalregister.gov/documents/2024/12/26/2024-29371/regulations-governing-practice-before-the-internal-revenue-service (accessed 11 October 2026; Federal Register docket search on that date returned only the proposed rule). Back
US House of Representatives, H.R. 1, 119th Congress, Engrossed in House, section 112208. https://www.govinfo.gov/content/pkg/BILLS-119hr1eh/html/BILLS-119hr1eh.htm (accessed 11 October 2026). Back
Public Law 119-21, 139 Stat. 72, approved 4 July 2025, full text searched for "contingent fee". https://www.govinfo.gov/content/pkg/PLAW-119publ21/html/PLAW-119publ21.htm (accessed 11 October 2026). Back
Department of the Treasury, General Explanations of the Administration's Fiscal Year 2025 Revenue Proposals (March 2024), pages 206 to 209 and summary table. https://home.treasury.gov/system/files/131/General-Explanations-FY2025.pdf (accessed 11 October 2026). Back
US House of Representatives, H.R. 1983, Tax Return Preparer Accountability Act of 2025, 119th Congress, introduced 10 March 2025, section 2. https://www.congress.gov/119/bills/hr1983/BILLS-119hr1983ih.pdf (accessed 11 October 2026). Back
Congress.gov, H.R. 1983, 119th Congress, actions (referred to the Committee on Ways and Means, 10 March 2025; no later action), read through the congress.gov API. https://www.congress.gov/bill/119th-congress/house-bill/1983/all-actions (accessed 11 October 2026). Back
Canada Revenue Agency, Budget 2013, Scientific Research and Experimental Development (SR&ED) Tax Incentive Program, section on claim preparer information and penalty. https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/budget-2013/budget-2013-scientific-research-experimental-development-tax-incentive-program.html (accessed 11 October 2026). Back
Treasury Department and Internal Revenue Service, 26 CFR 301.7701-15, Tax return preparer, paragraphs (b)(1) and (b)(2)(i). https://www.ecfr.gov/current/title-26/section-301.7701-15 (accessed 11 October 2026). Back
HM Revenue and Customs, Corporate Intangibles Research and Development Manual, CIRD81805, "R&D tax relief: conditions to be satisfied: restriction of nominations and assignments". https://www.gov.uk/hmrc-internal-manuals/corporate-intangibles-research-and-development-manual/cird81805 (accessed 11 October 2026). Back
Internal Revenue Service, SOI Tax Stats: Corporation research credit, table list. https://www.irs.gov/statistics/soi-tax-stats-corporation-research-credit (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 31 U.S.C. 330, Practice before the Department, subsection (c), United States Code 2024 edition published by the Government Publishing Office. https://www.govinfo.gov/content/pkg/USCODE-2024-title31/html/USCODE-2024-title31-subtitleI-chap3-subchapII-sec330.htm (accessed 11 October 2026). Back
Treasury Department and Internal Revenue Service, Regulations Governing Practice Before the Internal Revenue Service, final regulations, T.D. 9359, 72 FR 54540 (26 September 2007), preamble, "Contingent Fees", page 54541. https://www.federalregister.gov/documents/2007/09/26/E7-18918/regulations-governing-practice-before-the-internal-revenue-service (accessed 11 October 2026). Back
Internal Revenue Service, Instructions for Form 6765 (Rev. December 2025), read in full. https://www.irs.gov/instructions/i6765 (accessed 11 October 2026). Back