The case for success fees, examined (brief) | Research Credit Integrity Alliance

Key points

The case for success fees rests on access, cash flow, risk sharing, alignment and freedom of contract; versions of it were put to Treasury in 2007.1
Federal law accepts contingent fees for Social Security, veterans and federal tort claims, where a public body fixes the amount first.234
Treasury and the AICPA allow contingent fees where a government body will review the matter, but not for preparing original returns.56
Low upfront cost and late payment can be provided by fixed, staged or scoped fees that do not depend on the size of the credit.5
The risk that a claimed credit fails on examination, with interest and a possible 20 percent penalty, stays with the taxpayer.78

The case in its strongest form

Access. IRS Chief Counsel has called the research credit "a complex area of law" involving a four-part test and numerous exclusions.9 A success fee lets a business find out whether it qualifies at no cost. Congress accepts contingent fees for the same reason in Social Security, veterans and tort claims.234 When Treasury revised its rule in 2007, commenters said restrictions "prohibited some small and middle market taxpayers from appropriately requesting refunds".1

Cash flow. The credit produces cash only after a return or claim is processed; for refund claims the IRS aims to decide within six months.10 A fee paid from the credit matches cost to benefit.

Risk sharing. Under a success fee the adviser, not the business, bears the cost of work that finds no credit.

Alignment. A fee that rises with the credit gives the adviser a reason to find every qualifying expense.

Review. Treasury allows contingent fees for examinations, interest and penalty claims and litigation, and said in 2007 that interest and penalty reviews involve "no exploitation of the audit lottery".51 The AICPA treats a fee as not contingent where a government agency will give the matter substantive consideration.6 Supporters note that the IRS now checks every research credit refund claim for specific information.10

Safeguards. Preparers already face penalties for unreasonable positions, and taxpayers face a 20 percent penalty on excessive refund claims.117

These arguments describe real benefits, and nothing in this brief suggests that advisers who charge success fees act improperly.

The answers

Access is about upfront cost. Treasury's definition of a contingent fee turns on how a fee is calculated, not when it is paid.5 A scoped fixed fee, or a fixed fee paid in stages, can offer low upfront cost without tying the fee to the credit. The federal precedents involve an agency or court fixing the amount before the fee is calculated, and for veterans Congress bars any fee for help with the initial claim.234

Cash flow is about timing. A fixed fee can be paid after filing. Qualified small businesses can also elect to use up to $500,000 of the credit a year against payroll taxes.12

The shared risk is the wrong risk. A success fee shares the risk that no credit is found. If a claimed credit is reduced, the taxpayer repays it with interest and may owe a 20 percent penalty.7813 The IRS tells taxpayers they are "ultimately accountable for the accuracy of every item reported" on their return.14 An arrangement to refund the fee if a position is challenged is itself a contingent fee under Treasury's rule.5

Alignment with what is claimed is not alignment with what is kept. A 2008 IRS guide for examiners, which is not an official statement of IRS position, noted that "Some fee agreements shift ultimate control over the resolution of the claim to the preparer."15 Treasury said in 2024 that a practitioner with a financial interest in a client's tax benefits "may be incentivized to increase such tax benefits".16

Review supports contingent fees for examinations, not for preparing claims. The AICPA says an expectation of substantive review "is not reasonable if the member prepares a client's original tax returns".6 The IRS reviews the underlying research only if a claim is selected for examination.10

Safeguards apply after the fact. The preparer penalty is measured partly by the preparer's income from the claim and does not address how that income is calculated.11

Where the case remains strongest

No official data shows how many research credit claims are prepared on success fees, how they fare on examination, or how many small businesses would stop claiming without them; Form 6765 does not ask how a preparer was paid.17 The argument here rests on the structure of the fee and the stated reasoning of Treasury and the IRS, not on measured outcomes.

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

Treasury Department and Internal Revenue Service, T.D. 9359, 72 FR 54540 (26 September 2007), preamble, "Contingent Fees", pages 54541 to 54542. https://www.federalregister.gov/documents/2007/09/26/E7-18918/regulations-governing-practice-before-the-internal-revenue-service (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 42 U.S.C. 406, subsections (a)(2)(A) and (a)(4), United States Code 2024 edition. https://www.govinfo.gov/content/pkg/USCODE-2024-title42/html/USCODE-2024-title42-chap7-subchapII-sec406.htm (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 38 U.S.C. 5904, subsections (c)(1) and (d)(1), United States Code 2024 edition. https://www.govinfo.gov/content/pkg/USCODE-2024-title38/html/USCODE-2024-title38-partIV-chap59-sec5904.htm (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 28 U.S.C. 2678, United States Code 2024 edition. https://www.govinfo.gov/content/pkg/USCODE-2024-title28/html/USCODE-2024-title28-partVI-chap171-sec2678.htm (accessed 11 October 2026). Back
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
American Institute of CPAs, AICPA Code of Professional Conduct (updated through September 2026), ET 1.510.001 paragraph .03 and ET 1.510.010 paragraphs .03 and .04. https://pub.aicpa.org/codeofconduct/ethicsresources/et-cod.pdf (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 6676, subsection (a), United States Code 2024 edition. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap68-subchapB-partI-sec6676.htm (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 6601, subsection (a), United States Code 2024 edition. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap67-subchapA-sec6601.htm (accessed 11 October 2026). Back
IRS Office of Chief Counsel, Memorandum 20214101F, released 15 October 2021, Law and Analysis part C. https://www.irs.gov/pub/irs-lafa/20214101f.pdf (accessed 11 October 2026). Back
Internal Revenue Service, Research credit claims (Section 41) on amended returns frequently asked questions, introduction and questions 3 to 5 (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
Office of the Law Revision Counsel, 26 U.S.C. 6694, subsection (a), United States Code 2024 edition. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap68-subchapB-partI-sec6694.htm (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 41, subsection (h)(1) to (h)(4), United States Code 2024 edition. 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. 6662, subsections (a) and (b), United States Code 2024 edition. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap68-subchapA-partII-sec6662.htm (accessed 11 October 2026). Back
Internal Revenue Service, Topic no. 254, How to choose a tax return preparer (page last reviewed or updated 7 October 2026). https://www.irs.gov/taxtopics/tc254 (accessed 11 October 2026). Back
Internal Revenue Service, Research Credit Claims Audit Techniques Guide, LMSB-04-0508-030 (May 2008), introductory note and Chapter II. 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 and Internal Revenue Service, notice of proposed rulemaking, REG-116610-20, 89 FR 104915 (26 December 2024), page 104918. https://www.federalregister.gov/documents/2024/12/26/2024-29371/regulations-governing-practice-before-the-internal-revenue-service (accessed 11 October 2026). Back
Internal Revenue Service, Instructions for Form 6765 (Rev. December 2025). https://www.irs.gov/instructions/i6765 (accessed 11 October 2026). Back