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Policy Brief No. 25

When the adviser disappears (brief)

This paper sets out research and the publisher's opinion. Factual statements are cited to their sources. It makes no allegation about any firm or person not named in a cited official record.

A research credit claim can be examined after the adviser who prepared it has closed. This brief summarizes who bears the liability, what happens to the records and what a business can recover.

ResearchCreditIntegrity.org is operated by SR Tax Services LLC under the Swanson Reed brand. Swanson Reed is an R&D tax advisory firm with a commercial interest in how R&D tax advisers are paid. See our conflicts of interest statement.

Key points

  1. If a research credit is reduced, the taxpayer repays it with interest and may owe a 20 percent penalty, whether or not its adviser still exists.1Source 1Internal 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).2Source 2Office 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).3Source 3Office of the Law Revision Counsel, 26 U.S.C. 6676, subsections (a) and (b), 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).
  2. The taxpayer must keep the records that substantiate the credit; Circular 230's duty to return client records applies only to practitioners.4Source 4Treasury Department, 26 CFR 1.41-4, paragraph (d). https://www.ecfr.gov/current/title-26/section-1.41-4 (accessed 11 October 2026).5Source 5Treasury Department, Circular No. 230, 31 CFR 10.28, Return of client's records, paragraphs (a) and (b). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-B/section-10.28 (accessed 11 October 2026).
  3. No federal rule requires a research credit adviser to hold professional indemnity insurance.6Source 6Treasury Department, Circular No. 230, 31 CFR part 10 (full text searched for insurance requirements on 11 October 2026; none found). https://www.ecfr.gov/current/title-31/subtitle-A/part-10 (accessed 11 October 2026).
  4. A promise to refund a fee if the claim fails is itself a contingent fee under Treasury's rule.7Source 7Treasury 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).

Claims outlive engagements

The IRS generally has three years after a return is filed to assess additional tax.8Source 8Office of the Law Revision Counsel, 26 U.S.C. 6501, subsection (a), United States Code 2024 edition. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap66-subchapA-sec6501.htm (accessed 11 October 2026). For research credit refund claims, it may ask for the names of the people who did the work and the information they sought if a claim is selected for examination.9Source 9Internal Revenue Service, Research credit claims (Section 41) on amended returns frequently asked questions, question 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). By then the adviser's engagement has usually ended and its fee has been paid. The IRS tells taxpayers to "Choose a tax return preparer you'll be able to contact in case the IRS examines your return", and that "you're ultimately accountable for the accuracy of every item reported on your return".1Source 1Internal 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). No official source records how often research credit advisers close.

Who carries the liability

The taxpayer repays any credit that is reduced, with interest generally from the original due date of the return; where a refund was paid and is later reversed, interest can instead run from the date of the refund, depending on how the refund was paid and recovered.2Source 2Office 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).10Source 10Internal Revenue Service, Internal Revenue Manual 20.2.5, Interest on Underpayments (Manual Transmittal 8 July 2025), sections 20.2.5.7 and 20.2.5.7.1. https://www.irs.gov/irm/part20/irm_20-002-005r (accessed 17 October 2026).11Source 11Office of the Law Revision Counsel, 26 U.S.C. 6602, Interest on erroneous refund recoverable by suit, 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-sec6602.htm (accessed 17 October 2026). The person making an excessive claim for refund or credit owes a penalty of 20 percent of the excess unless it shows reasonable cause.3Source 3Office of the Law Revision Counsel, 26 U.S.C. 6676, subsections (a) and (b), 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). An accuracy-related penalty of 20 percent may also apply.12Source 12Office 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). Reliance on professional advice can be reasonable cause, but only if it was reasonable and in good faith, and only if the taxpayer disclosed the relevant facts.13Source 13Treasury Department, 26 CFR 1.6664-4, paragraphs (b)(1) and (c)(1). https://www.ecfr.gov/current/title-26/section-1.6664-4 (accessed 11 October 2026). A taxpayer whose adviser held the working papers may find that harder to show once the adviser has gone.

The preparer penalty, the greater of $1,000 or 50 percent of the preparer's income from the claim, is paid to the government.14Source 14Office 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). An injunction stops future conduct.15Source 15Office of the Law Revision Counsel, 26 U.S.C. 7407, subsections (a) and (b), United States Code 2024 edition. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap76-subchapA-sec7407.htm (accessed 11 October 2026). Neither returns money to the taxpayer. The IRS's affidavit process for correcting accounts after preparer misconduct is not available for business accounts.16Source 16Internal Revenue Service, Make a complaint about a tax return preparer (page last reviewed or updated 25 September 2026). https://www.irs.gov/tax-professionals/make-a-complaint-about-a-tax-return-preparer (accessed 11 October 2026).

The records

The regulations require the taxpayer to keep records that substantiate the credit.4Source 4Treasury Department, 26 CFR 1.41-4, paragraph (d). https://www.ecfr.gov/current/title-26/section-1.41-4 (accessed 11 October 2026). In many engagements, the analysis linking payroll to business components is the adviser's work. Circular 230 requires a practitioner to return a client's records on request, but allows documents it prepared to be withheld pending payment of fees for them, and applies only to practitioners.5Source 5Treasury Department, Circular No. 230, 31 CFR 10.28, Return of client's records, paragraphs (a) and (b). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-B/section-10.28 (accessed 11 October 2026).17Source 17Treasury Department, Circular No. 230, 31 CFR part 10, sections 10.2(a)(5) and 10.3. https://www.ecfr.gov/current/title-31/subtitle-A/part-10 (accessed 11 October 2026). A dissolved firm cannot be asked.

What can be recovered

The fee. No federal rule requires a fee to be refunded when a claim is reduced. Under Circular 230, an arrangement to reimburse the client's fee if a position is challenged or not sustained is a contingent fee, and practitioners may not charge one for preparing a return or refund claim outside the listed exceptions.7Source 7Treasury 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). For the employee retention credit, the IRS accepted 80 percent repayment because promoters' percentage fees had already been taken and "the recipients never received the full amount".18Source 18Internal Revenue Service, 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).

A dissolved firm. Recovery depends on state law. In Delaware, for example, a dissolved corporation continues for three years for the purpose of suits, and stockholders' liability is limited to what they received in the dissolution.19Source 19State of Delaware, Delaware Code, Title 8, Chapter 1, Subchapter X, sections 278 and 282. https://delcode.delaware.gov/title8/c001/sc10/index.html (accessed 11 October 2026). If the firm is in bankruptcy, an automatic stay applies to actions against it.20Source 20Office of the Law Revision Counsel, 11 U.S.C. 362, Automatic stay, subsection (a)(1), United States Code 2024 edition. https://www.govinfo.gov/content/pkg/USCODE-2024-title11/html/USCODE-2024-title11-chap3-subchapIV-sec362.htm (accessed 11 October 2026).

Insurance. Circular 230 contains no insurance requirement.6Source 6Treasury Department, Circular No. 230, 31 CFR part 10 (full text searched for insurance requirements on 11 October 2026; none found). https://www.ecfr.gov/current/title-31/subtitle-A/part-10 (accessed 11 October 2026). In the UK, HMRC's 2024 consultation noted that some practitioners "do not have to hold professional indemnity insurance", while professional bodies require their members to hold it.21Source 21HM Revenue and Customs, Raising standards in the tax advice market: strengthening the regulatory framework and improving registration (consultation, 6 March 2024, updated 30 October 2024), sections 3 and 7. https://www.gov.uk/government/consultations/raising-standards-in-the-tax-advice-market-strengthening-the-regulatory-framework-and-improving-registration/raising-standards-in-the-tax-advice-market-strengthening-the-regulatory-framework-and-improving-registration (accessed 11 October 2026). A dissolved UK company can be restored by court order on the application of a creditor, generally within six years.22Source 22Companies House, Restoring a company to the Companies House register (published 18 March 2025), sections 1.1 and 1.2. https://www.gov.uk/government/publications/restoring-a-company-to-the-companies-house-register/restoring-a-company-to-the-companies-house-register (accessed 11 October 2026).

How the fee structure matters

A fixed-fee adviser can close too, and nothing in this brief suggests that advisers who charge success fees are more likely to. The difference lies elsewhere. A success fee is calculated on the credit and usually paid when the credit arrives, before any examination, while the risk of the credit being reduced continues for years and falls on the taxpayer.3Source 3Office of the Law Revision Counsel, 26 U.S.C. 6676, subsections (a) and (b), 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).8Source 8Office of the Law Revision Counsel, 26 U.S.C. 6501, subsection (a), United States Code 2024 edition. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap66-subchapA-sec6501.htm (accessed 11 October 2026). The only form of success fee that would share that risk, a refund if the claim fails, is restricted by Treasury's rule as a contingent fee.7Source 7Treasury 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).

General steps follow from the rules, whatever the fee: obtain the adviser's working papers at the end of the engagement, agree in writing who will support an examination, and ask whether the adviser is a practitioner and whether it holds insurance.4Source 4Treasury Department, 26 CFR 1.41-4, paragraph (d). https://www.ecfr.gov/current/title-26/section-1.41-4 (accessed 11 October 2026).5Source 5Treasury Department, Circular No. 230, 31 CFR 10.28, Return of client's records, paragraphs (a) and (b). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-B/section-10.28 (accessed 11 October 2026).6Source 6Treasury Department, Circular No. 230, 31 CFR part 10 (full text searched for insurance requirements on 11 October 2026; none found). https://www.ecfr.gov/current/title-31/subtitle-A/part-10 (accessed 11 October 2026).

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: SR Tax Services LLC does not charge success fees, and a ban would remove a pricing model it competes against.

References

  1. 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
  2. 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
  3. Office of the Law Revision Counsel, 26 U.S.C. 6676, subsections (a) and (b), 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
  4. Treasury Department, 26 CFR 1.41-4, paragraph (d). https://www.ecfr.gov/current/title-26/section-1.41-4 (accessed 11 October 2026).    Back
  5. Treasury Department, Circular No. 230, 31 CFR 10.28, Return of client's records, paragraphs (a) and (b). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-B/section-10.28 (accessed 11 October 2026).    Back
  6. Treasury Department, Circular No. 230, 31 CFR part 10 (full text searched for insurance requirements on 11 October 2026; none found). https://www.ecfr.gov/current/title-31/subtitle-A/part-10 (accessed 11 October 2026).    Back
  7. 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
  8. Office of the Law Revision Counsel, 26 U.S.C. 6501, subsection (a), United States Code 2024 edition. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap66-subchapA-sec6501.htm (accessed 11 October 2026).   Back
  9. Internal Revenue Service, Research credit claims (Section 41) on amended returns frequently asked questions, question 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
  10. Internal Revenue Service, Internal Revenue Manual 20.2.5, Interest on Underpayments (Manual Transmittal 8 July 2025), sections 20.2.5.7 and 20.2.5.7.1. https://www.irs.gov/irm/part20/irm_20-002-005r (accessed 17 October 2026).  Back
  11. Office of the Law Revision Counsel, 26 U.S.C. 6602, Interest on erroneous refund recoverable by suit, 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-sec6602.htm (accessed 17 October 2026).  Back
  12. 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
  13. Treasury Department, 26 CFR 1.6664-4, paragraphs (b)(1) and (c)(1). https://www.ecfr.gov/current/title-26/section-1.6664-4 (accessed 11 October 2026).  Back
  14. 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
  15. Office of the Law Revision Counsel, 26 U.S.C. 7407, subsections (a) and (b), United States Code 2024 edition. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap76-subchapA-sec7407.htm (accessed 11 October 2026).  Back
  16. Internal Revenue Service, Make a complaint about a tax return preparer (page last reviewed or updated 25 September 2026). https://www.irs.gov/tax-professionals/make-a-complaint-about-a-tax-return-preparer (accessed 11 October 2026).  Back
  17. Treasury Department, Circular No. 230, 31 CFR part 10, sections 10.2(a)(5) and 10.3. https://www.ecfr.gov/current/title-31/subtitle-A/part-10 (accessed 11 October 2026).  Back
  18. Internal Revenue Service, 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
  19. State of Delaware, Delaware Code, Title 8, Chapter 1, Subchapter X, sections 278 and 282. https://delcode.delaware.gov/title8/c001/sc10/index.html (accessed 11 October 2026).  Back
  20. Office of the Law Revision Counsel, 11 U.S.C. 362, Automatic stay, subsection (a)(1), United States Code 2024 edition. https://www.govinfo.gov/content/pkg/USCODE-2024-title11/html/USCODE-2024-title11-chap3-subchapIV-sec362.htm (accessed 11 October 2026).  Back
  21. HM Revenue and Customs, Raising standards in the tax advice market: strengthening the regulatory framework and improving registration (consultation, 6 March 2024, updated 30 October 2024), sections 3 and 7. https://www.gov.uk/government/consultations/raising-standards-in-the-tax-advice-market-strengthening-the-regulatory-framework-and-improving-registration/raising-standards-in-the-tax-advice-market-strengthening-the-regulatory-framework-and-improving-registration (accessed 11 October 2026).  Back
  22. Companies House, Restoring a company to the Companies House register (published 18 March 2025), sections 1.1 and 1.2. https://www.gov.uk/government/publications/restoring-a-company-to-the-companies-house-register/restoring-a-company-to-the-companies-house-register (accessed 11 October 2026).  Back