Amended and refund claims | Research Credit Integrity Alliance

Key points

A business can claim a research credit it missed by filing a claim for refund, generally within three years from the time the return was filed or two years from the time the tax was paid, whichever is later.1
Since January 2022 the IRS has required specific information with every research credit refund claim. Two of the original five items were waived from 18 June 2024.2
Treasury's rule in Circular 230 generally prohibits practitioners from charging contingent fees for preparing claims for refund, with a narrow exception for claims filed during an examination.3
In 2014 a federal district court held that the IRS lacked statutory authority to regulate the preparation and filing of refund claims filed before an audit begins.4

Why refund claims matter

A research credit can be claimed in two ways. It can be claimed on the original return for the year. Or, if it was missed or understated, it can be claimed later on an amended return or other claim for refund. This article is about the second route.

Refund claims are where two things meet. The first is the fee: a claim for refund produces a specific amount of money, and a fee calculated as a percentage of that amount is exactly the kind of fee that Treasury's rules define as contingent.3 The second is scrutiny: the IRS has set out detailed requirements for what a research credit refund claim must contain before it will be treated as valid.2 This article explains both, and then the court decision that sits between them.

It describes the rules in general terms. It does not describe any adviser's practice or say how common any arrangement is. The full sourced analysis is in the white paper Refund claims and the research credit.

The time limit

Under section 6511 of the Internal Revenue Code, a claim for credit or refund of an overpayment must be filed within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever period expires later.1 IRS Chief Counsel has noted that there are no statutory provisions on this time limit specific to research credit claims.5

In practice, this means a business may be able to claim for more than one earlier year at the same time, so long as the claim for each year is filed within its time limit.

What a valid refund claim must contain

The general rule

Treasury regulations have long required that a refund claim "set forth in detail each ground upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof". A claim that does not comply "will not be considered for any purpose as a claim for refund or credit".5 IRS Chief Counsel calls this "the specificity requirement".5

The 2021 Chief Counsel memorandum

On 17 September 2021, the IRS Office of Chief Counsel issued a memorandum, released on 15 October 2021 as number 20214101F, on what a research credit refund claim must contain to be valid.5 Its short answer was that the taxpayer must, at a minimum:5

identify all the business components to which the research credit claim relates for that year;
for each business component, identify all research activities performed;
identify all individuals who performed each research activity;
identify all the information each individual sought to discover; and
provide the total qualified employee wage expenses, supply expenses and contract research expenses for the claim year, which may be done using Form 6765.

The memorandum also said that a taxpayer should give the facts in a written statement rather than by producing documents, and that if documents such as a credit study are provided, the taxpayer must point to the exact pages that support each fact. In its words, "A mere volume of documents will not suffice".5

The memorandum explained why the specificity requirement matters. Requiring specific facts lets the IRS decide whether a refund should be paid immediately or examined first, and "helps the Service avoid paying refunds to taxpayers who have no factual support for their claim".5 When it announced the requirements, the IRS said research credit claims "consume significant resources for both the IRS and taxpayers".6

How the requirements work now

The IRS publishes its current approach in a set of frequently asked questions on research credit claims on amended returns.2 As at the date we accessed it, the page says:

The requirements do not apply to refund claims postmarked before 10 January 2022.2
If an amended return includes a refund claim related to the research credit, the information must be provided with it. If an amended return contains the credit but no related refund claim, the information is not required with the return, although the IRS may ask for it on examination.2
From 18 June 2024, the IRS is waiving the requirement to provide the names of the individuals who performed each research activity and the information each individual sought to discover. Those items may still be requested if a claim is selected for examination. The business components, research activities and expense totals are still required.2
A transition period, extended twice, runs through 10 January 2027. During it, a taxpayer whose claim is found deficient receives a letter (Letter 6426C or 6428) identifying the missing items and giving 45 days to perfect the claim.2
If the missing information is not received within 45 days, or the IRS decides it is insufficient, "your entire claim for refund will be rejected".2
A response that only repeats the legal definitions and requirements in the Code or regulations will be treated as insufficient.2
Refund claims rejected as deficient are not eligible for the IRS Independent Office of Appeals process, although claims disallowed on timeliness grounds are.2
The IRS says it will try to make determinations on research credit refund claims within 6 months of receipt.2

The penalty for an excessive refund claim

A refund claim carries its own penalty rule. Under section 6676, if a claim for refund or credit with respect to income tax is made for an excessive amount, the person making the claim is liable for a penalty of 20 percent of the excessive amount, unless the excess is due to reasonable cause.7 The excessive amount is the amount by which the claim exceeds the amount allowable.7 This and the other consequences of a reduced claim are explained in Who bears the risk of an overclaim.

The contingent fee rule for refund claims

Circular 230 is the set of Treasury regulations that governs practice before the IRS. Its section 10.27 says that, except as the section provides, a practitioner "may not charge a contingent fee for services rendered in connection with any matter before the Internal Revenue Service".3

Three parts of the rule bear directly on refund claims:

The definition of a matter before the IRS includes "preparing or filing or assisting in preparing or filing returns or claims for refund or credit".3
The definition of a contingent fee includes "a fee that is based on a percentage of the refund reported on a return", and any arrangement under which the practitioner reimburses the client's fee if a position is challenged or not sustained.3
The exception for refund claims is narrow. A practitioner may charge a contingent fee for services in connection with the IRS's examination of, or challenge to, an amended return or claim for refund or credit only where that amended return or claim "was filed within 120 days of the taxpayer receiving a written notice of the examination of, or a written challenge to the original tax return".3

Circular 230 also says that a tax return includes an amended tax return and a claim for refund.8

On its face, then, the rule treats a fee calculated as a percentage of a research credit refund as a contingent fee, and does not allow a practitioner to charge one for preparing a refund claim filed outside an examination.

The 2014 court decision

That reading of the text is not the whole story. In Ridgely v. Lew, decided by the US District Court for the District of Columbia on 16 July 2014, a practicing certified public accountant argued that the IRS had exceeded its statutory authority by regulating the fees charged for preparing and filing what the court called "Ordinary Refund Claims".4

What the court said

The court defined Ordinary Refund Claims as "refund claims that practitioners file after a taxpayer has filed his original tax return but before the IRS has initiated an audit of the return".4

The IRS's authority over practitioners comes from a statute, 31 U.S.C. 330, which allows the Secretary of the Treasury to "regulate the practice of representatives of persons before the Department of the Treasury".4 The court treated an earlier 2014 appeals court decision, Loving v. IRS, as controlling on what "representative" and "practice" mean in that statute.4 Following it, the court concluded that preparing and filing an Ordinary Refund Claim, before any power of attorney and before an audit or appeal, is not "practice" by a "representative" before the IRS.4

The court also said that Congress had enacted "a comprehensive scheme of penalties to curb the potential for abuse in the preparation and filing of both original returns and refund claims", citing among others sections 6662, 6676 and 6694.4

It concluded that "the IRS lacks statutory authority to regulate the preparation and filing of Ordinary Refund Claims", granted summary judgment to the plaintiff, and granted a permanent injunction against enforcement of section 10.27 in that respect.4

What the decision did not decide

The opinion addressed the preparation and filing of refund claims before an audit begins. It did not concern the exceptions in section 10.27 for work during an examination or in litigation. In a footnote, the court said it expressed no view on the IRS's authority to issue and enforce standards of practice under other subsections of the statute.4

The published text of section 10.27 on the eCFR still contains the general prohibition and the 120 day exception quoted above.3 We do not express a view on how the decision applies in any particular case.

Why the two meet

The following points are general observations drawn from the rules above. They are not findings about any adviser or any claim.

The fee and the claim are the same number. A refund claim exists to produce a refund. A fee based on a percentage of it falls squarely within the definition Treasury wrote.3
The federal fee rule has a gap here. After Ridgely v. Lew, the Circular 230 restriction on contingent fees does not reach the preparation and filing of refund claims before an audit, which covers a research credit refund claim prepared and filed before any audit of the return.4
The IRS checks these claims before paying them. The information requirements exist so that the IRS can decide, before paying, whether a claim should be paid or examined.5 A claim that does not meet them can be rejected in full.2
The penalty for an excessive claim falls on the claimant. Section 6676 applies to the person making the claim.7

Put together, a refund claim is the point at which a percentage fee is least restricted by the federal practice rule, and at which the IRS has chosen to require the most information up front.

What a business filing a refund claim can check

Does the claim identify each business component, the research activities for each, and the expense totals?
If asked during an examination, can the business say who did each activity and what they were trying to find out?
Is the fee calculated on the refund claimed or the refund received?
If the IRS rejects the claim as deficient, or reduces it, what happens to the fee?
Who will answer the IRS's letters within the 45 day window, and is that included in the fee?

Our position

Swanson Reed, the publisher of this site, is a fixed-fee R&D tax adviser with a direct commercial interest in this debate. Our position is that Congress should prohibit contingent fees in federal research credit engagements under Section 41. Treasury's own definition treats a percentage of a refund as a contingent fee, but after 2014 the practice rule does not reach refund claims prepared before an audit. Only Congress can close that gap with certainty. See Limits on contingent fees for refund claims.

Sources

Office of the Law Revision Counsel, 26 U.S.C. 6511, Limitations on credit or refund, 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-chap66-subchapB-sec6511.htm (accessed 11 October 2026). Back
Internal Revenue Service, Research credit claims (Section 41) on amended returns frequently asked questions, introduction and questions 2, 4, 5, 7, 15 and 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
Treasury Department, Circular No. 230, 31 CFR 10.27, Fees, paragraphs (b)(1), (b)(2), (c)(1) and (c)(2). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-B/section-10.27 (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 to 3, 7 to 12, 14 and 15, and footnote 3. 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
IRS Office of Chief Counsel, Memorandum 20214101F, I.R.C. 41 Research Credit Refund Claims, dated 17 September 2021, released 15 October 2021, Short Answers 1 to 3 and Law and Analysis part A.1. https://www.irs.gov/pub/irs-lafa/20214101f.pdf (accessed 11 October 2026). Back
Internal Revenue Service, IRS sets forth required information for a valid research credit claim for refund, News release IR-2021-203, 15 October 2021. https://www.irs.gov/newsroom/irs-sets-forth-required-information-for-a-valid-research-credit-claim-for-refund (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 6676, Erroneous claim for refund or credit, subsections (a) and (b), 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, Circular No. 230, 31 CFR 10.2, Definitions, paragraph (a)(6). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-A/section-10.2 (accessed 11 October 2026). Back

This article discusses fee practices in general terms. It is not a statement about any particular adviser.