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Policy Brief No. 24

Software and AI-generated claims (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.

Software now calculates research credits and drafts technical narratives, and some of it is priced as a share of the credit. This brief summarizes what a claim must contain and how the federal rules on preparers and fees apply to automated tools.

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. A research credit refund claim must identify each business component and its research activities, and a response that only repeats the legal definitions is insufficient.1Source 1Internal Revenue Service, Research credit claims (Section 41) on amended returns frequently asked questions, introduction and questions 7 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).
  2. The taxpayer verifies the facts under penalties of perjury, and "A mere volume of documents will not suffice."2Source 2IRS Office of Chief Counsel, Memorandum 20214101F, released 15 October 2021, Short Answers 2. https://www.irs.gov/pub/irs-lafa/20214101f.pdf (accessed 11 October 2026).
  3. The definition of a tax return preparer excludes mechanical assistance, and this brief found no IRS guidance on when a research credit software provider is a preparer for penalty purposes.3Source 3Office of the Law Revision Counsel, 26 U.S.C. 7701, subsection (a)(36)(A) and (B), United States Code 2024 edition. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap79-sec7701.htm (accessed 11 October 2026).4Source 4Treasury Department, 26 CFR 301.7701-15, paragraphs (f)(1)(viii) and (f)(6), Example 1. https://www.ecfr.gov/current/title-26/section-301.7701-15 (accessed 11 October 2026).
  4. Treasury's contingent fee rule reaches practitioners, so a platform priced as a share of the credit may fall outside every federal fee rule.5Source 5Treasury 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).6Source 6US 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).

What is changing

Software has long been used to compute tax returns. In research credit work it now also gathers payroll and project data, decides which costs to include, and drafts the technical narrative for each project, sometimes with generative artificial intelligence. Some tools are sold for a fixed price; others are priced as a percentage of the credit. This brief does not describe any product or provider and does not suggest that software produces worse claims than people. No official source measures that, and Form 6765 does not ask how a claim was prepared or how the preparer was paid.7Source 7Internal Revenue Service, Instructions for Form 6765 (Rev. December 2025), Section G. https://www.irs.gov/instructions/i6765 (accessed 11 October 2026).

What a claim must contain

A refund claim must identify all the business components it relates to, the research activities performed for each, and the totals of qualified wage, supply and contract research expenses.1Source 1Internal Revenue Service, Research credit claims (Section 41) on amended returns frequently asked questions, introduction and questions 7 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). The IRS has waived, at filing, the names of the people who did the work and the information each sought to discover, but may ask for them on examination.1Source 1Internal Revenue Service, Research credit claims (Section 41) on amended returns frequently asked questions, introduction and questions 7 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). It says a submission "which only repeats the research credit legal definitions and requirements" is insufficient.1Source 1Internal Revenue Service, Research credit claims (Section 41) on amended returns frequently asked questions, introduction and questions 7 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). IRS Chief Counsel has said the taxpayer must verify the facts under penalties of perjury and must point to the exact pages supporting each fact.2Source 2IRS Office of Chief Counsel, Memorandum 20214101F, released 15 October 2021, Short Answers 2. https://www.irs.gov/pub/irs-lafa/20214101f.pdf (accessed 11 October 2026). For original returns, Section G of Form 6765 asks for business component information and becomes required for most filers for tax years beginning after 2025.7Source 7Internal Revenue Service, Instructions for Form 6765 (Rev. December 2025), Section G. https://www.irs.gov/instructions/i6765 (accessed 11 October 2026).

In 2008 the IRS told examiners that prepackaged research credit binders "frequently fail to substantiate" the expenses claimed.8Source 8Internal Revenue Service, Research Credit Claims Audit Techniques Guide, LMSB-04-0508-030 (May 2008), introductory note and Chapter I. https://www.irs.gov/businesses/research-credit-claims-audit-techniques-guide-rccatg-credit-for-increasing-research-activities-section-41 (accessed 11 October 2026). Generative tools can produce fluent, project-specific text from thin input. The legal test does not change with the drafting method: the claim must rest on the taxpayer's own facts and records.1Source 1Internal Revenue Service, Research credit claims (Section 41) on amended returns frequently asked questions, introduction and questions 7 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).9Source 9Treasury Department, 26 CFR 1.41-4, paragraph (d). https://www.ecfr.gov/current/title-26/section-1.41-4 (accessed 11 October 2026).

Who is responsible

The taxpayer signs, and the IRS tells taxpayers they are "ultimately accountable for the accuracy of every item reported" on their return.10Source 10Internal 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). An excessive refund claim carries a 20 percent penalty on the person making it, unless there is reasonable cause.11Source 11Office 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). Reliance on advice can be reasonable cause, but the regulations define advice as the "analysis or conclusion of a person, other than the taxpayer".12Source 12Treasury Department, 26 CFR 1.6664-4, paragraphs (b)(1) and (c)(2). https://www.ecfr.gov/current/title-26/section-1.6664-4 (accessed 11 October 2026). This brief found no guidance on whether software output alone qualifies.

How the fee rules apply

A tax return preparer is a person who prepares all or a substantial portion of a return or claim for compensation; a person who merely furnishes "mechanical assistance" is not.3Source 3Office of the Law Revision Counsel, 26 U.S.C. 7701, subsection (a)(36)(A) and (B), United States Code 2024 edition. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap79-sec7701.htm (accessed 11 October 2026). The regulations describe mechanical assistance as work involving no "discretion or independent judgment" on tax positions.4Source 4Treasury Department, 26 CFR 301.7701-15, paragraphs (f)(1)(viii) and (f)(6), Example 1. https://www.ecfr.gov/current/title-26/section-301.7701-15 (accessed 11 October 2026). Software that decides which projects and costs qualify may be exercising the kind of discretion or independent judgment on tax positions that the regulations' example of mechanical assistance describes as absent.4Source 4Treasury Department, 26 CFR 301.7701-15, paragraphs (f)(1)(viii) and (f)(6), Example 1. https://www.ecfr.gov/current/title-26/section-301.7701-15 (accessed 11 October 2026). In 2000 the IRS Office of Chief Counsel noted that the IRS had applied the preparer definition to a company, and its computer programmer, furnishing computerized return preparation services where the program goes beyond mere mechanical assistance, citing revenue rulings from 1985.13Source 13IRS Office of Chief Counsel, Memorandum WTA-N-115554-00, Paid Preparer Issues: Internet Returns (19 October 2000), page 4, citing Rev. Rul. 85-187, Rev. Rul. 85-188 and Rev. Rul. 85-189. https://www.eitc.irs.gov/pub/lanoa/pmta00402_7127.pdf (accessed 17 October 2026). This brief found no IRS guidance applying that position to research credit software. For confidentiality purposes, the regulations expressly treat software developers as preparers.14Source 14Treasury Department, 26 CFR 301.7216-1, paragraph (b)(2)(i)(B). https://www.ecfr.gov/current/title-26/section-301.7216-1 (accessed 11 October 2026).

Circular 230 restricts contingent fees for practitioners only, and courts held in 2014 that Treasury cannot apply that rule to return preparation or ordinary refund claims prepared before an audit.5Source 5Treasury 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).15Source 15US 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).6Source 6US 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). A software provider that is not a practitioner is outside it.

Automation sharpens the incentive. When software does much of the work, a larger claim may cost little more to produce, while a percentage fee rises with it. As an illustration only, a 20 percent fee on a $100,000 credit is $20,000, and on a $150,000 credit it is $30,000. 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".16Source 16Treasury 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). For the employee retention credit, the IRS warned of promises to "determine your ERC eligibility within minutes" and fees based on a percentage of the refund, and in 2025 Congress defined a promoter of that credit to include "any person" charging such a fee above a gross receipts threshold.17Source 17Internal Revenue Service, Employee Retention Credit, section "Beware of ERC scams" (page last reviewed or updated 8 October 2026). https://www.irs.gov/coronavirus/employee-retention-credit (accessed 11 October 2026).18Source 18Public Law 119-21, 139 Stat. 72 (4 July 2025), section 70605(b). https://www.govinfo.gov/content/pkg/PLAW-119publ21/html/PLAW-119publ21.htm (accessed 11 October 2026).

For practitioners, Circular 230 already requires due diligence, reasonable care when relying on others' work, and competence.19Source 19Treasury Department, Circular No. 230, 31 CFR part 10, sections 10.22(a) and (b) and 10.35(a). https://www.ecfr.gov/current/title-31/subtitle-A/part-10 (accessed 11 October 2026). A December 2024 proposal would add that competence "includes understanding the benefits and risks associated with relevant technology"; it has not been finalized.20Source 20Treasury Department and Internal Revenue Service, notice of proposed rulemaking, REG-116610-20, 89 FR 104915 (26 December 2024), proposed section 10.35(a), pages 104920 and 104929. https://www.federalregister.gov/documents/2024/12/26/2024-29371/regulations-governing-practice-before-the-internal-revenue-service (accessed 11 October 2026; Federal Register search on that date showed no final rule).

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, Research credit claims (Section 41) on amended returns frequently asked questions, introduction and questions 7 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
  2. IRS Office of Chief Counsel, Memorandum 20214101F, released 15 October 2021, Short Answers 2. https://www.irs.gov/pub/irs-lafa/20214101f.pdf (accessed 11 October 2026).   Back
  3. Office of the Law Revision Counsel, 26 U.S.C. 7701, subsection (a)(36)(A) and (B), United States Code 2024 edition. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap79-sec7701.htm (accessed 11 October 2026).   Back
  4. Treasury Department, 26 CFR 301.7701-15, paragraphs (f)(1)(viii) and (f)(6), Example 1. https://www.ecfr.gov/current/title-26/section-301.7701-15 (accessed 11 October 2026).    Back
  5. 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
  6. 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
  7. Internal Revenue Service, Instructions for Form 6765 (Rev. December 2025), Section G. https://www.irs.gov/instructions/i6765 (accessed 11 October 2026).   Back
  8. Internal Revenue Service, Research Credit Claims Audit Techniques Guide, LMSB-04-0508-030 (May 2008), introductory note and Chapter I. https://www.irs.gov/businesses/research-credit-claims-audit-techniques-guide-rccatg-credit-for-increasing-research-activities-section-41 (accessed 11 October 2026).  Back
  9. 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
  10. 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
  11. 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
  12. Treasury Department, 26 CFR 1.6664-4, paragraphs (b)(1) and (c)(2). https://www.ecfr.gov/current/title-26/section-1.6664-4 (accessed 11 October 2026).  Back
  13. IRS Office of Chief Counsel, Memorandum WTA-N-115554-00, Paid Preparer Issues: Internet Returns (19 October 2000), page 4, citing Rev. Rul. 85-187, Rev. Rul. 85-188 and Rev. Rul. 85-189. https://www.eitc.irs.gov/pub/lanoa/pmta00402_7127.pdf (accessed 17 October 2026).  Back
  14. Treasury Department, 26 CFR 301.7216-1, paragraph (b)(2)(i)(B). https://www.ecfr.gov/current/title-26/section-301.7216-1 (accessed 11 October 2026).  Back
  15. 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
  16. 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
  17. Internal Revenue Service, Employee Retention Credit, section "Beware of ERC scams" (page last reviewed or updated 8 October 2026). https://www.irs.gov/coronavirus/employee-retention-credit (accessed 11 October 2026).  Back
  18. Public Law 119-21, 139 Stat. 72 (4 July 2025), section 70605(b). https://www.govinfo.gov/content/pkg/PLAW-119publ21/html/PLAW-119publ21.htm (accessed 11 October 2026).  Back
  19. Treasury Department, Circular No. 230, 31 CFR part 10, sections 10.22(a) and (b) and 10.35(a). https://www.ecfr.gov/current/title-31/subtitle-A/part-10 (accessed 11 October 2026).  Back
  20. Treasury Department and Internal Revenue Service, notice of proposed rulemaking, REG-116610-20, 89 FR 104915 (26 December 2024), proposed section 10.35(a), pages 104920 and 104929. https://www.federalregister.gov/documents/2024/12/26/2024-29371/regulations-governing-practice-before-the-internal-revenue-service (accessed 11 October 2026; Federal Register search on that date showed no final rule).  Back