State research credits and state fee rules (brief) | Research Credit Integrity Alliance

Key points

The research credits of Arizona, California, New Jersey and Texas reviewed here draw on Section 41 and limit the credit to research conducted in the state.1234
New Jersey requires an amended state return when the federal research credit is amended or adjusted, and Texas uses the Form 6765 figure as amended or audited.34
The California and New Jersey boards of accountancy bar licensees from preparing amended returns or refund claims for a contingent fee for any client; the Texas board ties its bar to independence engagements.567
Board rules reach licensees. The IRS states that preparers without professional credentials are authorized to prepare federal returns.8
None of the state credit sources reviewed asks who prepared a claim or how the preparer was paid.

State research credits

Arizona allows a credit determined under Section 41 at its own rates: for taxable years beginning before December 31, 2030, 24 percent of the first $2,500,000 of excess qualified research expenses and 15 percent above that, for research conducted in Arizona.1

California allows 15 percent of qualified research expenses above the base amount, plus 24 percent of basic research payments for corporations, and from 2025 an alternative simplified credit of 3 percent. It uses the Section 41(b) definition of qualified research expenses, requires the research to be in California, and does not make the credit refundable, apart from an election for credits limited by a $5,000,000 cap in 2024 to 2026.2

New Jersey allows a corporation business tax credit of 10 percent of the excess of qualified research expenses over the base amount, determined under Section 41 for research in New Jersey. The taxpayer must use the same method as for the federal credit and enclose Form 6765. The Division of Taxation states that taxpayers who amend federal returns under Revenue Procedure 2025-28 must amend their New Jersey returns.3

Texas replaced its franchise tax credit from January 1, 2026. The new credit uses the Texas portion of the qualified research expenses on line 48 of Form 6765, at 8.722 percent of the excess over half the three-period average, or 10.903 percent with a higher education contract, and is refundable for entities that owe no franchise tax. Where an amended Form 6765 is filed within the federal refund period, or the IRS has audited the return, the Texas credit uses the amended or audited figure.4

Because these credits draw on Section 41 and, in two states, on the federal form itself, the judgments made in a federal claim also shape the state claim.34

What state boards say about contingent fees

The AICPA Code bars its members from charging contingent fees to attest clients and from preparing any client's original or amended return or refund claim for a contingent fee, unless substantive consideration by an agency is reasonably expected.9 Treasury stated in 2024 that many state accountancy board rules also prohibit contingent fees for preparing original or amended returns or refund claims.10

California's board bars licensees from contingent fees for clients receiving audits, reviews and other services requiring independence, and from preparing an original return, an amended return or a refund claim for a contingent fee for any client. Fees are not contingent where there is a reasonable expectation of substantive review by a taxing authority.5

New Jersey's board bars licensees in public practice from receiving a contingent fee from audit and review clients and for preparing an original or amended tax return or refund claim for any client.6

Texas's board bars contingent fees for clients for whom the person performs work requiring independence, and bars contingent-fee tax return preparation during such an engagement. As reproduced, its rule contains no general bar for other clients, and it also excludes fees where substantive review by a taxing authority is reasonably expected.7

The exceptions for review by a taxing authority are worded differently in each rule. How they apply to a research credit claim is a question for each board.567

Whom the rules reach

Each rule is addressed to the people the board regulates.567 The IRS states that tax return preparers with an active preparer tax identification number but no professional credentials are authorized to prepare tax returns.8 Whether a fee rule applies to a state or federal research credit claim therefore depends on who prepares it.

At the federal level, Treasury's contingent fee rule cannot be enforced against refund claims filed before an audit, following a 2014 court decision.11 That decision concerned Treasury's authority. The state board rules rest on each state's own law.

What the record shows

The four state credits reviewed are built on Section 41, and two follow the federal Form 6765 through amendment and audit.1234 Selected state boards bar their licensees from some or all contingent fee tax work, in differing terms.567 Those rules do not reach preparers outside the boards' licensing.8 No state source reviewed for this paper collects or publishes information on who prepares research credit claims or how preparers are paid.

References

Arizona Legislature, Arizona Revised Statutes 43-1074.01, Credit for increased research activities, subsection A. https://www.azleg.gov/ars/43/01074-01.htm (accessed 11 October 2026). Back
California Franchise Tax Board, 2025 Instructions for Form FTB 3523, Research Credit, "What's New", "Important Information" and General Information sections B and C. https://www.ftb.ca.gov/forms/2025/2025-3523-instructions.html (accessed 11 October 2026). Back
New Jersey Division of Taxation, The New Jersey Research and Development Tax Credit, Technical Bulletin TB-114(R) (revised 25 November 2025), pages 1 to 3. https://www.nj.gov/treasury/taxation/pdf/pubs/tb/tb114.pdf (accessed 11 October 2026). Back
Texas Legislature, S.B. 2206, 89th Legislature, Regular Session, enrolled version, section 1 (adding Tax Code sections 171.9202, 171.9204 and 171.9205) and section 6. https://capitol.texas.gov/tlodocs/89R/billtext/html/SB02206F.htm (accessed 11 October 2026). Back
California Board of Accountancy, California Board of Accountancy Regulations (California Code of Regulations, Title 16, Division 1, current as of 1 July 2026), section 62. https://www.dca.ca.gov/cba/about/cba_regs.pdf (accessed 11 October 2026). Back
New Jersey State Board of Accountancy, N.J.A.C. 13:29-3.8, Contingent fees, subsections (c) and (e), as reproduced by the Legal Information Institute, Cornell Law School. https://www.law.cornell.edu/regulations/new-jersey/N-J-A-C-13-29-3-8 (accessed 11 October 2026). Back
Texas State Board of Public Accountancy, 22 Texas Administrative Code 501.72, Contingency Fees, subsections (a) and (b), as reproduced by the Legal Information Institute, Cornell Law School. https://www.law.cornell.edu/regulations/texas/22-Tex-Admin-Code-SS-501-72 (accessed 11 October 2026). Back
Internal Revenue Service, Understanding tax return preparer credentials and qualifications (page last reviewed or updated 29 January 2026). https://www.irs.gov/tax-professionals/understanding-tax-return-preparer-credentials-and-qualifications (accessed 11 October 2026). Back
American Institute of CPAs, AICPA Code of Professional Conduct (updated for all official releases through September 2026), ET 1.510.001 paragraph .01 and ET 1.510.010 paragraph .03. https://pub.aicpa.org/codeofconduct/ethicsresources/et-cod.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. https://www.federalregister.gov/documents/2024/12/26/2024-29371/regulations-governing-practice-before-the-internal-revenue-service (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