Refund claims and the research credit

1Summary

A business that did not claim the federal research credit on its original return, or claimed too little, can file a claim for refund. A refund claim must generally be filed within three years from the time the return was filed or two years from the time the tax was paid, whichever is later.1 Treasury regulations have long required every refund claim to state in detail its grounds and facts sufficient to apprise the IRS of its exact basis.2

In October 2021 the IRS Office of Chief Counsel set out what that requirement means for a research credit claim, and the IRS announced that from January 2022 every research credit refund claim would have to include five items of information.34 In June 2024 the IRS waived two of the five at the time of filing.5 A transition period that lets claimants fix a deficient claim within 45 days has been extended repeatedly and now runs through 10 January 2027.56

This paper sets out what the requirements are, how they changed from 2022 to 2024, and the reasons the IRS gave. It then describes how the federal rules on contingent fees apply to refund claims, which is where those rules are at their weakest. It sets out the case for success fees on refund claims and answers it. Where the official record is silent, the paper says so.

2The legal background

2.1A refund claim must state its basis

The research credit can be claimed on an original return, or later on an amended return or other claim for refund. IRS Chief Counsel has noted that there are no statutory provisions on the time limit specific to research credit claims, so the general three year and two year rule applies.31

The governing regulation provides that a claim "must 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", that the statement must be verified under penalties of perjury, and that a claim which does not comply "will not be considered for any purpose as a claim for refund or credit".2 Chief Counsel calls this "the specificity requirement".3

2.2Why the requirement matters

Chief Counsel explained that requiring specific facts "allows the Service to determine if a refund should be paid immediately based on the information provided or an examination should be conducted", and "helps the Service avoid paying refunds to taxpayers who have no factual support for their claim".3 It also explained that the IRS uses two different words. It "disallows" a claim when it denies it on the merits, and it "rejects" a claim when it does not accept it for procedural reasons unrelated to the merits.3

The distinction has consequences. Chief Counsel noted that a timely claim that complies with the regulations is a condition of a refund suit, so a deficient claim does not give a court jurisdiction, and that courts have held a rejected claim cannot be amended or perfected once the limitations period has expired.3

2.3What the courts had said about research credit claims

Chief Counsel reviewed two research credit cases. In a 2007 case brought by the government to recover a refund already paid, a district court in Texas held that a claim with an explanation and an attached Form 6765 was specific enough, noting that the government had not said what more it needed.3 In a 2019 case, a district court in California dismissed a taxpayer's refund suit because the claims "identified the ground for these credits [but] failed to set forth facts sufficient to apprise the Commissioner of the exact basis thereof".3 The Ninth Circuit reversed in 2021, holding that the government had waived the requirement by examining the claims and denying them on their merits.3 Chief Counsel concluded that it is unclear how a court will apply the specificity requirement to a research credit claim on a particular set of facts.3

3Why the IRS acted

The IRS gave its reasons when it announced the requirements on 15 October 2021. It said that each year it "receives thousands of R&E claims for credits in the hundreds of millions of dollars", that research credit claims "are currently examined in a substantial number of cases and consume significant resources for both the IRS and taxpayers", and that by requiring the information it would "be better able to determine upfront if an R&E credit claim for refund should be paid immediately or whether further review is needed".4 It also said the guidance would reduce "the number of disputes over such claims".4

Concerns about research credit refund claims were not new. In May 2008 the IRS issued an audit techniques guide for examiners of research credit claims. The guide states that it is not an official pronouncement of IRS position.7 It said that research credit refund claims had been identified by the Commissioner as a top compliance issue for the Large and Mid-Size Business Division, and that taxpayers were often filing them at the end of an examination cycle.7 It described "a growing trend among taxpayers, and their representatives, to submit prepackaged material to support research credit claims" and said those submissions "frequently fail to substantiate" the expenses claimed.7

4The 2021 requirements

Chief Counsel's memorandum, dated 17 September 2021 and released on 15 October 2021, said that a valid research credit refund claim must, at a minimum:3

identify all the business components to which the 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, supply and contract research expenses for the claim year, which may be done on Form 6765.

The taxpayer must verify the facts under penalties of perjury, which the signature on an amended return usually does.3 The facts should be given in a written statement. If documents such as a credit study are provided, the taxpayer must identify the exact pages that support each fact, because "A mere volume of documents will not suffice".3

IRS examination guidance issued in December 2022 explained the items further. A description of research activities must say what the taxpayer did and how, by business component; it does not need to describe the four-part test in detail; and "Language that simply restates the requirements under the Code or Treasury Regulations is insufficient."8

5How the requirements changed

Date	Change
15 October 2021	IRS announces the five items, with a grace period to 10 January 2022 and then a one-year transition with 30 days to perfect a claim4
5 January 2022	Time to perfect a deficient claim set at 45 days4
10 January 2022	Requirements apply to claims postmarked on or after this date98
30 September 2022	Transition period extended through 10 January 20244
30 October 2023	Transition period extended through 10 January 2025; best practice example added to the FAQs4
18 June 2024	IRS waives, at filing, the names of individuals who performed each activity and the information each sought to discover45
25 November 2024	Transition period extended through 10 January 20264
1 October 2025	Transition period extended through 10 January 20276

Figure 1. Changes to the research credit refund claim requirements, 2021 to 2025. Sources as cited.

5.1The June 2024 waiver

From 18 June 2024 a refund claim must still identify the business components, the research activities for each, and the expense totals.5 The IRS stopped requiring, at the time of filing, the names of the individuals who performed each activity and the information each individual sought to discover.5 It said those two items "may be requested if a refund claim involving the Research Credit is selected for examination".5

The IRS gave one reason: it was "making this change after significant experience with the Research Credit refund claims process".4 It did not publish further detail, such as how many claims had been found deficient on those items or how the items had been used. This paper found no IRS publication that explains the waiver beyond that sentence.

Before the waiver, the IRS had already allowed taxpayers to identify individuals by title or position instead of by name, and to list groups of individuals who sought the same information together.58

5.2The transition period

The transition period was first set at one year from 10 January 2022.4 It has been extended four times, most recently in October 2025 through 10 January 2027.46 During it, a taxpayer whose claim is found deficient receives Letter 6426C or 6428, identifying the missing items and giving 45 days to perfect the claim.5

5.3The form

The current Form 6765 instructions require a taxpayer claiming a new or increased research credit on an amended return to follow the refund claim procedures, and to name the attachment "Form6765ClaimInformation.pdf" if filing electronically. If a credit study is submitted, the taxpayer should identify the exact pages containing the required information.10 Column 49(f) of Section G, headed "Describe the information sought to be discovered", applies only to amended returns that claim a credit not reported on the original return or an increased credit.1011 It is not required on timely filed original returns.10

6How claims are screened now

The IRS's frequently asked questions describe the current process.5

The IRS reviews every research credit refund claim to decide whether it is valid.5
For taxpayers not under examination, campus employees review the claim in coordination with subject matter experts and Division Counsel.5
If the claim is deficient, the taxpayer receives a letter and has 45 days to perfect it. If the IRS does not receive the missing information, or decides it is insufficient, "your entire claim for refund will be rejected".5
A response that only repeats the research credit legal definitions and requirements is insufficient.5
Claims rejected as deficient are not eligible for the Independent Office of Appeals, although claims disallowed as untimely are.5
The IRS will try to make determinations within 6 months of receipt.5
The requirements apply to formal and informal claims, and a Form 1120 taxpayer must file a formal amended return.5
Claims above the Joint Committee on Taxation threshold follow the same validity procedures.5

The December 2022 guidance told examiners that the validity of a research credit claim must be determined before any examination of it begins.8

6.1Pass-through entities and sampling

The requirements also apply where the credit comes from a pass-through entity. A partnership subject to the Bipartisan Budget Act audit rules, which the IRS calls a BBA partnership, does not file an amended return; it files an administrative adjustment request with the required information attached, and its partners do not need to attach it again.5 For other pass-through entities, such as S corporations, the partners or shareholders must include the information with their own amended returns, and should receive it from the entity, for example with an amended Schedule K-1.5

A taxpayer that computes its credit using a statistical sample must provide the first four items of information for every unit in the sample, together with the expense totals computed under the IRS's sampling procedure.5 The Form 6765 instructions add that the IRS's acceptance of a return does not mean it has accepted the sample as adequate substantiation.10

6.2What the record does not show

No IRS publication found for this paper reports how many research credit refund claims have been filed since 2022, how many were found deficient, how many were perfected, how many were rejected, or how many were later examined or paid. Without that data, it is not possible to say from the official record whether the requirements have changed the quality or volume of claims. The IRS's reason for the 2024 waiver is stated only in general terms.4

7Refund claims and contingent fees

7.1The penalty on the claimant

A refund claim carries its own penalty. If a claim for refund or credit of 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.12 The excessive amount is the amount by which the claim exceeds the amount allowable.12 The person making the claim is the taxpayer, not the adviser who prepared it.

7.2The federal fee rule

Circular 230 defines a contingent fee to include "a fee that is based on a percentage of the refund reported on a return".13 It bars practitioners from charging contingent fees for matters before the IRS, including "preparing or filing or assisting in preparing or filing returns or claims for refund or credit".13 Its exception for refund claims is narrow: a contingent fee is allowed for services in connection with the IRS's examination of, or challenge to, an amended return or refund claim filed within 120 days of a written notice of examination or challenge.13

When Treasury adopted that rule in 2007, it said it was "concerned with the use of contingent fee arrangements in connection with claims for refund or amended returns filed late in the examination process".14

7.3The 2014 decision

In 2014 the District Court for the District of Columbia held that the IRS "lacks statutory authority to regulate the preparation and filing of Ordinary Refund Claims", meaning claims filed after the original return but before an audit, and permanently enjoined enforcement of section 10.27 in that respect.15 A research credit claimed on an amended return before any audit is such a claim. Treasury proposed in December 2024 to treat contingent fees for refund claims prepared before examination as disreputable conduct by practitioners, but that proposal has not been finalized.16

7.4The AICPA rule

The AICPA Code bars members in public practice from preparing an original or amended return or refund claim for a contingent fee.17 Its interpretation treats a fee as not contingent where a government agency is reasonably expected to give the matter substantive consideration, and gives as a permitted example an amended return or refund claim for more than the Joint Committee on Taxation review threshold.18 That threshold is $2,000,000, or $5,000,000 for a C corporation.19 The Code binds only its members.17

7.5What the IRS has told examiners about fees

The 2008 examiner guide said research credit refund claims are usually based on a study by an outside consultant, told examiners to obtain the engagement letter, and said: "If the fee is based on the ultimate determination of the claim amount there may be a limitation on to ability of the taxpayer to resolve the issue. Some fee agreements shift ultimate control over the resolution of the claim to the preparer."7

7.6Where the two meet

The result is that the research credit refund claim is the point at which the IRS requires the most information before it will consider a claim, and the point at which the federal contingent fee rule has not been enforceable since 2014.515 A fee calculated as a percentage of the refund falls squarely within Treasury's definition.13 The penalty for an excessive claim, and the loss of a claim rejected as deficient, fall on the taxpayer.125

8The case for success fees on refund claims

The case for contingent fees is at its strongest for refund claims, and it should be stated fully.

Finding missed credits. A refund claim exists because a credit was missed. Many businesses do not know they have one. A review paid only from what it finds lets a business look at no cost.

No cost unless there is a refund. A refund claim produces cash. A business can pay the fee from the refund and pay nothing if no refund results.

The IRS now screens every claim. Since 2022 every research credit refund claim has been reviewed for validity before payment.5 Supporters can argue that this screen addresses the concern behind the fee rules, which Treasury in 2007 linked to the audit selection process.14 The AICPA interpretation follows similar logic, allowing contingent fees where an agency will give the matter substantive consideration.18

Commenters' concerns. When Treasury adopted its rule, commenters said restrictions would prevent some small and middle market taxpayers from requesting refunds.14

These are serious arguments. Nothing in this paper suggests that advisers who charge contingent fees for refund claims act improperly.

9Answering the case

The screen is about information, not merits. The validity review asks whether a claim contains the required information. A claim that passes it has not been accepted on its merits; Chief Counsel distinguishes rejecting a claim for procedural reasons from disallowing it on the merits.3 Since June 2024, two of the five items are no longer required at filing and may be requested only if the claim is examined.5 The screen reduces the risk that a claim with no factual support is paid. It does not test whether the activities were qualified research.

The risk stays with the claimant. The cost of a weak claim is borne by the taxpayer: a rejected claim with no route to Appeals, or a disallowed claim and a 20 percent penalty on the excess.512 A contingent fee shares the risk that no refund is found, not the risk that the refund claimed is wrong.

Access does not require a percentage. A fee that is fixed, capped or paid in stages after the refund arrives can meet the cash flow concern without being calculated as a share of the refund.13

Treasury's concern has not changed. In 2024 Treasury and the IRS proposed to treat contingent fees for refund claims prepared before examination as disreputable conduct, because a practitioner with a financial interest in a client's tax benefits "may be incentivized to increase such tax benefits".16

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. That includes the preparation of research credit refund claims, where the federal contingent fee rule has not been enforceable since 2014 for claims filed before an audit. Swanson Reed, which publishes this paper, is a fixed-fee R&D tax adviser. It has a direct commercial interest in the outcome: it does not charge success fees, and a ban would remove a pricing model it competes against.

10Conclusion

Between 2021 and 2024 the IRS moved from a general rule that refund claims must state their basis to a specific list of what a research credit claim must contain, and then narrowed that list. Its stated reasons were the resources research credit claims consume and the need to decide up front whether to pay or examine a claim.43 Its reason for narrowing the list was its experience with the process.4 The transition period continues through 10 January 2027.6

The IRS has not published data on how the requirements have worked. What the record does show is that refund claims are the part of the research credit where the IRS screens most closely, where a contingent fee is easiest to calculate, and where the federal rule on such fees does not reach.51315

References

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
Treasury Department, 26 CFR 301.6402-2, Claims for credit or refund, paragraph (b)(1). https://www.ecfr.gov/current/title-26/section-301.6402-2 (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, Law and Analysis parts A.1 and B (including footnotes 1 and 2) and B.3. 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, with updates dated 5 January 2022, 30 September 2022, 30 October 2023, 18 June 2024 and 25 November 2024. https://www.irs.gov/newsroom/irs-sets-forth-required-information-for-a-valid-research-credit-claim-for-refund (accessed 11 October 2026). Back
Internal Revenue Service, Research credit claims (Section 41) on amended returns frequently asked questions, introduction and questions 2 to 7, 10, 11, 13, 15 to 18 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
Internal Revenue Service, IRS extends the period for feedback on Form 6765, News release IR-2025-99, 1 October 2025. https://www.irs.gov/newsroom/irs-extends-the-period-for-feedback-on-form-6765 (accessed 11 October 2026). Back
Internal Revenue Service, Large and Mid Size Business Division, Research Credit Claims Audit Techniques Guide (RCCATG): Credit for Increasing Research Activities Section 41, LMSB-04-0508-030 (May 2008), introductory note, Introduction, Chapter I "Background" and Chapter II "How to evaluate taxpayer's responses" and "The RC Claim Engagement Letter". https://www.irs.gov/businesses/research-credit-claims-audit-techniques-guide-rccatg-credit-for-increasing-research-activities-section-41 (accessed 11 October 2026). Back
Internal Revenue Service, Large Business and International Division and Small Business/Self-Employed Division, Updated Interim Guidance on Claims for Refund that Include a Claim for Credit for Increasing Research Activities, LB&I-04-1222-0026, 7 December 2022, memorandum and Attachment 1 (IRM 4.46.3.7.x). https://www.irs.gov/pub/foia/ig/lbi-04-1222-0026.pdf (accessed 11 October 2026). Back
Internal Revenue Service, Required information for a valid research credit claim for refund (page last reviewed or updated 27 September 2026). https://www.irs.gov/businesses/required-information-for-a-valid-research-credit-claim-for-refund (accessed 11 October 2026). Back
Internal Revenue Service, Instructions for Form 6765 (Rev. December 2025), "What's New", "Reminders", "Statistical Sampling", "Column 49(f)" and "Research Credit Claims on Amended Returns". https://www.irs.gov/instructions/i6765 (accessed 11 October 2026). Back
Internal Revenue Service, Form 6765, Credit for Increasing Research Activities (Rev. December 2024), Section G, column 49(f). https://www.irs.gov/pub/irs-pdf/f6765.pdf (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 10.27, 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
Treasury Department and Internal Revenue Service, Regulations Governing Practice Before the Internal Revenue Service, final regulations, 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
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
Treasury Department and Internal Revenue Service, Regulations Governing Practice Before the Internal Revenue Service, notice of proposed rulemaking, 89 FR 104915 (26 December 2024), Explanation of Provisions part B and proposed section 10.51. 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
American Institute of CPAs, AICPA Code of Professional Conduct (updated for all official releases through September 2026), ET 0.200.020 paragraph .02 and ET 1.510.001 paragraph .01. https://pub.aicpa.org/codeofconduct/ethicsresources/et-cod.pdf (accessed 11 October 2026). Back
American Institute of CPAs, AICPA Code of Professional Conduct (updated for all official releases through September 2026), ET 1.510.010 Tax Matters, 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. 6405, Reports of refunds and credits, 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-chap65-subchapB-sec6405.htm (accessed 11 October 2026). Back

Cite this paper

Summary

1Summary

2The legal background

2.1A refund claim must state its basis

2.2Why the requirement matters

2.3What the courts had said about research credit claims

3Why the IRS acted

4The 2021 requirements

5How the requirements changed

5.1The June 2024 waiver

5.2The transition period

5.3The form

6How claims are screened now

6.1Pass-through entities and sampling

6.2What the record does not show

7Refund claims and contingent fees

7.1The penalty on the claimant

7.2The federal fee rule

7.3The 2014 decision

7.4The AICPA rule

7.5What the IRS has told examiners about fees

7.6Where the two meet

8The case for success fees on refund claims

9Answering the case

10Conclusion

References

About this paper

Cite this paper

Summary

1Summary

2The legal background

2.1A refund claim must state its basis

2.2Why the requirement matters

2.3What the courts had said about research credit claims

3Why the IRS acted

4The 2021 requirements

5How the requirements changed

5.1The June 2024 waiver

5.2The transition period

5.3The form

6How claims are screened now

6.1Pass-through entities and sampling

6.2What the record does not show

7Refund claims and contingent fees

7.1The penalty on the claimant

7.2The federal fee rule

7.3The 2014 decision

7.4The AICPA rule

7.5What the IRS has told examiners about fees

7.6Where the two meet

8The case for success fees on refund claims

9Answering the case

10Conclusion

References

About this paper

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