Promoter structures library
R&D Credit Mills
Sold as: "R&D credit study, no cost unless we find money", "you're doing R&D and don't know it", "innovation credit"
Technical name: IRC Sec. 41 credit for increasing research activities; IRC Sec. 174 / 174A research or experimental expenditures
Form 6765 Section G becomes mandatory for tax year 2026. Every weak study is about to have to name its business components in writing.
Classification B. Real tax law with a real benefit. Promoters break it.
The pitch
You are doing research and development and do not know it. The study costs nothing unless we find money, and the credit offsets tax you have already paid. With Sec. 174A restored, the same study now also produces an immediate deduction.
Where it breaks
Routine activities dressed as qualified research. The four-part test of Sec. 41(d) is where mills fail, particularly the eliminations under Sec. 41(d)(4): adaptation, duplication, surveys, routine quality control, internal-use software failing the high-threshold test, and FUNDED RESEARCH under Sec. 41(d)(4)(H) where the client bears the risk or retains rights. Also unsupported wage allocations, no business-component-level records, and contract terms that make the research funded.
Why this matters for abuse
Sec. 174A restored the cash-flow benefit that Sec. 174 capitalization had taken away, which has re-energized credit-mill marketing. Because Sec. 174A and Sec. 41 are now definitionally linked, an inflated Sec. 41 study now also inflates the Sec. 174A deduction, doubling the exposure.
What OBBBA changed
- Sec. 174A: immediate expensing of DOMESTIC research and experimental costs for taxable years beginning after Dec. 31, 2024, permanently
- Foreign R&E is still capitalized and amortized over 15 years under Sec. 174
- Small business retroactive election: average annual gross receipts of 31,000,000 dollars or less may apply Sec. 174A retroactively to 2022-2024 via amended returns, filed by the earlier of July 6, 2026 or the refund claim due date
- Catch-up: unamortized 2022-2024 domestic R&E may be deducted entirely in the first tax year beginning after Dec. 31, 2024, or ratably over two years
- Sec. 280C coordination: reduce Sec. 174A expenditures by the gross credit, or elect the reduced credit on a TIMELY FILED return
Procedural traps
- Refund claims must include the five items of information required by the Chief Counsel memorandum on Sec. 41 refund claim specificity: business components, activities performed, individuals who performed them, information sought to be discovered, and total qualified research expenses. Otherwise the claim is invalid.
- Form 6765 Section G, Business Component Information, was OPTIONAL for tax year 2025 per IR-2025-99 (Oct. 1, 2025) and is EXPECTED MANDATORY for tax year 2026, processing year 2027. This is a very large increase in required detail and will expose weak studies.
What it costs you if it is wrong
The credit is disallowed, and because Sec. 174A and Sec. 41 are now definitionally linked, an inflated study inflates the deduction too, so both go together. A refund claim that lacks the five items of information required for Sec. 41 specificity is invalid on its face rather than merely weak.
Red flags specific to this structure
- No cost unless the provider finds a credit
- The provider has never disqualified a project
- Nobody reviewed the customer contracts for funded research
- Wage allocations came from a percentage rather than time records
- There is no business-component-level documentation
- The provider will not sign the return or be named on it
Questions to ask the person selling this
Take these into the next meeting. Someone selling the legitimate version answers them without difficulty.
- 1Which business components are you claiming, and where are they documented?
- 2Did you review my customer contracts for funded research and rights retention?
- 3Do the wage allocations come from time records or from a percentage?
- 4Is your fee contingent on the size of the credit?
- 5Will you sign the return or be disclosed on it?
- 6Would this file survive Form 6765 Section G if it were mandatory today?
Which of the Seven Markers this trips
A promised deduction or savings multiple
Contingent or percentage-of-savings fees on an original return position
The legitimate version
A study performed by qualified engineers and tax professionals with contemporaneous, business-component-level documentation.
What distinguishes it
- Project lists, technical uncertainty narratives, and experimentation records
- Time tracking or a defensible allocation methodology
- Contract review for funded-research and rights-retention
- Flat or hourly fee
- The provider signs the return or is disclosed
- The provider says no to some projects
- The file could survive Section G disclosure today
What the courts have done
How this has actually gone for the people who bought one.
Enforcement
The IRS continues prioritizing R&D examinations even amid workforce reductions and has explicitly criticized aggressive positions promoted by R&D credit mills. Note: there is NO named LB&I campaign on the research credit. Enforcement runs through exam and refund-claim procedure.
Typical fees
Contingent fees of 15 to 30 percent of the credit are standard in the mill segment. Circular 230 Sec. 10.27 permits contingent fees only in narrow circumstances: examination, a refund claim filed within 120 days of a written notice, and judicial proceedings. A contingent fee on an ORIGINAL return position is a Circular 230 problem for the practitioner.
Holding one of these, or being pitched one?
The diagnostic work is worth doing before the return gets filed rather than after. That is a conversation, not an engagement.
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