R&D Tax Credit Rules: What Businesses Should Know in 2026
The Research and Development Tax Credit can provide valuable tax savings for businesses that invest in developing or improving products, processes, technology, software, and other innovations.
But qualifying for the credit is only part of the equation.
A new federal tax dispute involving Publix Super Markets highlights another important issue for businesses claiming the R&D Tax Credit: being able to document and defend the activities and expenses behind the claim.
Publix is suing the federal government after the IRS disallowed approximately $2.6 million in research tax credits the company claimed for its 2018 tax year. The dispute centers on whether certain software development and private-label food innovation activities qualified as research under federal tax law.
For business owners, the case offers an important reminder: claiming the R&D Tax Credit is not simply about whether your company is doing something innovative. The underlying activities, expenses, and documentation all matter.
What Happened in the Publix R&D Tax Credit Case?
Publix originally claimed a research credit of approximately $2.62 million, based on roughly $38.4 million in claimed qualified research expenses.
According to its lawsuit, the projects included work performed by the company's Information Systems and Manufacturing departments. Publix says its technology projects involved areas such as its website, point-of-sale systems, supply chain management, and marketing analytics.
Its manufacturing projects included developing and improving private-label food products through testing of ingredients, processes, and production methods.
The IRS ultimately disallowed the research credit.
Publix disputes that decision and alleges that its activities satisfied the requirements for the federal research credit. The lawsuit is still a dispute between the company and the federal government, so the filing itself does not establish that either side is ultimately correct.
But the disagreement illustrates how closely R&D credit claims can be examined.
What Actually Qualifies for the R&D Tax Credit?
The federal R&D Tax Credit is broader than many business owners realize.
Research does not necessarily have to take place inside a laboratory. Depending on the circumstances, qualifying activities may involve developing or improving:
Products
Manufacturing processes
Software
Technology
Techniques
Formulas
Certain operational processes
However, simply developing something new does not automatically make the related expenses eligible for the credit.
Generally, qualifying research must meet requirements under Internal Revenue Code Section 41, including standards involving technological uncertainty and a process of experimentation. In the Publix dispute, one of the central issues is whether the company's activities satisfied those standards.
That distinction is important.
A business may spend significant amounts improving a product or system and still face questions about whether the work meets the tax law's definition of qualified research.
Documentation Can Be Just as Important as Innovation
One of the biggest lessons from the Publix dispute is the importance of connecting claimed expenses to actual qualifying activities.
Publix says it conducted a months-long review that included time-tracking information, payroll records, and interviews with more than 40 department managers to support its research activities.
For other businesses, the takeaway is straightforward:
Do not wait until an IRS examination to figure out how your R&D credit was calculated.
Businesses considering the credit should maintain records that can help demonstrate:
What technical uncertainty the business was attempting to resolve
What alternatives were evaluated
What testing or experimentation occurred
Which employees participated in qualifying activities
How employee time was allocated
Which supplies or outside research costs were included
How claimed expenses relate to specific projects or business components
Documentation should ideally be developed as the work occurs rather than reconstructed years later.
R&D Credit Reporting Is Becoming More Detailed
Documentation is particularly relevant going forward.
The IRS instructions for Form 6765, which is used to calculate and claim the research credit, state that Section G, Business Component Information, is required for tax years beginning after 2025, subject to the IRS guidelines for completing that section.
Section G requests more detailed information about the business components connected to a company's research activities and qualified research expenses.
This makes maintaining organized project-level records even more important for businesses claiming the credit in 2026 and beyond.
The R&D Credit Isn't Just for Large Corporations
A dispute involving a company as large as Publix may seem far removed from the average privately held business.
But the R&D Tax Credit can potentially apply to businesses across many industries and at very different stages of growth.
Technology companies and manufacturers are obvious candidates, but qualifying activities can potentially arise in areas such as engineering, architecture, food development, software, construction technology, product design, and other industries where companies regularly solve technical problems or improve products and processes.
Certain qualified small businesses may also be able to elect to use part of the research credit against payroll taxes. The IRS currently allows an eligible qualified small business to elect up to $500,000 of research credit against certain payroll tax liabilities, subject to applicable requirements.
That can make the credit especially valuable for growing companies that are investing heavily in development but may not yet have substantial income tax liability.
What Business Owners Should Do Now
If your company develops products, software, processes, formulas, technology, or other improvements, it may be worth reviewing whether some of those activities could qualify for the R&D Tax Credit.
But the analysis should not stop at, "Are we doing R&D?"
The better questions are:
Do our activities meet the tax requirements?
Can we identify the expenses associated with those activities?
And could we support the claim if the IRS asked us to explain it?
The Publix case demonstrates why all three questions matter.
A potentially valuable tax credit can become much harder to defend when the methodology, employee activities, experimentation, and supporting records are unclear.
Plan Before You Claim
The R&D Tax Credit can be a valuable tax planning opportunity, but it should be approached carefully.
Businesses should evaluate potential qualifying activities, identify eligible costs, establish a reasonable methodology, and maintain supporting documentation before filing the claim.
At The Virtual CPAs, we help business owners understand how tax rules affect their operations and identify planning opportunities that align with their specific circumstances.
If your business is investing in development, technology, new products, or improved processes, now may be a good time to review your R&D activities and determine what they could mean for your tax strategy.
Have questions about R&D tax planning?
This article is for general informational purposes only and should not be considered individualized tax or legal advice. Eligibility for tax credits depends on the specific facts and circumstances of each taxpayer.