As companies finalize their 2025 federal income tax returns, taxpayers claiming research credits under Internal Revenue Code § 41 should consider whether the IRS Pre-Filing Agreement (PFA) program can provide advance certainty on recurring or examination-sensitive credit issues before filing. The PFA program under Revenue Procedure 2016‑30 allows eligible taxpayers to work with the IRS to resolve specific tax issues, such as section 41 credits, before filing a return and to agree on the proper tax treatment for those issues in the year under review and for up to four future taxable years. Advance certainty may be especially valuable to taxpayers given the IRS’s current resource‑constrained environment.
Why Section 41 issues are well‑suited for PFAs
Section 41 credit remains one of the most effective tools for reducing the cost of innovation. This credit generally provides a dollar‑for‑dollar reduction in federal income tax liability and is calculated as a percentage of a taxpayer’s qualified research expenses in excess of a base amount, and it is available across a wide range of industries. But the credit’s value depends on proper substantiation among other factors, which could become the focus of time-consuming, resource‑intensive IRS audits.
The PFA program offers a practical path for resolving research credit issues up front. The PFA program is intended for fact‑intensive issues involving application of well-established law, making research credit issues a strong fit. Between FY2019 and FY2025, research credit and § 165(g)(3) worthless‑stock issues accounted for 49% of all PFA requests. In 2025, the IRS refreshed its PFA materials to improve navigation and promote earlier issue resolution. The updates reflect the IRS’s continued emphasis on encouraging voluntary compliance, offering certainty and resolving appropriate issues administratively before they develop into multi-year examination disputes.
When approved, a PFA generally applies to the covered year and may extend to up to four subsequent tax years, providing administrative certainty for ongoing research operations.
A practical response to today’s examination environment
The IRS is currently dealing with significant resource and operational pressures, including a roughly 27% decline in staffing levels, substantial turnover in key leadership roles and the need to implement wide‑ranging and highly complex changes enacted under the One Big Beautiful Bill Act.
With the IRS’s current resource constraints, resolving recurring factual issues before filing could reduce future controversy risk. A successful PFA may:
- narrow or eliminate examination focus on agreed issues;
- reduce repeated information requests across multiple audit cycles; and
- provide greater predictability for financial reporting and tax planning purposes.
Importantly, the PFA process allows taxpayers to engage collaboratively with the IRS at a stage when positions can often be evaluated more efficiently than during examination or Appeals.
Timing matters
The IRS generally recommends submitting PFA requests:
- within 60 days after completion of the relevant transaction, or
- within 30 days after the close of the tax year, whichever occurs first.
Because the IRS commonly requires several months to evaluate and finalize requests, early filing-season planning is essential.
Key takeaway
For taxpayers with significant or recurring § 41 research credit claims, the PFA program can serve as an effective tool to manage examination exposure and obtain multiyear certainty. However, PFA applicants are not automatically accepted into the program. The IRS recently published that from FY2019-FY2025, the PFA request acceptance rate was 68%.
Dinsmore’s Tax Controversy team advises companies on proactive IRS engagement strategies, including evaluation and submission of Pre-Filing Agreement requests. Please contact us to discuss whether a PFA may support your Section 41 strategy for the upcoming filing season.