Publix Super Markets Inc. is suing the federal government to recover a $2.6 million research credit that the IRS disallowed for the 2018 tax year after determining that the company’s expenses did not qualify as research. (Publix Super Markets Inc. & Subsidiaries v. United States, No. 26-cv-2496, complaint filed 8/25/2026)
In a complaint filed August 25 in the U.S. District Court for the Middle District of Florida, the supermarket chain alleges the IRS erroneously denied the credit. Publix argues that its activities in developing in-house software and innovating its private-label food products met all statutory requirements for the Credit for Increasing Research Activities under IRC § 41.
The complaint alleges the IRS “applied incorrect legal standards and principles” in disallowing the credit.
A challenge to IRS’ denial
The dispute stems from Publix’s original 2018 corporate income tax return, on which it claimed a research credit of $2,621,263 based on $38,375,485 in qualified research expenses (QREs). According to the complaint, the IRS’ Large Business & International Division reviewed the claim and fully disallowed it, increasing Publix’s tax liability for the year by the amount of the disallowed credit.
Publix claimed the credit on its original return, filed in October 2019, and later sought an unrelated refund on an amended return. The IRS allowed the amended items but disallowed the research credit, and on August 6, 2025, it sent Publix a notice of claim disallowance. Publix filed this refund suit within the two-year period the notice provided.
Publix alleges the determination “erroneously failed to adduce or consider all facts relevant to the qualification of Publix’s research activities and expenses” and misapprehended information presented during the examination. The company asks the court to order a full refund plus overpayment interest.
Software, supply chains, and new products
The contested research activities occurred within Publix’s Information Systems (I/S) and Manufacturing departments. The complaint states these efforts were essential to compete in the “intensely competitive and constantly changing retail food industry.” The I/S projects involved developing and improving in-house computer software for the company’s website, point-of-sale systems, supply chain management, and marketing analytics, among others.
According to the complaint, Publix’s Manufacturing department innovates private-label offerings to respond to consumer demand for “fresh, local, and environmentally conscious food options.” The complaint details efforts to develop GreenWise Clean Label Deli Meat, extended shelf-life pies, and new ice cream offerings. Publix states these projects involved a formal process of lab development, bench-scale testing, and plant-scale production testing to systematically evaluate changes to ingredients and processes.
The identified QREs were a small fraction of Publix’s spending, representing about 0.15% of its $26.3 billion in cost of merchandise sold for the year, according to the complaint. To qualify for the credit, Publix must show its activities satisfy the four-part test for qualified research under § 41(d), which requires, among other things, that the research be technological in nature and that substantially all of the activities constitute elements of a process of experimentation.
Citing key research credit precedent
A central issue is whether a taxpayer’s activities meet the process of experimentation test. In its complaint, Publix cites the 7th U.S. Circuit Court of Appeals decision in Little Sandy Coal Co. v. Commissioner, 62 F.4th 287, quoting the court for the proposition that the terminology is “broad enough to encompass research activities that are not per se experimentation or testing.”
That 2023 decision was a loss for the taxpayer. The parent company of a shipbuilder had been denied a research credit for expenses tied to the design of 11 “first-in-class” vessels. The 7th Circuit affirmed the Tax Court, rejecting the taxpayer’s argument that because a project was new or novel, the activities to create it automatically constituted a process of experimentation.
The court emphasized that the test requires a more formal, scientific process, including identifying uncertainty and evaluating alternatives through a “methodical plan involving a series of trials.” It found the shipbuilder had relied on “arbitrary allocations” for employee wage expenses and had failed to “provide a principled way to determine the portion of employee activities” that constituted experimentation.
Publix contends its own record meets that standard. The complaint states that a monthslong study reviewed time-tracking data, payroll records, and interviews with more than 40 department managers to document that substantially all of its research activities constituted elements of a process of experimentation.
For more on what constitutes qualified research for research credit purposes, see Checkpoint’s Federal Tax Coordinator 2d ¶ L-15406.
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