IRS Establishes New Filing Requirements for R&D Tax Credit Claims

The IRS has issued new filing requirements for any taxpayer filing an IRC Section 41 Research & Development tax credit claim. The Service’s overall goal is to reduce the large number of audits on the R&D claims and instead, determine upfront if such a claim should be accepted or whether further review is required before approval. While the R&D tax credit and IRC Section 41 has been available for decades, this is the first time in quite a while where the Service is asking for specific and detailed information on the actual tax filing. Releasing Chief Counsel Memorandum 2021410F guides taxpayers in providing information that they must include for research credit refund claims. The information that the taxpayer must include is:

  • A list of all business components that relate to the claim
  • For each identified business component, describe all research activities performed
  • Names of all individuals who performed the qualifying activities; as well as information everyone sought to discover
  • Qualifying costs that must include employee wages claimed
  • Qualifying supply costs claimed
  • Qualifying contract research costs claimed
  • A declaration signed by the taxpayer under the penalties of perjury verifying the facts provided are accurate

While it may seem like a lot of documentation to provide for something as straightforward as a tax credit, well-established R&D tax credit claims normally have all this information on hand. The only difference to this directive is that the Service is asking for this information to accompany the tax credit filing. Many of these requirements are already found on Form 6765, as well as the taxpayer signing their individual or corporate/partnership tax returns to serve as their declaration that the facts provided are accurate.

Many states who allow for R&D tax credit claims require a great deal of supporting documentation to accompany a state claim. Pennsylvania for example has evolved its filing from a paper form to an application, to now an online application process that requires multiple items of supporting documentation. Connecticut, among other states, follows this line of thought as well.

It is important to note that the grace period for this filing requirement is January 10, 2022. Meaning, this requirement goes into effect January 11, and all research claims filed after that date must adhere to these new filing requirements. The IRS also promises to provide further details related to the new filing requirements. Once the grace period expires, there is a one-year transition period when the taxpayer has 30 days to perfect their R&D tax credit claim before the IRS makes a final determination on the claim.

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