IRS Extends Deadline For R&D Tax Credit Claims

Earlier this month, the IRS updated an announcement it made back in October about the information it will now require for a valid research credit refund claim. They issued new guidance and expanded the transition period from 30 to 45 days. To make sure the claims are valid, the IRS wants taxpayers to identify all the business components to which the research credit claim relates for that year. For each business component, businesses must identify all research activities performed, name the individuals who performed each research activity, along with the information everyone tried to discover, as well as provide the total qualified employee wage expenses, total qualified supply expenses, and total qualified contract research expenses for the claim year.

The IRS has allowed a one-year transition period during which taxpayers now have 45 days to “perfect” a research credit claim for a refund before the IRS’ final determination on the claim. In an updated FAQ page , the IRS explained that the term ‘perfecting’ means taxpayers are allowed to provide missing information that is required to process the Research Credit refund claim and that taxpayers will be notified of a deficient claim within 45 days to perfect. The date on which a taxpayer must provide the missing information will be on the letter sent to the Individual.

The IRS also issued interim guidance to its tax examiners on the procedures they should follow for determining whether a claim is valid. For claims that include a research credit claim filed during the transition period from Jan. 10, 2022, through Jan. 9, 2023, taxpayers will be given 45 days to perfect the claim that is filed on a timely basis but does not provide the five essential pieces of information: 

  1. Identifying all the business components that form the factual basis of the research credit claim for the claim year
  2. All the research activities performed by each business component
  3. All individuals who performed each research activity by business component
  4. All the information everyone sought to discover by business component
  5. The total qualified employee wage, supply, and contract research expenses.

The IRS has been beefing up the requirements for validating R&D credit refund claims ever since the agency issued a memorandum last September from its Office of Chief Counsel. The IRS has sometimes listed improper claims for the R&D tax credit among its Dirty Dozen tax scams, and the guidance appears to be an effort to crack down on bogus claims. However, the new requirements have also provoked an outcry among many tax professionals and taxpayers who have legitimate tax credits and tax refunds to claim for research their companies have performed.

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