(SAVAGE, Minn.) — NEWS: In 2007, the IRS made the Research & Development (R&D) tax credit a Tier 1 issue, says ICS Tax, LLC (ICS). Tier 1 issues were those of high strategic importance that had a significant impact on one or more industries, essentially meaning that the IRS would audit taxpayers filing amended returns on such issues. To taxpayers’ relief, the Tiered Issue Process was eliminated in 2012, effectively placing the R&D tax credit in the same audit pool as other issues.
After the IRS was defeated on two refund claims stating that the taxpayers’ claims lacked specificity and they had failed to state a claim, the courts held that the IRS could no longer assert their own forms (Form 6765) were insufficient to constitute a refund claim.
As a result of losing these claims, the IRS announced in a Chief Counsel memo released October 15, 2021 that taxpayers seeking refunds attributable to the R&D tax credit must meet the following five requirements:
* Identify all the business components to which the research credit claim related for that year.
* For each business component:
– Identify all research activities performed;
– Identify all individuals who performed each research activity; and
– Identify all the information each individual sought to discover.
* Provide the total qualified employee wage expenses, total qualified supply expenses, and total qualified contract research expenses for the claim year. This may be done using Form 6765, Credit for Increasing Research Activities.
The new rules go into effect on January 10, 2022. The IRS has stated there will be a transition period for a year and a grace period, giving taxpayers 45 days (expanded from 30 days on January 5th) to “perfect” a claim for refund before it comes mandatory for all refund claims.
What does “perfect” mean? If a claim for refund is determined to be deficient or if information provided was insufficient, the taxpayer will have 45 days to provide missing information. If the IRS does not receive the information requested, the entire refund claim will be rejected.
By issuing this new guidance, it has put R&D refund claims back into the forefront of IRS audit scrutiny akin to a Tier 1 issue, making R&D refund claims more burdensome for a taxpayer. The IRS new requirements further demonstrate the need to utilize a qualified R&D tax credit professional to properly document all refund claims.
Press Release Authors: Lacey J.S. Robb, JD, LLM; Contributing Author: Alexander Bagne, JD, CPA, MBA, CCSP.
About ICS Tax, LLC:
ICS Tax, LLC (ICS) is a consulting firm providing innovative tax planning strategies. ICS collaborates with taxpayers and their tax professionals to identify credits and incentives that reduce tax liabilities and increase profitability. ICS provides nationwide service through its offices throughout the country.
To learn more about the R&D tax credit as well as other valuable tax ideas visit https://ics-tax.com/.
CITATION:
https://www.irs.gov/pub/irs-lafa/20214101f.pdf
Related link: https://ics-tax.com/
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