IRS Updates Requirements for R&D Tax Credit Refund Claims

The IRS on June 18 updated the “Frequently Asked Questions” regarding research credit claims by removing two of the items of information taxpayers must provide when submitting amended research credit refund claims.

In accordance with newly added FAQ 21, and effective immediately for claims postmarked as of June 18, 2024, taxpayers submitting Internal Revenue Code Section 41 research credit amended refund claims no longer need to include the names of the individuals who performed each research activity or the information each individual sought to discover.

While this information is no longer required at the time of filing a refund claim involving the research credit, the IRS may still request the information if one of those refund claims is selected for examination.

Background

The five required items of information that taxpayers must provide when submitting research credit refund claims were originally announced by the IRS in October 2021, along with Chief Counsel Advice Memorandum 20214101F outlining the changes. For prior coverage, see IRS Releases Valid Research Credit Refund Claims FAQs.

Initially, the IRS provided a grace period until January 10, 2022, before requiring the inclusion of the five items of information with timely filed research credit claims for refund. Upon the expiration of the grace period, a one-year transition period was granted and subsequently extended for an additional two years, through January 10, 2025. During that transition period, taxpayers have 45 days to perfect, or to provide a supplement to support a research credit claim for refund prior to the IRS’s final determination on the claim.

Existing Requirements

Treas. Reg. §301.6402-2(b)(1) requires that, for a refund claim to be valid, it must set forth sufficient facts to apprise the IRS of the basis of the claim. For a refund claim involving a “Credit for Increasing Research Activities” under Section 41 to be valid, taxpayers are required to provide the following information at the time the amended research credit refund claim is filed with the IRS:

• All the business components to which the Section 41 research credit claim relates for that year
• For each business component, identify all research activities performed
• The total qualified employee wage expenses, total qualified supply expenses, and total qualified contract research expenses for the claim year

The addition of FAQ 21 should simplify the process for taxpayers claiming the research credit. However, it remains crucial to maintain thorough documentation of all research activities and the individuals involved, as this information will still be important during an IRS examination.