New guidance from the Internal Revenue Service specifies information that taxpayers must provide when filing research and development (R&D) tax credit claims for their claims to be considered valid. The IRS hopes that the clearer instructions will reduce disputes and facilitate administration.
The new information will be required for research credit claims made after a grace period ending January 10, 2022. There will also be a one-year transition period following the grace period during which taxpayers will have 30 days to perfect a research credit claim before the IRS issues a final determination.
Research credit claims under Internal Revenue Code section 41 result in a significant number of examinations. The new information is intended to help the IRS determine upfront if an exam is needed or the claim can be paid immediately, saving taxpayer and agency time and resources.
The new specific information requirements address business components, activities, and expenses associated with the research credit claim.
The IRS states that taxpayers making research credit claims must identify all the business components to which the claim relates for the year. In addition, for each business component, taxpayers must identify the research activities performed, the individuals who performed each activity, and the information each of those individuals sought to discover.
Regarding research expense information, taxpayers must include for the claim year both the total qualified employee wage expenses and the total qualified contract research expenses. Taxpayers may provide this information using Form 6765 (Credit for Increasing Research Activities).
Taxpayers must provide this information with a declaration signed under penalties of perjury verifying that the facts provided are accurate – which, in most cases, the IRS notes, will be met by the signature on the corporate income tax return.
The IRS adds that the information should be written out in a statement rather than provided in documents. If the taxpayer provides documents, the IRS states that they must cite the exact page(s) of such documents that support specific facts. Merely providing the documents will be considered insufficient.
Regarding timing for claims, the IRS states that taxpayers generally must file valid claims within three years of the date that the tax return was filed or two years from the time the tax was paid, whichever is later.
The detailed guidance is outlined in an IRS Chief Counsel memorandum. The IRS plans to additional guidance on the new information requirements and is accepting comments.
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