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New regulations in the world of Research and Development (R&D) mean that the process will become much more in depth if a tax credit application is to pass review.

Back in October 2021, the IRS outlined the new rules which generally involve the taxpayer’s underlying research activities and projects. Although routinely requested during IRS audits, these items have not previously been required when submitting a valid R&D credit claim for refund.

Why the change?

The IRS, stated in a release that it receives thousands of R&D credit claims each year, which consume substantial agency and taxpayer resources, and the new guidance is intended to create more effective and efficient tax administration.

New requirements

To qualify for the tax credit on amended returns, taxpayers must now furnish this information:

  • Identify all business components to which the research credit claim relates for that year. 
  • For each business component:
    • Identify all research activities performed; 
    • Identify all individuals who performed each research activity; 
    • Identify all 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).

When a claim is filed not meeting the minimum requirements, the IRS will reject it as invalid. Such a rejection may preclude the taxpayer from perfecting the claim. However, there will be a one-year transition period during which taxpayers will have 45 days to perfect a refund claim. So taxpayers will have one shot at making a valid refund claim beginning in January 2023.

Date published Jan 12, 2022 | Last updated Jul 8, 2022

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