IRS Waives Two Requirements for R&D Refund Claims

In the fall of 2021, the IRS announced through a memo from the IRS Office of Chief Counsel that there would be New Filing Requirements for R&D Credit when a taxpayer submits a claim for a refund. The requirements went into effect for all claims after 1/10/2022.

Since then, the IRS has published a series of answers to frequently asked questions (“FAQs”) to guide taxpayers in understanding and complying with the updated filing requirements. In addition to publishing the FAQs, it is worth noting that the IRS has twice extended the transition period during which taxpayers have 45 days to “perfect” a research credit claim for refund that is deemed deficient. Currently, the transition period covers claims filed through January 9, 2025.

Last week, on June 18^th, the IRS announced via an update to the FAQs that it is waiving two of the previously required elements, specifically, the employee components. The waived items are as follows:

• The names of the individuals who performed each research activity, and
• The information each individual sought to discover with respect to each business component.

The other items necessary to file an R&D refund claim remain in place:

• Identify all the business components related to the I.R.C. Section 41 research claim for the year;
• For each business component, identify all research activities performed;
• Provide the total qualified research expenses, which include:
  • Employee wage expenses;
  • Total qualified supply expenses; and
  • Total qualified contract research expenses for the claim year.

The change in requirements applies to research credit refund claims postmarked as of Tuesday, June 18, 2024. However, the IRS did indicate that these items may still be requested on audit.

There is still significant documentation that is necessary to claim the R&D Tax Credit and working with a tax specialist at CTI will ensure your claims are submitted with a substantiation package tailored to satisfy all expectations of the IRS, including current and prospective expectations.

Reach out to one of our tax specialists for assistance.