IRS extends time to ‘perfect’ R&D credit claims

Accounting

The Internal Revenue Service is giving companies and tax professionals another year to fix up their claims for the research and development tax credit.

The agency said Friday it is extending for one more year, through Jan. 10, 2024, the transition period during which taxpayers are given 45 days to “perfect” a research credit claim for refund before the IRS makes a final determination on the validity of the claim.

Last year, the IRS Office of Chief Counsel issued a memorandum imposing new requirements for backing up claims for tax refunds for research and development tax credits (see story). In an effort to discourage companies from submitting dubious claims for tax breaks for R&D work they never carried out, the IRS started asking for more detailed information about all the business components for which the research credit claims relate for that year, and for each business component, companies will need to identify all the research activities they’ve performed and name the individuals who performed each research activity, along with the information each individual sought to discover.

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The Internal Revenue Service headquarters in Washington, D.C.

Samuel Corum/Bloomberg

The new documentation requirements provoked a backlash from many tax professionals and clients, along with requests for more clarification (see story). In January, the IRS extended the deadline for “perfecting” the refund claims, expanding the transition period from 30 to 45 days to provide more evidence to back up tax refund claims involving the research credit, while also issuing new guidance (see story).

For claims that include a research credit claim filed during the the transition period from Jan. 10, 2022, through Jan. 9, 2023, taxpayers were given 45 days to perfect the claim that is filed on a timely basis but does not provide the five essential pieces of information:

  • Identifying all the business components that form the factual basis of the research credit claim for the claim year;
  • All the research activities performed by each business component;
  • All individuals who performed each research activity by business component;
  • All the information each individual sought to discover by business component; and,
  • The total qualified employee wage expenses, supply expenses, and contract research expenses.

On Friday, the IRS extended that deadline for a year until Jan. 10, 2024.

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