In a memorandum from the office of Chief Counsel released October 15, 2021 the IRS issued guidelines on the information that taxpayers will be required to include for a research credit claim for refund to be considered valid. Existing Treasury Regulations require that for a refund claim to be valid, it must set forth sufficient facts to apprise IRS of the basis of the claim. The memo will be used to improve tax administration with clearer instructions for eligible taxpayers to claim the credit while reducing the number of disputes over such claims.

For a Section 41 research credit claim for refund to be considered a valid claim, taxpayers are required to provide the following information at the time the refund claim is filed with the IRS:

• Identify 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 and name the individuals who performed each research activity, as well as the 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 IRS Form 6765.

STG Insight: When amending prior year returns make sure your R&D provider is completing a full deliverable package and not just a calculation only. This deliverable will include all the needed requirements listed above

The IRS will provide a grace period (until January 10, 2022) before requiring the inclusion of this information with timely filed Section 41 research credit claims for refund. Upon the expiration of the grace period, there will be a one-year transition period during which taxpayers will have 30 days to perfect a research credit claim for refund prior to the IRS' final determination on the claim. To learn more contact Brian Wages | brian.wages@specialitytaxgroup.com | 614.923.6574

*Specialty Tax Group (STG) helps CPA firms and taxpayers by providing innovative tax planning strategies to secure tax credits and deductions with audit-ready deliverables. Headquartered in Georgia, STG is a nationwide specialty tax firm focused on engineered tax services, including cost segregation, green energy incentives, and research & development tax credits. Learn more at www.specialtytaxgroup.com.