IRS Eliminates Two Requirements From Research Credit Refund Claims

On June 18, the IRS announced it’s waiving two requirements for taxpayers submitting research tax credit refund claims, namely:

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

The changes are effective for refund claims postmarked as of June 18, 2024. The agency indicated, however, that this information might be requested if the claim is selected for audit.

Taxpayers must still comply with the other requirements when submitting their refund claims:

• Identifying the business components for which the credit is being claimed
• Identifying the research activities performed generally
• Providing the total employee wages, supply expenses, and contract research expenses for each year being amended

Background on research tax credit refund documentation

In late 2021, the IRS issued field attorney advice announcing new documentation requirements for taxpayers submitting refund claims attributable to the research tax credit under Internal Revenue Code Section 41 (read our original insight about R&D credit refund documentation).

Taxpayers and their advisors voiced opposition to the new requirements since the pronouncement, pointing to the additional burdens placed on companies trying to navigate an already complex area of tax law. In fact, some practitioners questioned the legal enforceability of the new requirements.

From the IRS’s perspective, the research credit has long been an area rife with controversy and the additional information is intended to better manage research credit examinations and IRS resources by ferreting out potentially erroneous refund claims early on.

How might the change to R&D credit refund claims impact taxpayers?

The reduced scope of information may be welcomed by businesses. The two requirements that were nixed were perhaps the most contentious. In particular, the requirement to list employee names on a refund claim has been viewed by many as intrusive and unnecessary, while the requirement to list the information they intended to discover in a research project can be quite laborious, especially when dealing with hundreds or thousands of qualified employees. 

Therefore, this development could streamline the process of filing research credit refund claims for taxpayers large and small. 

How we can help

CLA’s dedicated team of R&D professionals can help your organization understand this latest development and assist with documenting your research activities and tax credit claims.