IRS issues onerous requirements for R&D credit refund claims

| 10/21/2021
IRS issues onerous requirements for R&D credit refund claims

On Oct. 15, the IRS released News Release IR-2021-203 and field attorney advice 20214101F providing new procedures for IRC Section 41 research and development (R&D) credit refund claims. Under the new procedures, taxpayers are required to provide a significant amount of information or else risk not filing a valid, timely claim for refund. Though an opportunity to comment was not provided before the new procedures were issued, the news release gives an email address for the public to use to offer comments.

Sign up to receive the latest tax insights as well as tax regulatory and administrative updates.

Information required with R&D refund claims

The guidance specifies taxpayers making a refund claim for the R&D credit must include the following information:

  • All the business components to which the R&D credit claim relates for that year
  • For each business component, each of the following:
    • All research activities performed
    • All individuals who performed each research activity
    • All the information each individual sought to discover
  • The total qualified employee wage expenses, total qualified supply expenses, and total qualified contract R&D expenses for the claim year (which may be done using Form 6765, “Credit for Increasing Research Activities”)

According to the guidance, the information required must be provided in a written statement signed under penalty of perjury when the refund claim is filed, rather than through the production of documents. However, if a taxpayer provides documents, such as a credit study, the taxpayer must specify in its statement the exact page(s) in the documents that supports a specific fact. If the taxpayer submits separate written statements, each one must be signed under penalty of perjury.

Under the guidance, refund claims that do not include the requisite information will be treated as deficient and the IRS will not consider the taxpayer as having filed a refund claim. Failure to file a valid and timely refund claim could jeopardize the taxpayer’s ability to obtain a refund or file a refund suit.

The IRS will provide a grace period until Jan. 10, 2022, before requiring this information to be included with timely filed IRC Section 41 R&D credit claims for refund. Once the grace period expires, a one-year transition period will begin during which taxpayers will have 30 days to perfect an R&D credit claim for refund prior to the IRS’ final determination on the claim. It is likely that the IRS will provide additional information to help taxpayers comply with the new procedures.

Looking ahead

These procedures place new and onerous requirements on filing refund claims for R&D credits that don’t exist for any other refund claims. Given the lack of clarity regarding precisely what information will satisfy the procedures and the cost and burden of providing the required information, many taxpayers that otherwise are entitled to refunds based on R&D credit claims might forgo filing a claim. If Congress enacts new R&D credit provisions to incentivize certain behaviors, these new procedures could frustrate congressional intent.

Related topics

Crowe tax professionals review the new Section 174 rules and address issues considering the limited IRS guidance. 
Organizations need to consider environmental, social, and governance (ESG) tax planning to comply with potential requirement changes and be competitive.

The 2022 midterm elections created a lot of uncertainty and a divided Congress. How will that impact tax oversight and legislation?

Crowe tax professionals review the new Section 174 rules and address issues considering the limited IRS guidance. 
Organizations need to consider environmental, social, and governance (ESG) tax planning to comply with potential requirement changes and be competitive.

The 2022 midterm elections created a lot of uncertainty and a divided Congress. How will that impact tax oversight and legislation?

Contact us

Our experienced tax professionals can help you tackle your most pressing tax challenges. Contact the Crowe tax team today.
Shelby-Ford-225
Shelby Ford
Partner, Tax
Devin Hall
Devin Hall
Managing Partner, Energy
AJ-Schiavone-225
A.J. Schiavone
Partner, Tax