Taxpayers planning to amend their tax return for an R&D tax credit after January 10, 2022, must provide specific information regarding that claim. If the IRS finds the information provided deficient, the credit claim could be denied.
Prior to January 10, 2022, a return amended for an R&D tax credit didn’t require this information. These new rules aim to support quick reviews by IRS agents to make sure the credit is a valid claim prior to being submitted for processing.
Background
The IRS issued a Chief Counsel memo in fall 2021 requiring specific information be included with tax returns that are being amended for R&D tax credits.
The supplemental documentation is to be included in the amended tax return and will be reviewed by an IRS agent upon submission. If the claim were to be found deficient, the return would be denied. The taxpayer would then have 45 days to perfect the claim and resubmit it to the IRS.
This process is the first time the IRS has required specific information to be filed with a tax return along with the Form 6765, the form in which an R&D tax credit claim is reported.
What Is a Valid R&D Tax Credit Claim?
A valid claim is based on the five items of information recently defined by the IRS.
Taxpayers must:
- Identify all the business components to which the Internal Revenue Code (IRC) Section 41 research credit claim relates for that year.
- Identify all research activities performed for each business component.
- Name the individuals who performed each research activity.
- Describe 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 Form 6765, Credit for Increasing Research Activities.
Amended Return for R&D Tax Credit FAQ
The IRS published an FAQ to clarify the process of filing an amended return for an R&D credit claim.
The questions include:
- What is meant by “perfecting” a claim for refund?
- How long will it take the IRS to process a claim for refund involving the R&D credit?
- What will happen if my amended return contains the research credit and other items?
When Is the Transition Period?
The IRS extended the transition period to January 10, 2024. During the transition period, taxpayers who file an amended tax return for an R&D credit claim will be allowed 45 days to perfect their claim if the IRS finds the initial filing deficient.
After this transition period closes, credit claims that are denied can’t be fixed or appealed.
Taxpayers will not receive any refunds for the credits they attempted to amend.
What Is Meant by Perfecting a Claim for Refund?
Perfecting a claim means taxpayers have the opportunity to provide missing information to process the R&D credit claim.
The IRS will notify taxpayers of a deficient claim and provide a maximum of 45 days to perfect the claim. The letter sent to the taxpayer will include the date by which the taxpayer must provide the updated claim.
Does Supplementary Documentation Need to Be Submitted if a Claim Isn’t Being Amended for a Refund?
No. If an R&D credit is submitted on an amended tax return that doesn’t result in a refund to the taxpayer, the supplementary documentation for the claim doesn’t need to be submitted with the amended tax return.
What’s the Preferred Method to Provide Missing Information to the IRS?
The IRS noted that the best way to provide missing information for a deficient claim is by fax to a designated number. You can also send information by mail.
As of publication date, the IRS planned to have amended tax returns with R&D credit claims reviewed and processed within six months of receiving the amended tax return.
We’re Here to Help
To learn more about the R&D credit and how your company could qualify, please reach out to your Moss Adams professional.
You can also visit our R&D Tax Credit Services for additional resources.