IRS Issues Taxpayer Friendly Guidance For Research Credit Refund Claims

Published date02 December 2022
Subject MatterTax, Tax Authorities
Law FirmSteptoe & Johnson
AuthorNicholas Peterson

In October 2022, the IRS updated its FAQ webpage on the filing requirements for section 41 research credit refund claims, clarifying instances when the so-called five items of information on an amended return are not required.1 The IRS separately announced an extension, through January 2024, of transition relief for refund claims that the IRS deems incomplete.2 These are taxpayer friendly updates and are generally welcomed by the tax community. But they fail to address criticisms of the onerous new requirements for research credit refund claims imposed by the October 2021 release of Chief Counsel Memorandum 20214101F.

Update to FAQ Webpage

We previously described the new requirements for valid research credit refund claims in our November 2021 newsletter.3 The CCM states that for such claims to be valid, taxpayers need (at a minimum) to provide the following five items of information:4

  1. All the business components that form the factual basis for the research credit for the claim year;
  2. All research activities performed by business components;
  3. All individuals who performed each research activity by business component;
  4. All the information each individual sought to discover by business component; and
  5. Total qualified employee wage expenses, supply expenses, and contract research expenses.

IRS officials claimed the changes were necessary because of "the poor quality of claims the IRS was receiving, which was challenging and resource-intensive for the agency."5 But the CCM is controversial with many tax practitioners arguing that the requirements are unduly burdensome and not consistent with existing regulations.6

The IRS soon issued interim guidance7 and an FAQ webpage8 to address the implementation of the CCM. We previously described this guidance in our January 2022 newsletter.9 Relevant to this article, question 4 of the FAQ stated that if a taxpayer does not include the required five items of information on an amended return, then the amended return will be considered deficient in its entirety.10

In their recent update of the FAQ webpage, the IRS replaced question 4, clarifying instances when the so-called five items of information on an amended return are not required.11 If a taxpayer's amended return does not include a refund claim (even if it contains the research credit) or does not request an adjustment to the research credit claimed on the original return (even if it does include a claim for refund not involving the research credit), the five items...

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