Required information for a valid research credit claim for refund

 

Existing Treasury Regulations require that for a claim for refund to be valid, it must set forth sufficient facts to apprise the IRS of the basis of the claim. The IRS has set forth the items of information that taxpayers are required to include for a claim for refund that includes an IRC Section 41 research credit to be considered valid. Applying advice provided in a recent Chief Counsel legal memorandum, the IRS will be improving tax administration with clearer directions for eligible taxpayers whose claim for refund includes an IRC Section 41 research credit while reducing the number of disputes over such claims.

Effective tax administration entails ensuring taxpayers understand what is required to support an IRC Section 41 research credit claim for refund. Each year, the IRS receives thousands of IRC Section 41 research credit claims for refund in the hundreds of millions of dollars from corporations, businesses, and individual taxpayers. IRC Section 41 research credit claims for refund are currently examined in a substantial number of cases and consume significant resources for both the IRS and taxpayers.

The Chief Counsel legal memorandum released on October 15, 2021, was the result of ongoing efforts to manage IRC Section 41 research credit issues and resources in the most effective and efficient manner. By requiring taxpayers to provide the items of information referenced below, the IRS will be better able to determine if a claim for refund that includes an IRC Section 41 research credit should be paid immediately or whether further review is needed.

Specifically, for a claim for refund that includes an IRC Section 41 research credit to be considered a valid claim, taxpayers are required to provide the following items of information at the time the claim for refund is filed with the IRS:

  • Identify all the business components to which the IRC Section 41 research credit claim for refund relates for that year.
  • For each business component, identify all research activities performed, and name the individuals who performed each research activity (or provide their titles or positions), 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 Form 6765, Credit for Increasing Research Activities.

Taxpayers who file a claim for refund that includes an IRC Section 41 research credit must comply with the requirement to provide the above-referenced items of information when the claim for refund is based on an IRC Section 41 research credit from a pass-through entity. For more information on IRC Section 41 research claims for refund involving BBA partnerships and non-BBA pass-through entities such as a TEFRA partnership, S corporation, estate, trust, cooperative, or other non-TEFRA or non-BBA pass-through entities, and their partners, shareholders, beneficiaries, or member-patrons, please see the Research Credit Claims frequently asked questions.

As of January 10, 2022, there will be a one-year transition period during which taxpayers will have 45 days to perfect a deficient IRC Section 41 research credit claim for refund prior to the IRS' final determination on the claim. The IRS plans to continue engaging with stakeholders on research credit issues. Comments may be sent to irs.feedback.recredit.claims@irs.gov.