IRS Extends Transition Period for Perfecting R&D Claims for Refund Until 2025
November 6, 2023
On October 30, 2023, the IRS further extended the transition period for an additional year to perfect R&D claims that were determined to be deficient. This transition period was set to last for one year and expire on January 10, 2023, after which taxpayers would no longer have the 45-day period to provide additional information. In September 2022, the IRS extended this transition period by one year, and in October 2023, the IRS further extended the transition period for an additional year to January 10, 2025.
Additionally, the IRS updated its Frequently Asked Questions section of the website to include a sample submission of the information taxpayers must provide for an R&D Credit claim for refund. The example outlines a best-practices format for the five pieces of information, which includes a list of business components under development for the claim year, identifying the research activities performed, a list of employees developing the business components, the information the taxpayer sought to discover, and the total qualified wage, supply, computer leasing, and contract research expenses claimed for the year. This example provides important clarification to taxpayers on how to best provide this information.
McGuire Sponsel’s R&D Tax Credit team will continue to monitor the situation and provide updates as they become available.
October 4, 2022
In October 2021, the Internal Revenue Service released Chief Counsel Advice Memorandum 20214101F, which provided guidelines for the additional information taxpayers are required to submit with a Section 41 R&D Credit claim for refund. As part of that guidance, the IRS began a transition period where taxpayers would have 45 days to perfect an R&D claim that was determined to be deficient. This transition period was set to last for one year and expire on January 10, 2023, after which taxpayers would no longer have the 45-day period to provide additional information. On September 30, 2022, the IRS extended this transition period by one year, meaning that the IRS will continue to give taxpayers 45 days to perfect a deficient claim through January 10, 2024.
The rationale for this extension is unclear at this time, but there could be a few reasons for this change. First, the backlog of returns continues to be an issue for the IRS, and they are continuing to shift resources to address areas of concern. While the IRS has said that they will make every effort to determine whether a claim is deficient within six months of receipt, it is possible that this timeline has not been realized; necessitating a longer period to review claims in order to incorporate feedback from taxpayers, tax practitioners, and IRS staff.
This shift could also indicate that the IRS is planning on releasing more in-depth guidance on top of the guidance that was released on January 3, 2022, but needs additional time to gather and incorporate feedback from the R&D claims from this past year. Extending this transition period would allow them to continue to gather more data, especially if the IRS backlog continues to be an issue and not enough returns have been processed to draw meaningful conclusions. The IRS may also be considering whether to further extend the 45-day perfection period or even make it permanent and extended the transition period to continue to evaluate. Regardless of the reason for the extension, it is welcome news for taxpayers looking to amend to claim the R&D Credit.
If you have any questions about the R&D Credit, please do not hesitate to reach out.
David Seibel is a Principal for the R&D Tax Credit Practice. He combines his knowledge of tax law with his engineering expertise to maximize companies’ research credits and reduce their overall tax burdens.
David ensures clients are receiving studies that meet the highest level of quality. He conducts fieldwork, produces detailed technical calculations, and builds narratives that accurately reflect each company’s research and experimentation activity.