New IRS Guidance on R&D Tax Credit Claims
On October 15, 2021, the IRS released Chief Counsel advice memorandum 20214101F, which provides guidelines for the information that taxpayers will need to submit for a Sec. 41 Research Credit refund. Specifically, taxpayers will be required to provide a list of the business components that are being claimed for the year, identify all research activities performed during the development of each business component, name the individuals who performed the activities and the information they sought to discover, and provide the total qualified wage, supplies, and contract research expenses for the claim year.
The IRS will provide a grace period until January 10, 2022 before requiring this information for all timely filed research credit claims for refund. After the grace period, there will be a one-year transition period during which taxpayers will have 30 days to refine a research credit claim prior to the IRS’s final determination of the claim.
This new requirement should not be viewed by taxpayers or tax professionals as restrictive or burdensome. Rather, this requirement provides more clarity on how to successfully seek refunds on amended tax returns and helps legitimize retroactive research credit claims.