January 16, 2022 - Douglas Myser

New credit documentation requirements. The IRS has provided guidance to taxpayers and internally on its new documentation requirements for administrative refund claims of the Sec. 41 business tax credit for increasng reserch activitites (the R& D credit). The taxpayer guidance comes in the form of 16 frequently asked questions posted on the IRS's website. At the same time, the IRS issued internal guidance to its imployees in the form of a memo and revisions to its internal Revenue Manual ( New credit documentation requirements.

The new requirements take effect Jan. 10, 2022. An R&D credit refund claim on an amended return must contain specified itens of information before it can be deemed to meet the specifiacity requirement of Regs. Sec. 301.6402-2(b)(1) by containing sufficient information concerning the grounds and facts upon which the claim is based. This is a threshold requirment for the IRS to accept the claim as valid.

According to the FAQs, claimants must: Identify all the business compoents to which the claim relates for the claim year. For each business component, identify all reserch activities performed, name the individuals who performed each reaserch activity, and specity what information each individual who performed each research activity sought to discover. And, provide totals for the tax year of qualified employee wage expenses, qualified supply expense, and qualified contract reserach expenses (which may be done by using From 6765, Credit for Increasing Research Activities).

Members of the IRS Advocacy and Relations Committee in its fall meeting in November, told Deputy Commissioner of the IRS Large Business and International Division, that they were disappointed that the requirement was not first proposed as a regulation, which would have allowed formal deliberation and input.

These are the types of situations that sometimes call for a "Letter Ruling" from the IRS, as often the IRS guidance comes late, after Tax Returns have been filed, and then mistakes are made based on previous assumptions or guidance that was changed. If you need a Letter Ruling, call us. We make Tax Resolution easy on you. Nationwide Tax Resolution Services. Call today 1-888-689-7861