Supporting Documentation
The IRS has set forth the information that taxpayers will be required to include for a research credit claim for refund to be considered valid. Existing Treasury Regulations require that for a refund claim to be valid, it must set forth sufficient facts to apprise IRS of the basis of the claim. The Chief Counsel memorandum 20214101F will be used to improve tax administration with clearer instructions for eligible taxpayers to claim the credit while reducing the number of disputes over such claims. Specifically, the Chief Counsel opinion provides that for a Section 41 research credit claim for refund to be considered a valid claim, taxpayers are required to provide the following information at the time the refund claim is filed with the IRS:
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Identify all the business components to which the Section 41 research credit claim relates for that year.
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For each business component, identify all research activities performed and name the individuals who performed each research activity, as well as the information each individual sought to discover. Note: The requirement to name the individual and the information they sought to discover need not be submitted after June 18, 2024.
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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.
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See the Chief Counsel Memorandum for additional details
The IRS provided a grace period until January 10, 2022 – subsequently extended through January 10, 2025 (as updated 9/30/23) – before requiring the inclusion of this information with timely filed Section 41 research credit claims for refund. Upon the expiration of the grace period, there will be a one-year transition period during which taxpayers will have 45 days to perfect a research credit claim for refund prior to the IRS’ final determination on the claim. More details available from the updated IR-2021-203 on the IRS website. See also the IRS’ FAQs at: https://www.irs.gov/businesses/corporations/research-credit-claims-section-41-on-amended-returns-frequently-asked-questions