Simplification of Research Credit Refund Claim Requirements Announced by the IRS

IRS Simplifies Research Credit Refund Claim Requirements

The Internal Revenue Service (IRS) is simplifying the research credit refund claim process by reducing documentation requirements and moving toward greater efficiency in tax administration. As stated in the IRS news release, dated June 18, 2024, the reduced requirement is based on the IRS’ “significant experience with the Research Credit refund claims process.” This change is effective for claims postmarked on or after June 18, 2024.

Background Insights: Reviewing the Complexities

The IRS previously outlined detailed guidance in October 2021 through a Chief Counsel Advice Memorandum. This directive specified the exhaustive list of information that taxpayers needed to include with a valid research credit refund claim. Key requirements were as follows:

• Identification of all business components related to the Code Section 41 research credit claim for the respective year
• Detailed information for each business component including all research activities undertaken; the individuals involved in each research activity; and the information each individual sought to discover
• Comprehensive reporting of the total qualified expenses, encompassing employee wages, supply costs, and contract research expenses; Taxpayers can use Form 6765, Credit for Increasing Research Activities, to report these expenses

Recent Changes: Simplifying the Process

In a move that reflects the IRS’ extensive experience with the research credit refund claims process, certain requirements will simplify for claims filed on or after June 18, 2024. Specifically, taxpayers no longer need to provide:

• The names of individuals who conducted each research activity
• The specific objectives or information each individual aimed to discover through their research activities

It’s important to note, however, that while these details are not required at the time of filing, they may be requested if a refund claim undergoes audit scrutiny.

Implications for Taxpayers

This update is a welcome development for taxpayers engaged in research and development activities, as it alleviates the administrative burden associated with compiling and submitting refund claims.

Taxpayers should be mindful, though, that the core elements of a valid research credit refund claim remain unchanged. It is essential to maintain comprehensive records and documentation to support all aspects of the claim, especially since the IRS reserves the right to request additional information during audits.

Weaver Can Help

For further guidance and assistance with navigating these changes, reach out to Weaver. We are here to help and can provide support tailored to your specific circumstances and research activities.

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