IRS Issues New Requirements for Research Credit Claims

Stephen Whiteaker, CPA
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On October 15, 2021 the Internal Revenue Service issued a news release stating 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:

  • Identify all the business components to which the Section 41 research credit claim relates for that year.
  • 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.
  • 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.

 

The release has a link to a 21-page Office of Chief Counsel memorandum addressed to Cheryl Teifer, Director of Field Operations Engineering (a position I held for three and half years prior to retirement) and Lois Deitrich, Director, Southwest Examination.  The memo outlines in detail their rationale on why the new requirement is needed and legitimate for research credit claims.

Does the requirement go too far?  Perhaps, given the rules regarding substantiation of the research credit, Congressional commentary directing the IRS to be flexible in the types of documentation required to support the credit, and case law regarding the requirements for a sufficient claim including the recent District Court decision Premier Tech v. U.S. (July 15, 2021) (Case No. 2:20 CV 890 TS CMR).

Stay tuned as we will be providing an in-depth analysis of this new requirement and possible ramifications to taxpayers. Should you have any questions, please do not hesitate to contact me at [email protected].

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