The IRS recently extended the transition period for taxpayers to perfect a research credit refund claim — while also signaling that more taxpayers may be required to provide additional documentation for making a valid Section 41 research credit refund claim.
To make a valid Section 41 research credit refund claim on an amended tax return, taxpayers generally must provide five “items of information” as described in Chief Counsel memorandum 20214101F. This requirement became effective for amended tax returns filed on or after Jan. 10, 2022. For more information on the documentation requirements, see our prior story, “IRS adds doc requirement for research credit claims.”
The IRS also previously announced there would 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. On Sept. 30, 2022, the IRS extended the transition period through to Jan. 10, 2024.
The IRS further updated its research credit claims on amended returns FAQs page on Oct. 4, 2022, to state that if a taxpayer’s amended return does not include a claim for refund (even if it contains the Research Credit) or does not request an adjustment to the Research Credit claimed on your original return (even if it does include a claim for refund not involving the Research Credit), the five “items of information” are not required to be provided with the taxpayer’s amended return. The IRS notes, however, that it may later require a taxpayer to provide the five “items of information” to substantiate its entitlement to the Research Credit, if your return is selected for examination. The FAQs also note that if a taxpayer’s amended return includes a claim for refund related to the Research Credit (even if it contains other items), the taxpayer is required to provide the five “items of information” with its amended return.
Grant Thornton insight:
It is important to note that even if an amended return does not result in a refund claim due to the research credit, the IRS may still require a taxpayer to provide the five “items of information” to substantiate the research credit claim during the audit of an amended return. Although the additional information requirements were initially intended to evaluate if a taxpayer made a valid claim without evaluating the technical merits of the claim — and thus beginning the examination process — it appears the IRS continues to focus on gathering this information to assist with the administration of the research credit.
While the timing and applicability of the additional documentation requirements will differ based on a taxpayer’s facts, more taxpayers will find themselves required to provide the IRS with the five “items of information” to substantiate their research credit claim. The greatest potential burden may fall upon taxpayers who rely on judgment sampling to qualify and/or document business components because the additional documentation must be provided for all business components that are qualified for the credit claim tax year.
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