IRS campaigns target research and fuel credits

Tax Hot Topics newsletter The IRS Large Business and International (LB&I) division has announced two new compliance campaigns targeting research expenditures and the treatment of fuel tax credits.

Campaigns are designed to drive taxpayer compliance through various “treatment streams,” which can include issue-based examinations, soft letters, taxpayer education, published guidance, and other measures taken by the IRS. The two new campaigns are:

  • Section 6426 Fuel Credit: This campaign will focus on taxpayers that received fuel tax credits under Section 6426 and did not treat the credits as a reduction in their excise tax liability under Section 4081, consistent with the decision in Sunoco Inc. v. U.S., 908 F.3d 710 (Fed. Cir. 2018). The IRS intends to conduct issue-based examinations to drive compliance for taxpayers who maintain that the credits are merely refundable, and do not affect the deduction for any excise tax liability.
  • Research Issues: This campaign is designed to address research credit and research and experimentation expenditures. Acknowledging that R&D is an area of controversy, the IRS said the campaign will employ various treatment streams, such as issue-based examinations, form updates, and requests for guidance. The goal is to encourage voluntary compliance, focus on high-risk issues, and increase the consistency of examinations.

The IRS has added new campaigns over the past year and also retired certain campaigns. Taxpayers should be aware that some outreach by the IRS may take the form of guidance or potentially a soft letter. A soft letter will likely require some kind of response to the IRS to show that a taxpayer is complying.

Shamik Trivedi
Senior Manager
Washington National Tax Office
T +1 202 521 1511

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