New procedural guidance for research credit refund claims

On October 15, the Office of the Chief Counsel of the Internal Revenue Service (“IRS”) released a legal advice memorandum on the process for taxpayers to file a valid claim for refund when it pertains to the Research Credit. The IRS has indicated they will provide a grace period until January 10, 2022 before all requirements must be included with any valid research credit claim for refund.

Following the expiration of the grace period, there will be a one-year transition period during which taxpayers will then have 30 days to perfect the research credit claim for refund prior to the IRS’s final determination of the claim.

Pursuant to the Chief Counsel Memorandum, the following is required for all research credit claims for refund:

  1. Identify all business components to which the research credit claim relates, including identifying all research activities performed, specifying the individuals who performed these research activities, and identifying the information each individual sought to discover.
  2. Provide the total qualified research expenses the taxpayer is claiming for employee wages, supplies, and contract research for the claim, which may be done through the filing of Form 6765.
  3. The taxpayer must provide a declaration under penalty of perjury (typically done as a signature on the amended return) stating all facts are accurate. In addition, the taxpayer should provide all facts through a written statement rather than through a research credit study. However, the IRS will permit a study so long as the exact pages are provided to direct the IRS to the requisite information, not simply a dump of documents.

Mazars’ Insight

Taxpayers in the process of assessing whether they will be filing amended returns for research credit claims should determine if they will be able to file refund claims prior to the conclusion of the grace period.  Although the IRS has stated taxpayers may provide the required information with amended returns prior to January 10, taxpayers may wish to not be subject to the requirements of the Chief Counsel Memorandum. 

Additionally, taxpayers performing qualified research credit activities may consider claiming the credit on a timely filed return to avoid the expanded reporting in the future.

Please contact your Mazars professional for additional information.

Published on October 26, 2021