By Jonathan Tucker | Principal, Research & Development Tax Credits
The IRS issued new guidance around amending for R&D tax credit refunds postmarked as of June 18, 2024. This guidance reduces the documentation requirement to be submitted for amending by removing two previously required items.
KBKG Insight:
With just three documents needed to submit the claim, the IRS’s new guidance provides a much simpler process for businesses looking to receive tax benefits from the R&D credit on their amended returns. While fewer documents are required to be provided when amending, the more onerous items are still in place when amending, and taxpayers are still required to have all five documents, which should be prepared by a reputable provider, ready for amendment in the event of an audit.
Background
On October 15, 2021, the IRS released Chief Counsel Memorandum 20214101F, outlining new guidelines for filing an amended tax return to claim the IRC § 41 Research & Development (R&D) Tax Credit. The initial requirements included five specific pieces of information to be submitted with the amended return. The five pieces of information required include:
- Identification of Business Components: Specify all the business components to which the Section 41 research credit claim relates for that year.
- Description of Research Activities: For each business component, identify all the research activities performed.
- Individuals Involved: Name the individuals who performed each research activity.
- Purpose of Research: Describe the information each individual sought to discover.
- Qualified Expenses: Provide the total qualified employee wage expenses, total qualified supply expenses, and total qualified contract research expenses for the claim year. This can be reported using Form 6765, Credit for Increasing Research Activities.
On June 18, 2024, the IRS released an update that reduced the documentation requirements for claiming the R&D tax credit on an amended return. The updated requirements now necessitate only the following:
- Identification of Business Components: Specify all the business components to which the Section 41 research credit claim relates for that year.
- Description of Research Activities: For each business component, identify all the research activities performed.
- Qualified Expenses: Provide the total qualified employee wage expenses, total qualified supply expenses, and total qualified contract research expenses for the claim year. This can be reported using Form 6765, Credit for Increasing Research Activities.
While these changes reduce the documentation required to claim R&D on amended tax returns, the IRS requires taxpayers to maintain records of the names of individuals who performed each research activity and the specific information each individual sought to discover, as this information may still be requested if the claim is selected for further examination.
Action Items
Amending tax returns to claim the R&D tax credit can be complicated and requires specific steps to be followed in sequential order. To help with this process, reach out to a KBKG representative or visit KBKG.com for more information.
About the Author
Jonathan Tucker | Principal – Research & Development Tax Credits
Jonathan Tucker is based in Atlanta, GA, and has over 20 years of experience providing federal business tax advisory services, primarily in R&D tax credits, to clients in various industries including technology, manufacturing, transportation, healthcare, retail and consumer products, hospitality, media and entertainment, financial, and other professional services industries. Read More