Historical Context – October 2021
On October 15, 2021, the IRS issued IR-2021-203, introducing new procedures for taxpayers seeking a refund claim for the Research Credit under Section 41. Effective January 10, 2022, taxpayers were required to provide specific information to validate their claims. The essential documentation included:
- Identification of Business Components: Taxpayers must identify all business components related to the Section 41 claim for the relevant tax year.
- *Research Activities: For each identified business component, taxpayers need to outline all research activities performed.
- *Identify Individuals: For each identified business component, the names of individuals who conducted the research activities must be provided.
- *Research Information Discovery: For each identified business component, taxpayers must detail the information each individual aimed to discover through their research activities.
- Qualified Research Expenses (QREs): This includes total qualified employee wages, supplies, and contract research expenses. Form 6765, “Credit for Increasing Research Activities,” is used for this requirement.
*Update – June 2024
In a significant update announced on June 18, 2024, the IRS has streamlined the requirements for claiming the Research Credit. Starting from claims postmarked after June 18, 2024, taxpayers are no longer required to submit information related to items 2, 3, and 4 from the previous list.
However, it’s important to note that while this information is not required at the time of submission, the IRS retains the right to request it if a refund claim involving the Research Credit is selected for examination.
Summary of Current Requirements
As of June 2024, to successfully submit a refund claim for Section 41 Research Credit, taxpayers must:
- Clearly identify all business components associated with the claim for the tax year.
- Provide all qualified research expenses, including employee wages, supplies, and contract research expenses. This information can be reported using Form 6765.
Given the complexity and evolving nature of this section of the tax code, it’s crucial to consult with a CPA or tax professional. At Leyton, we specialize in tax incentives consulting, with R&D tax credits being one of our core areas of expertise. Our team of experts is dedicated to providing guidance and support to help businesses maximize their R&D tax credits and empower their growth through innovation funding.
