Internal Revenue Service’s Interim Guidance for Amended Claims for Research and Development Tax Credit

Written by:

Tanya Donnelly, Senior R&D Tax Manager

On January 5th, 2022, the Internal Revenue Service (“IRS”) released an IRS Press Release, Frequently Asked Questions, and Interim Guidance for Research and Development (“R&D”) tax credit claims. As we discussed in our previous article, the IRS issued Chief Counsel Memorandum 20214101F on October 15, 2021, which sets forth the information taxpayers must provide with administrative claims for refund or credit under Internal Revenue Code (“IRC”) Section § 41, also known as the R&D Tax Credit. Additionally, the AICPA IRS Advocacy and Relations Committee had its fall meeting in November 2021, which was attended by Holly Paz, the Deputy Commissioner of the IRS Large Business and International (“LB&I”) Division. Paz stated these updated documentation requirements only applied to amended returns.

One important update to note from this press release is the update to the time frame a taxpayer has to “perfect” their claim from 30 days to 45 days during the January 10, 2022, through January 9, 2023, transition period. For claims that are filed near a statute of limitation deadline, the IRS has stated that during the transition period a claim will be considered timely if perfected within the 45-day timeframe if it is considered timely pursuant to IRC § 6511, Limitations on credit or refund, (a), Period of Limitation on Filing Claim.

Further, the IRS has provided more guidance surrounding what the additional information should include as well as the general claim review process. As BRAYN previously inferred, these claims will generally be screened at the IRS Campus level in the campus classification unit(s) (“CCU”). However, some claims may bypass the CCU, such as if there is an already open examination. The claims will be evaluated to determine if the information provided meets criteria for acceptance and confirm the receipt of a signed penalty of perjury statement. If it does, then the claim will be evaluated through normal amended return review procedures to determine if an examination on the claim is warranted. If the claim is deemed deficient, the IRS will issue Letter 6428 and will provide 45 days (from the date of the Letter 6428) to perfect the claim. Claims that are received after the transition period will not have the opportunity to be perfected.

The IRS states that these requirements will allow them to better determine whether an R&D Tax Credit claim for refund should be paid immediately or whether further review is needed.  One implication of this is the additional time it will take the IRS to process amended returns with R&D tax credit claims. The IRS stated that generally the claims will be reviewed within 30 days but could take up to 6 months. This does not include the time to process the amended return.

As previously discussed, BRAYN clients amending to claim the R&D credit should not fear this new guidance. We already collect this information during the R&D study process and will provide the necessary information for the amended return claim(s) with the delivery of credit calculations. We encourage anyone that is planning to claim the R&D Tax Credit to reach out to their provider as soon as possible to establish a gameplan to navigate these changes. We will continue to monitor the IRS’ new guidelines and keep you updated as we learn more.