New IRS rules for claiming R&D credit refunds effective Jan. 10

Your company will have to do more early legwork when filing for a research and development (R&D) credit refund from IRS.

Back in October, the Taxman issued an Office of Chief Counsel Memorandum establishing stricter new rules that require you to submit a slew of documentation at the time your company files for the credit.

And you received very little time to prepare for the changes – the new rules kick in Jan. 10, 2022. Here’s what you need to know.

Wanted: More information sooner to claim the tax credit

Previously you didn’t have to submit the documentation until after you were informed you were under exam. Now you must provide it upfront.

For example, for all the business components for which the research credit claims relate that year, you must:

• identify all the research activities you’ve performed
• name those individuals who performed each research activity, and
• explain what information each individual wanted to discover.

Also, for the claim year, you’d have to break out total qualified:

• employee wage expenses
• supply expenses, and
• contract research expenses.

So what’s the reason for the change after all these years?

Many believe the additional information is to help IRS validate R&D credit refund claims. The only problem? These new requirements may be seen as so burdensome — especially for small and mid-sized busineses — that they dissuade them from taking advantage of the credit.