Business tax credits: Avoid IRS ‘Dirty Dozen’

Improper claims of business tax credits has made IRS’s list of “Dirty Dozen” scams for several years now, including last year. So, don’t forget to dot your i’s and cross your t’s on this one.

A research and development (R&D) tax credit is allowed under Internal Revenue Code Sec. 41 with proper documentation.

That’s according to IRS Chief Counsel Memorandum 20214101F.

However, businesses that want to claim the research credit on an amended return will need to provide specific facts, including wage data.

In addition to the memorandum, IRS recently released FAQs spelling out what’s needed.

3 steps to follow

First, identify all the business components to which the R&D credit claim relates for that year.

Second, for each one, identify:

• all research activities performed
• the names of the people who performed each research activity, and
• the info each person sought to discover.

Third, provide the total qualified employee wage expenses and the other expenses. They’re required on Form 6765, Credit for Increasing Research Activities.

Keeping tabs on tax credits

After you get your documentation in order, you’ll still need to stay attentive.

Over the course of time, does what’s on paper accurately reflect your activities?

Continue to review your reports or studies carefully. After all, you’ll likely find improper claims of business tax credits among the “Dirty Dozen” again for 2022.