On October 15, 2021, the Internal Revenue Service (IRS) released its Chief Counsel Memorandum, which outlines new requirements for claiming a tax credit refund for the Research & Development (R&D) Tax Credit. Specifically, when claiming a refund for the R&D Tax Credit, taxpayers are required to provide the information below with their tax return:

  • Identify all business components to which the research credit claim relates for the respective tax year;
  • For each business component, identify all research activities performed and name the individuals who performed each research activity, as well as the information each individual sought to discover; and
  • Provide the total qualified employee wage expenses, supply expenses and contract research expenses for the claim year. This can be done by using Federal Form 6765, which is the Federal R&D Tax Credit form.
  • Further, the taxpayer is required to provide a declaration signed under penalties of perjury verifying that the facts provided are accurate. The facts must be provided via a written statement rather than a production of documents.

This new requirement takes effect on January 10, 2022. Upon the expiration of the grace period, there will be a one-year transition period during which taxpayers will have 30 days to perfect a research credit claim for a refund prior to the IRS’ final determination on the claim.

How Does New IRS Regulation Affect Businesses?

Based on the Chief Council Memo, R&D tax credits will face higher scrutiny from the IRS in 2022. Organizations will be required to submit more documentation along with their claim which will put many small and medium-sized businesses at risk of being rejected for returns. That is why it is extremely important to make sure that your R&D Tax Credit claim is IRS compliant before submitting your application.

Don’t Risk Losing the Critical Cash to Reinvest in Your Business. Contact Us for Free R&D Tax Credit Evaluation

If you are self-managing your R&D Tax Credit or you are not confident that your R&D Tax Credit provider is 100% compliant with new IRS guidelines, we encourage you to speak to an experienced tax advisor. Our tax experts will provide you with a free review of your current methodology and documentation to ensure you are in IRS compliance.

At Cunningham and Associates, we’ve helped hundreds of small and medium-sized companies in various industries save thousands of tax dollars. Increased tax savings mean an increased investment back into your firm, positioning it for growth and success. Contact us for a free evaluation today!

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