In a significant development, the IRS has simplified the documentation requirements for research credit refund claims. The research and development (R&D) credit under Section 41 incentivizes businesses in various industries to invest in innovation by offering a credit for qualified research expenses. As of June 18, 2024, the IRS has waived the need to provide the following items:

  1. The names of individuals who performed each research activity
  2. The specific information each individual sought to discover

These revisions will supersede the changes to the R&D credit requirements in 2022. This policy change could be a game-changer for many taxpayers. Those previously deterred by the extensive documentation required for amended returns now have an opportunity to pursue well-deserved credits. It’s an opportune time for taxpayers to reassess their eligibility for the R&D tax credit and potentially benefit from this more streamlined process.

What Changed for the R&D Tax Credit?

Previously, taxpayers filing an amended return had to adhere to more strict requirements. Specifically, they had to:

  1. Identify all the business components to which the Section 41 research credit claim relates for that year. Business components are defined as “any product, process, computer software, technique, formula, or invention which is to be held for sale, lease, or license, or used by the taxpayer in a trade or business of the taxpayer.”
  2. For each business component, identify all research activities performed, the individuals involved in qualified research activities, and the information sought to discover, develop, or improve.
  3. Provide the total qualified employee wage expenses, total qualified supply expenses, total qualified contract research expenses, and total computer leasing costs for the claim year. This may be done using Form 6765, Credit for Increasing Research Activities.

The change reflects the IRS’s adaptive approach after gaining substantial experience with the R&D tax credit refund claims process. While this eases the initial filing process, it’s important to note that the IRS may still request this information if a claim is selected for examination. Taxpayers should remain prepared to provide detailed documentation if required.

How Can Calvetti Ferguson Help Your Business Determine Eligibility?

Working closely with your CPAs, Calvetti Ferguson R&D tax consultants will assist you in identifying and capturing federal and state R&D tax credits that can drastically reduce your tax liability. Not only can we review your current tax year, but the R&D tax credit can be taken for all open years, providing a refund on amended returns and instant tax relief on your current year. If a credit cannot be used in the year it is identified, it can be carried forward up to 20 years. Our process, first and foremost, includes a four-part test that we use to determine your eligibility. This test identifies if your project fits the following requirements, which will now be subjective to the recent revisions to the research credit:

  • Technological in nature
  • New or improved business component for a permitted purpose
  • Elimination of uncertainty
  • Process of experimentation

Our specialty tax credit consulting services can help you maximize your potential savings and ensure your eligibility for valuable tax credits, securing financial benefits now and in the future.

Contact Us

Calvetti Ferguson works with middle-market companies, private equity firms, and high-net-worth individuals nationwide. Regardless of the complexity of the compliance, assurance, advisory, or accounting need, our team is ready to help you. Please complete the form below, and we will follow up with you shortly.