IRS Updates Requirements for Amended R&D Tax Credit Claims
On June 18, 2024, the IRS updated the information required for a taxpayer to submit a Research and Development (“R&D”) tax credit refund claim. Effective immediately, taxpayers are no longer required to include the names of the individuals who performed the research credit activities, which includes the specific titles or positions of the individuals. Further, taxpayers no longer need to provide the information that each individual sought to discover.
As such, the IRS only requires the following three items for an amended R&D tax credit claim:
- Identification of all business components to which the research credit claim relates for that year.
- Description of all research activities performed for the identified business components.
- The total qualified research expenses (“QREs”) for the claim year. This can be reported using the Form 6765, Credit for Increasing Research Activities.
It is important to note that the IRS may still request this information upon examination, so taxpayers should ensure they maintain comprehensive and detailed documentation to support their claims if further scrutiny is applied.
Business Impact of Recent Changes
The IRS’s recent updates simplify the R&D tax credit refund process, reducing the need for detailed individual information. This change is expected to lessen the administrative burden on companies, streamlining claims and potentially accelerating the refund process.
While specific data on the impact is still developing, these changes are likely to improve the efficiency of preparing and submitting r&d tax credit amended claims. A more straightforward review process may lead to fewer delays and an improved acceptance rate for compliant claims.
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Steps to Adapt to IRS Changes
- Revise Documentation Practices: Although the IRS no longer requires certain information upfront, companies should continue to maintain comprehensive records. This includes detailed documentation of QREs and research activities. Ensuring that all research activities are thoroughly documented and tied to specific business components will help prepare for any potential IRS inquiries.
- Update Internal Processes: Companies should review and update their internal processes to align with the new IRS requirements. This includes revising the criteria used to identify business components and ensuring that the documentation for these components is organized and readily accessible.
- Streamline Efficiency with Targeted Training: With the recent changes, training your finance and accounting teams on the updated IRS requirements is crucial for boosting efficiency. Ensuring they fully grasp the new documentation and submission processes will lead to faster processing times and smoother operations.
- Leverage Technology: Implementing technology solutions, such as tax software that tracks R&D activities and expenses, can help streamline the documentation process. These tools can also assist in ensuring that all required information is captured and easily retrievable if needed for an IRS examination.
- Engage with Tax Professionals: Navigating the complexities of the R&D tax credit can still be challenging, even with the simplified requirements. Working with experienced tax advisors, like those at Bennett Thrasher, can help ensure that your amended R&D tax credit claims are prepared accurately and in compliance with the latest IRS guidelines. This can be especially important for businesses with complex R&D activities or those filing claims for multiple years.
- Monitor IRS Updates: Stay informed about any further changes or clarifications issued by the IRS regarding R&D tax credit claims. Regularly reviewing IRS communications and working with tax professionals can help your company remain compliant and take full advantage of available credits.
For more tailored advice or assistance with your R&D tax credit claims, reach out to Nina Desai at Bennett Thrasher for a free consultation. Our team of tax experts is here to guide you through the complexities of the R&D tax credit process and help you maximize your benefits.
