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IRS Gives New Guidance on R&D Tax Credit

IRS Gives New Guidance on R&D Tax Credit

Last September, in an effort to keep companies from retroactively claiming questionable expenses under the IRS R&D Tax Credit, the IRS Office of Chief Counsel issued a memo with new requirements for backing up claims. The new guidance required a much more detailed accounting of which business components and employees were directly involved in the research and development work at the company. The guidance applies to any company filing an amended return — these are used to claim R&D credits against past tax returns in one or multiple years.

The R&D Tax Credit is designed to incentivize innovative work within the United States — companies can claim a 10% credit on qualified expenses, which include: 

  • Employee wages
  • Payments to contractors
  • Cloud hosting and infrastructure costs
  • Cost of supplies

With the new IRS guidance, companies claiming the credit via an amended return will now need to identify all the research activities they’ve performed and the names of employees or contractors who performed each specific research activity. As of September 2021, they also must include the information each individual sought to discover during their R&D activities.

After pushback from tax professionals about the new burden of the guidance, the IRS made a new announcement Wednesday February 9, 2022 expanding the timeframe for “perfecting” a company’s claim from 30 to 45 days. Any amended R&D Tax Credit filed between January 10, 2022 through January 9, 2023 that is missing “proof” that the research was qualified will have a 45-day period to provide the IRS with that information.

The good news for those using Neo.Tax to prepare their R&D Tax Credit: we always provide a Study along with the forms your company files. This Study was built in-house by cofounder Stephen Yarbough, who spent two decades in the IRS processing hundreds of R&D Credits. The new guidance from the IRS demonstrates a new, more stringent view of amended returns — the burden of proof is on the company and will need to be even more detailed — so waiting to amend the returns may become more expensive and cumbersome going forward. That means it’s more important than ever to claim your R&D Credit on your original returns and Neo.Tax makes the process simple and easy. 

Happy Tax Season!

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