IRS Brushes Off Criticism of New R&D Tax Credit Reporting Standards Given on Short Notice

On October 15, taxpayers were given less than three months to comply with stringent new reporting standards for R&D tax credits claimed filed on amended returns. Filers have only until January 10 of next year to backtrack and ensure that all their claims:

  • identify all the business components to which the research credit claim relates for that year;
  • for each business component, identify all research activities performed, the names of individuals who performed each activity, and the information each individual sought to discover; and
  • provide the total qualified employee wages, total qualified supply expenses, and total qualified contract research expenses for the claim year on Form 6765, “Credit for Increasing Research Activities.”

Many in the accounting world have complained that this short timeframe is putting taxpayers at a serious disadvantage, particularly if they’re small businesses without the resources to scramble for past data like this with little time to comply.  But the IRS disagrees.

At a December 9 American Bar Association conference in Las Vegas, De Lon Harris, commissioner of examinations, IRS Small Business/Self-Employed Division, said he didn’t understand why taxpayers were upset about changes in requirements for valid refund claims, which were issued in an IRS chief counsel memorandum.

“I don’t find it unusual how it came out with the chief counsel memorandum,” he said. “I know a lot of people have asked why there isn’t a period of time to provide comment, but the  memo states what is already there in the law.”

However, in a November 18 letter, the American Institute of CPAs asked that implementation be delayed, defining the recent changes as a “major departure from current regulations.” Its letter states: ““An implementation date of January 10, 2022, is too soon for taxpayers to be able to provide meaningful comments and the IRS to seriously consider and make changes in response to those comments.” 

At the ABA conference, Steven T. Miller of Alliantgroup LP, a former acting commissioner of the IRS, agreed. Calling the implementation “rushed,” he said he’s worried about complications the new requirements will cause for practitioners.

He’s concerned the IRS will use the approach to deny claims, forcing practitioners into a situation where “if they have time, they can appeal, but that two years runs anyway, and they have to go into the courts instead.”

According to Harris, new guidance on the information requirements is being prepared and will be released to the public soon.

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