Key Changes in IRS Research Credit Claim Requirements
On November 25, 2024, the Internal Revenue Service (IRS) extended the research credit claim transition period, which now again provides taxpayers with 45 days to perfect a research credit claim for a refund prior to the IRS’ final determination on the claim through January 10, 2026.
Background: IRS Chief Counsel Memorandum and Disclosure Standards
Previously, in October 2021, the IRS set forth a Chief Counsel Memorandum summary of minimum standards that taxpayers were required to disclose for a research credit claim to be accepted.
Current Disclosure Requirements for Research Credit Claims
It later made modifications to waive two disclosure requirements for claims postmarked after June 18, 2024. Taxpayers are now required to provide a disclosure that identifies:
- All the business components to which the Section 41 research credit claim relates for that year
- All the research activities performed for each business component
- The total qualified employee wage expenses, total qualified supply expenses and total qualified contract research expenses for the claim year, which may be done using Form 6765, Credit for Increasing Research Activities
IRS Modification: Eliminated Disclosure Items
In June 2024, the IRS eliminated the need to identify the following two items in the disclosure statement:
- The names of the individuals who performed each research activity
- The information each individual sought to discover
Importance of the Transition Period Extension for Taxpayers
The extension of this amended claim transition period is especially important for claims for a refund made toward the end of the statute of limitations period. For example, consider a calendar year C corporation taxpayer that made a claim for a refund (relating to an IRC Section 41 Research and Development (R&D) Credit) for the tax year ended December 31, 2020, on October 13, 2024.
Assume that the taxpayer filed its original 2020 return on October 15, 2021. If the taxpayer omitted to disclose the above-listed three items in the claim for a refund, it now still has 45 days to respond to the IRS and perfect the claim. Without this relief, the taxpayer in this example would be barred from re-submitting the claim because the statute of limitations would have passed.
Historical Timeline of the 45-Day Grace Period Extensions
This 45-day grace period was originally set to expire on January 10, 2023. Then, it was later extended until January 10, 2024 (in October 2022). In November 2023, the IRS further extended the grace period to January 10, 2025. Currently, it is now extended until January 10, 2026.
Your Guide Forward
Cherry Bekaert’s R&D Tax Credit team is dedicated to helping you navigate the complexities of the IRS' extended research credit claim transition period. By partnering with us, you can maximize your R&D tax credits, minimize audit risks, and fully identify and optimize all eligible expenses. Contact Cherry Bekaert today to secure the tax benefits your business deserves with confidence and ease.
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