The American Bar Association’s Section of Taxation is asking the Internal Revenue Service to issue regulations related to the filing of a research credit refund claim.
In a January 6 letter to the agency, the Section suggested that an October 15, 2021, memorandum providing specific instructions on filing the claim requires “the inclusion of such an extensive amount of documentation at the time of filing the claim,” which is “a significant departure from prior practice.”
The memorandum calls for the filer to identify all business components to which the research credit relates to for that year; identify all research activities performed, including who performed each activity and what information the research sought to discover; and provide total qualified wage, supply, and contract research expenses. Requirements outlined in the memorandum went into effect on January 10.
The ABA Section of Taxation asserts that the memorandum “imposes substantive requirements that could result in substantial compliance costs and would prevent certain filings. We believe the best way to achieve balance between the interests of [the agency] and taxpayers would be to issue proposed regulations establishing any new filing requirements.”
The Section said going the route to establish regulations would allow for “meaningful discussion” between taxpayers and the agency on what the requirements should be and also would require the IRS to consider the costs and benefits of any proposal as required by the Paperwork Reduction Act of 1995.
The Section also notes that the memorandum is non-authoritative guidance and the agency “has an interest in having taxpayers fully comply with any new procedural requirements for refund claims, but without authoritative guidance, there is a risk that it might not be followed consistently.”