New IRS rules for R&D credits causing angst

The Internal Revenue Service’s recent move to set new requirements for claiming refunds on research tax credits is provoking an uproar among tax professionals.

Last month, the IRS released a September memorandum from its Office of Chief Counsel essentially saying it wants more detailed information about all the business components for which the research credit claims relate for that year (see story). For each business component, companies will need to identify all the research activities they’ve performed and name the individuals who performed each research activity, along with the information each individual sought to discover. Refund claims for the research and development credit will also need to detail the total qualified employee wage expenses, total qualified supply expenses, and total qualified contract research expenses for the claim year, using Form 6765.

The new requirements are likely to have a big impact on many companies by asking them to provide much more detailed information on all their research activities to claim the tax credit. Some tax professionals and their clients are already concerned about the change, as the extra requirements could discourage businesses from seeking legitimate R&D credits.