Research & Development (R&D) – Dennis Gardiner, CPA, Managing Partner
R&D Credit Claims on Amended Returns
There are new documentation requirements for R&D refund claims on amended returns filed after January 10, 2022. The purpose of the new documentation requirements is to initially determine the validity of the claim for an R&D refund credit before examining the claim on its merits.
Now the taxpayer must:
+ Recognize all the business components to which the claim relates for that tax year.
+ Identify all research activities performed for each business component, name all individuals who performed each research activity, and specify all information each individual sought to discover.
+ Provide totals of qualified employee wage expenses, qualified supply expenses, and qualified contract research expenses – to be itemized on Form 6765, Credit for Increasing Research Activities.
The taxpayer may provide the requested facts in a written statement of any kind; and are not required to provide supporting documentation or an R&D credit study with the claim.
The statute of limitations for filing an amended return is three years from the date the original return was filed, or two years from the time the tax was paid, whichever period expires later.
For those taxpayers that are working closely with AlliantGroup, the bullet points will be addressed in a memo to be attached to the amended return. However, further documentation may be required to fully comply with this new regulation.
R&D Costs
Beginning in 2022, companies will be required to capitalize all R&D costs for tax purposes. This is due to a delayed effective date from the Tax Cut Jobs Act of 2017 (TCJA); to have given companies more time to plan. These costs will then be amortized over five years. The expenses to be capitalized include both direct and indirect costs relating to the R&D project (IRC Section 174). The R&D tax credits many of you have filed for over the years focus on direct costs for a project (IRC Section 41).
President Biden’s Build Back Better Act (BBBA), if it were to be signed, would defer the capitalization and amortization of R&D Expenses until tax years beginning after 2025. If it does not pass as drafted; hopefully, if some faction of this bill would pass, the deferral would survive and be signed.