Documentation requirements for claims involving Sec. The 41-year business tax credit for increased research activity that the IRS imposed last fall places an undue burden on taxpayers and deviates from Treasury regulations and other authoritative guidelines, the AICPA said in a statement. comment letter as of September 21.
The letter, signed by Jan Lewis, CPA, chair of the AICPA’s Tax Executive Committee to IRS and Treasury officials, expands on the AICPA’s objectives November 18, 2021, letter who expressed initial concerns and provided general feedback on the requirements.
In late November 2021, Holly Paz, Deputy Commissioner of the IRS’ Large Business and International Division, told a volunteer AICPA member committee that the requirements only apply to R&D credit claims on amended returns and that the Service has deemed them necessary for such claims to meet the current requirement of O. Reg. Second. 301.6402-2(b)(1) that taxpayers provide sufficient information regarding the grounds and facts on which a refund claim is based, known as the specificity requirement. The memo also states that conditions must be met for an R&D credit refund request to be considered valid as a threshold.
But in comment letters, the AICPA argued that the requirements represent a new collection of information, which “is very cumbersome and presents a large departure from existing regulations, binding and authoritative guidelines, and a form of return and modified instructions”. If the IRS chooses to retain these requirements, the Sept. 21 letter says, it should adopt the letter’s three key recommendations: (1) the requirements should not impose the significant burden depicted in the memo; (2) the IRS should clarify the essential information needed to meet the requirements; and (3) the IRS should review every item in a refund claim, including any item unrelated to but included with an R&D credit, and notify taxpayers within 45 days whether the claim is valid.
Lighten heavy loads
The letter said the requirements relate to a taxpayer’s entire R&D credit, not just an additional amount of credit claimed on an amended return, making them too broad to the point “amounting to being punitive.” “. Additionally, a high volume of R&D activity for some taxpayers could result in “several hundred pages of information” difficult for those taxpayers to compile and review by the IRS.
At the other end of the scale, small and medium taxpayers may be deterred “from claiming research credits to which they are entitled,” the AICPA said. “These taxpayers may not be able to pursue valid research credit claims, depending on the initial resource requirements to do so and the potential litigation costs if the claims are denied, a more likely outcome given the [memo].”
Clarify essential information
The AICPA criticized some of the memo’s requirements as unclear and overbroad, such as certain points relating to the general requirements that the claim identify all research activities performed, all persons who performed them, and all information that each individual sought to discover.
“Preparing a comprehensive list of ‘ALL’ information is not feasible because ‘all’ is an undefined term, with the result that taxpayers have little way of knowing how much information is needed, the letter states. Additionally, the word “discover” “is not in the law or regulations,” the letter says. The AICPA recommended clarifying these requirements, including examples and acceptable formats.
Evaluate each item independently
In the case of a refund claim included in a single amended return that is attributable to additional R&D credits claimed, as well as other items, the AICPA recommends that the IRS assess and consider each item included in a claim for reimbursement independently based on the facts. , the circumstances and the law relating to each separate element. Additionally, the memo says the IRS will notify taxpayers whose application it considers invalid for not meeting the requirements, giving them 45 days to perfect it. Similarly, the AICPA said in the letter that the IRS should be bound by a decision date no longer than 45 days to let taxpayers know if their claim is valid.
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