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IRS Extends Time to Perfect R&D Tax Credit Claims to 2025

November 08, 2023

You now have until January 10, 2025 to fix research and development tax credit claims for refund. Here are the details.

Do you qualify for past research and development (R&D) credits and need to submit an amended return? Did you already submit a claim for a tax refund for the tax credit? The IRS has extended the time to perfect a R&D claim for refund to January 10, 2025. We have the details here.

What is the R&D tax credit?

The Research & Development (R&D) tax credit is for businesses of any size that design, develop or improve products, processes, techniques, formulas, or software.

What does the credit apply to?

Qualified research must meet the following four criteria:

  • New or improved products, processes, or software
  • Technological in nature
  • Elimination of uncertainty
  • Process of experimentation

Eligible costs include employee wages, cost of supplies, and contract research expenses.

How much is the credit?

The R&D Tax Credit allows a federal dollar-for-dollar credit of roughly 10-16% of eligible spending for new and improved products and processes. Many states also allow credits for eligible in-state spending.

What is the extension?

In October 2021, the IRS issued new requirements, which were originally set to begin January 10, 2022, that set forth what information taxpayers must include for research credit refund claims in order for the R&D tax credit claim to be considered valid. Last year, the IRS extended the transition period during which taxpayers have 45 days to perfect a research credit claim for refund before the IRS makes its final decision to January 10, 2024.

As of November 1, 2023, the IRS has extended this one year to January 10, 2025.

What is considered a valid R&D tax credit claim?

The guidance stipulates that in order for a R&D tax credit claim to be considered valid taxpayers must:

  • Pinpoint all the business components to which the Section 41 research credit claim relates for that year.
  • Identify all research activities performed (for each business component) and name the individuals who performed each research activity, as well as the information each individual sought to discover.
  • Specify the total qualified employee wage expenses, total qualified supply expenses, and total qualified contract research expenses for the claim year (using Form 6765, Credit for Increasing Research Activities).

With an amended claim for refund, businesses are required to provide very specific items of information with the return. If the IRS determines your claim is deficient, for the one-year transition period, you will be mailed a letter providing you 45 days to perfect your claim for refund. The additional transition period is a welcome update that will provide taxpayers with more time to implement procedures to capture this more detailed information.

Questions? Need help submitting a refund or fixing your claim? Contact us.

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