Following up on guidance issued in mid-October 2021 that the agency would be imposing new requirements on amended returns filed for research credit claims under IRC §41, the IRS has issued a memorandum to its employees on these new requirements[1] along with a web page of frequently asked questions (FAQ) on the issue.[2]

The IRS has issued guidance (LB&I Memorandum  LB&I-04-0917-005) that allows certain large taxpayers to adopt a simplified method of determining qualified research expenditures (QREs) to be used in computing the credit for increasing research activities under IRC §41.  The method makes use of the entity’s audited financial statement’s amount of research and development expenditures reported as an expense under the provisions found in Financial Accounting Standards Codification ASC 730, Research and Development.

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In Field Attorney Advice 20171601F the IRS concluded that a taxpayer had used an inappropriate method to determine wages related to in-house research expense.  That allocation was used by the taxpayer in computing its research credit under IRC §41.

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The Protecting Americans from Tax Hikes Act of 2015 provided for a new way for certain businesses to receive the benefit of the research credit under IRC §41.  A qualifying small business may, in lieu of the income tax credit, receive a credit against the employer portion of social security taxes [IRC §41(h)].  The IRS has provided interim guidance on taking advantage of this provision in Notice 2017-23.

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The Eleventh Circuit Court of Appeals took a look at what constitutes research funded by a third party in the case of Geosyntec Consultants, Inc. v. United States, CA 11, 115 AFTR 2d ¶ 2015-384.