Are you current on the latest administrative, legislative, and legal developments for the Research & Experimentation Credit? For many organizations, the research credit represents a substantial tax position and source of value. It is important to understand what is on the horizon with respect to upcoming legislation, case law developments, best practices, and associated IRS campaigns.
DST President Diane Stogiannes shares important changes in an new article published in Tax Executive, the Professional Journal of Tax Executives Institute. Co-authored by Diane Stogiannes, Adam Quattlebaum, Rob Kovacev, and Alex Sadler.
Excerpt: The Internal Revenue Service’s Large Business and International Division (LB&I) has recently turned its focus back to the research tax credit by announcing new campaigns and directives. LB&I’s efforts aim to centralize review and assessment of issues, promote increased compliance, and provide consistency across the nation with respect to examinations. Most taxpayers have experienced challenges during IRS examinations when they claim the research tax credit, and the changes that will soon be implemented may offer insight into what might be in store for future audits as well as help to arm taxpayers with the latest tax controversy techniques. Understanding the outcomes of substantiation-related court cases provides insight into potential exposures that the IRS will try to exploit as a path to disallowing or denying claims. Taxpayers should consider using tools and techniques, such as automated data collection, to support the qualifying nature of their activities.
LB&I Newfound Focus on Research Tax Credits
Research Issues Campaign
In February 2020, LB&I announced a new compliance campaign on research issues, indicating that taxpayers can expect an increase in examinations of their claims. Section 41 (Credit for Increasing Research Activities) and Section 174 (Research and Experimental Expenditures) are the source of some of the most common tax issues in LB&I audits and are often time-consuming for both the taxpayer and the IRS. The campaign’s objectives are to promote voluntary compliance, focus resources on the highest-risk research issues, and increase consistency of examinations.
Read full article at Tax Executive below.