Taxpayers who file a claim for refund that includes the Research Credit must comply with the requirement to provide the five items of information, even when the claim is based on a Research Credit from a pass-through entity. The process varies depending on whether the pass-through entity is a Bipartisan Budget Act (BBA) partnership or a non-BBA pass-through entity.
- BBA Partnership:
- The BBA partnership does not file an amended return. Instead, it must file an administrative adjustment request (AAR).
- The AAR must include the five items of information:
- Identify all the business components to which the Research Credit claim relates for that year.
- For each business component, identify all research activities performed.
- Identify all individuals who performed each research activity.
- Identify all the information each individual sought to discover.
- Provide the total qualified expenses for employee wages, supplies, and contract research for the claim year, which can be done using Form 6765, "Credit for Increasing Research Activities."
- As part of the AAR process, the BBA partnership will also submit Forms 8985 and 8986 to the IRS and send Forms 8986 to its partners. The BBA partnership is not required to provide the five items of information again on the Forms 8985 and Forms 8986.
- The BBA partners do not need to attach the five items of information to their original returns to which their Forms 8986 are attached.
- Non-BBA Pass-Through Entity:
- The non-BBA pass-through entity may include the five items of information with its amended return.
- Partners or shareholders are required to include the five items of information with their amended tax return claiming the Research Credit.
- Partners or shareholders should receive the five items of information from the partnership or S corporation in which they are a partner or shareholder, for example, in the form of an amended Schedule K-1 (and any statements attached thereto).
In summary, for BBA partnerships, the five items of information must be included in the AAR, and for non-BBA pass-through entities, the information should be included with the amended return. Partners or shareholders must ensure they have the necessary information to include with their amended tax returns.
Sources:
Rev. Proc. 2023-37
§ 41. Credit for increasing research activities
IRM Part 4. Examining Process. Chapter 23. Employment Tax. Section 5. Technical Guidelines for Employment Tax Issues
FAA 20214101F
Fact Sheet Updates FAQs on Recovery Rebate Credit