Yes, the IRS will review each Research Credit claim for refund to determine whether it is valid.
The legal reasoning behind this involves several key points:
- Specificity Requirement: According to Treasury Regulation § 301.6402-2(b)(1), a valid refund claim must "set forth in detail each ground upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof." This means that the claim must include detailed information about the grounds and facts supporting the claim.
- Required Information: For a Research Credit claim to be valid, the taxpayer must provide specific information at the time the claim is filed. This includes:
- Identifying all business components to which the research credit claim relates.
- For each business component, identifying all research activities performed, all individuals who performed each research activity, and all the information each individual sought to discover.
- Providing the total qualified employee wage expenses, total qualified supply expenses, and total qualified contract research expenses for the claim year, which can be done using Form 6765.
- Declaration Under Penalties of Perjury: The claim must be accompanied by a declaration signed under penalties of perjury verifying that the facts provided are accurate. This is typically satisfied by the signature on Forms 1040X or 1120X.
- Review Process: The IRS has established groups of subject matter experts and attorneys to perform initial evaluations of research credit refund claims. These groups verify whether the taxpayers have supplied the required information. This review is not considered an audit but a verification process to ensure compliance with the detailed requirements.
- 45-Day Perfection Period: During a transition period, if a research credit claim is found deficient, taxpayers are given 45 days to perfect the claim by providing the missing information. This period allows taxpayers to correct any deficiencies identified by the IRS.
- Rejection of Deficient Claims: If a claim does not meet the specificity requirement, it may be rejected. A rejected claim cannot be amended or perfected if the statute of limitations has expired. This ensures that only claims meeting the procedural requirements are considered valid.
- Appeals Process: Refund claims disallowed on the basis of timeliness can be considered by the IRS Independent Office of Appeals. However, claims rejected for being deficient or otherwise not processible are not eligible for the Appeals resolution process.
These procedures ensure that the IRS can effectively manage and evaluate research credit refund claims, preventing the payment of refunds to taxpayers who do not have factual support for their claims and allowing the IRS to allocate its resources efficiently.
Sources:
IRM Part 4. Examining Process. Chapter 46. LB&I Examination Process. Section 3. Planning the Examination
IRS FAQ
IRS FAQ
Memo Review of Research Credit Claim Isn’t an Audit, IRS Says
FAA 20214101F
AICPA Calls for Item-by-Item Review of Research Credit Claims
IRS FAQ
