The Internal Revenue Service has recently published an online guide to help its examiners assess the validity of businesses' claims for the research credit.
The IRS's Research Credit Claims Audit Techniques Guide provides guidance to help examiners evaluate claims for the credit for increasing research activities, particularly those that are prepared using the most common approach, prepackaged RC claim studies. The guide notes that the prepackaged studies are often delivered to IRS examiners in multiple binders.
While they often set forth the methodology employed in preparing the claim, the submissions frequently fail to substantiate that the taxpayer paid or incurred qualified research expenses as claimed. A significant number of research credit claims are prepared using a hybrid method that does not properly establish the required nexus between qualified research expenses and qualified research activities.
The guide is designed to help IRS examiners determine if the claim is sufficiently prepared or whether the claim is insufficient to report the credit claimed and requires the issuance of a Notice of Claim Disallowance. The guide also discusses the administrative handling of the claims.
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