IRS Extends Transition Period for R&D Refund Claims

At a glance

• The main takeaway: The IRS is extending the transition period for Research and Development (R&D) Tax Credit refund claims through January 10, 2026. This transition period allows taxpayers 45 days to “perfect” a refund claim the IRS deems insufficient.
• The impact on your business: Taxpayers considering filing amended returns to claim an R&D credit should consider doing so before the transition period ends, after which the IRS will have the power to reject a taxpayer’s entire amended return with no revision opportunities.
• Next steps: Thorough, timely documentation for the R&D credit remains more important than ever. Consult Aprio’s team of R&D Tax Credit specialists to evaluate your credit opportunities and build a robust documentation approach.  

The full story:

The IRS has, for the third time, extended the transition period for Federal R&D Tax Credit refund claims, in which taxpayers have 45 days to “perfect” any claims that the IRS deems deficient upon initial submission. This transition period will now continue until January 10, 2026, and, unless extended again, any insufficient claims postmarked after that date will be rejected without the opportunity for further detail or corrections.

The IRS first implemented this transition period alongside new filing requirements for R&D Tax Credit refund claims submitted after January 10, 2022. Since implementing the new filing and reporting requirements, taxpayers have experienced lengthy delays in receiving either refunds or feedback from the IRS. It’s presumed the IRS has extended the transition period once again while they continue to work through the backlog of refund claims awaiting review.

Increased reporting requirements

While taxpayers previously only had to submit an amended Form 6765 to claim an R&D Tax Credit refund, the requirements have since evolved to mandate taxpayers provide the following additional information at the time of filing:

1. A list of all business components included in the credit claim
2. An explanation of all research activities performed for each business component

Although reviewing and documenting the information outlined above is necessary for substantiating a taxpayer’s qualifications for any R&D credit claim – original or amended – this new filing procedure requires the preparation and submission of that information at the time of filing an amended return, which makes claiming a refund for R&D credits more cumbersome. Ensuring claims conform with these enhanced reporting requirements also requires more experience, which may detriment taxpayers filing without professional guidance.

The IRS has demonstrated a willingness to listen to taxpayer feedback throughout the process of first introducing and implementing the new filing and reporting requirements. The creation and subsequent extensions of the transition period offering 45 days to “perfect” claims have provided a critical safety net for taxpayers and offer important insight into the IRS’s preferences. Additionally, the IRS has scaled back the required information since first introducing the new filing requirements. Taxpayers were initially also required to provide a comprehensive list of either employee names or job titles alongside a description of what information each individual “sought to discover” through their qualified activities; the IRS announced in 2024 that this information is no longer required when filing amended claims but may be requested under audit.

Updates to Form 6765

In parallel to new documentation requirements for refund claims, revisions to Form 6765 have also been underway, reflecting a dramatic increase in the quantitative and qualitative information required from taxpayers at the time of filing their tax returns. The most considerable changes in the new form include the introduction of two new sections: Section E, which includes five questions on “other information,” and Section G, which includes extensive questions specific to taxpayers’ business components used in the calculation of the credit.

The IRS released an updated draft version of the new Form 6765 earlier this year, revealing significant changes. First, the IRS clarified that taxpayers meeting the following criteria will be exempt from completing Section G:

• Qualified Small Businesses using the credit to reduce payroll taxes, and
• Taxpayers with total QREs of $1.5 million or less, determined at the control group level, and gross receipts of $50 million or less

Taxpayers that are not exempt from completing Section G will have the option to complete it for 2024 tax year filings before it becomes mandatory for the 2025 tax year. Other updates to Section G include the requirement to report a listing of Business Components, up to 50 total, that represent at least 80% of total QREs. Taxpayers following the ASC 730 directive will be exempt from individual business component reporting and may report all QREs calculated under that directive as a single line item.

Get a head start on documentation

Increases in IRS enforcement and evolving requirements should encourage businesses claiming the research credit to seek the help of knowledgeable professionals to appropriately document and support their credit claims. Companies can use the extended transition period as an opportunity to track and provide the appropriate supporting documentation for their CPA advisors.

Given the increased complexity and evolving requirements for claiming R&D tax credits, it is more important than ever to work with a knowledgeable advisor in the preparation of both Federal and state incentives. Aprio’s dedicated R&D Tax Credit Team continuously monitors updates on the new R&D tax credit laws and can guide you through the new reporting standards.

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