Opinion: Research & Development - Tax Advocate Service No Longer Assisting with Amendments
Written by Probity Tax Recovery's Tax Policy Analyst Olivia Vong, MPP
Overview:
According to the Taxpayer Advocate Service, “As of October 30, 2021, the IRS had a backlog of over 2.7 million unprocessed amended returns. The IRS is processing these returns in the order received, and the current processing time posted on its operational page is more than 20 weeks.” [1] On November 10, the Taxpayer Advocate Service announced it would no longer be assisting taxpayers with amending returns unless the taxpayers met the criteria set by IRS IRM 13.1.7 until the end of December [2]. This comes at a time where many taxpayers who have filed their tax returns have still not received their refunds and the Chief Counsel has increased its criteria for the Research and Development Credit [3].
Impact:
By no longer assisting taxpayers via inquiring about the status of the taxpayer’s claim, this prevents taxpayers from accessing their research and development credit. While it is imperative to address the current backlog by pausing all assistance with amendments that do not meet the IRS IRM 13.1.7 criteria will further perpetuate the backlog. The Taxpayer Advocate Service will have and further exacerbate the delay for the taxpayer’s access to their credit.
Additionally, the October 15th memorandum released by the Chief Counsel will also create further delay. The memo sets forth additional required information to include with a research credit refund claim for the claim to be valid [4]. The memo states that this requirement is in accord with Section 301.6402-2 of the Treasury Regulations and will allow the Service to determine whether a refund should be paid immediately, or an examination should be conducted to verify the taxpayer’s entitlement to the refund [5]. You can read more about this memorandum and the implication in our blog post.
Setting a January 10 deadline while pausing assistance with amendments could create a new problem. If a refund claim fails to meet the specific requirements due to the delay the tax year statute of limitation will likely have lapsed prior to the taxpayer being notified. This could prevent the taxpayer from perfecting their claim prior to the statute of limitation lapsing.
Solution:
Chief Counsel should make an exception to their October 15th memorandum given the Taxpayer Advocate Service backlog of amendments and returns that still need to be processed. This will provide taxpayers with more time to gather the necessary documentation needed for filing the return. If the purpose of the credit is to incentivize American businesses conducting R&D work, it would be in the taxpayer’s best interest to have ample time to submit needed documentation in order to take advantage of this beneficial credit.
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Taxpayer Advocate Service. NTA Blog: IRS Delays in Processing Amended Tax Returns Are Impacting TAS’s Ability to Assist Taxpayers. https://www.taxpayeradvocate.irs.gov/news/nta-blog-irs-delays-in-processing-amended-tax-returns-are-impacting-tass-ability-to-assist-taxpayers/
Internal Revenue Service. Part 13. Taxpayer Advocate Service Chapter 1. Taxpayer Advocate Case Procedure. Section 7. Taxpayer Advocate Service (TAS) Case Criteria. https://www.irs.gov/irm/part13/irm_13-001-007
Office of Chief Counsel Internal Revenue Service, Memorandum I.R.C. § 41 Research Credit Refund Claims (October 15, 2021), https://www.irs.gov/pub/irs-lafa/20214101f.pdf
Office of Chief Counsel Internal Revenue Service, Memorandum I.R.C. § 41 Research Credit Refund Claims (October 15, 2021), https://www.irs.gov/pub/irs-lafa/20214101f.pdf
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