Amending Prior Year Returns to Maximize R&D Tax Claim

4 Minute Read
Posted by Brad Mols on May 10, 2019 8:25:00 AM

Has your business missed out on the capital-infusing opportunities offered by the research and development tax credit, simply because you weren't aware that some of your activities may qualify for tax credits? It's a common (and unfortunate) occurrence for companies in virtually every vertical. Each year, countless business owners miss out on this dollar-for-dollar reduction in both state and federal tax liabilities because they didn't realize that the innovation tax credit covers far more than science laboratories and software design. This robust tax incentive spans over 40 industries and covers a multitude of operations, making it one of the most lucrative programs for businesses of every size and scope.

You May Still Be Able to Leverage Cash Savings Potential of the Innovation Tax Credit

If you've recently discovered that your company could, in fact, qualify for the research and development tax program, there is some good news. Even though you've technically missed this year's deadline, you may still be able to tap into the cash-saving potential offered through the R&D tax credit. 

In 2006, the IRS published new, temporary regulations that changed how taxpayers file for and maximize possible research and development tax benefits. Finalized in February 2015, the updated legislation officially allows business owners to go back to previous tax years and claim available innovation credits using the Alternative Simplified Credit (ASC) method.

The Three-Year Statute Of Limitations

The statute for a filed tax return is three years. This means that you can "refile" your tax return up to three years after the statutory filing date (including extensions). For companies that have missed out on the R&D credit but still may qualify, this opportunity should not be overlooked.

How Far Back Can You Claim R&D Tax Credits?

The R&D tax credit can be claimed for qualifying research and development expenses incurred in the current tax year, as well as the three previous tax years. This means that if you incur R&D expenses in 2021, you can claim the credit on your 2020, 2019, and 2018 tax returns.

To claim the R&D tax credit, you must file Form 6765 with your regular tax return (Form 1040). Current regulations require specific documentation be provided with all amended tax return filings for an R&D tax credit.

The IRS will then process your claim and issue a refund if you are due one. Note that you can only amend tax returns for the three most recent tax years. So, if you filed your tax return on September 15, 2020, for the 2019 tax year, you have until September 15, 2023, to amend your tax return. After that, the statute is closed and you cannot file an amended tax return for the 2019 tax year.

What You Need to Know About Amending Your Previous Tax Returns

Beginning with tax returns filed for a refund claim (amended tax returns) after January 10, 2022, additional information must be provided with the claim. In October 2021, the IRS issued a memorandum stating that amended tax returns claiming a research and development tax credit must include specific information about the development projects and processes the taxpayer undertakes. The IRS has provided a period of time where deficient claims (claims that do not provide the information requested) will be reviewed and feedback provided to cure the deficiencies. Recently, this deadline was extended until January 10, 2024. 

Specifically, the five items that need to be included are:

  1. Identify all business components to which the R&D credit relates for the tax year.
  2. For each business component, identify all the research activities performed.
  3. Name the individuals who performed the research.
  4. as well as the information each sought to discover.
  5. Provide total employee wages, qualified supplies, qualified computer rental expenses, and qualified contract research expenses for the claim year. This may be done on Form 6765.

The amendment process does have time restrictions put on it as well. On the federal level, a business has up to three years to amend its earlier returns to take advantage of the cash benefits offered through the innovation tax credit. At the local level, every state has its own rules and regulations, with some states allowing companies to amend their returns going back even further than three years.

Partner With a Qualified R&D Tax Credit Professional

If you're considering amending your previous tax returns to adjust for research and development benefits, it's crucial to partner with a professional firm that specializes in innovation tax regulations. A provider fully dedicated to R&D credits can help your business both understand its legal obligations as well as optimize benefits for any given year. A qualified team will walk you through the amended tax return process, providing invaluable insight on several key components, such as:

  • Current local and state legislation
  • All qualifying activities
  • Proper supporting documents

From outlining necessary filing steps, to systematically running individual projects through the program's Four-Part Test to evaluate each project against the program’s requirements, collaborating with an R&D financial specialist will equip you with the resources needed to increase your organization's profit margins and ultimate return on investment.

Contact Acena Consulting for more information on amending tax returns from previous years today.

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Brad Mols

Brad Mols

Acena Consulting Partner. Brad is a licensed CPA that has guided a broad range of clients in the manufacturing, technology, architecture, and engineering industries through specialized tax credits and incentives engagements.