IRS Publishes List of Dirty Dozen Tax Positions


  Posted April 05, 2018 at 02:52 PM

On March 13, 2018, the Internal Revenue Service issued its annual list of the “Dirty Dozen” tax positions.  IR 2018-49 warns taxpayers who may be taking advantage of tax benefits to which they are not be entitled. Once again, unwarranted claims for business credits, specifically the research credit and the fuel tax credit, made the list.

 

The notice acknowledges the statutory legitimacy of the research credit but warns against fraudulent or unsubstantiated credits. It provides that the qualified activity must be adequately and competently evaluated and documented in order to be legitimate and substantiated. The IRS acknowledges that estimates may be used for some research expenses so long as a factual basis exists for such estimates.  

 

The overriding message sent by the notice is that the IRS will expect documentation that supports that qualifying activity for the credit period and that there is a connection between the activity and the expenses included in the credit calculation.

 

The notice warns taxpayers that some tax service providers abuse these credits and reminds taxpayers that they are responsible for the information on the tax return.  Make sure your support for the research tax credit includes:

 

1.     Detailed explanation of the new product or process developed, technical uncertainties and process of experimentation.  This should include a written document explaining the facts that references technical documents created during the research.  A questionnaire checking boxes and writing a few sentences is not sufficient. 

2.     Research costs presented by project.

3.     Explanation of the roles of employees performing research. 

 

Advanta’s methodology follows the documentation standards established by statutory guidance, Treasury Regulations as well as the IRS Audit Techniques Guide - Credit for Increasing Research Activities.  Advanta will analyze your facts and provide a credit estimate and work plan to meet these standards free of charge.  Please contact us at 678.638.6131.