{"id":13889,"date":"2024-11-13T20:26:54","date_gmt":"2024-11-13T20:26:54","guid":{"rendered":"https:\/\/taxops.com\/?p=13889"},"modified":"2024-11-13T20:51:23","modified_gmt":"2024-11-13T20:51:23","slug":"rd-credits-year-end-wrap-irs-transparency-and-detail-requirements","status":"publish","type":"post","link":"https:\/\/taxops.com\/rd-credits-year-end-wrap-irs-transparency-and-detail-requirements\/","title":{"rendered":"R&amp;D Credits Year-end Wrap: IRS Transparency and Detail Requirements"},"content":{"rendered":"\n<div style=\"height:53px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<figure class=\"wp-block-gallery has-nested-images columns-default is-cropped wp-block-gallery-1 is-layout-flex wp-block-gallery-is-layout-flex\">\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" width=\"1024\" height=\"576\" data-id=\"13892\" src=\"data:image\/gif;base64,R0lGODlhAQABAIAAAAAAAP\/\/\/yH5BAEAAAAALAAAAAABAAEAAAIBRAA7\" data-src=\"https:\/\/taxops.com\/wp-content\/uploads\/2024\/11\/RD-credits-year-end-wrap-1024x576.png\" alt=\"\" class=\"wp-image-13892 lazyload\" data-srcset=\"https:\/\/taxops.com\/wp-content\/uploads\/2024\/11\/RD-credits-year-end-wrap-980x551.png 980w, https:\/\/taxops.com\/wp-content\/uploads\/2024\/11\/RD-credits-year-end-wrap-480x270.png 480w\" sizes=\"(min-width: 0px) and (max-width: 480px) 480px, (min-width: 481px) and (max-width: 980px) 980px, (min-width: 981px) 1024px, 100vw\" \/><noscript><img decoding=\"async\" width=\"1024\" height=\"576\" data-id=\"13892\" src=\"https:\/\/taxops.com\/wp-content\/uploads\/2024\/11\/RD-credits-year-end-wrap-1024x576.png\" alt=\"\" class=\"wp-image-13892 lazyload\" srcset=\"https:\/\/taxops.com\/wp-content\/uploads\/2024\/11\/RD-credits-year-end-wrap-980x551.png 980w, https:\/\/taxops.com\/wp-content\/uploads\/2024\/11\/RD-credits-year-end-wrap-480x270.png 480w\" sizes=\"(min-width: 0px) and (max-width: 480px) 480px, (min-width: 481px) and (max-width: 980px) 980px, (min-width: 981px) 1024px, 100vw\" \/><\/noscript><\/figure>\n<\/figure>\n\n\n\n<div style=\"height:53px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\"><em><em><em><em><a href=\"https:\/\/taxops.com\/jamie-overberg\/\" target=\"_blank\" rel=\"noreferrer noopener\"><em>Jamie Overberg<\/em><\/a><em> wraps up the year with an overview of the significant changes the IRS has introduced to improve transparency and detailed reporting for research credits this year.<\/em><\/em><\/em><\/em><\/em><\/p>\n<\/blockquote>\n\n\n\n<div style=\"height:8px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p class=\"wp-block-paragraph\">By <a href=\"https:\/\/taxops.com\/jamie-overberg\/\" target=\"_blank\" rel=\"noreferrer noopener\">Jamie Overberg<\/a><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">IRS actions this past year reflect a trend towards more transparency and detailed reporting to prevent abuse of research credits while ensuring businesses receive lucrative credits for qualifying R&amp;D activities. In the past year, the IRS\u2019s ongoing efforts to refine how companies report and claim these incentives has seen four notable changes.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Form 6765.<\/strong> Draft changes to Form 6765 used for claiming the R&amp;D credit include:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><span style=\"font-size: revert;\">Two new sections (E and F) that request more detailed disclosures about business components and associated research costs.<\/span><\/li>\n\n\n\n<li> <span style=\"font-size: revert;\">Additional disclosures to aid in compliance with Section 280C elections and control issues.<\/span><\/li>\n<\/ol>\n\n\n\n<p class=\"wp-block-paragraph\">These changes are set to take effect in 2024 but watch for updates as implementation may be pushed back. &nbsp;Since 2010, our deliverable provides the information the IRS new form demands; so, don\u2019t panic. We\u2019ll be able to cover these changes whenever they become effective for our clients.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Section 174.<\/strong> Amortization of research expenses, Section 174, has been a hot button for a couple years now since first introduced in TCJA of 2017. Interim guidance under Notice 2023-63 addresses how companies should amortize and capitalize specified research or experimental expenditures.&nbsp; However, it failed to address all the issues leaving some items subject to interpretation.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Increased scrutiny. <\/strong>These increased reporting requirements for businesses planning to claim the credit in 2024 mean implementing more robust monitoring and tracking processes for gathering contemporaneous documentation. The IRS\u2019s stricter compliance expectations around nexus and documentation to support credit claims has revealed that not all R&amp;D advisors are alike in their processes and conclusions. Some more aggressive R&amp;D advisors have been exposed in this era of greater transparency, which is naturally weeding out some bad apples and is good for the industry as a whole.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Uncertain tax position. <\/strong>The IRS is actively sending letters to people that aren\u2019t providing enough description in reporting their research credit on the uncertain tax position form. The IRS is basically asking for an audit road map, which is extremely precarious. If you have received a notice, <a href=\"https:\/\/taxops.com\/contact\/\" target=\"_blank\" rel=\"noopener\" title=\"Contact Us\">contact us<\/a> directly.\u00a0 We can assist in drafting a response that fulfills the IRS criteria while minimizing risk.\u00a0<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Year-end Wrap<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Between additional reporting requirements and Section 174 capitalization, there are several proactive steps you can take to get ahead of the risks and minimize the pain. To minimize capitalization impact, now is a good time to have internal meetings with your accounting group to make sure you have fully investigated the following to highlight any larger issues: costs, capitalization already being done, funding or reimbursements, and rights and risks matters.\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Investing time in evaluating your current information to ensure it meets IRS requirements is essential to identifying and addressing any gaps. Often conversations with the engineering group allows you to collect and retain good data now which saves you time, effort and stress if audited two or three years later.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">We are here to help position taxpayers for a smoother filing season. Get in touch now.<\/p>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link wp-element-button\" href=\"https:\/\/taxops.com\/contact\/\" target=\"_blank\" rel=\"noreferrer noopener\">Let&#8217;s Talk Tax<\/a><\/div>\n<\/div>\n\n\n\n<div style=\"height:47px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\">More Tax News<\/h3>\n\n\n<ul class=\"wp-block-latest-posts__list wp-block-latest-posts\"><li><a class=\"wp-block-latest-posts__post-title\" href=\"https:\/\/taxops.com\/auditor-independence-in-the-age-of-private-equity\/\">Auditor Independence in the Age of Private Equity: What CFOs Need to Know<\/a><\/li>\n<li><a class=\"wp-block-latest-posts__post-title\" href=\"https:\/\/taxops.com\/r-d-credits-for-software-companies\/\">R&amp;D Credits for Software Companies: Scrum Teams, Qualifiers, and Section 174 After OBBBA<\/a><\/li>\n<li><a class=\"wp-block-latest-posts__post-title\" href=\"https:\/\/taxops.com\/section-174-decoupling-what-tax-pros-need-to-know-state-by-state\/\">Section 174 Decoupling: What Tax Pros Need To Know State By State<\/a><\/li>\n<li><a class=\"wp-block-latest-posts__post-title\" href=\"https:\/\/taxops.com\/sean-espy-new-partner\/\">TaxOps Welcomes Sean Espy as Partner, Tax Minimization<\/a><\/li>\n<li><a class=\"wp-block-latest-posts__post-title\" href=\"https:\/\/taxops.com\/state-nexus-demystified-navigating-tax-compliance-after-wayfair-episode-1-2\/\">Your Tax Footprint Is Probably Bigger Than You Think: What Finance Leaders Need to Know About State Nexus<\/a><\/li>\n<\/ul>\n\n\n<div style=\"height:47px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link wp-element-button\" href=\"https:\/\/taxops.com\/contact\/#subscribe\" target=\"_blank\" rel=\"noreferrer noopener\">Subscribe to Tax News<\/a><\/div>\n<\/div>\n\n\n\n<div style=\"height:47px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Jamie Overberg wraps up the year with an overview of the significant changes the IRS has introduced to improve transparency and detailed reporting for research credits this year. By Jamie Overberg IRS actions this past year reflect a trend towards more transparency and detailed reporting to prevent abuse of research credits while ensuring businesses receive [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":13892,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"off","_et_pb_old_content":"<!-- wp:spacer {\"height\":\"53px\"} -->\n<div style=\"height:53px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n<!-- \/wp:spacer -->\n\n<!-- wp:gallery {\"linkTo\":\"none\"} -->\n<figure class=\"wp-block-gallery has-nested-images columns-default is-cropped\"><!-- wp:image {\"id\":10182,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https:\/\/taxops.com\/wp-content\/uploads\/2022\/04\/Texas-High-Court-Clarifies-Service-Receipt-Apportionment-1-1024x536.png\" alt=\"\" class=\"wp-image-10182\"\/><\/figure>\n<!-- \/wp:image --><\/figure>\n<!-- \/wp:gallery -->\n\n<!-- wp:spacer {\"height\":\"53px\"} -->\n<div style=\"height:53px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n<!-- \/wp:spacer -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p><em><em>The Texas Supreme Court has ruled in favor of apportioning service receipts to the location of personnel or equipment, a position providing clarity to taxpayers on whether to source receipts from services performed versus where customers are at.<\/em>&nbsp;<\/em><\/p><\/blockquote>\n<!-- \/wp:quote -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p><\/p><\/blockquote>\n<!-- \/wp:quote -->\n\n<!-- wp:paragraph -->\n<p>By <a href=\"https:\/\/taxops.com\/tram-le\/\" target=\"_blank\" rel=\"noreferrer noopener\" title=\"Tram Le\">Tram Le<\/a> <\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>On March 25, 2022, the Texas Supreme Court held in favor of the taxpayer that services revenue is apportioned to the location where services are performed, consistent with Texas law.<sup>1<\/sup> The Court found that the performance of service is located where the taxpayer\u2019s personnel or equipment is physically doing useful work for the customer.&nbsp;<\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The case involves Sirius XM (Sirius XM Radio, Inc. v. Hegar, Tx. Sup. Ct. No. 20-0462 (3\/25\/22)), whose headquarters, transmission equipment and production studios used in providing a subscription-based satellite radio service are largely located outside of Texas. In the 2010 and 2011 tax years, Sirius XM apportioned tax based on costs of activities in Texas and outside of Texas. Under Texas rules, service revenue is apportioned to Texas based on the \u201cfair value of the services\u201d rendered in Texas where services are performed in more than one state.<sup>2<\/sup>&nbsp;<\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>For those tax years, the Texas Comptroller adjusted on audit to base the tax on the percentage of Sirius XM\u2019s Texas subscribers. The Comptroller argued that service revenue is sourced to Texas if the \u201creceipt-producing, end-product act\u201d takes place in Texas. In this case, such an act was considered the decryption of the satellite network and enabling of each subscriber\u2019s radio to receive Sirius XM\u2019s signal. However, Sirius XM argued that its services \u2013 the production and broadcasting of radio content \u2013 was mainly performed outside of Texas.&nbsp;<\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The Texas Supreme Court ultimately agreed that Sirius XM was providing satellite radio content and those services are performed in Texas if the labor employed in that service is doing the work in Texas. This constitues a natural reading of the law, which requires taxes due \u201cwhere service [is] performed in this state.\u201d This rejects the Comptroller premise of service taking place at the customer location. The Court also rejected the use of the \u201creceipt-producing, end-product\u201d test to determine where a service is being performed.&nbsp;<\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Although the Court ruled in favor of the taxpayer, the case was remanded to the Appellate court for further review of Sirius XM\u2019s cost of performing services and evidence to support its \u201cfair value of services\u201d performed in Texas.&nbsp;&nbsp;<\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The Texas Supreme Court opinion provides clarification in apportioning service revenue in Texas and determining whether services are performed in the state. Taxpayers doing business in Texas should carefully review business operations, nature of services, i.e., properly characterizing the services provided to customers and location of equipment, facilities, and personnel to properly apportion revenue.&nbsp;&nbsp;&nbsp;<\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, if services are being performed in Texas and outside of Texas, taxpayers must properly evaluate methods of determining the fair value of services and maintain sufficient evidence to support what revenue is apportioned to Texas. Contact a TaxOps advisor is you need assistance assessing nexus and taxability in the state of Texas and everywhere you do business.&nbsp;<\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Tram Le is a member of the SALTovation team at TaxOps and an adjunct professor at the University of Texas at Arlington. She writes about hot topics in state and local tax affecting business operations and growth strategies and the Spreading SALTovation column for Tax Notes.&nbsp;Reach out to Tram at <a href=\"mailto:tle@taxops.com\" target=\"_blank\" rel=\"noreferrer noopener\" title=\"Tram Le\">tle@taxops.com<\/a>.&nbsp;&nbsp;<\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:spacer {\"height\":\"53px\"} -->\n<div style=\"height:53px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n<!-- \/wp:spacer -->\n\n<!-- wp:buttons -->\n<div class=\"wp-block-buttons\"><!-- wp:button -->\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link\" href=\"https:\/\/taxops.com\/contact\/\" target=\"_blank\" rel=\"noreferrer noopener\">Let's Talk Tax<\/a><\/div>\n<!-- \/wp:button --><\/div>\n<!-- \/wp:buttons -->\n\n<!-- wp:spacer {\"height\":\"47px\"} -->\n<div style=\"height:47px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n<!-- \/wp:spacer -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>More Tax News<\/h3>\n<!-- \/wp:heading -->\n\n<!-- wp:latest-posts \/-->\n\n<!-- wp:spacer {\"height\":\"47px\"} -->\n<div style=\"height:47px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n<!-- \/wp:spacer -->\n\n<!-- wp:buttons -->\n<div class=\"wp-block-buttons\"><!-- wp:button -->\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link\" href=\"https:\/\/taxops.com\/contact\/#subscribe\" target=\"_blank\" rel=\"noreferrer noopener\">Subscribe to Tax News<\/a><\/div>\n<!-- \/wp:button --><\/div>\n<!-- \/wp:buttons -->\n\n<!-- wp:spacer {\"height\":\"47px\"} -->\n<div style=\"height:47px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n<!-- \/wp:spacer -->","_et_gb_content_width":"","spt_transcript":"","footnotes":""},"categories":[382,78,226],"tags":[252,284,126,998,265,92,48,49,50,563,783,30,52,80],"class_list":["post-13889","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-main-tax-min","category-tax-savings","category-tax-news","tag-accountant","tag-cfo","tag-cpa","tag-faqs","tag-finance-professional","tag-irs","tag-rd","tag-research-and-development","tag-research-credit","tag-research-expenses","tag-section-174","tag-state-and-local-tax","tag-tax-credit","tag-tax-provider"],"aioseo_notices":[],"jetpack_featured_media_url":"https:\/\/taxops.com\/wp-content\/uploads\/2024\/11\/RD-credits-year-end-wrap.png","_links":{"self":[{"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/posts\/13889","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/comments?post=13889"}],"version-history":[{"count":7,"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/posts\/13889\/revisions"}],"predecessor-version":[{"id":13902,"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/posts\/13889\/revisions\/13902"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/media\/13892"}],"wp:attachment":[{"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/media?parent=13889"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/categories?post=13889"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/tags?post=13889"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}