If you have answered "Yes" to "Have you already filed the original tax return?" and completed allocating all R&D percentages in the Business Component Allocations section, a new section will unlock called Labor Documentation.
Labor Documentation (CCA Memo)
CCA Memo
On October 15, 2021, the IRS Office of Chief Counsel published a Chief Counsel Advice Memorandum 20214101F (CCA Field Advice) that details an updated administrative policy regarding a research tax credit claim filed on an amended tax return and requesting a refund.
Purpose
Developing supplementary R&D Credit Refund Information to apprise the IRS of the basis for the claim and to support the validity of the claim. While this is normally given in an R&D Tax Credit Package, these new guidelines require the validity to be proven at the time of the claim being made in the form of a supplemental document.
How are we going to do it?
According to the IRS guidelines, each claim must provide five key items of information in order to be a valid claim.
You will need to identify each of the following
business component,
research activities performed,
each individual employee (Group) that performed the research,
the information each individual employee (Group) sought to discover, and
provide the total qualified employee wage expenses, total qualified supply expenses, and total qualified contract research expenses for the claim year (this may be done using Form 6765, Credit for Increasing Research Activities).
What should be included?
Business Component(s) have been identified within the business component section and have been prepopulated here. Additional business components should be added to the business component section.
Research Activities that are performed by the individual (Group) need to be identified. Some examples are the creation of prototype molds, operating machinery during prototype mold creation, developing alternative 3D models and designs, conducting simulations and data analysis to prove out hypothesis, etc.
Name (Group Name) needs to be included for each individual (Group) that participated in R&D for each business component. Many times, individuals, with the same job description (Group Name) working on a business component, conduct the same R&D activities. In this case, it is not necessary to list each individual but list them as a group.
Information the Individual (Group) Sought to discover should list the uncertainties that the individual (Group) sought to resolve through the listed research activities shown in item 2. This information can be provided in the form of a list, table, or narrative. Some examples are (1) how to redesign the mold to block off two runner gates, (2) How to remove the springs from the original design but maintain functionality, (3) How to develop a 4-cavity mold while increasing the runner size, (4) what are the best algorithms and software designs to achieve the desired functionality, etc.
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