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TAX CLINIC

minimize full audits, relying on the is not authority for substantial-authority
initial paperwork provided with refund analysis purposes — the IRS should
claims to reject any claim that the IRS consider the possibility that the courts The reinstated tax will
deems to not have substantial basis. This might not defer to it (see Kisor v. Wilkie, affect many industrial
approach focuses on rejecting claims “if 139 S. Ct. 2400 (2019)). manufacturers and
the taxpayer fails to provide sufficient IRS exam agents have struggled
facts in the manner required by the with the research credit — and, given importers of certain
specificity requirement, and it may be re- the lack of bright lines in the definition taxable chemicals.
jected by the Service as such.” In a Janu- of qualified research, who can blame
ary 2022 clarification, the IRS stated them? When strict documentation It is scheduled to be
effective from July 1,
that if a refund claim is based both on requirements to streamline their work
a research credit and on some other did not stand, they have attempted to 2022, through Dec.
matter(s), and the research credit claim hand a good amount of their work to
31, 2031.
lacks sufficient specificity, then the entire IRS Appeals, to statisticians, to FASB,
claim (including matter(s) not relating and perhaps now even the courts. In an
to the research credit) would be rejected effort to ensure uniformity, the IRS has
(Research Credit Claims (Section 41) attempted various techniques driving
on Amended Returns Frequently Asked toward centralization, which in turn Dec. 31, 2031. This item addresses and
Questions). Could fear of “poisoning” led to bottlenecks, which in turn led to summarizes the key provisions of the
a valid refund claim for some other decentralization efforts. It remains to be Infrastructure Act as it pertains to the
matter(s) discourage taxpayers from even seen whether this latest effort will result reinstated Superfund tax, along with
seeking a research credit refund? in more litigation and, if so, how the some taxpayer considerations related to
The IRS has tried to minimize courts will respond. the tax.
aggressive R&D claims through recor- From Rory Bertiglia, E.A.
dation requirements, a tiered issue man- (Rory.Bertiglia@rsmus.com), San Fran- Background
agement approach, statistical sampling, cisco; Tony Coughlan, J.D. The Comprehensive Environmental Re-
and the ASC 730 directive. The most (Tony.Coughlan@rsmus.com), sponse, Compensation, and Liability Act
recent action shows that the IRS has Washington, D.C.; and Amanda Laskey, of 1980 (CERCLA), P.L. 96-510, was
moved to an approach whereby it will CPA (Amanda.Laskey@rsmus.com), enacted to create a hazardous substance
not fully review R&D credits based on New York cleanup program funded in part by Secs.
their merits but will reject any that do 4661 and 4671 until its expiration on
not meet its specified documentation Dec. 31, 1995. CERCLA was enacted,
requirements in the refund claim up- Excise Taxes more or less, to hold businesses in the
front, increasing the taxpayer’s burden to chemical industries financially account-
cross an initial hurdle of specificity. The Reinstatement of the able for the pollution their industrial op-
specificity requirements of the FAA are Superfund excise tax erations tended to create. The Superfund
similar to the proposed and final regula- On Nov. 15, 2021, President Joe Biden taxes fund a dedicated trust fund for
tions of 1998 and 2001, respectively. signed into law the Infrastructure In- cleanup of Superfund sites. When the
This latest approach may send more vestment and Jobs Act (Infrastructure tax expired in 1996, funding for Super-
taxpayers to court with their research Act), P.L. 117-58. The Infrastructure fund cleanup projects was reduced, and
credit refund claims. The courts may or Act provides $550 billion in new spend- funds for cleanup were allocated from
may not defer to the FAA in determin- ing over the next five years on many the Treasury general fund. The reinstate-
ing whether a taxpayer has met the infrastructure projects. One of the ment of the Superfund tax on chemical
specificity requirement. Given the FAA’s provisions in the Infrastructure Act is manufacturing and chemical imports
informality — its lack of a notice-and- the reinstatement and modification of will once again provide dedicated fund-
comment period; that it is not signed the Superfund excise tax on chemicals ing for Superfund cleanup.
by the Treasury secretary or assistant and imported taxable substances. The
secretary for tax policy, the IRS chief reinstated tax will affect many industrial Superfund tax on chemicals
counsel, or the IRS commissioner; that manufacturers and importers of certain Sec. 4661 imposes tax on the sale or
it is not published in the Federal Register taxable chemicals. It is scheduled to use by the manufacturer, producer, or
or Internal Revenue Bulletin; and that it be effective from July 1, 2022, through importer of 42 listed chemicals. Prior to

12 April 2022 The Tax Adviser