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TAX CLINIC

Case law regarding research Tech filed a claim for a refund by filing
credits and the refund process The aim of an amended tax return with an attached
To support its stance, the Chief Counsel statement indicating the reason for the
memorandum cites a number of U.S. the specificity amendment, along with an amended
appeals court cases that uphold the IRS’s requirement is to Form 6765. As in McFerrin, the govern-
interpretation of the specificity require- ment asserted that the refund claim
ment, such as Stoller, 444 F.2d 1391 (5th provide the IRS lacked specificity because it did not spell
adequate notice
Cir. 1971); Nick’s Cigarette City, Inc., 531 out the qualification and quantification
F.3d 516 (7th Cir. 2008); and Beckwith of both the nature for the research credit in detail. More
Realty, Inc., 896 F.2d 860 (4th Cir. specifically, the government asserted
of the claim and
1990). Although these cases reiterate the the claim did not satisfy the specificity
validity of the specificity requirement, sufficient facts to requirement because “Premier did not
they do not define what constitutes “suf- attach additional documents addressing
ficient facts” as they pertain to research support the basis every single element in Sec. 41, such
credit refund claims. For that perspec- of the claim. as describing the research conducted,
tive, the memorandum cites a number explaining how that research worked to
of lower court cases such as McFerrin, develop a business component, detail-
Harper, and Premier Tech. amended return under the traditional ing on whose wages and what supplies
In McFerrin, 492 F. Supp. 2d 695 method (i.e., statement attached to the the money was spent, and proving the
(S.D. Tex. 2007), the court rejected the amended return, along with an amended amount spent on research in the prior
government’s argument that the taxpay- Form 6765). The district court con- three tax years.”
er’s claim was “impermissibly vague” and cluded that the taxpayer did not provide The federal district court ruled
opined that the specificity requirement enough information within an amended against the government, stating that
is satisfied “if the basic issue is evident return to provide the IRS any factual this level of detail is not required and
from the record, and the IRS is aware of bases to examine the refund claim. that the taxpayer provided the necessary
the nature of the claim.” In this instance, On appeal, however, the district information requested on Form 6765.
the court concluded that the nature of court’s decision was overturned, with the The court held that “if the IRS wants
the claim was established, given that Ninth Circuit concluding that the gov- more information about the research tax
the taxpayer in this case included in its ernment had waived its ability to enforce credits, the IRS could require that infor-
amended returns a supplementary page the specificity requirement once it began mation on Form 6765,” implying that if
explaining that “the taxpayer is amend- a substantive examination of the merits Form 6765 is insufficient, then it should
ing their return to additionally include of the Harpers’ refund claims. This be modified by the IRS. In a footnote,
Form 6765, Credit for Increasing Research waiver doctrine effectively means that the Chief Counsel memorandum simply
Activities.” the IRS is considered to have conceded acknowledges the existence of the Pre-
The recent Chief Counsel memo- the procedural validity of a claim once mier Tech case and that the “Service and
randum discounts the McFerrin ruling, it progresses to the stage of examin- Counsel are evaluating the opinion.”
explaining that “although the McFerrin ing the claim on its merits. The recent
court held adversely to the government, Chief Counsel memorandum discounts Basic requirements for the
that case is readily distinguishable the Harper ruling, explaining that the research credit
from the majority of refund cases the “Ninth Circuit did not opine on whether Because, as noted earlier, recourse
government litigates” because it was an the taxpayers’ attachment of a Form through examination and judicial relief
erroneous refund suit (which carries a 6765 to the Form 1120X was sufficient will likely be unavailable, the Chief
different burden of proof) and because to satisfy Regs. Sec. 301.6402-2(b)(1) or Counsel memorandum indicates that
it was decided on a motion for summary whether the taxpayers had perfected an taxpayers should be familiar with the
judgment based largely on the fact that imperfect claim.” basic requirements for the research
the IRS had “provided no indication of Perhaps the most taxpayer- credit and should take extra precaution
what additional information it need[ed] friendly case is Premier Tech, Inc., No. to substantiate their credit for a refund
to satisfy the requirements.” 20-cv-00501 (D. Utah 7/15/21), which claim. When determining whether
In Harper, No. 18-cv-02110 (S.D. the Chief Counsel memorandum only activities are qualified research activities
Cal. 4/25/19), rev’d, No. 19-55933 (9th footnotes. The case follows a similar (QRAs), the taxpayer must identify each
Cir. 2/25/21), the taxpayer filed an fact pattern as McFerrin, in that Premier business component and determine that

10 February 2022 The Tax Adviser