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What Info is Needed for the Research Credit?

What Info is Needed for the Research Credit?

Businesses and individuals looking to recoup part of their capital spent on research and experimentation of products and processes now have a clearer roadmap on how to do that.

The Internal Revenue Service has unveiled the Chief Counsel memorandum, laying out just what information the IRS requires to validate a research credit claim. The memorandum aims to spell out instructions in plain language, thereby facilitating valid claims by taxpayers while reducing the number of claim-related disputes.

Researching a better way

It’s important that taxpayers understand just what’s expected from them when making a claim for the research and experimentation (R&E) credit. The IRS gets thousands of R&E claims every year totaling hundreds of millions of dollars from businesses, corporations and individuals.

Administering the credit, the IRS says, consumes a lot of the agency’s resources. A substantial number of A&E credit claims have to be audited to ensure they meet the requirements of IRC Section 41, taking time and money.

The IRS hopes to streamline the process through the use of the Chief Counsel’s memorandum, giving those who claim the credit clear instructions on what information is needed. If that’s done, the IRS says it can quickly and more efficiently determine if the R&E claim for a refund is valid—or if more examination is needed.

Here’s how the new process works: The Chief Counsel memorandum specifies that for a Section 41 research credit claim for refund to be considered, the taxpayer has to provide certain specific information when the claim is filed.

This can be viewed as a three-step process:

STEP 1: Identify all the business components that the Section 41 research credit claim applies to for that year.

STEP 2: For each business component, identify all research activities performed and name the individuals who performed each research activity, as well as the information each individual sought to discover.

STEP 3: Provide the total qualified employee wage expenses, total qualified supply expenses, and total qualified contract research expenses for the claim year. Use Form 6765, Credit for Increasing Research Activities.

Grace period provided

Taxpayers are being eased into the new procedure with a grace period until Jan. 10, 2022. After that date, a one-year transition period starts, where taxpayers who don’t comply with the new instructions get a 30-day reprieve to perfect their claim for the R&E credit.

The IRS says it will have more details on this new process later, but taxpayers can start sending the new required information now. Also, look for the agency to do more research of its own with stakeholders on research credit issues.

Send comments to [email protected].

Source: IR-2021-203

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Families Can Still Get the Advance Child Tax Credit

Families Can Still Get the Advance Child Tax Credit

Millions of American families have been taking advantage of the advance payments of the Child Tax Credit, but the Internal Revenue Service stresses there’s still time left to sign up for the remaining payments.

The latest batch of the monthly advance payments is now making its way into the bank accounts of some 36 million families. This wave of payments totals around $15 billion and the vast majority of families are getting their payments by direct deposit.

The advance payments of the Child Tax Credit (CTC) were made possible by the American Rescue Plan, passed earlier this year. It allowed qualifying families to get their CTC payments in advance installments, rather than just a refund when they file their income taxes.

Families can qualify for payments of up to $300 per month for every child under the age of 6, and up to $250 per month for each child between the ages of 6 and 17. Advance payments will total half of the overall tax credit due the taxpayer; the balance is paid out as a refund when the taxpayer files.

The IRS offers these details on the payments:

  • Families will see the direct deposit payments in their accounts starting October 15. Like the prior payments, the vast majority of families will receive them by direct deposit.
  • For those receiving payments by paper check, be sure to allow extra time, through the end of October, for delivery by mail. Those wishing to receive future payments by direct deposit can make this change using the Child Tax Credit Update Portal, available only on IRS.gov. To access the portal or to get a new step-by-step guide for using it, visit gov/childtaxcredit2021.
  • Payments went to eligible families who filed a 2019 or 2020 income tax return. Returns processed by October 4 are reflected in these payments. This includes people who don’t typically file a return but during 2020 successfully registered for Economic Impact Payments using the IRS Non-Filers tool on IRS.gov or in 2021 successfully used the Non-filer Sign-up Tool for advance CTC, also available only on IRS.gov.
  • Payments are automatic. Aside from filing a tax return, including a simplified return from the Non-filer Sign-up Tool, families don’t have to do anything if they are eligible to receive monthly payments.
  • Families who did not get a July, August or September payment and are getting their first monthly payment in October will still receive their total advance payment for the year. This means that the total payment will be spread over three months, rather than six, making each monthly payment larger.

Some American families may get a letter from the IRS, letting them know it’s not too late to sign up for advance CTC payments. The letter spotlights those who haven’t filed a 2020 income tax return with emphasis on those who aren’t normally required to file because their annual incomes are below filing thresholds.

Even these non-filing families may be eligible for the Child Tax Credit advance payments. The IRS says they should visit IRS.gov online for information on how to file a return and get their CTC credit.

September Advance Child Tax Credit payments hit a snag

The Internal Revenue Service says a technical issue led to about 2% of the qualified CTC recipients not getting their monthly advance credit amounts on time in September. The IRS has since sent out the payment to everyone affected.

Those affected included taxpayers who recently updated their bank account or address information using the IRS Child Tax Credit Update Portal.

The glitch mainly affected payments to married taxpayers filing jointly where only one spouse made a bank account or address change; this usually means payments are split into two – between the existing account or address and the new one.

Some recipients saw their payments delayed. Some saw a larger payment amount than normal, which led the IRS to adjust their three remaining monthly payments down by $10-$13 per child to compensate.

The IRS says it will send letters to all the taxpayers affected by the glitch and appreciates the patience of everyone.

For more information, check out the IRS website. Links to online tools, a guide to the Non-filer Sign-up Tool, answers to frequently asked questions and other resources are all available at IRS.gov/childtaxcredit2021, the IRS’ special advance CTC page.

Source: IR-2021-201

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Tax Forum Seminars Available Online

Tax Forum Seminars Available Online

Tax professionals looking for a source of continuing education that satisfies the IRS requirements don’t have far to look.

The Internal Revenue Service has posted 18 new seminars online, recorded during the 2021 Nationwide Tax Forum, on their site, IRS Nationwide Tax Forums Online.

The new self-study offerings use interactive video, PowerPoint slides and audio transcripts to convey vital information and join other sessions recorded previously at prior Nationwide Tax Forums.

All the recorded seminars are available on the site at $29 each.

The newest courses include:

  • Advocating for Taxpayers in Order to Avoid Abusive Tax Schemes
  • Be Tax Ready – Understanding Rules for Due Diligence and the Child Tax Credit and Earned Income Tax Credit Under the American Rescue Plan Act of 2021
  • Charities & Tax-Exempt Organizations Update
  • Closer Look at the IRS Independent Office of Appeals
  • Collection Flexibilities During Difficult Economic Times
  • Common Issues Presented to OPR and Best Practices to Address Them
  • Determining an Individual’s Tax Residency Status
  • e-Services and You
  • Gig Economy
  • Helping You and Your Clients Steer Clear of Fraud and Scams
  • Key Enforcement Issues
  • Keynote Address
  • Keys to Mastering Due Diligence Requirements and What to Expect During a Due Diligence Audit
  • Overview of Taxpayer Civil Rights
  • Professional Responsibility Obligations when Practicing before the IRS: OPR and Circular 230
  • Retirement Plans – IRS Compliance Initiatives
  • Tax Law Changes from a Forms Perspective
  • Virtual Currency

IRS Nationwide Tax Forums Online is a registered, qualified sponsor of continuing education, offering tax professionals—including CPAs, enrolled agents and Annual Filing Season Program participants—the option of screening recorded seminars for a fee to get their continuing education credits.

Earning the credits is easy. Users first create an online account; they’ll have to answer some review questions during the recorded seminar to validate their attendance and pass a short test at the end of the seminar.

All the seminars may be audited for free. However, audited seminars don’t include either the review questions or the final test, so they don’t qualify for credit.

For more information on this option for continuing education credits, check out the IRS Nationwide Tax Forum Information site online.

Source: IRS Tax Tip 2021-151

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Advance Child Tax Credit for “Non-Traditional Families”

Advance Child Tax Credit for "Non-Traditional Families"

The Internal Revenue Service this week told “non-traditional families” that they could also qualify for advance payments of the Child Tax Credit.

Family representatives, the IRS urges, should check their eligibility, whether they are parents, grandparents, foster parents or someone who’s caring for siblings or other relatives.

The initial effort to get taxpayers signed up for the Child Tax Credit payments started early in the year, but the IRS says there’s still time to get advance payments in the last months of 2021.

Why claim the Child Tax Credit?

Families that claim the credit for tax year 2021 get up to $3,000 for every qualified child between 6 and 17 years old at the end of 2021. That benefit is $3,600 per child if they are under age 6 at the end of the year.

The advance 2021 payments will total up to half of the taxpayer’s total Child Tax Credit. The remainder is paid out with the refund when the taxpayer files their 2021 return.

Qualifying children can be the taxpayer’s child. But a qualified child can also be a stepchild, an eligible foster child, a sibling (including step-siblings or half-siblings), or even a descendent of these relations—such as a grandchild, niece, or nephew. 

How do taxpayers qualify for the Advance Child Tax Credit?

In most cases, a family must have a qualifying child to be eligible for the Advance Child Tax Credit payments. The taxpayer—or the taxpayer’s spouse, if filing jointly—must have their main home in one of the 50 U.S. states or the District of Columbia and has to live there for more than half the year.

There are also certain qualifications the child has to meet in order to qualify for the credit:

  1. For tax year 2021, a qualifying child is an individual who does not turn 18 before January 1, 2022 and the individual does not provide more than one-half of his or her own support during 2021.
  2. The individual lives with the taxpayer for more than one-half of tax year 2021. For exceptions to this requirement, see IRS Publication 972, Child Tax Credit and Credit for Other Dependents.
  3. The individual is properly claimed as the taxpayer’s dependent. For more information about how to properly claim an individual as a dependent, see IRS Publication 501, Dependents, Standard Deduction, and Filing Information.
  4. The individual does not file a joint return with the individual’s spouse for tax year 2021 or files it only to claim a refund of withheld income tax or estimated tax paid.
  5. The individual was a U.S. citizen, U.S. national, or U.S. resident alien. For more information on this condition, see IRS Publication 519, U.S. Tax Guide for Aliens.

How do taxpayers sign up for the Advance Child Tax Credit?

For many, the key to getting advance payments of the Child Tax Credit is the IRS’ Non-filer Sign-up Tool. This online tool helps those who don’t normally have to file a tax return qualify for advance child tax credit payments, the recovery rebate credit or Economic Impact Payments (EIPs). All it takes is completing a simplified tax return.

The Non-filer Sign-up Tool will be available through Oct. 15.

Even if a family misses the deadline for advance payments of the credit, they can still file a 2021 return during filing season to get the full amount of the credit as a refund.

Those taxpayers who are required to file a return should check the IRS website in coming weeks, as the Child Tax Credit Update Portal will be updated, allowing families to pass new information about the qualifying children they plan to claim on their 2021 tax return. This will allow the IRS to adjust their monthly Advance Child Tax Credit payments.

Source: COVID Tax Tip 2021-150

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Time to Check Withholding

Time to Check Withholding

The last part of the year is traditionally a good time for taxpayers to check their withholding levels for the upcoming new year. That’s why the Internal Revenue Service recently issued a friendly reminder.

With 2021 going by like a runaway train, it’s easy to just let withholdings slide, thinking what worked this year will work next year.

That, however, may not necessarily be the best strategy. Life is full of unexpected turns; marriage, divorce, a new child or the purchase of a home can all be really good reasons to refigure withholding.

Checking withholding is easy; the IRS has a Tax Withholding Estimator that helps taxpayers decide if they have too much or too little withheld, and how to make a tweak to put more money in their pocket instead of the pockets of the IRS.

The Estimator can also be used to help taxpayers see if they should withhold more or should make an estimated tax payment to avoid a big bill for tax due when they file next year.

The IRS reminds that the Withholding Estimator can also be very helpful to retirees, self-employed taxpayers and others, giving them a step-by-step tool that can tailor the amount of income tax being withheld from wages and pension payments to the actual tax owed.

Points to ponder for 2021

The Internal Revenue Service says there are things to consider when adjusting withholding for 2021:

Income taxes are “pay as you go”

Whether they’re withheld from a paycheck, paid as quarterly estimated tax payments, or a little of both, taxes are generally paid year-round. The IRS, however, figures that about 70% of all taxpayers withhold too much from their income for taxes. This results in a refund at tax time; in 2021, the average refund was more than $2,700.

Taxpayers who need to pay their taxes have some options on just how to send the payment to the Internal Revenue Service. One of the easiest options is to use the IRS2Go app, which allows users to schedule payments for future dates. The feature is handy for payment plan installments, estimated tax payments, or to pay taxes during filing season.

Other options for payment include connecting by phone or going online.

The taxpayer’s online account is a powerful tool that can help keep the taxpayer informed on a number of details surrounding their tax picture:

  • The amount of taxes they owe;
  • Payment plan details and options;
  • The last 5 years of their tax payment history;
  • Scheduled or pending tax payments; and
  • Key information from their most recent tax return.

Taxpayers can sign into their online account at IRS.gov/account.

More information about taxes, estimated taxes and withholding can be found at Tax Withholding on the IRS website, IRS.gov.

Source: IR-2021-199

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