On October 15, 2021, the Office of Chief Counsel released Memorandum 20214101F clarifying details for a taxpayer to file a refund claim for I.R.C. § 41. While there are many aspects of a refund considered in this document there are two critical factors for taxpayers to consider:
The taxpayer must provide a declaration signed under the penalties of perjury verifying that the facts provided are accurate.
Implications of Little Sandy Coal v. Commissioner, T.C. Memo. 2021-15, *37, *45 (2021).
The Tax Court determined that direct supervision and direct support were not part of a process of experimentation because the activities are not part of the actual experiments. This impacted the overall qualification of the projects in question because of the "shrinking back" rule: if at least 80% of the project activities were not qualifying then the project as a whole does not qualify.
Thus, taxpayers should ensure they analyze projects fully prior to preparing declarations related to refunds.
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