Good news continues for those who did not claim previous research credits on their tax returns from previous years. The IRS has now issued final regulations allowing those taxpayers to take advantage of the Alternative Simplified Research Credit (ASC) for that year.
For those who had amounts incurred or paid prior to January 1st of 2015, the credit is equal to the sum of:
• 20% of any excess of qualified research expenses for the tax year over a base amount. 41(a)(1)
• 20% of the university basic research credit. 41(c)(5)
• 20% of the amount incurred or paid to an energy research consortium 41(a)(3)
These regulations come with provisions that the ASC may not be revoked on amended returns, and IRS consent is required for a revoke. Also, taxpayers are not permitted to receive an extension to revoke the ASC election.
These regulations replace the temporary regulations issued last year. In 2014, the temporary regulations included a rule allowing taxpayers to submit an ASC election on an amended return. Because of these temporary regulations, a taxpayer that previously claimed a Sec. 41 credit cannot make another ASC election for that year on amended returns. Also, the regulations include that if any member of a controlled group for that year previously claimed the credit, they may not make an election.
Sec. 280C(c)(3) states a taxpayer can submit an annual irrevocable election in order to claim what’s known as a ‘reduced research credit,’ so they are not required to reduce a Code Sec. 174 research expenditure deduction.
Another minor change to the new regulations includes details regarding availability. The ASC election will only be available if the tax year has not been closed by the statute of limitations on assessment. Code Sec 6501(a)
The IRS notes if a taxpayer is unclear if they want to claim the ASC credit, but want to document the operative effect for that year, they are to make the election on Credit for Increasing Research Activities form 6765. However, they should leave the remaining portions of the form blank. The election on line 17 does not indicate a claim under code 41.
These new requirements will apply to any elections with tax years that ended on or after February 27th, 2015. For the tax years before that date the temporary regulations apply.
In closing, after reviewing these new regulations, they are not a big change to what was already in place for revocation of elections on amended returns. They also don’t change timeframes to make or revoke the election. However, for those waiting to see if the temporary regulations would include a similar, more liberal structure, you have your answer, and it’s yes.