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R&D Tax Credit Now Offers More Flexibility with ASC on Amended Return

June 06, 2014

R&D Tax Credit no longer prohibits ASC election on amended returns, many benefits for many taxpayers.

Taxpayers have recently gained the opportunity to use the Alternative Simplified Credit (“ASC") R & D calculation on amended returns. This new R&D opportunity only applies where the credit was not previously claimed on the return being amended. The US Treasury announced TD 9666 several days ago. It modifies Internal Revenue Code (IRC) Section 41 which deals with the R&D credit rules. IRC Section 41 had prohibited taxpayers from making an ASC election on anything but a timely filed original return (including extensions).

Alternative Simplified Credit in Action

Let's say a company was founded in 1980 and from 1984-1988 it had both qualified R&D expenses and gross receipts. With $300,000 in qualified R&D expenses in the current tax year, the company would potentially have $20,000 in federal R&D tax credits. Let’s further assume, not unrealistically I might add, that the company did not preserve any required documentation from the years 1984-1988. It would have been unadvisable for them to claim an R&D credit on an amended return for any open tax year. TD 9666 now makes it viable for the company to evaluate previous years financial and operating information and determine if claiming the credit makes sense. If so, it could make the ASC election on the open returns. By doing so it could increase the beneficial prospects of engaging in an R&D tax credit study from $20,000 to possibly three or four times that amount (or more!).

Not all taxpayers will benefit

The IRS released TD 9666 due to recurrent requests and concerns from taxpayers. This is clearly a win for taxpayers. But a few things should be kept in mind:

  • Taxpayers that previously claimed an R&D credit are still precluded from changing the method used from the “regular method” to the ASC for that tax year.
  • Taxpayers that are part of a controlled group cannot make an ASC election on an amended return if any other members filed for the credit on a timely filed tax return using a method other than the ASC.

For taxpayers who have not yet benefited from the tax credit, TD 9666 is a vital and stimulating advantage which provides more flexibility when making the claim on amended returns. Taxpayers that have been in business since 1984 or prior, typically did not pursue R&D credit claims on amended returns because gathering the documentation required could be extremely onerous. These changes now give taxpayers additional flexibility to pursue the credits that they are entitled to.

To learn more about the Alternative Simplified Credit or how you can now use this credit on amended returns please contact us.

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