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March 3, 2015

Final Regs Cover Time and Manner of Electing Alternative Simplified Research Credit (article)

The IRS has issued final regulations relating to the time and manner of electing to use the alternative simplified credit (ASC) under Code Sec. 41(c)(5) to compute the credit for increasing research activities. The final regulations are substantially identical to previously issued temporary regulations (T.D. 9666).

The regulations provide that the election to use the ASC is made by completing the portion of Form 6765, Credit for Increasing Research Activities, relating to the election and attaching the completed form to the taxpayer's timely filed (including extensions) original return. The election may be made on an amended return for a tax year that is not closed by the period of limitations on assessment but only if the taxpayer did not previously claim a research credit computed under the regular rules of Code Sec. 41(a)(1) on its original return or an amended return. An extension of time to make the election is not allowed under Reg. §301.9100-3.

A member of a controlled group may not make an election on an amended return if any member of the controlled group claimed a research credit under Code Sec. 41(a)(1) for the tax year the amended return relates to.

Comment: The IRS clarified in the preamble to the final regulations that an election under Code Sec. 280C(c)(3) on line 17 of Form 6765 to claim a reduced research credit does not preclude the election of the ASC on an amended return so long as the taxpayer does not complete the section of the form to claim the credit under Code Sec. 41(a)(1). If a taxpayer is undecided whether to claim the regular credit for a tax year but wants to preserve the operative effect of Code Sec. 280C(c)(3), it will make the reduced credit election on line 17 and leave the remaining section of the form blank. The IRS concludes that in this circumstance the line 17 election does not constitute a credit claim under Code Sec. 41(a)(1) that prevents an ASC election on an amended return.

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