Has your organization missed out on claiming the R&D tax credit because of a lack of substantiation in the base years? If so, there’s a bit of good news: The regulations that once prevented you from electing the alternative simplified credit (ASC) on an amended return have been modified. New rules published February 27 finalize the temporary regulations that have been in place since June 2014. The IRS will now allow you to go back and claim R&D credits on amended returns under the ASC method for all open tax years.
In the past, IRS regulations specified that a taxpayer making an ASC election must do so by attaching Form 6765, Credit for Increasing Research Activities, to an original, nonamended return for the year to which it applies. Many tax practitioners argued that the burden of substantiating expenditures and costs for the base period, which require a taxpayer to substantiate activities as far back as 1984, under the regular credit can be difficult and that they needed more time to determine whether to claim the regular credit or the ASC.
The new rules ease this burden. However, the rules stipulate that a taxpayer that previously claimed a credit for a tax year may not make an ASC election for that tax year on an amended return.
The rules, encapsulated in revisions made to the regulations of Section 41 of the Internal Revenue Code, also state that a taxpayer that’s a member of a controlled group in a tax year may not make an ASC election for that tax year on an amended return if any member of the controlled group for that year previously claimed the R&D tax credit using a method other than the ASC on an original or amended return for that tax year.
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For more information on the new rules, or to learn more about how your organization can leverage federal and state R&D tax credits, contact your Moss Adams professional or email email@example.com. You can also become a part of the conversation and stay up to date on R&D-related news by joining the Moss Adams R&D Forum on LinkedIn.