Claiming the Research Credit Just Became Easier
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Filing an amended return to claim the federal research tax credit is now a little simpler. Specifically (and effective immediately), taxpayers who seek to use the Alternative Simplified Credit (ASC) method for calculating the credit can now make the election on an amended return. This change should be beneficial to all companies, but particularly to small and mid-size companies. The regulations allow for two calculation alternatives: one is the “regular credit” and the other is an “ASC election.” Just days ago (June 2, 2014), the Treasury Department and the IRS issued temporary regulations to remove a provision in the existing final regulations that prohibited a taxpayer from making an ASC election on an amended return. Though the ASC election was always a simpler alternative to the regular credit because it does not require a base period calculation, previously it could only be made on timely filed returns (including extensions). Why is allowing ASC on amended returns such a benefit to medium and small companies? In short, it is often costly to analyze and support a one year benefit. With amended returns, the math changes. Multiple years can be reviewed with only incrementally more effort and cost. For example, a software company which could only benefit from a $25,000 current year ASC, may now claim, assuming a consistent credit for open years, $100,000. Learn about the new simplified method of claiming research tax credits for companies - O'Connor Davies LLP - New York CPA Firm.
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- 1. Tax Notes Newsletter Claiming the Research Credit Just
Became Easier Sandy Weinberg, Principal Filing an amended return to
claim the federal research tax credit is now a little simpler.
Specifically (and effective immediately), taxpayers who seek to use
the Alternative Simplified Credit (ASC) method for calculating the
credit can now make the election on an amended return. This change
should be beneficial to all companies, but particularly to small
and mid- size companies. The regulations allow for two calculation
alternatives: one is the regular credit and the other is an ASC
election. Just days ago (June 2, 2014), the Treasury Department and
the IRS issued temporary regulations to remove a provision in the
existing final regulations that prohibited a taxpayer from making
an ASC election on an amended return. Though the ASC election was
always a simpler alternative to the regular credit because it does
not require a base period calculation, previously it could only be
made on timely filed returns (including extensions). Why is
allowing ASC on amended returns such a benefit to medium and small
companies? In short, it is often costly to analyze and support a
one year benefit. With amended returns, the math changes. Multiple
years can be reviewed with only incrementally more effort and cost.
For example, a software company which could only benefit from a
$25,000 current year ASC, may now claim, assuming a consistent
credit for open years, $100,000. It is important to note that the
IRS has not altered the method by which to substantiate the credit,
so taxpayers must still explain how activities qualify and maintain
business records at the same level of sufficiency required prior to
this regulation. The new rules clearly are favorable. As usual
though, a few restrictions apply, with the most significant being
the inability to make the ASC election if the taxpayer already
claimed the regular credit on an amended or original return for the
tax year. The new regulations apply to tax years ending on or after
June 3, 2014, and can be relied upon for prior tax years if the
election is made while the statute of limitations is still open
(Temp. Reg. 1.41-9T). With statute of limitations issues to be
considered, businesses should soon evaluate whether claiming the
research credit is now a viable option. If you have any questions
regarding the change, the ASC, or the federal research credit
generally, do not hesitate to contact Sandy Weinberg at
sweinberg@odpkf.com. Sandy Weinberg Principal sweinberg@odpkf.com
203.323.2400
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