The Department of Treasury has issued new regulations that open up a world of opportunities for taxpayers who conduct research and development. By way of background, the Credit for Increasing Research Activities (“R&D credit”) is generally calculated by multiplying the difference between the current year qualified research expenses and the base amount by 20%. Calculating the base amount is sometimes burdensome because it often requires businesses to dig up gross receipts and qualified research expenses from many years prior. In contrast, the Alternative Simplified Credit (“ASC”) allows taxpayers to calculate the R&D credit by only considering the qualified research expenses from the prior three years. Previously, taxpayers were required to elect to claim ASC on an original return and were therefore limited in how often they could claim it.
Treasury recently issued T.D. 9666, which contains final and temporary regulations that allow taxpayers to elect to claim ASC on an amended return. Specifically, the Treasury Decision contains final regulations which remove regulation § 1.41-9(b)(2) that prevents taxpayers from electing to claim ASC on an amended return, and the T.D. issues temporary regulations that allow taxpayers to make an ASC election for a tax year on an amended return.
However, Treasury has included some caveats. A taxpayer who has previously claimed a regular R&D credit for a tax year, whether on an amended or original return, may not make an ASC election for that tax year on an amended return. Additionally, a taxpayer that is a controlled group member for a tax year may not elect to claim ASC on an amended return if any member of the controlled group for that year has already claimed the regular R&D credit for that tax year. Also, although these regulations allow taxpayers to make an ASC election on an amended return, they do not allow taxpayers to revoke an ASC election on an amended return. It is uncertain whether Treasury has intended to prevent taxpayers from revoking an ASC election on an amended return or if this was an oversight in the T.D. Hopefully, Treasury will issue guidance clarifying this issue in the near future.
These regulations apply to ASC elections with respect to taxable years ending on or after June 3, 2014. Additionally, taxpayers may rely on these regulations to make elections for tax years ending prior to June 3, 2014 if the taxpayer makes the election before the statute of limitations for assessment for that year expires.