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.TRANSCRIPT
- 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 [email protected]. Sandy Weinberg Principal [email protected] 203.323.2400
- 2. About OConnor Davies, LLP: O'Connor Davies, LLP is a full service Certified Public Accounting and consulting firm that has a long history of serving clients both domestically and internationally and providing specialized professional services of the highest quality. With roots tracing to 1891, seven offices located in New York, New Jersey and Connecticut, and approximately 500 professionals including 85 partners, the Firm provides a complete range of accounting, auditing, tax and management advisory services. OConnor Davies is ranked as number 32 in Accounting Today's 2014 "Top 100 Firms" in the United States. The Firm is also within the 20 largest accounting firms in the New York Metropolitan area according to Crain's New York Business and the Westchester and Fairfield County Business Journals. OConnor Davies, LLP is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. Our firm provides the information in this e-newsletter for general guidance only, and it does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. IRS CIRCULAR 230 DISCLOSURE: To comply with IRS regulations, we are required to inform you that unless expressly stated otherwise, any discussion of U.S. federal tax issues in this correspondence (including any attachments) is not intended or written to be used, and cannot be used, (i) to avoid any penalties imposed under the Internal Revenue Code, or (ii) to promote, market, or recommend to another party any transaction or matter addressed herein. Contact: New York, NY 212.286.2600 212.867.8000 Harrison, NY 914.381.8900 Stamford, CT 203.323.2400 Paramus, NJ 201.712.9800 Cranford, NJ 908.272.6200 New Windsor, NY 845.220.2400 Wethersfield, CT 860.257.1870