Proposed regs. would simplify reduced research credit election.

• Author: Nevius, Alistair M.

On July 15, the IRS released proposed regulations that simplify the procedures for taxpayers claiming the reduced research credit under Sec. 280C(c)(3) (REG-130200-08).

Taxpayers who claim a credit under Sec. 41 for increasing research expenditures must reduce their research expenditures deduction under Sec. 174 by the amount of the Sec. 41 credit. Similarly, taxpayers who elect to capitalize research expenses must reduce the amount chargeable to the capital account for such expenses by the amount that the Sec. 41 research credit exceeds the amount allowable as a deduction for research expenses.

Taxpayers can avoid reducing the deduction for research expenses or the amount charged to a capital account by making an election under Sec. 280C(c) (3) to take a reduced research credit. The amount of the reduction equals the excess of the amount of the Sec. 41 credit over the credit amount multiplied by the maximum corporate tax rate.

Under the current regulations, taxpayers make...