New rules for claiming reduced research credit.

• Author: Finkle, Doug
• Position: TAX - Legislation

The Internal Revenue Service has issued final regulations, for tax years beginning after July 27,2011, that simplify how taxpayers elect to claim the reduced research tax credit.

The reduced research credit does not require the research credit to be added back into income. It also does not require research expenses to be reduced by the amount of the R&D credit, which is required when the taxpayer takes the regular credit. However, in order not to have the R&D credit added back into income or research expenses reduced by the R&D credit, the taxpayer must take a reduced credit of 13 percent, as compared to the 20 percent regular credit.

Factors to be considered in making the election to take the reduced credit include:

* The taxpayer's marginal rate (taking into account available net operating losses);

* How the election affects state and local taxes; and

* Whether there are any allowable credits that can't be taken in the current year because of the overall limitations on business credits.

These final regulations simplify the Section 280C(c)(3) election by allowing taxpayers to make the reduced credit election on Form 6765, "Credit for Increasing Research Activities." Taxpayers may now file Form 6765 with the original return, indicating their intent to claim the reduced credit, but is...