Alternative Simplified R&D Credit Rules Finalized

Regulations

On June 10, the IRS issued final regulations governing the election and calculation of the alternative simplified research and development credit under Sec. 41(c)(5) (T.D. 9528). The new rules are effective for tax years ending after June 9, 2011.

The final regulations extend the election procedures for the alternative incremental research credit (AIRC) to the alternative simplified credit (ASC). They provide that an election to make or revoke the provisions of the ASC must be made on a timely filed (including extensions) original return for the tax year and may not be made on an amended return. The regulations also provide that the IRS will not grant Sec. 9100 relief to extend the time to make or revoke the election for either the AIRC or the ASC.

One change requested by a commentator that the regulations adopt is to change the ASC short tax year rules to prorate short years by the number of days in the year instead of the number of months in the year. The IRS says this change provides a more accurate calculation and removes uncertainty about whether and how to include a partial month in making the monthly calculation.

The final regulations also clarify that all members of a controlled group must use the same method of computing the research credit for a credit year: the regular method (under Sec. 41(a)(1)), the AIRC method (available only for years beginning on or before December 31, 2008), or the ASC method.