Regulations Permit Election of Alternative Simplified Research Credit on Amended Returns

On Monday, the IRS issued temporary regulations permitting taxpayers to elect the Sec. 41(c)(5) alternative simplified credit (ASC) on an amended return, as long as the taxpayer (or a member of its controlled group) did not make an election to use any other method of calculating the research credit on an original or amended return for that year (T.D. 9666).

Sec. 41 provides a tax credit for increasing research activities. The two methods for calculating the credit are the regular method under Sec. 41(a)(1) or the ASC method under Sec. 45(c)(5). Once the ASC is elected, it can be revoked only with the IRS’s consent.

In 2011, the IRS issued final regulations (T.D. 9528) on electing and calculating the ASC that did not permit making the election on an amended return (Regs. Sec. 1.41-9(b)(2)). In response to comments the IRS received explaining that “the burden of substantiating expenditures and costs for the base period under the regular credit can be costly, time-consuming, and difficult,” the IRS amended the earlier regulations by withdrawing Regs. Sec. 1.41-9(b)(2) and replacing it with Temp. Regs. Sec. 1.41-9T(b)(2). The new temporary regulations recognize the need for taxpayers to have additional time to determine whether to claim the regular credit or the ASC and therefore allow taxpayers to elect to use the ASC method on an amended return. However, taxpayers who have already elected the regular method cannot file an amended return to change to the ASC for that tax year.

The regulations apply to elections made for tax years that end on or after June 3, 2014, the date the rules will be published in the Federal Register. In addition, a taxpayer may make the election permitted in this regulation for any prior tax year for which the statute of limitation has not expired. The text of the temporary regulations also serves as the text of simultaneously issued proposed regulations (REG-133495-11).