New Opportunity for Missed R&D Credit– June 19, 2014

While we are still waiting to hear if the R&D tax credit will be extended for 2013, there is a new opportunity to pick up a missed credit on prior year returns. After receiving multiple requests, the IRS has decided to allow taxpayers to make an Alternative Simplified Credit (ASC) election on amended tax returns, instead of only on originally filed returns.

To calculate the R&D credit, taxpayers can choose between two methods: (1) fixed-base percentage or (2) ASC. Up until now, the ASC, which only requires providing the average qualified expenditures from the past three years, was not available on amended returns. That meant that trying to claim a missed R&D credit on a prior year’s return included having to calculate the much more burdensome fixed-base percentage, which at times required documentation from as far back as 1983. If this information required wasn’t readily available, it often resulted in an insurmountable task and a missed opportunity.

With the IRS’ change in direction on the ASC, now is a good time to discuss options with your tax advisors for claiming a missed R&D credit for previous years. If you are unsure if your company qualifies for the credit at all, a simple R&D tax credit study may provide additional insight.

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This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.