IRS Change Now Allows ASC Election on Amended Returns
Originally proposed as a provision under the Innovators Job Creation Act, the IRS has made a significant change that could potentially make the R&D Tax Credit more attractive, and easier to claim, for many more small and mid-size companies that qualify for the credit, but for various reasons may not yet have pursued this underutilized part of the tax code.
Part of the opportunity with the R&D Tax Credit, a dollar-for-dollar reduction of your taxes owed, is to claim the credit on your timely-filed tax return. In addition, if a company has not claimed R&D Tax Credits in the past, the company could potentially amend prior year’s tax returns and get tax refunds, typically into the tens of thousands of dollars for each year!
However, prior to the new rule change, many companies, based on when they were first started, would have been required to come up with data/documentation as far back as the mid-1980’s to support their credit claim. And since coming up with data 20-30 years old is near impossible for many companies, amending for R&D Tax Credit opportunities in those years was not a viable option. However, that has now changed for companies of all kinds, including manufacturing, technology, software development and engineering firms.
Starting June 3, 2014, companies that are considering pursuing R&D Tax Credit claims on amended returns now have the option of choosing the Alternative Simplified Credit (ASC) calculation. The major benefit of being able to use the ASC calculation is that instead of having to go digging for decades old data, the ASC only requires a company to look at their 3 prior years of qualified research expenditures (QRE’s), a much more reasonable and doable task, because of technology that most companies have today. The one caveat with the new regulations is that the credit for that tax year being amended was not previously claimed on an original or amended return already.
The definition of R&D for tax credit purposes is much broader than people realize. If your company is not currently claiming the R&D Tax Credit, now is the time to see if you are leaving money on the table.