The Alternative Simplified Research Credit
By Sukiana Garcia, Staff Accountant, Tax & Business Services
In June 2011, the IRS issued final regulations pursuant to Section 41, related to the Alternative Simplified Research Credit (ASC.) Section 41 allows a non-refundable research and development (“R&D”) tax credit designed to benefit taxpayers incurring research activities which include expenses for salaries and wages, supplies, and contract research conducted on the taxpayer’s behalf. The ASC is an alternative election to the regular R&D credit computation which may be made by filing Form 6765 with an originally filed tax return (including extensions) for the year in which the R&D credit applies.
The ASC is equal to 14% of the excess of the qualified research expenditures (QREs) for the tax year over 50% of the average QREs for the three preceding tax years. If a taxpayer had no QREs in any one of the three preceding tax years, the ASC is equal to 6% of the QREs for the current year.
The regular method R&D credit rate is higher at 20%, however, due to record keeping and income restrictions, the ASC method provides many taxpayers the opportunity to take advantage of credit benefits which did not previously exist prior to the introduction of this alternative method. Taxpayers with high gross receipts, reducing QREs, or those unable to substantiate the cumbersome record keeping requirements of the regular method should consider if the ASC method is appropriate.
Further restrictions may apply should a taxpayer also consider utilizing a reduced credit. Under either method, taxpayers will be required to provide sufficient records substantiating the credit claimed.