IRS rulings affecting R&D tax credit

IRS Rulings Affecting the R&D Tax Credit

Bruce Stubbs, JD, LLM

Bruce Stubbs, JD, LLM

Controlled group members’ calculation of R&D tax credits made easier

By Bruce Stubbs
AGH Specialized Tax Solutions
May 29, 2015

The IRS has simplified calculation and allocation of research and development tax credits earned by controlled groups and their members.

In April 2015, the IRS released final and temporary regulations which require research credits to be allocated to controlled-group members based on their proportionate share of the group’s total qualified research expenditures (QREs). Each member is no longer required to calculate its own stand-alone credit, nor receive its allocated share of the credit based on two convoluted formulas. This significantly reduces the calculations and time involved with the allocation process. The regulations closely follow previous interim guidance issued in Notice 2013-20.

Controlled groups are corporations under common control, such as a parent-subsidiary or a “brother-sister” company owned by a parent company. Previously the calculation for R&D tax credits for controlled-group members required a comparison between the entity’s stand-alone share of credits and the total group credits.

The regulations are effective for tax years beginning after April 3, 2015. However, with other amendments to the credit, taxpayers can also apply the new guidance to tax years beginning after December 31, 2011. For more information on the controlled groups regulations, visit this page.

Stay up to date!

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Learn how the IRS eased restrictions on "internal-use software" expenses qualifying for the R&D tax credit.

Stay up to date on R&D tax credit developments through AGH Specialized Tax Solutions vice president Bruce Stubbs’ webinars on