Claiming R&D credit missed in prior years

IRS Rulings Affecting the R&D Tax Credit

Bruce Stubbs, JD, LLM

Claiming R&D credit missed in prior years now simplified

By Bruce Stubbs
AGH Specialized Tax Solutions
May 29, 2015

Companies conducting research and development (R&D) for new or improved products or processes will find it easier to claim tax credits missed in prior years if the credits had not previously been claimed using an older, more complicated method.

In February 2015, the IRS finalized the temporary regulations they had released in 2014 to simplify filing for R&D tax credits using the Alternative Simplified Credit (ASC) method. The final regulations generally adopt the temporary regulations issued in 2014 and which apply to earlier tax years. Under the final regulations, the IRS approves use of the ASC for open tax years – typically the previous three years – if the credit has not already been claimed in the prior year or years. These regulations are effective for tax years ending on or after February 27, 2015.

The R&D tax credit is a generous tax benefit, allowing companies to receive a tax credit for qualified expenses in addition to the deduction they already earn. However, the calculations originally required to claim the R&D credit for a prior year are fairly complex and require a lot of historical information, so the ability to use the ASC will make R&D tax credits accessible to more companies than before with this option.

Taxpayers using the ASC method earn a 14% credit on the amount by which qualified research expenses exceed 50% of average research expenses for the preceding three years. The original “old & cold” R&D tax credit calculation method provides a 20% credit – however, it requires much more historical documentation of R&D costs.

In 2015, as in the 16 previous times, the R&D credit is awaiting Congressional action to reinstate this valuable business tax incentive after a last-minute extension in December 2014 which once again expired as of Dec. 31, 2014. For more information on the ASC final regs, visit this page.

Stay up to date!

See how controlled group members' calculation of R&D tax credits was made easier.

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 AGHUniversity.com.