[Federal Register Volume 79, Number 106 (Tuesday, June 3, 2014)]
[Rules and Regulations]
[Pages 31863-31865]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-12757]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9666]
RIN 1545-BL79


Alternative Simplified Credit Election

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains final and temporary regulations 
relating to the election of the alternative simplified credit. The 
final and temporary regulations will affect certain taxpayers claiming 
the credit. The text of these temporary regulations also serves as the 
text of the proposed regulations (REG-133495-13) published in the 
Proposed Rules section in this issue of the Federal Register.

DATES: Effective Date: These regulations are effective on June 3, 2014.
    Applicability Date: For dates of applicability, see Sec.  1.41-
9T(d).

FOR FURTHER INFORMATION CONTACT: David Selig (202) 317-4137 (not a 
toll-free number).

[[Page 31864]]


SUPPLEMENTARY INFORMATION:

Background

    This document amends 26 CFR part 1 to provide rules relating to the 
election of the alternative simplified credit (ASC) under section 
41(c)(5) of the Internal Revenue Code (Code).
    Section 41(a) provides an incremental tax credit for increasing 
research activities (research credit) based on a percentage of a 
taxpayer's qualified research expenses (QREs) above a base amount. A 
taxpayer can apply the rules and credit rate percentages under section 
41(a)(1) to calculate the credit (commonly referred to as the regular 
credit) or a taxpayer can make an election to apply the ASC rules and 
credit rate percentages under section 41(c)(5) to calculate the credit. 
Section 41(c)(5)(C) provides that an ASC election under section 
41(c)(5) applies to the taxable year for which made and all succeeding 
taxable years unless revoked with the consent of the Secretary.
    On June 10, 2011, the Treasury Department and the IRS published 
final regulations (TD 9528) in the Federal Register (76 FR 33994) 
relating to the election and calculation of the ASC. Section 1.41-
9(b)(2) provides that a taxpayer makes an election under section 
41(c)(5) by completing the portion of Form 6765, ``Credit for 
Increasing Research Activities,'' (or successor form) relating to the 
ASC election, and attaching the completed form to the taxpayer's timely 
filed (including extensions) original return for the taxable year to 
which the election applies. Section 1.41-9(b)(2) also provides that a 
taxpayer may not make an election under section 41(c)(5) on an amended 
return and that an extension of time to make an election under section 
41(c)(5) will not be granted under Sec.  301.9100-3.

Explanation of Provisions

    Following the publication of TD 9528, the Treasury Department and 
the IRS received requests to amend the regulations to allow taxpayers 
to make an ASC election on an amended return. The requests explained 
that the burden of substantiating expenditures and costs for the base 
period under the regular credit can be costly, time-consuming, and 
difficult, and suggested that taxpayers often need additional time to 
determine whether to claim the regular credit or the ASC.
    In response to these requests, this Treasury Decision provides 
final and temporary regulations. The final regulations remove the rule 
in Sec.  1.41-9(b)(2) that prohibits a taxpayer from making an ASC 
election for a tax year on an amended return. In its place, these 
temporary regulations provide a rule that allows a taxpayer to make an 
ASC election for a tax year on an amended return. However, permitting 
changes from the regular credit to the ASC on amended returns could 
result in more than one audit of a taxpayer's research credit for a tax 
year. Accordingly, the temporary regulations provide that a taxpayer 
that previously claimed, on an original or amended return, a section 41 
credit for a tax year may not make an ASC election for that tax year on 
an amended return. In addition, the temporary regulations provide that 
a taxpayer that is a member of a controlled group in a tax year may not 
make an election under section 41(c)(5) for that tax year on an amended 
return if any member of the controlled group for that year previously 
claimed the research credit using a method other than the ASC on an 
original or amended return for that tax year. As with all claims under 
section 41, taxpayers must maintain sufficient books and records to 
substantiate the credit on the amended returns.

Effective/Applicability Date

    These regulations apply to elections with respect to taxable years 
ending on or after June 3, 2014. In addition, a taxpayer may rely on 
Sec.  1.41-9T(b)(2) to make an election under section 41(c)(5) for a 
tax year ending prior to June 3, 2014 if the taxpayer makes the 
election before the period of limitations for assessment of tax has 
expired for that year.
    These regulations expire on June 2, 2017.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866, as 
supplemented by Executive Order 13563. Therefore, a regulatory 
assessment is not required. It also has been determined that section 
553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does 
not apply to these regulations. For the applicability of the Regulatory 
Flexibility Act, refer to the Special Analyses section of the preamble 
to the cross-referenced notice of proposed rulemaking published in the 
Proposed Rules section in this issue of the Federal Register. Pursuant 
to section 7805(f) of the Code, these regulations have been submitted 
to the Chief Counsel for Advocacy of the Small Business Administration 
for comment on their impact on small business.

Drafting Information

    The principal author of these regulations is David Selig, Office of 
the Associate Chief Counsel (Passthroughs and Special Industries). 
However, other personnel from the IRS and the Treasury Department 
participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority:  26 U.S.C. 7805 * * *
    Section 1.41-9T also issued under 26 U.S.C. 41(c)(5)(C). * * *

Sec.  1.41-9  Alternative simplified credit.

0
Par. 2. Section 1.41-9 is amended by revising paragraph (b)(2) to read 
as follows:
* * * * *
    (b) * * *
    (2) [Reserved]. For further guidance, see Sec.  1.41-9T(b)(2).
* * * * *

0
Par. 3. Section 1.41-9T is added to read as follows:


Sec.  1.41-9T  Alternative simplified credit (temporary).

    (a) through (b)(1) [Reserved]. For further guidance, see Sec.  
1.41-9(a) through (b)(1).
    (2) Time and manner of election. A taxpayer makes an election under 
section 41(c)(5) by completing the portion of Form 6765, ``Credit for 
Increasing Research Activities,'' (or successor form) relating to the 
election of the ASC, and attaching the completed form to the taxpayer's 
timely filed (including extensions) original return for the taxable 
year to which the election applies. A taxpayer may make an election 
under section 41(c)(5) for a tax year on an amended return, but only if 
the taxpayer has not previously claimed the section 41 credit on its 
original return or an amended return for that tax year. An extension of 
time to make an election under section 41(c)(5) will not be granted 
under Sec.  301.9100-3 of this chapter. A taxpayer that is a member of 
a controlled group in a tax year may not make an election under section 
41(c)(5) for that tax year on an amended return if any member of the 
controlled group for that tax year

[[Page 31865]]

previously claimed the research credit using a method other than the 
ASC on an original or amended return for that tax year. See paragraph 
(b)(4) of this section for additional rules concerning controlled 
groups. See also 1.41-6(b)(1) requiring that all members of the 
controlled group use the same method of computation.
    (b)(3) through (c) [Reserved]. For further guidance, see Sec.  
1.41-9(b)(3) through (c).
    (d) Effective/applicability date. Paragraph (b)(2) of this section 
applies to elections with respect to taxable years ending on or after 
June 3, 2014. In addition, a taxpayer may rely on paragraph (b)(2) of 
this section to make an election under section 41(c)(5) for a tax year 
ending prior to June 3, 2014 if the taxpayer makes the election before 
the period of limitations for assessment of tax has expired for that 
year. Otherwise, for elections with respect to taxable years ending 
before June 3, 2014, see Sec.  1.41-9(b)(2) as contained in 26 CFR part 
1, revised April 1, 2014.
    (e) Expiration date. This section expires on June 2, 2017.

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
    Approved: May 2, 2014.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2014-12757 Filed 6-2-14; 8:45 am]
BILLING CODE 4830-01-P