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Modification to the 2016 Instructions for Form 6765, Credit for Increasing Research Activities -- 21-MAR-2017

If you downloaded the 2016 Instructions for Form 6765 before February 15, 2017, please note the following.

The credit for increasing research activities is now permanent. The research credit of eligible small businesses is allowed against AMT. Also, qualified small businesses can elect to use the research credit as a payroll tax credit. The instructions were modified to provide additional guidance to businesses related to section 41(h), the payroll tax credit election.

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Under the heading “Qualified Small Business,” we replaced the sentence that started with “Gross receipts for any tax year ” with “The term ‘gross receipts’ for purposes of determining whether your business is a qualified small business means gross receipts as determined under section 448(c)(3) (without regard to subparagraph (A) thereof) and section 1.448-1T(f)(2)(iii) and (iv).

Under the heading “Member of Controlled Group or Business Under Common Control,” in the first sentence of the first paragraph under this heading, we added “and section 1.41-6(a)(3)(ii)” after “(as defined in section 41(f)(1)(B).” We also replaced "businesses" throughout the section to "trade or businesses."

We also added text to clarify the paragraph related to the payroll tax credit election. The new text states: "For purposes of the payroll tax credit election, all members of the same controlled group are treated as a single taxpayer. Thus, the aggregate gross receipts of all members of such a group must be taken into account in determining whether a business is a qualified small business. Also see Qualified Small Business, earlier. In addition, a member of such a group may not make a payroll tax credit election if the member (or any other member of the member’s group) has made a payroll tax credit election for 5 or more preceding tax years.

Each member of a controlled group separately makes the payroll tax credit election. The amount that each member of the group can separately elect is limited to the least of (a) the electing member’s allocable share of the group credit (determined under the rules discussed above), (b) the electing member’s allocable share of the $250,000 amount, or (c) in the case of an electing member other than a partnership or S corporation, the amount of the electing member’s business credit carryforward under section 39 carried from the tax year (determined before the application of the payroll tax credit election for the tax year). The $250,000 amount is allocated to each member of the group, regardless of whether all members of the group make the payroll tax credit election, on a proportionate basis to each member’s share of the aggregate of the qualified research expenses taken into account for the tax year by the group for purposes of the credit."