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Specific Instructions

You can:

  • Claim the regular credit in Section A, or

  • Elect the alternative simplified credit in Section B.

You may want to figure your credit using both of the methods for which you are eligible to get the maximum credit allowed.

Once elected, the ASC applies to the current tax year and all later years. A current tax year's ASC election may not be revoked. You may revoke the election for a later tax year by completing Section A relating to the regular credit and attaching the Form 6765 to your timely filed (including extensions) original return for the year to which the revocation applies. See Regulations section 1.41-9(b)(3).

After figuring your credit, you can elect to treat a portion of the credit as a payroll tax credit. Complete Section D to determine the payroll tax credit portion. Taxpayers other than partnerships and S corporations must complete Form 3800 before completing Section D.

Section A—Regular Credit

Skip this section and go to Section B if:

  1. You are electing the alternative simplified credit, or

  2. You previously elected the alternative simplified credit and are not revoking the election on this return.

Enter the amounts you paid or incurred to energy research consortia for energy research. Energy research does not include any research that is not qualified research. In general, an energy research consortium is any organization described in section 501(c)(3), exempt from tax under section 501(a), organized and operated primarily to conduct energy research, and not a private foundation. See section 41(f)(6) for further details.

Line 1

Any amount included on line 1 cannot be included elsewhere on the return.

Line 2

Enter the amounts the corporation (not to include S corporations, personal holding companies, and service organizations) paid in cash, under a written contract, for basic research to a qualified university, scientific research organization, or grant organization. See section 41(e) for details, including the definitions of qualified organizations.

Line 3

Enter the qualified organization base period amount based on minimum basic research amounts plus maintenance-of-effort amounts for the 3 preceding tax years. See section 41(e) for details.

Line 7

Enter the amount you paid or incurred for the rental or lease of computers used in qualified research. The computer must be located off your premises and you must not be the operator or primary user of the computer. Reduce this amount by the amount that you (or any member of a controlled group of corporations or businesses under common control) received or accrued for the right to use substantially identical property.

Line 8

Enter the amounts you paid or incurred, subject to the following limitations.

  • 100% of amounts you paid (or incurred) for qualified energy research performed by an eligible small business, a university, or a federal laboratory (see section 41(b)(3)(D) for definitions of those entities). Also include payments to those same entities to the extent they are included as basic research payments in line 2, not to exceed the base period amount in line 3.

  • 75% of amounts you paid (or incurred) for qualified research by a qualified research consortium (as defined by section 41(b)(3)(C)(ii)). Also include 75% of the payments to a qualified research consortium to the extent they are included as basic research payments in line 2, not to exceed the base period amount in line 3.

  • 65% of amounts you paid (or incurred) for all other qualified research by any other person. Also include 65% of the payments to that person to the extent they are included as basic research payments in line 2, not to exceed the base period amount in line 3.

Note.

Prepaid contract research expenses are considered paid in the year the research is actually done.

Line 10

The fixed-base percentage depends on whether you are an existing company or a start-up company.

A start-up company is a taxpayer that had both gross receipts and qualified research expenses either:

  • For the first time in a tax year beginning after 1983, or

  • For fewer than 3 tax years beginning after 1983 and before 1989.

The fixed-base percentage for a start-up company is figured as follows.

  • For the first 5 tax years beginning after 1993 for which you have qualified research expenses, the percentage is 3%.

  • For the 6th tax year beginning after 1993 for which you have qualified research expenses, divide the aggregate qualified research expenses for the 4th and 5th such tax years by the aggregate gross receipts for those tax years, then divide the result by 6.

  • For the 7th tax year beginning after 1993 for which you have qualified research expenses, divide the aggregate qualified research expenses for the 5th and 6th such tax years by the aggregate gross receipts for those tax years, then divide the result by 3.

  • For the 8th tax year beginning after 1993 for which you have qualified research expenses, divide the aggregate qualified research expenses for the 5th, 6th, and 7th such tax years by the aggregate gross receipts for those tax years, then divide the result by 2.

  • For the 9th tax year beginning after 1993 for which you have qualified research expenses, divide the aggregate qualified research expenses for the 5th, 6th, 7th, and 8th such tax years by the aggregate gross receipts for those tax years, then divide the result by 1.5.

  • For the 10th tax year beginning after 1993 for which you have qualified research expenses, divide the aggregate qualified research expenses for the 5th through 9th such tax years by the aggregate gross receipts for those tax years, then divide the result by 1.2.

  • For the 11th and later tax years beginning after 1993 for which you have qualified research expenses, divide the aggregate qualified research expenses for any 5 of the 5th through 10th such tax years by the aggregate gross receipts for those tax years.

The fixed-base percentage for an existing company (any company that is not a start-up company) is figured by dividing the aggregate qualified research expenses for the tax years beginning after 1983 and before 1989 by the aggregate gross receipts for those tax years.

The fixed-base percentage for all companies (existing and start-up) must be rounded to the nearest 1/100th of 1% (that is, four decimal places) and cannot exceed 16%. In addition, when figuring your fixed-base percentage, you must reflect expenses for qualified research conducted in Puerto Rico or a U.S. possession for all prior tax years included in the computation.

If short tax years are involved, see Regulations section 1.41-3(b).

Reduce gross receipts by returns and allowances. For a foreign corporation, include only gross receipts that are effectively connected with a trade or business in the United States (or in Puerto Rico or a U.S. possession, if applicable).

Line 11

Enter the average annual gross receipts (reduced by returns and allowances) for the 4 tax years preceding the tax year for which the credit is being determined. You may be required to annualize gross receipts for any short tax year. For a foreign corporation, include only gross receipts that are effectively connected with a trade or business in the United States (or in Puerto Rico or a U.S. possession, if applicable).

For a tax year that the credit terminates, the average annual gross receipts for the 4 tax years preceding the termination tax year is prorated for the number of days the credit applied during the tax year. For more information, see section 41(h).

Line 17

If you are electing the reduced research credit, you must complete Form 6765 (even if no research credits are claimed on the original return) and clearly indicate your intent to make the election. In order for the election to apply, the Form 6765 must be filed with your original timely filed (including extensions) return for the tax year. Once made, the election is irrevocable for that tax year.

Checking the box on line 17 or line 34 to elect the reduced research credit when no research credits are claimed on the original return does not mean that you are claiming the regular research credit or that you are making the ASC election.

If you do not elect the reduced credit, you must reduce your otherwise allowable deduction for qualified research expenses or basic research expenses by the amount of the credit on this line. If the credit exceeds the amount allowed as a deduction for the tax year, reduce the amount chargeable to capital account for the year for such expenses by the amount of the excess. Attach a statement to your tax return that lists the deduction amounts (or capitalized expenses) that were reduced. Identify the lines of your return (schedule or forms for capitalized items) on which the reductions were made.

If you make an election to claim a portion of your research credit as a payroll tax credit, the amount elected is treated as a research credit for purposes of the reduced credit.

Section B—Alternative Simplified Credit

Complete this section only if, instead of the regular credit:

  1. You are electing the alternative simplified credit, or

  2. You previously elected the alternative simplified credit and are not revoking the election on this return.

Electing the alternative simplified credit (ASC).   You elect the ASC by completing Section B and attaching the completed Form 6765 to your timely filed (including extensions) original return for the tax year the election applies. An ASC election can be made on an amended return for a tax year only if you had not previously claimed the research credit on an original return or amended return for that tax year. An extension of time to make the ASC election will not be granted.

Line 29

Enter your qualified research expenses for the prior 3 tax years. If the credit terminates during the tax year, prorate the qualified research expenses for the prior 3 tax years for the number of days the credit applied during the tax year. For more information, see section 41(h).

Section C—Current Year Credit

Line 35

If the credit on line 17 or line 34 includes amounts paid to employees as wages, and you are also claiming a credit for employer differential wage payments based on payments you made to the same employees, enter on line 35 the portion of the credit from Form 8932, line 2, that is attributable to wages that were also used to figure the credit on line 17 or line 34 (whichever applies).

See Form 8932, Credit for Employer Differential Wage Payments, for more information on the credit.

Line 37

Enter total credit for increasing research activities from:

  • Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc., box 15 (code M);

  • Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc., box 13 (code M); and

  • Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc., box 13 (code I).

Partnerships and S corporations must always report the above credits on line 37. Also, estates and trusts that can allocate the source credit to beneficiaries must always report the above credits on line 37. All other filers figuring a separate credit on earlier lines must also report the above credits on line 37. All others not using earlier lines to figure a separate credit can report the above credits directly on Form 3800, Part III, as follows.

  • Eligible small businesses, report the credit on line 4i. See the definition of “Eligible Small Business” under Definitions, earlier. Also see Treatment of partners and S corporation shareholders, earlier.

  • All others, report the credit on line 1c.

Line 39

Estates and trusts.   Allocate the credit for increasing research activities on line 38 between the estate or trust and the beneficiaries in the same proportion as income was allocated and enter the beneficiaries’ share on line 39.

  If the estate or trust is subject to the passive activity rules, include on line 37 any credit for increasing research from passive activities disallowed for prior years and carried forward to this year. Complete Form 8582-CR, Passive Activity Credit Limitations, to determine the allowed credit that must be allocated between the estate or trust and the beneficiaries. For details, see the Instructions for Form 8582-CR.

Section D—Qualified Small Business Payroll Tax Election and Payroll Tax Credit

Complete this section only if you are making the payroll tax election. Before completing this section, you must complete Form 3800 if you are a qualified small business other than a partnership or an S corporation.

Line 41

Check the box on line 41 if you are a qualified small business electing to claim a certain portion of your research credit as a payroll tax credit. See the definition of "Qualified Small Business" under Definitions, earlier.

Line 42

Enter the portion of your research credit, figured on line 36, that you are claiming as a payroll tax credit. Do not enter more than $250,000.

Line 43

Use the worksheet above to figure the general business credit carryforward for the current year.

Worksheet for Figuring General Business Credit Carryforward

1. Enter the sum of the following lines from Form 3800, Part I, line 6, and Part II, line 25 and line 36 1.______
2. Enter the amount from Form 3800, Part II, line 38 2.______
3. Subtract line 2 from line 1 3.______
4. Enter the amount from Form 3800, Part I, line 5, and Part II, line 35 4.______
5. Current year general business credit carryforward. Subtract line 4 from line 3. If zero or less, enter -0- 5.______

Line 44

Enter the amount from line 44 on Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities, line 5. Use Form 8974 to figure the amount to be applied to your payroll taxes.

A qualified small business claiming a portion of the research credit as a payroll tax credit must adjust the research credit carryforward for the payroll tax credit claimed.


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