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New R&D Credit Guidance for Certain Taxpayers with Audited Financials

The IRS has issued guidance for Large Business & International (LB&I) taxpayers (i.e., assets over $10 million) that report GAAP ASC 730 R&D costs on certified audited financial statements. This directive will allow these taxpayers to use an adjusted amount of their ASC 730 R&D costs as their qualified research expenditures (QREs) used to calculate their R&D tax credits. If the requirements of this directive are met, the IRS will not challenge these QRE amounts.

Some possible qualifying expenditures, like contract research, are not included in the “safe harbor” of this directive and would need to be analyzed and included separately in the taxpayer’s QRE amount, as appropriate. Such costs outside the purview of this guidance can be claimed but would be subject to risk assessment and possible examination.

This new guidance for LB&I taxpayers that meet the above definition is optional and is available for original returns timely filed, including extensions, going forward. A significant amount of analysis and planning will be required to properly comply with this new directive. ETS can help LB&I taxpayers and their CPAs navigate these new rules to help maximize their R&D tax credits.

Written By: David Mayer, CPA, MST | National Director

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