New IRS Memorandum: Protective Sec. 280C(c)(3) Reduced R&E Tax Credit Election

The IRS Office of Cheif Counsel released Administrative Memorandum 200802 today.  This Memorandum explains that taxpayers can make a protective Sec. 280C(c)(3) election to take a reduced R&E tax credit by either by (1) noting “section 280C” next ot the line on which the current year reduced credit could be claimed or (2) claiming a nominal credit amount along with the “section 280C” notation. 

This ruling is important because the election to take a reduced R&E tax credit must be made on an original tax return.  If a taxpayer fails to claim a Sec. 174 R&E tax deduction on an original tax return and then later submits an amended tax return to claim a R&E tax credit, the taxpayer cannot elect to apportion its R&E expenses between the R&E tax credit and deduction on the amended tax return.  Taxpayers often make this election if they have an alternative minimum tax liability or net operating loss that precludes the taxpayer from taking full advantage of the R&E income tax credit.