The IRS has issued guidance to examiners in its Large Business & International Division regarding the R&D credit claimed by LB&I taxpayers.
The directive intends to provide an efficient approach for determining the amount of qualified research expenses for LB&I taxpayers while reducing the burden of doing so on LB&I taxpayers and examiners.
LB&I taxpayers may choose to follow the terms of the directive on original returns timely filed (including extensions) on or after the date of the directive. At the beginning of an examination that includes the R&D Credit, the audit team will verify whether the taxpayer followed or plans to follow the directive. For taxpayers choosing to follow the directive, the audit team will ensure that the taxpayer complies with the directive’s eligibility requirements.
The directive instructs LB&I examiners to accept the Adjusted Accounting Standards Codification 730 Financial Statement R&D for the credit year as the amount of qualified research expenses for that year. Adjusted ASC 730 Financial Statement R&D is made up of the research and development costs currently expensed on a taxpayer’s certified audited financial statement pursuant to ASC 730 for U.S. GAAP purposes and includes certain specified adjustments made to ASC 730 Financial Statement R&D.
The directive only applies to LB&I taxpayers (that is, those with assets equal to or greater than $10 million) that follow U.S. GAAP to prepare their certified audited financial statements, which show as a separate line item on the income statement the amount of the currently expensed ASC 730 Financial Statement R&D included in their CAFS or show separately stated in a note to their statements.
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