The Emergency Economic Stabilization Act of 2008 includes, among many other new changes, three substantive changes to the research tax credit. The changes are as follows.
- Extension of the credit through December 31, 2009
- Increase of the alternative simplified credit (ASC) from 12 percent to 14 percent for years ending after 2008
- Termination of the alternative incremental research credit (AIRC) for years beginning in 2009
A credit for research activities may be calculated under one of three methods: the “traditional” method and two elective methods—the AIRC and the ASC. Existing regulations permit a taxpayer to elect either the traditional or AIRC methods annually when a return is originally filed. An election to use the ASC, however, applies for the current and future years and can be revoked only with the consent of the Commissioner of Internal Revenue.
The statutory changes improve the ASC (for taxable years ending after 2008) and terminate the AIRC (for taxable years beginning after 2008). Presumably a taxpayer who has elected the AIRC in prior years would be free to elect either the traditional or ASC methods beginning in 2009. Taxpayers who have not previously elected the ASC should evaluate whether the ASC method would be beneficial in light of the 14 percent increase of the incremental qualified expenses.