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Solutions / Research & Development Tax Credit

Large Entities Directive

Released Sept 2017, this Directive allows a safe harbor for certain QREs (for R&D credit purposes) that can be traced back to R&D expense under ASC 730 (for financial statement purposes), such that, the IRS will not challenge such QREs (wages and supplies only) that are reconciled to the amount shown on the audited financial statements (after adjustments).

Benefits

  • Reduction in risk/increased credit retention
  • Reduction in R&D credit reserve, leading to increase in earnings
  • Reduction in time (and fees) spent in audit
  • Reduction in time spent on fieldwork

Procedural Aspects

Requirements

  • ASC 730 R&D expense amount must be reported on the certified audit financial statements
    -Footnote disclosure sufficient vs separate line item
    -Preserves right to apply the safe harbor, if desired
  • Four disclosure statements attached to the tax return OR provided upon audit
  • Disclosures reconcile QRE to ASC 730 R&D expense (after certain adjustments)

Two Ways Taxpayers May Elect

  • Voluntarily attach 4 Disclosure statements with timely filed return
  • Submit the same information at beginning of audit

How to Report

File 4 Disclosure Statements (Appendices A-D)

  • Appendix A – Certification Statement
  • Appendix B – Reconciliation of Form 6765 QREs to Adjusted ASC 730 Financial Statement R&D
  • Appendix C – Computation of Adjusted ASC 730 R&D
  • Appendix D – Adjusted ASC 730 Financial Statement R&D Wage Detail

Documentation that Must be Retained

Underlying books and records supporting the amounts claimed on Appendices C and D, inclusive