The 280C election is the government’s mechanism to prevent double dipping of Sec. 174/41 expenditures. IRC Section 174 requires taxpayers to reduce their deductible research and development expenses by the amount of any research tax credit computed under IRC Section 41. Capitalized research expenses must also be reduced by the tax credit computed for the taxable year.
An annual irrevocable election is available to taxpayers under IRC Section 280C(c)(3), enabling them to claim a reduced research credit in lieu of any reduction to the IRC Section 174 expense deductions. This election allows for the taxpayer to circumvent the add back requirement. This election is made on a timely filed (including extensions) original income tax return (federal Form 6765). The Section 280C election cannot be made on an amended tax return. Also, once made, the election can only be revoked by approval of the IRS Commissioner.
For tax years prior to 2018, the election reduces the maximum applicable credit rate by 35%. For 2018 and future tax years, the election reduces the maximum applicable credit rate by 21%.