With the release of Notice 2013-20, the Internal Revenue Service has greatly simplified the distribution of credits to members of a controlled group in calculation controlled group credits. This is great news for companies that are affected.
In the simplest terms with regard to the R&D credit, a controlled group is a group of entities that share the same majority ownership. In the past, to generate a credit for a controlled group, multiple credit calculations were performed. The first credit was a computation of the overall group’s tax credit. Then, a second set of calculations would be executed for each of the credit generating entities. Finally, the group credit would be allocated to each member of the group in proportion to the individual member credit that was computed.
With the release of these new regulations a taxpayer only calculates the credit on a group basis then allocates the credit based on the amount of research expenses qualified by each member.
These regulations, effective today, April 3, 2015, allows companies to apply this methodology to tax years beginning after December 31, 2011. This will allow any taxpayers fitting this fact pattern to realize an immediate benefit if they had not yet computed a prior year credit and are looking to conduct a multi-year study.
Source: IRS