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Research credit AMT carryovers and carrybacks.

Under Sec. 41(g), the research credit computed under Sec. 41(a) may not exceed the tax attributable to the portion of an individual's taxable income allocable to an individual's interest in a sole proprietorship or in a passthrough entity. Additionally, for post-1985 tax years, the research credit is part of the Sec. 38 general business credit (GBC). As such, for any post-1985 tax year in which a research credit is generated, the Sec. 38(c) GBC limitations apply, in addition to Sec. 41(g), in determining an individual's available research credit.

In general, the Sec. 38(c) GBC limitations provide that the GBC may only be taken against the lesser of (1) 75% of so much of a taxpayer's regular tax liability that exceeds $25,000 or (2) the amount by which a taxpayer's regular tax liability exceeds its tentative minimum tax. The current Sec. 38(c) language reflects the Congress's intent in the Tax Reform Act of 1986 that nonrefundable credits "generally cannot be claimed ... to the extent that they would reduce regular tax liability to less than tentative minimum tax liability."

While it is clear that both the Sec. 41(g) and 38(c) limitations apply in the tax year a research credit originates, such a conclusion is not as easily reached when research credits are carried back or forward as part of the GBC. The Technical and Miscellaneous Revenue Act of 1988 (TAMRA) added a sentence to Sec. 41(g) which, when read literally, suggests that either the Sec. 41(g) limitation or the Sec. 38(c) limitations, but not both, apply in carryback or carryover years, depending on whether or not the Sec. 41(g) limitation applied in the year the research credit originated.

Because the TAMRA committee reports are silent on the Sec. 41(g) language change, it is difficult to determine whether Congress intended to supersede its earlier position that nonrefundable credits "generally" should not offset the tentative minimum tax liability; however, the law, on its face, appears to permit such an offset.
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Author:Conley, James B.
Publication:The Tax Adviser
Date:Jan 1, 1992
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