n-01-2.pdf

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Part III - Administrative, Procedural, and Miscellaneous
Research Credit-Suspension Period
Notice 2001-2
PURPOSE
This notice provides guidance to help taxpayers compute and report their credit
for increasing research activities (research credit) under § 41 of the Internal Revenue
Code for taxable years that include the research credit suspension periods described in
§ 502 (d)(2) of the Tax Relief Extension Act of 1999, Pub. L. No. 106-170 (Dec. 17,
1999) (the Act). Further, this notice explains how to take into account any research
credits attributable to a research credit suspension period.
SPECIAL RULES RELATING TO THE RESEARCH CREDIT SUSPENSION PERIODS
Section 502(d) of the Act provides that, for purposes of the Code, any research
credit attributable to the period beginning on July 1, 1999, and ending on September
30, 2000, that is otherwise allowable under the Code, may not be taken into account
prior to October 1, 2000. Further, any research credit attributable to the period
beginning on October 1, 2000, and ending on September 30, 2001, that is otherwise
allowable under the Code, may not be taken into account prior to October 1, 2001.
On or after the earliest date that an amount of research credit attributable to a
research credit suspension period may be taken into account, the amount may be taken
into account through the filing of an amended return, an application for expedited
refund, or an adjustment of estimated taxes.

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Because the research credit suspension periods merely delay the use of
research credits attributable to a research credit suspension period, the limitations
contained in § 38(c), § 39, and § 41(g) on the amount of research credit allowable to
any person as a credit against tax for any taxable year remain applicable. Further,
taxpayers not electing to take a reduced credit under § 280C(c)(3) must continue to
reduce applicable deductions, amounts chargeable to capital account, and credits for
the taxable year by the full amount of the research credit as required by § 280C(c)(1)
and (2).
COMPUTATION OF THE RESEARCH CREDIT FOR TAXABLE YEARS INCLUDING
SUSPENSION PERIODS
Section 502(d)(4) of the Act provides the rule for determining the amount of
research credit suspended for taxable years including research credit suspension
periods. To determine the amount of research credit that is suspended, taxpayers first
must calculate the research credit for the taxable year. The amount of research credit
that is attributable to a research credit suspension period under § 502(d) of the Act is
the amount that bears the same ratio to the amount of research credit for the taxable
year as the number of months in the research credit suspension period that are during
the taxable year bears to the total number of months in the taxable year.
Form 6765, Credit for Increasing Research Activities, reflects the required
computation of the research credit and the determination of the research credit allowed
on a current year return and the suspended research credit attributable to the current
year.
APPLICATION

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ORIGINAL RETURNS
Research credits attributable to a research credit suspension period may not be
used as a credit against tax on a timely filed or late filed original return for a taxable
year that includes any part of such suspension period even if that original return is filed
after the expiration of such suspension period. This rule is necessary for the Internal
Revenue Service to properly administer § 502(d) of the Act.
CARRYBACK AND CARRYFORWARD OF SUSPENDED CREDITS
Any research credit that is not allowed for the taxable year that is attributable to a
research credit suspension period may not be claimed as a carryback or carryforward
until the day after the end of the applicable research credit suspension period. After the
end of the applicable research credit suspension period, however, research credits
attributable to a research credit suspension period that are not used currently as a
credit against tax may be carried to other taxable years under the rules of § 39.
OVERPAYMENT OF TAX AND INTEREST ON OVERPAYMENTS
Because research credits attributable to a research credit suspension period
may not be taken into account in determining any amount required to be paid for any
purpose under the Code until the expiration of the applicable research credit
suspension period, research credits attributable to a research credit suspension period
are not available as a credit against tax until the expiration of the applicable research
credit suspension period and may not be considered in determining any overpayment of
tax until the expiration of the applicable research credit suspension period.
In computing interest on any overpayment attributable to any suspended
research credit under the rules of § 6611, the date of the overpayment for purposes of

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computing the interest is the later of the date of the overpayment without regard to the
research credit suspension period (even though the credit may not be claimed on an
original return that includes any part of the suspension period) or the day after the close
of the suspension period.
REFUND OF TAX AND EXPEDITED REFUNDS
If an overpayment of tax for a taxable year arises as of the expiration of a
research credit suspension period, a claim for refund of the overpayment of tax may be
taken into account by filing an amended return, an application for tentative refund, or an
application for expedited refund on or after the earliest date that an amount of credit
may be taken into account. A separate claim should be made for each taxable period.
An application for expedited refund of suspended research credits is made by
filing a Form 1045, Application for Tentative Refund, or a Form 1139, Corporation
Application for Tentative Refund, or by filing an amended income tax return (Form
1040X , Form 1120X, or other amended return) before the date that is the later of one
year after the close of the research credit suspension period to which the application
relates or one year after the close of the taxable year to which the suspended research
credit relates. The application for expedited refund shall be filed with the Service
Center receiving the original return. The application for expedited refund shall indicate
at the top “Application for Expedited Refund-Suspended Research Credit” and
include a copy of the Form 6765 filed with the original return.
If an application for an expedited refund is filed before the date that is the later of
one year after the close of the research credit suspension period to which the
application relates or one year after the close of the taxable year to which the

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suspended research credit relates, the Internal Revenue Service will review the
application, determine the amount of the overpayment, and apply, credit, or refund the
overpayment, in a manner similar to the manner provided in § 6411(b), no later than 90
days after the date on which an application is filed.
Further, a claim for refund of the overpayment of tax attributable to suspended
research credits may be taken into account by filing an amended income tax return
(Form 1040X, Form 1120X, or other amended return) on or after the date that is the
later of one year after the close of the research credit suspension period to which the
claim relates or one year after the close of the taxable year to which the suspended
research credit relates but before the expiration of the period of limitation on filing a
claim for credit or refund under § 6511. An amended income tax return, filed on or after
the date that is the later of one year after the close of the research credit suspension
period to which the claim relates or one year after the close of the taxable year to which
the suspended research credit relates, claiming a refund of the overpayment of tax
attributable to suspended research credits shall indicate at the top “Refund-
Suspended Research Credit” and include a copy of the Form 6765 filed with the
original return. Further, an amended income tax return filed on or after the date that is
the later of one year after the close of the research credit suspension period to which
the claim relates or one year after the close of the taxable year to which the suspended
research credit relates and before the expiration of the period of limitation on filing a
claim for credit or refund under § 6511 will be processed under the general rules for
processing refund claims in lieu of the expedited refund procedures described above.

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Finally, any claim for refund of an overpayment of tax attributable to a research
credit suspension period should not be filed before the expiration of the applicable
suspension period or before the date the original return for the applicable taxable year
is filed.
ESTIMATED TAXES
The prohibition on taking into account research credits attributable to a research
credit suspension period extends to the determination of any estimated tax payment.
Thus, for example, the research credit attributable to the period beginning on July 1,
1999, and ending on September 30, 2000, cannot be used to reduce any estimated tax
payments due before October 1, 2000. The research credit attributable to the period
beginning on July 1, 1999, and ending on September 30, 2000, can be used to reduce
an estimated tax payment due on or after October 1, 2000.
ESTIMATED TAX PENALTIES
In general, additions to tax for failure to pay estimated tax are made under
§ 6654 or § 6655 for any underpayment of income tax imposed by the Code even if the
underpayment was created or increased by reason of the suspension of the research
credit under § 502 of the Act. No additions to tax for failure to pay estimated tax,
however, will be made for any period before July 1, 1999, for any underpayment of
income tax imposed by the Code to the extent the underpayment was created or
increased by reason of the suspension of the research credit under § 502 of the Act.
EXAMPLE
Assume that taxpayer, a calendar-year corporation, had 800x dollars of research
credit for 1999 and 800x dollars of research credit for 2000. The amount of research

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credit attributable to the period July 1 through December 31, 1999, is 400x dollars (6/12
x 800x dollars), and the amount of research credit attributable to the period from
January 1 through September 30, 2000 would be 600x dollars (9/12 x 800x dollars).
On taxpayer’s original return for 1999, taxpayer may not reduce its 1999 tax
liability by the research credit of 400x dollars attributable to the period July 1 through
December 31, 1999. On or after October 1, 2000, taxpayer may file an amended return
to claim the benefit of the 400x dollars of research credit attributable to the period July 1
through December 31, 1999. In lieu of filing an amended return, on or after October 1,
2000, taxpayer may file an application for tentative refund of the 400x dollars of
research credit attributable to the period July 1 through December 31, 1999. An
application for tentative refund of the 400x dollars of research credit attributable to the
period July 1 through December 31, 1999, must be filed before October 1, 2001. An
amended return or application for tentative refund filed before October 1, 2001,
claiming the 400x dollars of research credit attributable to the period July 1 through
December 31, 1999, with the designation “Application for Expedited Refund-
Suspended Research Credit” will be treated as an application for expedited refund.Taxpayer’s 4
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not be taken into account in determining any of the estimated tax payments that are
due before October 1, 2000. If taxpayer makes an estimated tax payment for its 2000
taxes based on its prior year tax liability, that liability must be determined without regard
to the 400x dollars of research credit attributable to the period July 1 through December
31, 1999. If taxpayer makes an estimated tax payment for its 2000 taxes based on its
current year tax liability, whether or not that liability is annualized, that liability must be
determined without regard to the 600x dollars of research credit attributable to the

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period January 1 through September 30, 2000, or any research credit attributable to the
second research credit suspension period.
Because taxpayer’s first estimated tax payment due on or after October 1, 2000,
is the payment due on December 15, 2000, taxpayer may use its 600x dollars of
research credit attributable to the period January 1 through September 30, 2000, and
available on October 1, 2000, to reduce the amount of estimated tax payments
otherwise required to be paid on December 15, 2000. In addition, if taxpayer indicates
on its amended return filed on or after October 1, 2000, that all or part of the 400x
dollars of research credit attributable to the period July 1 through December 31, 1999,
and available on October 1, 2000, is to be applied to its estimated tax for the
succeeding taxable year (in lieu of a refund), then the amount requested will be applied
to the taxpayer’s estimated tax payment due on December 15, 2000.
Alternatively, assume taxpayer files an amended return on December 1, 2000 to
claim a refund of the 400x dollar overpayment of tax attributable to the period July 1
through December 31, 1999. Taxpayer is entitled to interest under § 6611 on the
overpayment from October 1, 2000 (the end of the applicable suspension period) to
December 1, 2000 (the date the amended return was filed). Assuming that the
overpayment is refunded within 45 days after the amended return is filed, no additional
interest is allowed on the refund.
DRAFTING INFORMATION
The principal author of this notice is Lisa J. Shuman of the Office of Associate
Chief Counsel (Passthroughs and Special Industries). For further information regarding
this notice, contact Ms. Shuman at (202) 622-3120 (not a toll-free call).

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