What is the R&D ASC 730 Safe Harbor Directive?
Simply put, the ASC 730 Safe Harbor Directive (“Directive”) is a “no brainer” for taxpayers that want to safe harbor either all or a portion of their R&D tax credit (“credit”) and also, mitigate the grueling audit process associated with the credit. To clarify the last point, this Directive was issued by the same folks who will essentially audit the credit, the IRS.
ASC 730 Misconceptions
Now there is a misconception that taxpayers must make a choice between either using the Directive or their established method or process, which is not the case. Taxpayers can effectively “layer” the Directive on their established process, or a taxpayer may apply the Directive to only the R&D expenses reported in their financial statements and leverage their established process to the remaining qualified expenses. In essence, the Directive is an accounting process versus a qualification effort.
There is another misconception that leveraging the Directive creates more work or duplicates the effort. Conversely, the reason for the Directive is to “simplify” the process. In addition, if a taxpayer leverages the Directive, there is little to no time requirement from the company’s core personnel allowing them to spend more time on what that have been employed to do.
ASC 730 Benefits
To summarize the benefits of the Directive, a taxpayer can safe harbor all or a portion of their credit, simplify their process, alleviate time from company personnel, reduce their financial statement reserve and it some cases, increase their credit!
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