Computing the credit: the ASC and the regular method

There are two ways to compute the credit, and Form 6765 has a section for each: the regular creditResearch creditRegular research creditThe research credit computed as 20% of QREs above a base amount — a fixed-base percentage (3% for a start-up's first five years with QREs, never more than 16%) times average gross receipts of the four prior years, and never less than 50% of current QREs and the alternative simplified creditResearch creditAlternative simplified creditThe research credit computed as 14% of QREs above 50% of the average QREs of the three prior years, or 6% of current QREs if any one of those years had none; elected on a timely filed original return (or an amended one only if no credit was claimed for that year) and binding for later years unless revoked. The instructions suggest figuring both and claiming the larger. The ASC comes first here because its arithmetic needs only QREs.

The ASC is 14% of the year's QREs above half the average of the three prior years. If any one of those three years had no QREs at all, it's 6% of the year's QREs instead.

The form does the halving in one step. Line 21 is the three prior years' QREs added up, line 22 divides that by six, which is half of the average, and line 24 applies the rate.

The regular creditResearch creditRegular research creditThe research credit computed as 20% of QREs above a base amount — a fixed-base percentage (3% for a start-up's first five years with QREs, never more than 16%) times average gross receipts of the four prior years, and never less than 50% of current QREs is 20% of QREs above a base amount: a fixed-base percentage times the average gross receipts of the four prior years. A start-up's fixed-base percentage is set by statute for its first years with QREs, and the base can never be less than 50% of the year's QREs. So the regular credit is at most 10% of the year's QREs, and it needs a gross receipts history the ASC doesn't.