§280C: the reduced credit election
The credit and the §174A deduction share the same dollars: cut the deduction by the credit, or take 79% of the credit.
The same dollars earn a deduction under §174A and a credit under §41, and §280C(c) takes some of that back. Either the §174A deduction is cut by the full credit, or the company elects the reduced credit on Form 6765, Item A: the credit times 79%, which is one minus the 21% corporate rate, and the deduction left whole.
No election
- Good at
- The full credit
- Nothing to elect
- Watch for
- The deduction falls by the full credit
- A loss company's smaller deduction is a smaller NOL
- Best for
- A company that values the credit now over a larger deduction
Reduced credit
- Good at
- The deduction stays whole
- No statement of reduced deductions to attach
- Watch for
- Only 79% of the credit
- Must be on the original timely return, and it's irrevocable
- Best for
- A company paying tax at the full rate, where the two come out close
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Anything marked as a convention is ours, not the rule-maker's.
- Federal statute
- IRC §280C(c)(1) (opens in a new tab)The credit reduces the research deduction, unless the reduced credit is electedFree to read
- IRC §11(b) (opens in a new tab)The corporate rate, which sets the reduced credit at 79%Free to read
- IRS guidance
- Instructions for Form 6765 (Rev. December 2025), Item A (opens in a new tab)The §280C reduced credit electionPDF · Free to read
The words this page teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- Reduced credit electionAn election on the original timely filed return to take the research credit reduced by the 21% corporate rate (79% of it) instead of cutting the §174A research deduction by the full credit; irrevocable for the year
- Section 174AThe OBBBA rule restoring immediate deduction of domestic research or experimental expenditures for tax years beginning after 2024, with an election to amortize over 60 months or more instead. Foreign research stays capitalized over 15 years under §174; small businesses could apply it back to 2022–2024
See also
- Section 174 R&E expensingThe tax rule for research and experimental spending, including software development. For tax years beginning after December 31, 2024, domestic research costs can once again be deducted in the year they're paid or incurred.
- R&D tax creditA federal credit for qualified research spending, such as wages for engineers building new software. A young company with little revenue can apply part of it against payroll tax instead of income tax.