# §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.

Source: https://lopifi.com/learn/section-174a-and-the-rd-credit/section-280c-reduced-credit
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**What is the Section 280C 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](https://lopifi.com/md/glossary/reduced-credit-election) on Form 6765, Item A: the credit times 79%, which is one minus the 21% corporate rate, and the deduction left whole.

> “The domestic research or experimental expenditures (as defined in section 174A(b)) otherwise taken into account as a deduction or charged to capital account under this chapter shall be reduced by the amount of the credit allowed under section 41(a).”

— [IRC §280C(c)(1)](https://www.law.cornell.edu/uscode/text/26/280C), The credit reduces the research deduction, unless the reduced credit is elected

> “The amount of the tax imposed by subsection (a) shall be 21 percent of taxable income.”

— [IRC §11(b)](https://www.law.cornell.edu/uscode/text/26/11), The corporate rate, which sets the reduced credit at 79%

|  | Credit | §174A deduction |
| --- | --- | --- |
| No election | $15,102 | $247,098 |
| Reduced credit elected | $11,930.58 | $262,200 |

Northwind's hypothetical 2027, both ways.

**No election**
- Pro: The full credit
- Pro: Nothing to elect
- Con: The deduction falls by the full credit
- Con: 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**
- Pro: The deduction stays whole
- Pro: No statement of reduced deductions to attach
- Con: Only 79% of the credit
- Con: 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

Elect the reduced credit, or not?

> “This election cannot be made or changed on an amended return. Once made, the election is irrevocable for that tax year.”

— [Instructions for Form 6765 (Rev. December 2025), Item A](https://www.irs.gov/pub/irs-pdf/i6765.pdf) (PDF), The §280C reduced credit election

## Where this page's rules come from

- [IRC §280C(c)(1)](https://www.law.cornell.edu/uscode/text/26/280C) — The credit reduces the research deduction, unless the reduced credit is elected (statute)
- [IRC §11(b)](https://www.law.cornell.edu/uscode/text/26/11) — The corporate rate, which sets the reduced credit at 79% (statute)
- [Instructions for Form 6765 (Rev. December 2025), Item A](https://www.irs.gov/pub/irs-pdf/i6765.pdf) (PDF) — The §280C reduced credit election (irs)

## Read further

- https://lopifi.com/md/accounting/section-174
- https://lopifi.com/md/accounting/rd-tax-credit

- **Track:** [R&D tax credit](https://lopifi.com/md/learn/rd-credit)
- **Part of:** [Section 174A and foreign research](https://lopifi.com/md/learn/section-174a-and-the-rd-credit) — 5 min
- **Terms taught:** [Reduced credit election](https://lopifi.com/md/glossary/reduced-credit-election), [Section 174A](https://lopifi.com/md/glossary/section-174a)
- **Previous:** [Section 174A and foreign research](https://lopifi.com/md/learn/section-174a-and-the-rd-credit)
- **Next:** [Records, amended claims and state credits, R&D credit · Lesson 8](https://lopifi.com/md/learn/rd-credit-documentation-and-refund-claims)
- **The course:** https://lopifi.com/md/learn