Ordering of Credits - Spidell

Ordering of Credits

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Message Board Ordering of Credits

This topic contains 3 replies, has 2 voices, and was last updated by Lynn Freer 2 months ago.

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  • #171245
    Evan Custer
    Participant

    Can a corporate taxpayer elect the order to apply credits that fall within the same offset tax section? Corporate client has both EZ and research credits (both Section B credits that may reduce regular tax below TMT), but Lacerte is applying the research credits first. Schedule P instructions are unclear, but do mention that “it is to the corporation’s advantage to apply credits with limited carryovers before credits with no limitation on the carryover”.
    Just seeing if anyone has come across this.

  • #171309
    Lynn Freer
    Participant

    Sec. 23036 states

    Notwithstanding any other provision of this part, credits are allowed against the “tax” in the following order:

    (1)Credits that do not contain carryover provisions.

    (2)Credits that, when the credit exceeds the “tax,” allow the excess to be carried over to offset the “tax” in succeeding taxable years, except for those credits that are allowed to reduce the “tax” below the tentative minimum tax, as defined by Section 23455. The order of credits within this paragraph shall be determined by the Franchise Tax Board.

    (3)The minimum tax credit allowed by Section 23453.

    (4)Credits that are allowed to reduce the “tax” below the tentative minimum tax, as defined by Section 23455.

    (5)Credits for taxes withheld under Section 18662.

  • #171397
    Evan Custer
    Participant

    Thanks Lynn. It appears both the Research and EZ credits fall into subsection 4 as credits that are allowed to reduce tax below TMT. However, there does not appear to be a defined order of which credit to be applied first, appears to be at the discretion of the taxpayer.

  • #171403
    Lynn Freer
    Participant

    I believe they are done first in first out with credits with expiration dates being claimed first.