What the §280C(c) election does
The research credit and the research deduction reward the same spending. §280C(c) makes you give part of the benefit back, and offers two ways to do it.
Without the election, §280C(c)(1) applies: your domestic research or experimental expenditures under §174A, whether deducted or charged to a capital account, are reduced by the amount of the credit allowed under §41(a). You claim the full credit and lose that much deduction.
With the election under §280C(c)(2), paragraph (1) does not apply. Instead the credit is reduced by the credit multiplied by the maximum corporate rate under §11(b), which is 21%. You claim 79% of the credit and keep the whole deduction. That is where the familiar “times 79%” comes from.
The math: credit x (1 - 21%)
The reduced credit is the credit minus the credit times 21%. On Form 6765 that shows up as a lower rate in Section A and a 79% multiplier in Section B.
| Method | Without the election | With the election |
|---|---|---|
| Regular credit (Section A) | 20% of QREs over the base | 15.8% (line 13) |
| ASC (Section B) | 14% of QREs over half the 3-year average | 11.06% (line 26 x 79%) |
| ASC, no QREs in a prior year | 6% of QREs | 4.74% |
Why a C corporation often ends up even
Take a $100 credit. With the election you claim $79. Without it you claim $100, but your §174A deduction falls by $100, which at a 21% rate costs $21 of tax. Either way you keep $79, if the deduction would have been used this year at 21%. The choice starts to matter when any of those conditions fails.
Three common ones: the company has losses, so the lost deduction only shrinks a loss carryforward; it elected to amortize under §174A(c), so the reduction lowers future amortization rather than this year’s deduction; or the credit is being used against payroll tax.
How the 2025 law changed §280C(c)
The One Big Beautiful Bill Act rewrote §280C(c)(1) for tax years beginning after December 31, 2024. It did not change the election in §280C(c)(2).
| Tax years beginning | Rule without the election | The reduced-credit election |
|---|---|---|
| Before 2022 | No deduction for the part of QREs equal to the credit; a separate rule reduced capitalized amounts. | Available: the credit reduced by the top corporate rate (21% for tax years beginning after 2017), deduction kept. |
| 2022 through 2024 | The capital account was reduced only by the excess of the credit over the deduction allowable for QREs that year. While §174 costs were amortized, that excess was often small or zero. | Available, but frequently less attractive, because declining it often cost little. |
| 2025 and later | Domestic research or experimental expenditures under §174A, whether deducted or capitalized, are reduced by the full credit allowed. | Available and unchanged: the reduced credit leaves the §174A deduction intact. |
What that means in practice
For 2022 through 2024, many taxpayers found that declining the election cost little, because the capital account reduction applied only to the excess of the credit over that year’s amortization deduction. From 2025, with domestic research deductible again under §174A, declining the election reduces that deduction dollar for dollar. The decision is live again.
The transition window is closed
Rev. Proc. 2025-28 let eligible small businesses that made the retroactive §174A election make a late §280C(c)(2) election, or revoke one, for earlier years on amended returns. That relief had to be used by the earlier of the refund deadline or July 6, 2026. It has ended. See §174A vs. §41 for how the two provisions interact now.
When the election is made, and when it cannot be
The deadline is the one place where §280C(c) is unforgiving.
On a timely original return
The statute requires the election on the return, no later than its due date including extensions. The regulation requires an original return. For a calendar-year C corporation on extension, that means filing by October 15 with Item A answered Yes.
Not on an amended return
The Form 6765 instructions say the election cannot be made or changed on an amended return, and it is irrevocable for the year once made. An amended R&D claim for a year without the election generally takes the full-credit posture and its deduction reduction.
Even with no credit claimed
§1.280C-4(a) makes the election effective whether or not a credit is claimed on the original return. Checking Yes on Item A preserves the option. In a controlled group each member may elect, but only the common parent elects for a consolidated group.
Reduced credit vs. full credit: side by side
The same computed credit, two ways to report it.
| Item | No election (full credit) | Election (reduced credit) |
|---|---|---|
| Credit claimed | 100% of the computed credit | Credit minus 21% of it (79%) |
| §174A deduction or capital account | Reduced by the full credit | Not reduced |
| Where it is made | Item A answered No | Item A answered Yes on Form 6765 |
| Deadline | Not applicable | Original return filed by its due date, including extensions |
| Amended return | Not applicable | Cannot be made or changed on an amended return |
| Paperwork | Attach a statement listing the reduced deductions or capitalized amounts | No add-back statement |
| §41(h) payroll ceiling | Up to the full credit | Up to the reduced credit |
Worked example: the same $200,000 credit, four taxpayers
An illustrative computed credit of $200,000 for a tax year beginning after 2024, with domestic research costs deducted under §174A(a).
| Taxpayer | No election | Election | Result |
|---|---|---|---|
| C corporation, profitable, deducts under §174A(a) (21%) | $200,000 credit, $42,000 more tax: net $158,000 | $158,000 credit: net $158,000 | Even |
| S corporation owner taxed at 37% on the income | $200,000 credit, $74,000 more tax: net $126,000 | $158,000 credit: net $158,000 | Election better by $32,000 |
| Owner whose marginal rate on the added income is below 21% (illustrated at 19.2%: the 24% bracket after the 20% §199A deduction, subject to its limits) | $200,000 credit, $38,400 more tax: net $161,600 | $158,000 credit: net $158,000 | No election better by $3,600, if the owner can use the whole credit this year |
| Loss-making C corporation using the §41(h) payroll election | Up to $200,000 against payroll tax; loss carryforward $200,000 smaller | Up to $158,000 against payroll tax; loss carryforward intact | Timing trade: $42,000 more cash now vs. up to $42,000 more tax later |
Reading the example
The profitable C corporation is indifferent. The owners are not: at 37% the election protects $32,000; at an effective 19.2% it costs $3,600. An owner taxed that low often cannot use a $200,000 credit in one year, and a carryforward narrows the gap further. For the loss company the question is timing, not amount. Declining the election lets up to $42,000 more reach payroll tax now, at the cost of a smaller loss carryforward that may raise tax in a future profitable year.
What the reported credit also drives
The figure on Form 6765 feeds the §41(h) payroll ceiling, the §38 general business credit limit and carryforward, and any state credit keyed to the federal amount. See calculation methods for the credit itself and Form 6765 for where Item A sits.
§280C(c) questions we get most
What is the §280C(c) election?
Is it still worth electing after the 2025 law?
Can we make the §280C(c) election on an amended return?
Can we elect if we are not claiming a credit on the original return?
Does the 21% apply to S corporations and partnerships?
How does §280C(c) affect the payroll tax offset?
For the deduction side of the same spending, read what §174A means for your 2025 taxes.
Primary sources
The statute, regulation and IRS guidance this page summarizes, as retrieved September 28, 2026.
- 26 U.S.C. §280C(c) - Credit for increasing research activities (Cornell LII)
- Treas. Reg. §1.280C-4 - Election for reduced credit (Cornell LII)
- IRS - Instructions for Form 6765 (Rev. December 2025)
- IRS - Rev. Proc. 2025-28 (PDF)
- 26 U.S.C. §174A (Cornell LII)
- 26 U.S.C. §11(b) - Corporate tax rate (Cornell LII)
Tax law and IRS guidance change. Verify current rules, and model your own facts, with a qualified professional before acting.