General Business Credits

IRC § 38: Federal Incentives

 
 
 
Background, Availability Status, & Ordering 

 

​General business tax credits are the total value of all the individual credits, to be applied against U.S. income tax liability, provided under IRC § 38. These credits can generally either be carried forward and/or carried back for a specific number of years.

However, it's important to recognize the U.S. tax code presently contains dozens of temporary tax provisions. In the past, legislation to extend some of these expiring provisions has been commonly referred as the “tax extender” package. While there is no formal definition of a “tax extender,” the term has regularly been used to refer to the package of expiring tax provisions temporarily extended by Congress. Oftentimes, these expiring provisions are temporarily extended for a short period of time (e.g., one or two years). Over time, as new temporary provisions have been routinely extended (or made permanent law) and hence added to this package, the number of provisions that might be considered “tax extenders” has grown.

U.S. House of Representatives passed the most recent package of tax extenders ("Taxpayer Certainty and Disaster Tax Relief Act of 2019") as part of the year-end appropriations action ("H.R.1865 - Further Consolidated Appropriations Act, 2020") December 17, 2019, which was signed by the President. ​​For additional information on current tax extender packages, see the links referenced at the bottom of the page.

There are several reasons why Congress may choose to enact certain tax provisions on a temporary basis. Enacting provisions on a temporary basis may provide an opportunity to evaluate effectiveness before expiration or extension. Although number of “tax extender” provisions has fallen in recent years, as has the cost associated with extending “tax extenders.”

Note, many of these listed federal credit incentives have comparable state tax incentives that are often substantially similar to calculate or claim, subject to state specific procedural rules and regulations. For example, see the State R&D Credits link for additional information.

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Below outlines some of the various federal tax incentives and credits currently available, expired, or subject to upcoming phase-out limitations under the U.S. tax code. 

General Industry Credits (Applicable to Most Industries)

Pharmaceutical Industry Credits

Hiring Specific Employee Credits

Energy Industry Credits

  • Investment Tax Credit (aka "ITC") (Form 3468) under IRC § 46 – Protecting Americans from Tax Hikes (PATH) Act of 2015 has implemented the phasing out of the investment credit (i.e. Energy Credit) for wind facilities. The credit for wind facilities is reduced by 60% for facilities the construction of which begins in 2019. Pursuant to 26 U.S. Code § 46, for purposes of section 38, the amount of the investment tax credit determined under this section for any taxable year shall be the sum of the following credits:

    • (1) Rehabilitation Credit (IRC § 47) – renovation of qualified rehabilitation building(s) (e.g. historical properties) credit;

    • (2) Energy Credit (IRC § 48);

    • (3 ) Qualifying Advanced Coal Project Credit (IRC § 48A)

      • Application Deadline Passed; See IRS Notice​​ Notice 2012-51.

    • (4) Qualifying Gasification Project Credit (IRC § 48B)

      • Application Deadline Passed; See IRS Notice 2009-23 and​​ for more information on the qualifying gasification project and the qualifying gasification program, see Notice 2009-23, 2009-16 I.R.B. 802,  which is amplified by Notice 2014-81, 2014-53 I.R.B. 1001. Also, see Notice 2011-24.

    • (5) Qualifying Advanced Energy Project Credit (IRC § 48C)

      • Application Deadline Passed; See IRS Notice 2013-12. To be eligible for the qualifying advanced energy project credit, some or all of the qualified investment in the qualifying advanced energy project must be certified by the IRS under section 48C(d). For more information on certification, see Notice 2009-72, 2009-37 I.R.B. 325, and Notice 2013-12, 2013-10 I.R.B. 543.​

    • (6) Qualifying Therapeutic Discovery Project Credit (IRC § 48D) 

      • Application Deadline Passed; See Notice 2010-45. This notice establishes the qualifying therapeutic discovery project program under § 48D of the Internal Revenue Code (Code), as added to the Code by section 9023(a) of the Patient Protection and Affordable Care Act of 2010 (Pub. L. 111-148) (the Affordable Care Act). This notice provides the procedures under which an eligible taxpayer may apply for certification from the Internal Revenue Service (Service) of aqualified investment with respect to a qualifying therapeutic discovery project as eligible for a credit, or for certain taxpayers, a grant under the program. ​​

  • Marginal Oil & Gas Well Production Credit (Form 8904) determined under IRC § 45I(a) – Permanent but may be phase out and unavailable based on commodity prices each period applicable. No credit is allowable unless an election is made not to claim the section 45K credit for that well.​

  • Enhanced Oil Recovery Credit (Form 8830) under IRC § 43(a) – Permanent but may be phase out and unavailable based on commodity prices each period applicable

  • Advanced Nuclear Power Facility Production Credit determined under IRC § 45J(a) – Application and approval from the IRS due on or before 12/31/2014. Moreover, in general, the facility must be placed in service before January 1, 2021. 

  • Energy Efficient Home Credit (Form 8908) under IRC § 45L(a) – Expires after December 31, 2020

  • Mine Rescue Team Training Credit (Form 8923) determined under IRC § 45N(a) – Expires after 31, 2020

  • Production Tax Credit (aka "PTC", "Renewable Energy Production") (Form 8835) under IRC § 45 – The PTC expired for non-wind technologies at the end of 2017, while a reduced credit of 40% was available for wind facilities through the end of 2019, expiring for years 2020 and beyond. Under the tax extenders package, projects that begin construction in year 2019 are eligible for the 40% credit, and projects that begin construction in 2020 will be eligible for a 60% credit.​

    • Pursuant to the most recent package of tax extenders ("Taxpayer Certainty and Disaster Tax Relief Act of 2019"), the full PTC would be retroactively revived (non-wind technologies) and extended through 2020 for the following below. Under current law, those technologies are generally only eligible for the PTC to the extent construction began before 2018 (other than certain closed-loop biomass and qualified hydropower technologies, which must be placed in service before 2018). Under the recent extenders package, those dates would all be extended out to the end of 2020.

      • Closed loop biomass

      • Open loop biomass

      • Geothermal plants

      • Landfill gas (municipal solid waste)

      • Trash (municipal solid waste)

      • Qualified hydropower

      • Marine and hydrokinetic renewable energy facilities

  • Credit for Certain Nonbusiness Energy Property (Form 5695) under IRC § 25C) – Expires after December 31, 2020

    • ​*Lifetime Limitation: The credit allowed under this section with respect to any taxpayer for any taxable year shall not exceed the excess (if any) of $500 over the aggregate credits allowed under this section with respect to such taxpayer for all prior taxable years ending after December 31, 2005.

  • Expired Credits:​

    • Credit for Production of Indian Coal (Form 8835) under IRC § 45(e)(10)) –  credits are not available for coal produced after 2017

    • Nonconventional Source Production Credit determined under IRC § 45K(a) –  EXPIRED 2013

Alternative Fuel / Vehicle Industry Credits

 

Alcohol Industry Credits

 

Agricultural Industry Credits

  • Expired Credits:

    • Agricultural Chemicals Security Credit (Form 8931) determined under IRC § 45O(a) in the case of an eligible agricultural business (as defined in IRC § 45O(e)) – EXPIRED 2013

Low-Income / Targeted Geographical Zone Credits

Building Modification (Disability Access) Credit & Incentives

  • Disabled Access Credit (Form 8826) under IRC § 44(a) in the case of an eligible small business (as defined in IRC § 44(b)) 

    • ​See also "Barrier Removal Tax Deduction" pursuant to IRC § 190

      • ​The Architectural Barrier Removal Tax Deduction encourages businesses of any size to remove architectural and transportation barriers to the mobility of persons with disabilities and the elderly. Businesses may claim a deduction of up to $15,000 a year for qualified expenses for items that normally must be capitalized.

      • Businesses claim the deduction by listing it as a separate expense on their income tax return. Also, businesses may use the Disabled Tax Credit and the architectural/transportation tax deduction together in the same tax year, if the expenses meet the requirements of both sections.

      • To use both, the deduction is equal to the difference between the total expenditures and the amount of the credit claimed.

      • See IRS Publication 535 (2018); 26 U.S. Code § 190 (expenditures to remove architectural and transportation barriers to the handicapped and elderly).

Business Benefit Plan Credits

Railroad Industry Credits

 

General Business Credit: Ordering, Carryovers, etc.

General Business Credits under IRC § 38 that may be claimed include the following below. Note, the order in which such credits are used shall be determined on the basis of the order in which they are listed below (see IRC § 38(d))

Your general business credit for the year consists of your carryforward of business credits from prior years plus the total of your current year business credits. In addition, your general business credit for the current year may be increased later by the carryback of business credits from later years. You subtract this credit directly from your tax.

All of the following credits, with the exception of the electric vehicle credit, are part of the general business credit. The form you use to figure each credit is shown below.

General Business Credits Ordering Rule
General business credits reported on Form 3800 are treated as used on a first-in, first-out basis by offsetting the earliest-earned credits first. Therefore, the order in which the credits are used in any tax year is:

  1. Carryforwards to that year, the earliest ones first;

  2. The general business credit earned in that year; and

  3. The carryback to that year.

If your general business credits exceed your tax liability limit, the credits are used in the following order and based on the order shown under Order in which credits are used next.

  1. Credits reported on line 2 of all Parts III with boxes A, B, C, and D checked.

  2. Credits reported on Part II, line 25.

  3. Non-Eligible Small Business Credits (ESBC) reported on line 5 of all Parts III with boxes A, B, C, and D checked.

  4. ESBC credits reported on line 6 of all Parts III with box G checked.

Order General Business Credits Are Used 

The general business credit under IRC Sec. 38 reported on Form 3800 (Form 3800, General Business Credit) arising in a single tax year are used in the following order:


Although these credits are aggregated on Form 3800, taxpayers should keep a separate record of each credit, including whether the credit was an eligible small business credit, to ensure proper accounting and documentation of the credits claimed in defense of potential tax examination.

Tax Extender Status & Background Links: