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                                   2020 Schedule RC Instructions

Research Credit                                                            Beginning  in  2015,  taxpayers  may  elect  to  calculate  the  credit
What Is the Research Credit?                                               for qualified research expenses using ASM under MGL ch 63, §
                                                                           38M(b). In addition, taxpayers not eligible to calculate the credit
The research credit is a tax credit available to corporations who
                                                                           under MGL ch 63, § 38M(a) must calculate the credit using the
incur certain expenses for research conducted in Massachusetts.
                                                                           ASM.
The  credit  closely  parallels  the  federal  research  credit  available
under Internal Revenue Code (IRC) § 41.                                    • Expenses are qualified research expenses for the Massachusetts
                                                                           credit  if  they  meet  the  definition  of  qualified  research  expenses
For more information about the method for calculating the amount
                                                                           under IRC § 41 as in effect on January 1, 2014 and are for re-
of credit allowable with respect to the taxpayer’s qualified research
                                                                           search conducted in Massachusetts.
expenses, see Massachusetts General Laws (MGL) ch 63, § 38M,
Technical  Information  Release  (TIR)  14-13  and  14-16,  and  Pro-      • The base amount is 50% of the average of the taxpayer’s quali-
posed Regulation 830 CMR 63.38M.2.                                         fied research expenses over the three taxable years preceding the
                                                                           credit year.
Who Is Eligible for the Credit?
                                                                           • The credit for 2019 is 7.5% of the current year qualified research
Any business corporation subject to the Massachusetts corporate
                                                                           expenses over the base amount.
excise under MGL ch 63, § 39 is eligible for the credit. An S cor -
poration  may  apply  the  research  credit  against  its  excise  due     Note: For calendar years 2019 and 2020, the amount of the credit
under MGL ch 63, but may not share any excess credit with its              is 7.5% of the taxpayer’s qualified research expenses for the tax-
  shareholders.                                                            able  year  for  which  the  credit  is  being  determined  that  exceed
                                                                           50% of the taxpayer’s average qualified research expenses for the
How Is the Research Credit Determined?                                     preceding 3 taxable years. For calendar years beginning on or after
Generally,  the  Massachusetts  research  credit  adopts  the  defini-     January 1, 2021, the rate is increased to 10%.
tions of the federal research credit under IRC § 41. There is an
                                                                           • If  the  corporation  calculating  the  credit  using  the ASM  did  not
additional requirement that the expenditures must be for research
                                                                           have qualified research expenses in each of the three taxable years
conducted within Massachusetts.
                                                                           preceding the credit year, the credit allowed is 5% of the qualified
For taxable years beginning on or after January 1, 2015, taxpayers         research expenses for the current year instead of 7.5%.
now have two options under MGL ch 63, § 38M to calculate the
credit.                                                                    Effect of Election to Use Massachusetts Gross
                                                                           Receipts
Option  1:  Calculate  MA  Credit  for  Qualified  Research  Ex-           Taxpayers  may  elect  to  calculate  the  base  amount  considering
penses Using Traditional Method (pre-2015)                                 only Massachusetts receipts. Taxpayers electing to use Massachu-
The  first  option  under  MGL  ch  63,  §  38M(a)  is  similar  to  the   setts receipts must compute average annual gross receipts and
method in effect in 2014 and prior years.                                  the fixed-base ratio using only Massachusetts receipts.
• The definition of qualified research expense is unchanged. Ex-           Aggregated Groups
penses  are  qualified  research  expenses  for  the  Massachusetts
                                                                           Any corporation which is a member of a controlled group or which
credit  if  they  meet  the  definition  of  qualified  research  expense
                                                                           is under common control with any trade or business (whether or
under IRC § 41 as in effect on August 12, 1991 and are for re-
                                                                           not incorporated) must calculate its credit on an aggregated basis.
search conducted in Massachusetts.
                                                                           The entire group first calculates a total credit as if it was a single
• The fixed-base percentage has been replaced with a fixed-base            taxpayer, aggregating all qualified research expenses and basic
ratio. The fixed-base ratio is determined by taking the total of the       research payments made by the members, eliminating inter-com-
taxpayer’s qualified research expenses for the third and fourth tax-       pany payments. The members of the group are then allocated a
able years preceding the credit year and dividing that amount by           share of this credit based on their share of the group’s total quali-
the taxpayer’s total gross receipts for the same two taxable years.        fied research expenses and qualified research payments. See Pro-
The  fixed-base  ratio  may  not  exceed  16%.  A  taxpayer  whose         posed Regulation 830 CMR 63.38M.2.
gross receipts for the third and fourth taxable years preceding the
credit year equal 0 is not eligible to compute its credit using the        Separate Calculation for Defense-Related
method prescribed under MGL ch 63, § 38M(a) and must calculate             Activities and Other Qualified Activities
its credit using the alternative simplified method (ASM) under MGL         Eligible corporations may, for taxable years beginning on and after
ch 63, § 38M(b).                                                           January 1, 1995, calculate the research credit separately for their
                                                                           defense-related and their non-defense-related activities.
• The base amount is now calculated by multiplying the new fixed-
base ratio, by the average annual receipts from the four taxable           In  general,  defense-related  activities  include  those  activities  oc-
years preceding the credit year. The minimum base amount is 50%            curring in Massachusetts in connection with researching, develop-
of the qualified research expenses for the current year.                   ing and producing for sale equipment for NASA or certain military
                                                                           arms, pursuant to a contract or subcontract. For purposes of calcu-
• The  credit  allowed  is  still  10%  of  the  amount  by  which  a  tax-
                                                                           lating the credit, military arms are arms, ammunition, or implements
payer's qualified research expenses for the current year exceed
                                                                           of war specifically designed, modified, or equipped for military pur-
the base amount.
                                                                           poses and designated in the munitions list published pursuant to
Option  2:  Calculate  MA  Credit  for  Qualified  Research  Ex-           22 USC 2778.
penses Using Alternative Simplified Method (ASM)

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Corporations making this election must also maintain complete rec - amount of the MGL ch 63, § 38W credit exceed the amount
ords of supporting data including the accounting methods used in authorized by the MLSC.
calculating the credit. Taxpayers seeking to claim the credit under MGL ch 63, § 38W on
Limitations on Applying the Credit Against Excise their return will calculate the amount on a worksheet they will re-
tain for their records and will report the credit due (but not more
The credit is limited to the first $25,000 of excise plus 75% of any
than the amount authorized by the MLSC) on the credit manager
excise in excess of $25,000. In addition, the credit cannot reduce
schedule filed with their return. When entering this information,
the tax below the minimum tax of $456.
taxpayers must also enter the certificate number issued by the
Corporations which are members of an aggregated group share a MLSC. For more information see TIR 08-23.
single $25,000 amount which is not subject to the 75% limitation.
Each corporation is allowed a share of this bracket determined by Line Information
the ratio of the corporation’s separately determined excise to the Part 1. Massachusetts Research Credit Generated
total for all members of the aggregated group. No member of the
Each corporation which generates or uses Massachusetts research
group may reduce its excise below the minimum tax of $456.
credit under MGL ch 63, § 38M must complete Schedule RC as
Corporations which file a combined report under MGL ch 63, § 32B part of their return. Corporations claiming the Life Sciences Re-
may share excess credits with other corporations included in the search Credit under MGL ch 63, § 38W do not file Schedule RC.
same combined return to the extent the other corporations can
use additional research credits within the limitations as determined Elections:
above. See Regulation 830 63.32B.2(9)(a); 63.32B.2(9)(c) for rules • Corporations may elect to calculate the research credit separately
applicable to the sharing of credits. for defense-related activities. If making the election, the corporation
will complete part 1 separately for defense and non-defense activ-
Are Research Credit Carryovers Allowed? ities and combine the amounts when completing the credit man-
Yes. The research credit cannot reduce the corporation’s excise ager schedule. Check this box on Schedule RC if the corporation
be low the minimum excise and cannot reduce the excise over is making this election and this schedule reports the research ex-
$25,000 by more than 75%. Credits which exceed these limita- penses and shows the credit calculations for the defense related
tions can be carried over to future tax years and applied against activities. The corporation will file a second schedule, without
the corporate excise. checking this box, to report non-defense research activities.
There are two types of carryovers: • Corporation may elect to calculate the credit using the ASM
(MGL ch 63, § 38M(b)) by checking the second box in the header.
Unlimited carryover. A corporation may carry over for an unlimited
These corporations will complete lines 7 through 13, but will not
period of time any portion of the credit which is disallowed under
complete lines 14 through 22.
the 75% limitation. Credits disallowed under the 75% limitation
equal 25% of the corporation’s excise which exceeds $25,000. • Corporations calculating the credit under MGL ch 63, § 38M-(b)
may elect to calculate both the fixed-base ratio and average annual
15-year carryover. Any credits disallowed which are not given un -
receipts using only Massachusetts gross receipts. Check the third
limited status, may be carried forward for fifteen years.
box if electing to use Massachusetts gross receipts. If this box is
Record Keeping Requirements not checked, federal gross receipts are used for both the fixed-
Corporations claiming the research credit must maintain adequate base ratio and the average annual receipts.
records to substantiate the calculation of the credit. See Proposed If the taxpayer is required to calculate its research credit on an ag-
Regulation 830 CMR 63.38M.2(16) gregated basis, all members of the group must make the same
elections.
How Do I Claim the Life Science Research Credit?
Massachusetts has a separate credit for corporations under MGL Massachusetts Qualified Research
ch 63, § 38W, which is available to taxpayers that have been certi- Expenses
fied as life science companies pursuant to the Life Sciences Tax Line 1
Incentive Program and who have been specifically authorized to
take the credit under MGL ch 63, § 38W by the Massachusetts Enter the amount this corporation paid as wages for qualified serv-
Life Sciences Center (MLSC). The MLSC has a variety of credits ices, as defined by IRC § 41(b)(2)(B), to the extent those services
available and not all life sciences companies will be authorized to were performed in Massachusetts.
take the credit under MGL ch 63, § 38W. Line 2
The MLSC will issue a unique certificate number to the taxpayer Enter the amount this corporation’s expenses for supplies, as de-
as part of the award process. That certificate number must be fined by IRC § 41(b)(2)(C), used or consumed in Massachusetts in
used to claim the credit under MGL ch 63, § 38W and the award conducting qualified research.
may be limited by the MLSC as to the maximum amount, timing or
other criteria. Line 3
The determination of the MGL ch 63, § 38W credit is also modeled Enter the amounts by this corporation’s expenses for the right to
on the credit under IRC § 41, basing many of its definitions in that use computers located in Massachusetts in the conduct of quali-
section, but requires computation using a fixed-base percentage fied research that takes place in Massachusetts, to the extent
determined under the IRC as of August 12, 1991. The calculations such amounts are treated as in-house research expenses under
are similar to those used on Schedule RC as published for years IRC § 41(b)(2)(A)(iii).
2009 to 2014 which may be used as a guide. In no event may the

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Line 4 gated group for calculating the research credit will have a 100%
Enter 65% of this corporation’s expenses paid to others as con- allocation percentage.
tract research expenses, as defined by IRC § 41(b)(3), to the ex-
tent attributable to research activity conducted at a research Line 13
facility located in Massachusetts. Also include 65% of that portion The credit attributable to this corporation is the amount on line 11
of the line 1 basic research payments which does not exceed the multiplied by the percentage on line 12. Enter the amount of credit
line 3 base amount, as allowed under IRC § 41(e)(1)(B). shown here on the Schedule CMS.
Line 5 Note: the taxpayer must complete the Schedule RC, report the re-
search credit claimed on Schedule CMS and enclose both with
Add lines 1 through 4. This amount equals your total qualified re- the tax return. Failure to do so may result in the claimed research
search expenses. credit being disallowed.
Line 6 Corporations are required to reduce their deduction for research ex-
Corporations which are members of a group which must compute penses by the amount of the credit generated. Corporations which
the credit on an aggregate basis must enter the total Mass - report their income on Form 355 or 355S make this adjustment on
achusetts qualified research expenses made by all members of Schedule E, line 13. Corporations reporting their income on Form
the group in line 6. A corporation which is not a member of an 355U make this adjustment on Schedule U-E, line 20.
aggregated group should enter the same amount shown in line 5
in line 6. Credit Calculated Under MGL ch 63, § 38M(a)
If calculating the credit under the ASM, leave lines 14 through 22
Credit Calculated Under MGL ch 63, § 38M(b), blank.
ASM
If the taxpayer is not calculating the credit under the ASM, leave Line 14
lines 7 through 13 blank. Enter the fixed-base ratio. This is the total of the corporation’s
Massachusetts qualified research expenses for the third and fourth
Line 7 prior taxable years divided by its receipts during those same years.
If the corporation is calculating the credit under the ASM, enter the If the corporation is required to calculate its credit on an aggre-
total of the Massachusetts qualified research expenses for the gated basis, this amount should be computed using the qualified
three most recent taxable years preceding the credit year pro- expenses and the aggregated receipts of the group. The fixed-
vided the taxpayer had such qualified expenses in each of the base ratio is figured to four decimal places and may not exceed
three years. 16% (0.1600).
• If the taxpayer is part of a group required to calculate the credit Line 15
on an aggregated basis, enter the total expenses for the group. Enter the average annual receipts for the four most recently com-
• If the taxpayer using the ASM did not have qualified research ex- pleted taxable years. If the taxpayer has elected to calculate the
penses for each of the three prior years, check the box and skip fixed-base ratio using Massachusetts gross receipts, the average
lines 7 through 10. On line 11 enter 5% of current year expenses annual receipts is also computed using only Massachusetts gross
on line 6 amount. receipts.
Line 8 Line 16
Enter 50% of the total qualified expenses as reported on line 7. The base amount is the greater of 50% of the total qualified ex-
penses reported on line 6 or line 14 multiplied by line 15.
Line 9
Subtract the amount on line 8 from the amount on line 6. Enter 0 if Line 17
line 8 is greater than line 6. Subtract the amount on line 16 from the total qualified expense re-
ported on line 6. If the result is less than 0, enter 0.
Line 10
Enter the applicable tax rate for the year. For years beginning on Line 18
or after January 1, 2018 and before January 1, 2021, enter 7.5% The total credit for the group for its qualified research expenses is
as .075. For years beginning on or after January 1, 2021, enter 10% of the incremental expenses (the amount on line 17).
10% as 0.10.
Line 19
Line 11 Corporations calculating the credit under MGL ch 63, § 38M(a) re-
The total credit for the group is either: ceive credit measured by their own qualified expenses and may
also receive credit for basic research payments that qualify as
• 5% of the amount on line 6 if the taxpayer did not have qualified such under IRC § 41(e)(2). Basic research payments under IRC §
research expenses in each of the three prior years; or 41(e)(2) must be made subject to a written agreement between the
• The amount determined by multiplying line 9 by line 10. corporation and a qualified organization (including educational insti-
tutions, certain scientific research organizations, scientific tax-ex-
Line 12 empt organizations and certain grant organizations). The credit
The percentage of the credit on line 11 attributable to this corpora- allowed is equal to 15% of the excess of the current year basic re-
tion is the same as the ratio of the corporation’s qualified expenses search payments over the base amount as defined under IRC §
on line 5 to the group’s expenses on line 6. Carry this figure to 41(e). Both the current year payments eligible for credit and the
four decimal places. Corporations which are not part of an aggre-

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base amount are calculated considering only payments for re- This is the maximum amount of research credit that may be taken
search done in Massachusetts. if no other restrictions apply. A corporation may not take research
credit to reduce its excise below the $456 minimum excise speci-
If the corporation (aggregated group) made basic research pay-
fied in MGL ch 63, § 39(b).
ments that qualify under the IRC and exceed the base amount,
enter 15% of the excess as an additional credit on line 19.
Line 20
Combine the amounts on line 18 and line 19.
Line 21
Corporations which are not part of an aggregated group for calcu-
lating the research credit will have a 100% allocation percentage.
If there were no basic research payments, the percentage of credit
on line 21 is the same as the ratio of the corporation’s qualified
expenses on line 5 to the group’s expenses on line 6.
If the group has basic research payments, the percentage of
credit attributable to this corporation is altered to take into account
the basic research payments made by this corporation and by the
group as a whole. The percentage is (line 5 amount plus basic re-
search payments made by this corporation) divided (line 6 amount
plus basic research payments made by the entire group).
In either case, carry this figure to four decimal places.
Line 22
The credit attributable to this corporation is the amount on line 20
multiplied by the percentage on line 21. Enter the amount of credit
shown here on the Schedule CMS.
Corporations are required to reduce their deduction for research ex-
penses by the amount of the credit generated. Corporations which
report their income on Form 355 or 355S make this adjustment on
Schedule E, line 13. Corporations reporting their income on Form
355U make this adjustment on Schedule U-E, line 20.

Massachusetts Research Credit Used
Line 23
Excise before credit. Corporations not participating in a combined
report enter the amount from Form 355, line 6 or Form 355S, line
9. Corporations filing Form 355U enter the member’s total excise
for the year, including both the income and non-income measures
from this member’s Schedule U-ST, line 37.
Line 24
Corporations which are members of a group which must compute
the credit on an aggregate basis must enter the total of the excise
before credit amounts of all members of such group. Corporations
which are not members of a group, enter the amount shown in
line 23 in line 24.
Line 26
If the corporation is not a member of an aggregated group for cal-
culating the research credit, enter the lesser of line 23 or $25,000
on line 26. If the corporation is a member of an aggregated group,
multiply the amount on line 23 by the allocation percentage on line
25.
Line 29
The credit a corporation may take against excise in a given year is
limited to the first $25,000 of excise (or the corporation’s share of
that amount if it is part of an aggregated group) plus 75% of any
excise in excess of $25,000. Enter that amount in line 29.

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