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Resolving ProConnect Tax Diagnostic Ref. 377 and Ref. 25420

by Intuit• Updated 8 months ago

Form 6765 for forms 1120 and 1120S is Generating a Critical Diagnostic:

You must manually reduce applicable qualified research expenses deducted by $XX of research credit from Form 6765, Section A. Attach a schedule to the tax return that lists the deduction amounts (or capitalized expense) that were reduced. Identify the line (or schedule or form) of the return on which the reductions were made. (ref. #377) Corporate module (ref. #358) S Corporate module

Per the 6765 form instructions:

If you do not elect the reduced credit, which can only be claimed on an original timely filed return (with extension), you must reduce your otherwise allowable deductions for qualified research expenses or basic research expenses by the amount of the credit on line 17. If the credit exceeds the amount allowed as a deduction for the tax year, reduce the amount chargeable to capital account for the tax year for such expenses by the amount of the excess. Attach a schedule to your tax return that lists the deduction amounts (or capitalized expenses) that were reduced. Identify the lines of your return (schedule or forms for capitalized items) on which the reductions were made.

How to resolve in a Corporate return

Follow these steps to elect to reduce credit per Section 280C in the Corporate module:

Go to Input Return ⮕ Credits ⮕ General Business Credits.
Select the Investment & Research tab.
Scroll down to the Increasing Research Credit (6765)
Check the box "Electing reduced credit (Section 280C),"

Follow these steps to reduce the deductions manually in the Corporate module:

Go to Input Return ⮕ Deductions.
Reduce the allowable Deductions manually by the amount of credit on the 6765 line 17.

Note: This will not clear the diagnostic.

How to resolve in an S-Corporation return

Follow these steps to elect to reduce credit per Section 280C in the S Corporate module:

Go to Input Return ⮕ Schedule K ⮕ Credits ⮕ Schedule K Credits.
Select the Investment & Research tab.
Scroll down to the Increasing Research Credit (6765)
Check the box "Electing reduced credit (Section 280C),"

Follow these steps to reduce the deductions manually in the S Corporate module:

Go to Input Return ⮕ Ordinary Income ⮕ Deductions.
Reduce the allowable Deductions manually by the amount of credit on the 6765 line 17.

Note: This will not clear the diagnostic.

This critical diagnostic is more informational and will not prevent the return from being e-filed.

ProConnect Tax

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