SECTION 1. PURPOSE

The Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) are developing guidance to implement the payroll tax credit election available to certain small businesses under § 41(h) of the Internal Revenue Code (Code) to claim the payroll tax credit under § 3111(f) of the Code. Sections 41(h) and 3111(f) allow a qualified small business to elect to apply a portion of the § 41(a) research credit for the taxable year against the employer portion of the old-age, survivors, and disability insurance tax (social security tax) under the Federal Insurance Contributions Act. Sections 41(h) and 3111(f) are effective for taxable years beginning after December 31, 2015. For purposes of this notice, the term “research credit” refers to the credit under § 41(a) against income tax liability, the term “payroll tax credit” refers to the credit under § 3111(f)(1) against liability for the employer portion of social security tax, and the term “payroll tax credit election” refers to the election available under § 41(h) to claim the payroll tax credit.

This notice provides interim guidance for making the payroll tax credit election. Specifically, this notice provides interim guidance regarding the term “qualified small business,” including the applicable guidance for determining gross receipts for purposes of § 41(h). This notice also provides interim guidance relating to the time and manner of making the payroll tax credit election and claiming the credit. Finally, the Treasury Department and the IRS request comments on the interim guidance described in this notice and other issues affecting payroll tax credit elections that may require additional guidance.