CT-1120 XCH: Application for Exchange of Research and Development or Research and Experimental (2024)
Connecticut · Connecticut DRS · Used for tax years 2024
Form CT-1120 XCH is an application for a qualified small business to exchange Connecticut research and development or research and experimental expenditures tax credits for a refund. It reports eligibility information, credits available for exchange, and the requested refund, equ
Who files this form
A qualified small business uses Form CT-1120 XCH to request an exchange of Research and Development or Research and Experimental Expenditures Tax Credits for a refund.
To qualify:
- The company’s gross income for the previous income year must not exceed $70 million, and it must not have met this test through transactions with a related person.
- The company must have no Corporation Business Tax liability. Paying the capital base tax in a year when the company reports no net income, or paying the $250 minimum tax, does not count as a liability for this purpose.
A company filing as part of a combined group on Form CT-1120CU must determine its eligibility separately.
What you'll need
Attach Form CT-1120RC, Form CT-1120 RDC, or both, as applicable, with all required supporting schedules and documentation.
The detailed research expenditure schedules must include:
- A full description of the research projects conducted during the income year and their locations.
- A full description of the methods used to determine direct Connecticut research and experimental expenditures, and total Connecticut research, experimentation, and basic research expenditures and payments.
- A detailed description of each information source used to compute the credit, including expense allocation methods and calculations, if any.
- The job title and detailed job description of each employee whose wages are included in research expenditures.
If the company had transactions with related persons during the 2024 income year, identify those persons, their gross incomes, and their relationships to the company. Provide an organizational chart and a separate schedule describing each transaction, the company’s gross income from it, and its date.
If the company or its combined unitary group has unpaid Connecticut taxes, including interest, penalties, fees, or related charges, on the application date, attach a schedule describing their nature and amounts.
How to file
Complete the form in blue or black ink. File it separately from Form CT-1120 or Form CT-1120CU.
At the same time you file Form CT-1120 or Form CT-1120CU, mail the completed application and supporting information separately to:
Department of Revenue Services
PO Box 150420
Hartford CT 06115-0420
Check the box at the top of Form CT-1120 or Form CT-1120CU to indicate that you are exchanging research and development tax credits, and enter the requested refund amount.
Common mistakes
- Using the wrong year’s form. Each form is year specific, and the correct year’s form must be used.
- Using ink other than blue or black, or stapling the application. The form says to use blue or black ink only and not to use staples.
- Filing the application with the corporation tax return. Form CT-1120 XCH must be filed separately.
- Failing to annualize gross income when the application is for a short period.
- Checking the exchange box on Form CT-1120 or Form CT-1120CU when the company’s previous-year gross income exceeds $70 million. The form says the company is not eligible in that case.
- Requesting more than $1.5 million in refunds for one income year.
Questions people ask
How much of the credit can be refunded?
The refund is 65% of the credit available for exchange, limited to $1.5 million in any one income year.
How do I calculate the 2024 credit available for exchange?
For each credit, subtract the amount already applied from the 2024 credit amount. Part II uses Form CT-1120RC, Part I, Line 4 and Part II, Line 16, Column D for the Research and Experimental Expenditures Tax Credit. It uses Form CT-1120 RDC, Part II, Line 2 and Part III, Line 16, Column D for the Research and Development Tax Credit. Add the two available amounts, then multiply by 65%, subject to the refund limit.
Can a company in a combined group qualify?
Yes, if the other requirements are satisfied. When the group pays tax on the capital base, the company can qualify if its apportioned share of the group’s net income is zero or negative, regardless of its capital base share, or if its share of the capital base tax equals $250.
Where can I find more information?
The form points to the Guide to Connecticut Business Tax Credits on the Department of Revenue Services website at portal.ct.gov/DRS.