Corporate Finance & Governance | Legislative / Regulatory | Taxation

R&D Tax Credit: The evolution continues

Taxcredit Funny thing, that Research and Development Tax Credit. It's been around since 1981, but it has never been made permanent. Every time it dies, Congress comes along and resurrects the darned thing. It has more lives than a cat -- 13 and counting, to be exact.

Its latest extension came in late 2008 as part of President Bush's $700 billion plan to bolster the struggling economy, but time will run out on the credit once again on Dec. 31, 2009.

In the meantime, there's no shortage of advice on how to make use of the credit.

Randy Crabtree, a CPA who specializes in the credit, takes a closer look in "The Constantly Evolving R&D Tax Credit." The article examines the qualifications, recent case law, IRS pronouncements and legislative action.

More pressing is the latest in a series of recommendations from the Government Accountability Office aimed at "making the credit more fair and effective in its intended goal of encouraging domestic research and development activity." Congress occasionally asks for opinions from the GAO as it considers whether to make the credit permanent. Among the GAO's latest recommendations:

  • “There appears to be no reason to prohibit taxpayers from electing either the (Alternative Simplified Credit) or (Alternative Incremental Research Credit) method of credit computation on an amended return.”
  • "Taxpayers should be allowed to change their election if, as a result of an audit, the IRS adjusts the amount of (qualified research expenditures) or base QREs in a manner which would make an alternative election more advantageous to the taxpayer.”

The report also recommends "an organized dialogue among the Treasury, IRS, taxpayers and tax practitioners in order to reduce some uncertainty as to the types of research documentation which are acceptable."

Time will tell if the credit lives beyond its Dec. 31, 2009 expiration date. Given its history, though, I'm not betting against it.


Bill Sheridan