News

Final internal use of software regulations

Brett Nowak 19 Dec 2016

Taxand USA takes a practical look at the dual function software, third party subset and third party interaction concepts.

The final regulations state that software is developed by (or for the benefit of) the taxpayer primarily for internal use if the software is developed by the taxpayer for use in general and administrative functions that facilitate or support the conduct of the taxpayer’s trade or business.

The regulations assign general and administrative functions to three broad categories:

• Financial management: functions involving a taxpayer’s financial management and supporting recordkeeping. Specific examples include accounts payable, accounts receivable, inventory management, disbursements, finance and tax
• Human resource management: functions that include activities that manage the taxpayer’s workforce
• Support services: functions that support the day-to-day operations of the taxpayer, such as data processing, marketing and government compliance services

Discover more: Final internal use of software regulations

Taxand's Take

The third party interaction concept will broaden the types of software and amount of expenditures that will qualify for the research credit. Many software applications that will now satisfy the third party interaction requirements would have previously been classified as IUS under earlier IRS guidance. However, this broadening also includes additional complexity and introduces new concepts such as dual function software, third party subsets and third party interactions.

Article tags

International Tax | USA