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The Research Tax Credit - recent developments
As we approach the year-end for most companies, taxpayers are once again faced with how to handle a number of tax provisions that expired on 31 December 2013. The research tax credit is one of the more popular extenders. Taxand USA highlights the major 2014 research tax credit developments.
Many recent research tax credit developments have been taxpayer-favourable — clarification of the consistency rule, the ability to elect the alternative simplified credit on amended returns, and the possible limiting of what constitutes funded research are all wins for taxpayers who claim the research tax credit. Of course, taxpayers need an extension of the credit for these wins to have continuing value.
Recent developments to the Research Tax Credit have included:
- Consistency Rule clarified by Fifth Circuit
- Regulations now permit election of simplified credit on amended returns
- Geosyntec appeal could further limit definition of funded research
- Suder decision disallows “unreasonable” compensation
- Internal-use software final regulations on the horizon
Quality tax advice, globally
In the absence of a federal extenders bill, taxpayers should still evaluate state research tax credit rules to maximise their 2014 benefit where possible. Research tax credits should be filed on initial state returns to avoid miscalculating reserves, encountering additional administrative burdens and overlooking potential benefit because of state limitations.