The R&D Tax Credit – an Update

Posted on April 11, 2010. Filed under: congress, research & development |

The R&D tax credit was enacted in 1981 and has been extended 13 times through 2009, but expired (for the 14th time) on December 31, 2009.  The R&D credit, actually three available credits, is available for qualified research and development expenditures incurred in the United States.

 So what is happening with the R&D tax credit in 2010?  There are at least three bills to watch.

 HR. 4213, the American Workers, State and Business Relief Act , passed the House Dec. 9, 2009; passed the Senate Mar. 10, 2010;  sent back to the House on March 18th.  If ultimately passed, the research tax credit would be extended once more, through December 31, 2010, via section 31 of the bill (section titled “Research Credit”).

 HR. 4770, Create Jobs by Expanding the R&D Tax Credit Act of 2010, introduced in the House on Mar. 4, 2010. This bill, if it passes, would increase the credit for research expenses and extend the deadline to December 31, 2011.

H.R.4965, Targeted Job Creation and Business Investment Act, introduced in the House on Mar. 25, 2010.  This bill, if it passes, would make permanent the R&D tax credit.  It was introduced by Rep. Joe Donnelly (D, IN) the day before congress went on recess.  The bill currently awaits action in the House Ways & Means committee.

 Congress will be returning to session on April 12th.  With 2010 being an election year and all the spending bills still to work on, there will be much competition for congressional time.  It will be interesting to see which, if any, of these bills proceeds to full passage.

Need more information?  Perhaps I can help.

n.stoecker@nksinfoservices.com

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2 Responses to “The R&D Tax Credit – an Update”

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Even with these bills, there are two significant issues with the existing R&D Credit regs.
First, the regs are difficult to follow without a thorough understanding of the tax law. This often requires qualified US manufacturers to hire outside consultants to guide them through the details. Unfortunately, the cost of consultant support has made it prohibitive for many small to mid-sized manufacturers to benefit from these federal incentives. Today, tens of thousands of these manufacturers have historically bypassed this valuable tax credit.
Second, in 2008, the IRS elevated the R&D Credit to a Tier 1 Issue, which has put more emphasis on the need for contemporaneous documentation. To defend the R&D Credit in an audit, a taxpayer needs to qualify every R&D project under the regulations, AND identify costs associated with the project while the costs are being incurred (known as nexus). This documentation requirement is burdensome on engineers and production management staff, which makes capturing and defending the Credit a challenge for most manufacturers.
To address both these issues, we built Titan Armor – a low-cost software solution that helps manufacturers meet the current regulatory requirements for the R&D Tax Credit. You can get more information at http://www.titanarmor.com.

[…] business certainty (see above and my April 11, 2010 blog post on the R&D Tax Credit – An Update  for discussion of repeated – but uncertain – […]


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