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Research Credit Available to Some Businesses for the First Time

The Tax Cuts and Jobs Act (TCJA) didn’t change the federal tax credit for “increasing research activities,” but several TCJA provisions have an indirect impact on the credit. As a result, the research credit may be available to some businesses for the first time.

AMT reform

Previously, corporations subject to alternative minimum tax (AMT) couldn’t offset the research credit against their AMT liability, which erased the benefits of the credit (although they could carry unused research credits forward for up to 20 years and use them in non-AMT years). By eliminating corporate AMT for tax years beginning after 2017, the TCJA removed this obstacle.

Now that the corporate AMT is gone, unused research credits from prior tax years can be offset against a corporation’s regular tax liability and may even generate a refund (subject to certain restrictions). So it’s a good idea for corporations to review their research activities in recent years and amend prior returns if necessary to ensure they claim all […]

Research Credit Extended Under New Law

On December 19th, President Obama signed into law HR 5771, the “Tax Increase Prevention Act of 2014” (TIPA). The bill generally provides for a 1-year extension, through 2014, of over 50 expired or expiring individual, business, and energy provisions which exist year after year, although on a temporary basis.

TIPA retroactively extends the research credit for one year to apply to amounts paid or accrued before January 1, 2015.

So, because the extension of the research credit is retroactive to include amounts paid or incurred after December 31, 2013, taxpayers, such as fiscal year corporations that already filed returns for fiscal years that ended in 2014, should consider filing an amended return to claim a refund for the amount of any additional tax paid because of not claiming amounts now eligible for the tax credit.

Written by Mike Musson, CPA, Partner