New R&D News
The IRS released interim guidance on the allocation of the research and development (R&D) tax credit to members of a controlled group of corporations and businesses under common control. The guidance addresses modifications in the American Taxpayer Relief Act of 2012 (ATRA).
Key Point: In light of the modifications to the research tax credit surrounding the treatment of acquisitions and dispositions, as well as the allocation of the credit and recent case law, it may be prudent to consider the impact on current positions and to review processes for identifying and documenting credit eligible costs.
ATRA simplified the method of allocating the credit to members of a controlled group. Earlier, all companies under common control that were required to calculate the credit at the group level were required to allocate the credit to the members of the group based on each member’s stand-alone credit. This allocation method was burdensome when group members were required to use different methods for computing their stand-alone credits. The new law provides that the group credit will now be allocated to the group members based on members’ proportionate share of qualified research expenses (QREs).
For tax years beginning after December 31, 2011, regulations dealing with the R&D credit allocations for controlled groups no longer apply. Instead, taxpayers should allocate the credit based on their proportionate share of QREs as outlined in ATRA.
Contact Us:We take tech seriously! The recent extension of the research credit retroactive to January 1, 2012, and other recent developments create a need for a new look at expenditures qualifying for the research credit. You may not realize that your business may be eligible for R&D credits – please contact Michael Daszkal, CPA, Partner, at 561-367-1040, or firstname.lastname@example.org for a consultation.