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Tax Procedure Tax Returns

Applying Tax Overpayments to Later Years is Usually a Bad Idea

Instead of requesting a refund, taxpayers can ask the IRS to hold the overpayment and apply it to the taxpayer’s tax liability for the following year. These tax payment credits can result in significant headaches. The recent Schuster v. Commissioner, No. 17-11647 (11th Cir. 2018) case provides an example of why taxpayers should request refunds […]

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Federal Income Tax Research Tax Credits Tax

R&D Credit Made Permanent & Enhanced

Congress made the research tax credit permanent and enhanced the credit. The changes are retroactive back to January 1, 2015. Temporary Nature of the R&D Credit The permanent research tax credit solves one of the ongoing problems with the credit. As critics of the credit have noted, the credit cannot provide much of an incentive […]

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Federal Income Tax Research Tax Credits Tax

Research Was Not Routine, But Compensation Was Excessive

For the research tax credit, when is research so routine that it does not qualify for the tax credit?  And what if the founder of the company is paid an unreasonably high wage–can the high wage be considered as an expense for computing the credit?  The court addressed these issues in Suder v. Commissioner, T.C. Memo. […]

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Federal Income Tax Research Tax Credits Tax

What Gross Receipts are Used in R&D Credit?

For the research tax credit, what gross receipts do you include in computing its tax credit?  Despite the credit being on the books for several decades, this is an open question.  The court addressed this in Hewlett-Packard Co. v. Commissioner, 139 T.C. 8. Facts & Procedural History Hewlett-Packard Co. (“Hewlett-Packard”) is a global technology and service […]

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Federal Income Tax Research Tax Credits Tax

Does Work to Validate Prior Research Qualify for the R&D Tax Credit?

For the research tax credit, does work to validate prior research count as a qualified research expense?  The court recently addressed this in United States v. Davenport, No. 3:09-cv-02455-L (N.D. Tex. 2012). Facts & Procedural History Morris and David Davenport (collectively, “Davenports”) were fifty percent owners of Burly Corporation (“Burly”).  Burly manufactures residential metal roofing and […]

Categories
Federal Income Tax Research Tax Credits Tax

Wages for Research Were Not Reasonable

The research tax credit provides a significant incentive to perform research.  The credit is calculated by factoring in wages paid by the business and income from the business subject to self-employment.  Given this, can a business owner pay himself an unreasonably large salary and thereby increase the amount of the credit?  The court recently addressed […]

Categories
Federal Income Tax Research Tax Credits Tax

The IRS’s Reach in a Research Tax Credit Audit

The IRS has a track record of taking aggressive stances when auditing research tax credits.  But its position in the Bayer Corp. & Subs v. United States, Civil Action Nos. 08-693, 09-351 (W.D. PA 2010), raises the question whether a taxpayer claiming a research tax credit is signing up to disclose their confidential information.   Facts & […]