Research Tax Credit Records Must Be Kept for 40+ Years

A frequent question is how long one has to keep records for tax purposes. The United States v. Quebe, No. 3:15-cv-294 (S.D. Ohio 2019) case provides the answer for research tax credits. The answer is that you have to keep records that pre-date the formation of your business by twenty years and then you have…Continue readingResearch Tax Credit Records Must Be Kept for 40+ Years

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…Continue readingR&D Credit Made Permanent & Enhanced

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.…Continue readingResearch Was Not Routine, But Compensation Was Excessive

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…Continue readingWhat Gross Receipts are Used in R&D Credit?

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…Continue readingDoes Work to Validate Prior Research Qualify for the R&D Tax Credit?

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…Continue readingWages for Research Were Not Reasonable

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 &…Continue readingThe IRS’s Reach in a Research Tax Credit Audit

What is a Project for the Research Tax Credit?

It can be difficult to separate qualified and nonqualified research in computing the research tax credit.  The research tax credit rules are generally applied to the “project,” but the term “project” is not even mentioned in the Code.  The Trinity Industries, Inc. v. United States, 691 F. Supp. 2d 688, (N.D. Tex. 2010), case provides guidance…Continue readingWhat is a Project for the Research Tax Credit?

Research Tax Credit: Taking Expenses for Depreciable Property

The IRS exam function often raises a number of questions about the rules for claiming expenses for depreciable property for the research tax credit.  The recent TG Missouri Corporation v. Commissioner, 133 T.C. 13, provides much needed clarity in how to apply these rules.  Facts & Procedural History TG Misouri is in the trade or…Continue readingResearch Tax Credit: Taking Expenses for Depreciable Property

Deere & Company v. Commissioner: Foreign Branch Income is Gross Receipts for Research Tax Credit

In Deere & Company v. Commissioner, 133 T.C. No. 11, the U.S. Tax Court concluded that income from foreign branches must be included in the gross receipts in computing the research tax credit. Facts & Procedural History Deere & Company (“Deere”) was in the business of manufacturing, distributing, and financing a full line of agricultural…Continue readingDeere & Company v. Commissioner: Foreign Branch Income is Gross Receipts for Research Tax Credit

FedEx Corporation v. United States: Taxpayer Can Pick & Choose Between Regulations

In FedEx Corporation v. United States, Dkt. No. 08-2423, the U.S. District Court for the Western District of Tennessee concluded that FedEx could rely on the internal use software provisions in the 2001 Final Regulations and the taxpayer-favorable discovery test in the 2003 Final Regulations in computing its research tax credit. The taxpayer did not…Continue readingFedEx Corporation v. United States: Taxpayer Can Pick & Choose Between Regulations

Standard for Research Activities for the R&D Tax Credit

In United States v. McFerrin, 570 F.3d 672, the Fifth Circuit Court of Appeals concluded that the trial court applied the wrong standard for determining what research is qualified and failed to estimate the amount of research expenses for the research tax credit. Facts & Procedural History Arthur R. McFerrin (“McFerrin”) is a prominent chemical…Continue readingStandard for Research Activities for the R&D Tax Credit