Impactful Legislative Changes

New Software Regulations

New software regulations that dramatically lower the risk of claiming research credits for software that directly interfaces with third-party customers. This is no longer considered internal use software.

https://www.irs.gov/irb/2015-5_IRB/ar16.html

ASC Retro

New regulations effective February 28, 2015 allow taxpayers to make an ASC election on an amended returns for all open tax years. This benefit is available only if the taxpayer has not previously claimed a section 41(a)(1) credit on an original or amended return for each tax year. This is great news for companies who missed out on claiming the R&D tax credit due to lack of support or documentation for the base period years.

https://www.irs.gov/irb/2015-11_IRB/ar09.html

Research Credit for Small Business

On December 18, 2015 the passing of the Protecting Americans from Tax Hikes Act provides additional opportunities for small businesses to use the R&D tax credit. Starting in 2016, start-up companies with NOLs can now claim research credits as an offset to their payroll taxes to increase their cash flow.

1. Payroll Offset

Beginning in 2016, small business (under $5 million in gross receipts and have not generated gross receipts for more than 5 years) can now use the Research Tax Credit against FICA (social security and Medicare) taxes.  The new law allows small businesses to apply credits in excess of income taxes to FICA taxes.  This allows small business who were unprofitable and have no income taxes to benefit from the Research Tax Credit.  The maximum credit is capped at $250,000 per year for five years

2. AMT Offset

Beginning in 2016 companies with $50 million or less in gross receipts can now claim the Research Tax Credit against their AMT (Alternative Minimum Tax).