Congress Extends Research and Development Tax Credit

Dec. 17, 2015  -- Yesterday, Congress reached a deal on tax extenders legislation that will extend over 50 expired provisions of the tax code and will expand and make permanent the Research and Development (R&D) Tax Credit.

The changes to the R&D Tax Credit are among the highlights of the deal. Along with making the credit a permanent fixture of the tax code, the legislation includes key expansions that will begin in 2016. First and foremost, businesses with less than $50 million in gross receipts will now be able to claim the credit against their Alternative Minimum Tax (AMT), thereby removing the single greatest barrier that prevented companies from taking advantage of the R&D Tax Credit in the past. Additionally, the bill also includes a key provision that will open the credit up for start-ups, allowing businesses with gross receipts of less than $5 million a year to take the credit against their payroll taxes (capped at up to $250,000 per year) for up to five years.

In addition to the R&D Tax Credit, the extenders package makes permanent a number of other provisions, including enhanced versions of the Child Care Credit, the American Opportunity Tax Credit, the Earned Income Tax Credit and improved Section 179 deductions. The legislation also extends the Work Opportunity Tax Credit, the New Markets Tax Credit and bonus depreciation for five years and extends the remaining extender provisions as well as most of the energy provisions ”including the Section 179D tax deduction for energy-efficient commercial buildings” for two years. The baseline standards for Section 179D have been raised to ASHRAE 2007 standards.

Along with the extension of the above tax incentives, the final deal contains other tax compliance and administrative changes that should be on the minds of CPAs and businesses. Specifically, the bill includes reform provisions for REITs and captive insurance companies, with the new legislation raising the cap on premiums for captive insurance companies from $1.2 million to $2.2 million in conjunction with the addition of several anti-abuse provisions.

The extenders package also includes several reforms relating to the IRS, tax administration and the Tax Court. These reforms include better education of IRS employees on taxpayer rights and requirements that the Tax Court conduct its proceedings in accordance with Federal Rules of Evidence. The legislation further clarifies that the Tax Court is not an agency of, and is independent of, the executive branch. The bill also places a moratorium on the Affordable Care Act's medical device tax for two years, coinciding with the larger budget bill that will delay the ACA's Cadillac tax for two years.

Please contact the team at Research Tax Credits LLC with any questions.

Phone: 484-232-1076