US Tax Execs Support Senate's Simplified R And D Proposal

by Glen Shapiro, LawAndTax-News.com, New York

03 October 2008

A majority of companies (at least 60%) would either use or consider using the alternative simplified method to claim their research credit if Congress enacts legislation passed by the Senate, according to a national survey of the companies' tax and financial executives conducted by Grant Thornton LLP, the US member firm of Grant Thornton International Ltd.

Sens. Max Baucus, (D-Mont.), and Chuck Grassley, (R-Iowa), authored the bipartisan legislation now approved by the full Senate that would raise the rate for the alternative simplified credit to 14%. The alternative simplified credit method currently allows taxpayers to forego the traditional research credit in favor of a simplified version equal to 12% of qualified research expenses exceeding half of their average qualified research expenses over last 3 years.

"The Senate proposal would represent one of the more significant recent changes to the research credit", said Mark Andrus, a Grant Thornton Tax partner and partner-in-charge of R&D credit issues. "The numbers show there's a lot of support for it."

If the legislation is enacted, 35% of respondents said they would definitely switch to the simplified method. Only 17% would rule it out. If the simplified credit was raised to 16%, which was proposed in earlier Grassley and Baucus bills, then over 46% of respondents would switch and less than 9% would rule it out.

Those surveyed indicated they were most interested in the simplified version for its simplicity rather than its potential for more tax savings or audit protection. Over 86% said they had moderate or heavy interest in a simpler method for determining the credit.

Proposals to extend the life of the R&D tax credit form part of the massive tax cut bill attached to the USD700bn Wall Street bail-out plan, which was approved by the Senate earlier this week. The bill is likely to be voted on in the House of Representatives on Friday (October 3).

The bill as proposed by the Senate would extend the research tax credit equal to 20% of the amount by which a taxpayer’s qualified research expenses for a taxable year exceed its base amount for that year. The provision expired December 31, 2007. The proposal would extend current law to the end of 2009.

In addition, the proposal would increase the alternative simplified credit to 14% for the 2009 tax year, and repeal the alternative incremental research credit for the 2009 tax year. The proposal is effective for amounts paid or incurred after December 31, 2007.

Recommended