New IRS Regulations For R & D Credit Favour Taxpayer
Tax-News.com, New York
28 December 2001
On 14 December the IRS released proposed new regulations for the research and development tax credit which are considerably more beneficial for taxpayers than the previous rules. In the current issue of ecommercetax, Professor James Hardesty explains the four key changes introduced by the new regulations:
- The 'discovery' test is out. Previous regulations required that taxpayers
undertake research for the purpose of discovering information that exceeds,
expands, or refines the common knowledge of skilled professionals in a particular
field of science or engineering. This test has now been completely eliminated,
and has been replaced by the simple requirement that research be “for
the purpose of discovering information which is technological in nature."
- The 'process of experimentation' test is eased. Under the new regulations,
requirements under the process of experimentation test are the same as those
under Section 174. Therefore, “a process of experimentation may exist
if a taxpayer performs research to establish the appropriate design of a business
component when the capability and method for developing or improving the business
component are not uncertain.”
- The recordkeeping requirements are eased. The new rules eliminate all special
recordkeeping requirements for the research credit. Previous regulations imposed
requirements that were roundly criticized as overly burdensome, and requiring
unnecessary records.
- There is a new definition of 'internal use software'. Before internal use software (IUS) qualifies for the research credit, it must meet requirements that are in addition to those for other types of research. The new regulations make no significant changes in these additional requirements. However, the regulations change the definition of IUS. The new definition may make it difficult for Web-based software applications to qualify for the credit.
Professor Hardesty sums up by saying that these proposed regulations are very good news for taxpayers; and, so far, few serious criticisms have been raised by commentators.
To see today's news, click here.
Tax-News Reviews

A review and forecast of Cyprus's international business, legal and investment climate.

A review and forecast of Malta's international business, legal and investment climate.

A review and forecast of Jersey's international business, legal and investment climate.

A review of the latest budget news and government financial statements from around the world.
Stay Updated
Please enter your email address to join the Tax-News.com mailing list. View previous newsletters.
By subscribing to our newsletter service, you agree to our Terms and Conditions and Privacy Policy.
To manage your mailing list preferences, please click here »