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US Treasury Clarifies Research Tax Credit Regulations

by Mike Godfrey, Tax-News.com, Washington

24 December 2003


The United States Treasury Department and the Internal Revenue Service this week issued final regulations governing the research tax credit, which aim to clarify what activities qualify for the credit and clear up a number of ambiguities for the corporate taxpayer.

“These regulations are an important step towards resolving the uncertainty that has surrounded the research credit. They provide clearer rules to make it less burdensome for taxpayers to claim the credit and easier for the IRS to administer,” observed Treasury Assistant Secretary for Tax Policy, Pam Olson.

“At the same time, the regulations are flexible enough to address the wide range of research activities being conducted in the US today. They will help ensure that the credit continues to serve its purpose of supporting research conducted in the US,” she added.

The regulations issued on Monday replace rules that commenced in January 2001, and according to the Treasury, they should reflect a significant change to the provisions relating to the statutory requirement that qualifying research be “undertaken for the purpose of discovering information which is technological in nature.”

The government however has not finalized new rules covering the development of software by a taxpayer that is used ‘in-house’, commonly referred to as internal-use software. Instead, the Treasury and IRS have requested additional comments from taxpayers before the final draft of these regulations is issued.

“A number of important issues still must be resolved before we can issue final regulations that both carry out the statute's purpose and provide clear and meaningful rules for software development today,” Assistant Treasurer Olson explained.


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