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April 17, 2012
Special Tax Day Edition! Is a Discount Available for Your PRCI Subscription?
The US Tax Code provides an opportunity for qualified research & development expenditures to be partially paid for by a tax credit. Surveys over the years have found that a surprising number of companies do not take advantage of this opportunity, and those that do may not be realizing the full value available to them. Originally introduced in 1981, it has gone through a number of incremental changes over the year and like many corporate tax regulations is rather complex. However, the general profile of the R&D Tax Credit is that for “Qualified Research” (as defined in a four-part test specified by the IRS), up to 20% of those expenditures can be recovered as a tax credit against taxes that are payable in that year. If no taxes are paid in that year, the credit can be carried back one year or carried forward for 20 years. This is in addition to the normal deductibility of these items as regular business expenses. While this is a greatly simplified and generalized description, and many accounting details are involved to properly calculate the exact credit, the potential for significant immediate recovery of R&D expenditures – including any PRCI member subscriptions – should be considered by member company financial staff.
In addition, much of the support to R&D activities, such as out-of-pocket costs of test equipment, equipment installation, supporting travel & meeting expenses, and project supplemental funding would likely also be a qualified research expense that would further increase the credit. Personnel expenses would be credited if an individual spent at least 80% of their time on qualified activities (which might be the case with staff dedicated to specific projects). Though some accounting effort would be required to make a correct filing, this could be an excellent opportunity to obtain a significant discount on your research investments. For pipelines operating as pass-through entities, such as master limited partnerships, the tax credit presumably would pass through to individual partners who could apply the credit against their taxes. R&D tax credits are also available at the state level in various states.
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