United States

Research Tax Credits

The Current State of the Research Tax Credit

The U.S. research tax credit was made permanent in 2015 and was not directly impacted by this year’s U.S. tax reform.  However, the credit can now be even more advantageous due to the interplay with tax law changes for 2018 and beyond.

A discussion paper on this and other recent developments are included below.  KPMG has a dedicated team both in the U.S. and globally to help answer your questions on R&D tax incentives. Please visit this website for continual updates or contact us with any questions.

 

KPMG RD Credit Infographic

Discover if your company qualifies for R&D tax credit

 

Click on the link below to view and download our interactive infographic and determine if your company meets the qualifications needed for R&D tax credit. 

 

> Explore here

 

Latest R&D tax credit news

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Tax Reform: And the Winner Is...R&D

Tax reform changed the playing field for taxpayers engaged in research and development (“R&D”) activities. This article highlights new and modified provisions of the tax law that taxpayers engaged in R&D activities should consider, whether or not the taxpayers claimed the R&D tax credit in the past.

 

> Read the article here

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Webcast Replay: The R&D Tax Credit: A 2017 Year in Review and Impacts of Tax Reform

 During this Webcast, KPMG tax professionals discuss notable events that took place in 2017 regarding the R&D tax credit. Topics discussed include:

  • The Tax Recovery and Jobs Act (the “Act”)
  • IRS Examinations and Guidance
  • R&D in the Courts Update
  • State and Local R&D Updates
  • Technology Trends

> Launch replay here (original airdate: March 1, 2018)

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Webcast Replay: A Deep Dive into IRS R&D ASC 730 Directive and What it Means for You

In this Webcast, senior-level professionals from KPMG's Washington National Tax and Research Credit Services practice present an overview of the recent LB&I Directive, as well as discussing:

  • How to determine QREs under the Directive 
  • Practical challenges and insights to date
  • New recordkeeping requirements
  • Recent developments
  • How to assess the potential benefits and risks of the Directive
> Launch replay here (original airdate: Nov 30, 2017)
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A Practical Analysis of the New IRS Research Credit Directive

The Large Business and International (LB&I) Division of the IRS recently issued guidance on the examination of the credit for increasing research activities under tax code Section 41 claimed by LB&I taxpayers (the Directive). The Bloomberg BNA article, written by KPMG’s Research & Credit professionals, provides an overview of the Directive, explores practical aspects to consider before complying, and analyzes the impact on various industries.

 

 

Read the article here

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The 2017 KPMG Green Tax Index

The Green Tax Index is created to increase awareness of the green tax landscape worldwide and encourage companies to explore the opportunities of green tax incentives, and to reduce their exposure to green tax penalties.

 

Click here to view it

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Recent IRS Chief Counsel Advice

A recent advice from IRS Chief Counsel confirms taxpayer may retroactively change treatment of research and experimental expenses from capital to expense. The IRS stated that taxpayers may reclassify R&E expenditures from capital to current expenses on a retroactive basis by filing amended returns for tax years that remain open under the statute of limitations. To find out how this impacts your eligibility to claim additional R&D credit for prior years, click here.

In another Chief Counsel Advice issued on December 1, 2016, the IRS determined that a taxpayer’s expenditures are exploration costs under section 174(d), and are not qualified R&E expenditures, even if the taxpayer can demonstrate these expenditures otherwise meet the definition of R&E expenditures under section 174(a). Click here to read ILM 201718011.

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Final Regulations for Internal Use Software (IUS)

On October 4, 2016, the IRS released final regulations regarding Internal Use Software (IUS). Under these new regulations, taxpayers that develop software for their own internal use will be able to claim a credit for research and development (R&D) expenditures in certain cases, specifically if the development meets a three-part high-threshold-of-innovation test. To find out more about these final regulations and how to determine if you might be elligible for this credit, click here.

Click here to read our TaxNewsFlash about the final IUS regulations

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Benefits for Start-ups and Mid Market Companies

For tax years beginning after 2015:

  • Nonpublic C Corps. and S Corps., Partnerships, and Sole Proprietorships with average annual gross receipts of $50 million or less may be allowed to offset their alternative minimum tax (AMT).
  • Certain startup companies (Qualified Small Business) with annual gross receipts of less than $5 million and no gross receipts in the fifth prior tax year (or earlier) may be able to elect to apply up to $250,000 of ther research credit against their payroll tax liability instead of their income tax liability.
  • Businesses that meet the average annual  gross receipt threshhold and anticipate being AMT taxpayers for 2016 tax year may be able to reduce their 2016 estimated tax payments each quarter.

Specific rules must be followed to qualify for these benefits, therefore  KPMG LLP recommends preplanning to understand how your company may qualify for either of these benefits.

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Research Credit Made Permanent and New Potential Abilities to Use Credit to Offset ATM and Payroll Taxes

Now that research credit has been made permanent, taxpayers can engage in research activities and feel confident that the credit will be available to offset their costs in engaging in research activities. Along with the permanent reinstatement of this credit, certain small businesses may also take advantage of special tax benefits. 

Read our article here to find out more

 

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Legislative Update: U.S. Treasury Announces Proposals for Modifying Research Credit

As part of the government’s February 2016 "General Explanations of the Administration’s Fiscal Year 2017 Revenue Proposals," aka the Green Book, the government has made several proposals for modifying the research credit, including:

  • The proposal would repeal the traditional method. In addition, the proposal would make the following changes: (1) the rate of the ASC would increase from 14 percent to 18 percent; (2) the reduced ASC rate of six percent for businesses without qualified research expenses in the prior three years would be eliminated; (3) the credit would be allowed to offset AMT liability for all taxpayers; (4) contract research expenses would include 75 percent of payments to qualified nonprofit organizations (such as educational institutions) for qualified research; and (5) the special rule for owners of a pass-through entity would be repealed.
  • In addition, the proposal would repeal the requirement that R&E costs be amortized over 10 years when calculating individual AMT.
  • This proposal would apply to expenditures paid or incurred after December 31, 2016.

Click here to read the Treasury's "General Explanations of the Administration's Fiscal Year 2017 Revenue Proposals"

The R&D Tax Credit
What’s on everyone’s minds

Discover what we learned when we asked some R&D tax credit questions to our participants during our recent R&D Year in Review Webcast.

Click on the Infographic below for the results.

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KPMG R&D Exchange

The process to determine and document what qualifies for R&D credit is often difficult; capturing and organizing the necessary data can be quite time-consuming. KPMG R&D Exchange tax technology can support your process to manage data collection; survey builds, distribution, and collection; and collect and organize project documentation.  It includes calculations and project management tools, including dashboards to help you track your progress. 

Contact us to discuss or schedule a demonstration.

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Learn more about KPMG's Credit and Incentive Services

Visit: kpmg.com/us/taxcreditservices

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Our experience by industry

Our Research Credits Services group has a broad range of experience in different business sectors. Discover how we might be able to help you.
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Financial Services

 
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Healthcare & Life Sciences

 
 
 
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Consumer & Retail

 
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Building & Construction

 
 
 
 
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Contact us

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Michael Brossmer

Co-leader, Research Credit Services

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Edward Jankun

Co-leader, Research Credit Services

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