Federal Tax Advisory R&D Tax Credit Update

The Enhanced R&D Tax Credit Program

The Protecting Americans from Tax Hikes Act of 2015 (hereinafter the “PATH Act”) significantly enhanced the R&D Tax Credit Program (“RTC”) on a myriad of levels by making the RTC a permanent tax incentive within the Code and considerably restructured the program to:

• Allow eligible “Small Businesses” (i.e., $50 million or less in gross receipts) to claim the RTC against the Alternative Minimum Tax (hereinafter “AMT”) for tax years beginning on January 1, 2016; and

• Allow eligible “Start-Up Companies” (i.e., those with less than $5 million in gross receipts and earning revenue for less than 5 years) to claim up to $250,000 of the RTC against the company’s Federal Payroll Tax for tax years beginning on January 1, 2016.

New 3 Step Tax Compliance Reporting Requirements to Offset Payroll Tax with the RTC

1) File Form 6765 entitled “Credit for Increasing Research Activities” which is currently being revised and finalized so companies can make an annual election to specify the amount of RTCs that will be applied to the employer-portion of Social Security tax. Noting, an annual election to apply RTCs can be made for up to five years;

2) File Form 8974 entitled “Qualified Small Business Payroll Tax Credit for Increasing Research Activities” is a new form that businesses will utilize to report the amount of RTCs elected on Form 6765 to offset Social Security tax and the form will be filed with Form 941 each quarter that the credit is applied to the Social Security tax liability; and

3) File Form 941 entitled “Employers Federal Quarterly Tax Return” is currently being revised and finalized to be able to include the amount reported on Form 8974 each quarter.

It is highly anticipated that all of these aforementioned tax forms will be released to the public in final form during either the month of December of 2016 or the month of January of 2017.

When identifying, gathering, and documenting a RTC claim, both from a qualitative and quantitative perspective, be sure to adhere to all applicable statutory, administrative and judicial interpretations to ensure both a sustainable tax return filing position per Circular 230 and a sustainable financial statement reporting position per ASC 740 and FIN 48.

Please access the complete article in the December 2016 Edition of CPA Magazine here.


Please contact Peter J. Scalise, Federal Tax Credits & Incentives Practice Leader for PM Business Advisors for a complimentary consultation to discuss the scope and application of the new Final Treasury Regulations governing IUS R&D Tax Credit Claims and its potential impact on your client’s tax returns and financial statements.  Peter can be reached at (212) 835-2211 or at pscalise@pmbusinessadvisors.com.