Currently, the Research and Experimentation Tax Credit (hereinafter the “RTC”) cannot be claimed against the Alternative Minimum Tax (hereinafter “AMT”), but this could change pending proposed bipartisan legislation on Capitol Hill.

On January 14 of 2014, U.S. Senator Chris Coons (D-Del.), leader of the Senate’s
Manufacturing Jobs for America initiative, and Senator Pat Roberts (R-Kan.)
introduced bipartisan legislation to enhance incentives for private firms to
invest in research and development within the United States and its possessions
(e.g., Puerto Rico and Guam). The Innovators Job Creation Act would help
startups and other small companies take full advantage of the RTC pursuant to
I.R.C. § 41 that are currently unavailable to them based upon the current
statute.

The Innovators Job Creation Act would:

• Allow the RTC to be claimed against the AMT. Even if a company is entitled to a RTC, many pass-through entities cannot claim it because the RTC cannot be used against the AMT. Eight out of 10 businesses that would otherwise benefit from taking the RTC will receive little to no benefit because of the AMT. This provision was previously in the Small Business Jobs Act of 2010, but expired after just one year.

• Permit the Alternative Simplified Credit (hereinafter “ASC”) on Amended Tax Returns. Currently, businesses can only claim the “Regular” RTC under “Section A of Form 6765” on an amended tax return. However, the “Regular” RTC requires substantiation of a company’s Fixed-Base Percentage (hereinafter “FBP”) which often times is very labor intensive to document, arduous and onerous. Additionally, the FBP is normally the focal point of highly contentious Internal Revenue Service examinations. The ASC was intended to make the methodology easier, but regulations prohibit its use on an amended tax return.

• Enable Startup Firms to Claim the RTC, by claiming it against their Employment Taxes. If a startup company cannot claim the RTC because it does not have an income tax liability, it can claim the RTC against taxes it pays on employee wages. The benefit is capped at $250,000 per year.

For complete coverage of The Innovators Job Creation Act, please consult both my published article and the proposed legislation via the subsequent links:

http://taxconnections.com/taxblog/bipartisan-legislation-would-significantly-enhance-the-u-s-research-and-experimentation-tax-credit/#more-10736">http://taxconnections.com/taxblog/bipartisan-legislation-would-significantly-enhance-the-u-s-research-and-experimentation-tax-credit/#more-10736

www.scribd.com/doc/199672538/Innovators-Job-Creation-Act">www.scribd.com/doc/199672538/Innovators-Job-Creation-Act