R&D Payroll Tax Credit

The Research and Development payroll tax credit, also known as the R&D payroll tax credit is a tax incentive designed for qualified businesses to offset their payroll tax. It is designed for new companies that perform research and technology development activities to be able to apply up to $250,000 of research credit against payroll tax liability. These R&D credits can be carried forward for up to 20 years.

Which Businesses Qualify For The R&D Payroll Tax Credit?

In order to qualify for the tax credit, a business must meet each of the following criteria:

  • Have 5 years or less in revenue
  • Have less than $5 million in revenue in the current year
  • Have conducted qualifying research activities and expenditures
Documentation Needed To Claim The R&D Payroll Tax Credit

Documentation is extremely important to defending any R&D tax credit claims. This includes having a permitted purpose, technological uncertainty, the process of experimentation, and being technological in nature.

Permitted Purpose:

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Reliance On A Third Party As A Defense In Section 7202 Payroll Cases

Section 7202 of the Code makes it a felony for any person to willfully fail to collect and pay over payroll taxes to the IRS.  Put simply, a taxpayer may be subject to jail time if the government merely proves that the taxpayer:  (1) was responsible for paying over payroll taxes; and (2) willfully failed to do so.

In many cases, business owners have difficulties rebutting the government’s contention that they are responsible persons. Thus, the issue of whether the business owner was willful in his conduct becomes a crucial issue.

Late last year, the Department of Justice (DOJ) issued a press release regarding the criminal indictment of Mr. Thrush, a business owner in the State of Michigan.  According to the press release and the allegations in the indictment, Mr. Thrush failed to pay $238,223 in payroll taxes over a two year period.  Moreover, Mr. Thrush allegedly failed to file income tax returns for three years related to his business income.  That case has proceeded towards trial.  See U.S. v. Thrush, No. 1:20-cr-20365 (E.D. Mich.).

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This is the absolute top of the food chain of priority cases for IRS Collection employees.

Succumbing to the temptation to use IRS as your involuntary banker is rewarded at best with steep penalties–not deductible, thank you–and interest charges that together make credit cards look like a bargain.

Prosecution is possible for severe offenders as this official Department of Justice News Release shows. In the criminal justice system, failing to turn over withholding taxes is considered just the same as embezzlement. Read More