On Friday, September 30th the Internal Revenue Service (the “Service”) set forth administrative guidance indicating that it is extending the transition period during which taxpayers are required to adhere to the much more arduous and onerous R&D Tax Credit reporting requirements in connection to amending tax returns within open statute years for R&D Tax Credit claims for refund. This new transition period has now been extended through January 10th of 2024 in which taxpayers are afforded a full 45 days to perfect a R&D Tax Credit claim for refund with reporting deficiencies prior to the Service’s final determination on the claim.
It should be duly recalled under previous administrative authority issued by the Service in 2021 that went into effect earlier this year on January 10th of 2022 taxpayers filing a valid R&D Tax Credit claim for refund under I.R.C. § 41 must provide, at a minimum, five essential pieces of contemporaneous documentation including:
Introduction – Tax Research Methodology
In order to properly optimize your accounting firm’s overall efficiency, effectiveness, and productivity in connection to researching and resolving a tax issue and determining the sustainability of the tax return filing position per Circular 230, the appropriate tax research processes must be meticulously designed, implemented, and executed. The subsequent comprehensive steps will guide you in establishing an all-inclusive tax research effort on behalf of your entire client base while properly ascertaining the likelihood of success should a tax position(s) taken on a tax return be challenged by the Internal Revenue Service (hereinafter the “Service”) upon examination.
Establish The Facts And Circumstances
The first step in the tax research process is to establish all the facts and circumstances provided by your client in order to determine which tax laws apply to your client’s fact pattern. At this initial stage, it is imperative not to omit nor overlook any of your client’s facts and circumstances whether appearing material or immaterial. Always be guided by the axiom that facts and circumstances appearing to be immaterial individually may, in fact, be material in the aggregate.
On Friday, November 19th the House of Representatives narrowly passed the Build Back Better Act, H.R. 5376, by a vote of 220 to 213. The bill encompasses a wide range of budget and spending provisions in connection to significant tax law reform as well as funding for mitigating climate change, expanded health care, housing, education, childcare amongst many other provisions. As the Senate now prepares to negotiate a final deal on this legislation several leading Democrats indicated that a bilateral agreement on the reconciliation bill was likely to include a plan to continue for the full expensing treatment for R&D expenditures through December 31st of 2025 and to delay the amortization requirements of such expenditures until January 1st of 2026.
On Friday, December 20th of 2019, President Donald J. Trump signed into law:
- H. R. 1158, entitled the “Consolidated Appropriations Act, 2020,” which divisions A through D of the enrolled bill provides full-year funding through September 30, 2020, for projects and activities of certain agencies of the Federal Government; and
- H. R. 1865, entitled the “Further Consolidated Appropriations Act, 2020,” which Divisions A through H of the enrolled bill provides full-year funding through September 30, 2020, for projects and activities of the remaining agencies of the Federal Government.
Both H.R. 1158 and H.R. 1865 (hereinafter “the new Act”) averted a government shutdown that would have commenced on December 21, 2019 without this sweeping $ 1.4 trillion spending package being passed into law. Most of the new Act outlines how the government will appropriate the federal budget funding across numerous departments and programs including, but not limited to, the Department of Defense; Department of Transportation; Department of Labor; Department of the Interior; and of course, the Department of Treasury.
On December 21st of 2018, the Internal Revenue Service (hereinafter the “Service”) issued new administrative guidance in the form of Rev. Proc. 2019-08 governing expense deductions and depreciation measures in connection to real property as enacted by the 2017 Tax Cuts and Jobs Act, Pub. L. No. 115-97, (hereinafter the “TCJA”’). It should be duly recalled, the TCJA enacted the subsequent tax law amendments including, but not limited to:
- I. R.C. § 179 by modifying the definition of “Qualified Real Property” that may be eligible as I.R.C. § 179 property pursuant to I.R.C. § 179(d)(1);
- I. R.C. § 168 by requiring certain property held by an electing real property trade or business and reducing the recovery period under the Alternative Depreciation System (hereinafter “ADS”) from 40 years to 30 years for commercial residential real estate property; and
- I. R.C. § 168 by requiring certain property held by an electing farming business to be depreciated under the ADS.
On Friday, February 9th of 2018, President Donald J. Trump signed into law H.R. 1892 entitled the Bipartisan Budget Act of 2018 (hereinafter “BBA”) just hours after the Senate passed the bill by a vote of 71-28 and the House of Representatives passed the bill by a vote of 240-186. The BBA resolved numerous non-tax law related issues for the federal government on a bipartisan basis including but not limited to raising the debt ceiling; domestic and military spending; community healthcare; and disaster relief. In addition, the BBA includes tax relief for certain disasters, a retroactive one-year tax extenders package for statutory tax incentives that previously expired on December 31, 2016 including several highly prevalent energy tax incentive programs pursuant to I.R.C. § 179D and I.R.C. § 45L, amongst a highly diverse array of other statutory tax provisions.
Individual And Business-Entity Tax Relief For Certain Disasters
On September 27th, President Trump and Republican leaders in Congress announced a new conceptual framework for tax reform which they optimistically hope to get enacted into law on or before December 31st of 2017. The proposed conceptual framework broadly describes significant tax law changes affecting both individuals and businesses alike ranging from lower tax rates for individuals and businesses to the repeal of many tax incentives – both deductions and credits. President Trump stated “it is now time for all members of Congress – Democrat, Republican, and Independent – to support pro-American tax reform. It’s time for Congress to provide a level playing field for our workers, to bring American companies back home, to attract new companies and businesses to our country, and to put more money into the pockets of everyday hardworking people.”
On November 4th of 2016, New York State Governor Andrew Cuomo signed Chapter 420 of the Laws of 2016 which expanded the New York State Film Tax Credit Program (hereinafter the “NYSFTCP”) for qualified production companies that produce feature films; television series; relocated television series; television pilots; television movies; and/or incur post-production costs associated with the original creation of these aforementioned film productions.
On Wednesday, May 20th The House of Representatives passed H.R. 880 entitled the “American Research and Competitiveness Act of 2015” by a vote of 274-145 and H.R. 1806 entitled the “America Competes Reauthorization Act” by a vote of 217-205. The legislation would make permanent the Research and Experimentation Tax Credit and authorize approximately $33 billion in funding for federal scientific research and research grants between fiscal years 2016 through 2020. This funding would be divided amongst the National Science Foundation; the Office of Science and Technology Policy; the National Institute of Standards and Technology; along with select offices at the U.S. Department of Energy. While the bill does not lift the existing funding level for the agencies, it will nonetheless help to promote “fundamental discovery science” by Read More
President Barrack Obama unveiled his $ 3.9 trillion Fiscal Year (hereinafter “FY”) 2015 budget proposal on March 4th. The President’s FY 2015 budget proposal reflects the framework set out in his 2014 State of the Union Address to promote job creation and economic growth. Clearly, the Research and Experimentation Tax Credit (hereinafter “RTC”) was a focal point of his budget as the RTC recently expired on December 31, 2013. It should be duly recalled that the RTC was originally added to the Internal Revenue Code (hereinafter “the Code”) in 1981 as a temporary provision of the Code at a time when research and experimentation based jobs were alarmingly declining in the United States and the RTC was designed to stimulate job growth and investment within the United States and its possessions (e.g., Puerto Rico and Guam). Read More
The Research and Experimentation Tax Credit (hereinafter “RTC”) was added to the Internal Revenue Code (hereinafter “the Code”) in 1981 as a temporary provision of the Code at a time when research and development based jobs were significantly declining in the United States due to these jobs being moved overseas where labor rates and overall operating costs were considerably less. For this very reason, the RTC was introduced into the Code in 1981 to motivate business entity taxpayers to incur significant and qualifying research and development expenditures with the high expectations that such an advantageous tax incentive would facilitate in stimulating job growth and investment in the United States and Read More
On October 1, 2013 the United States Government was required to suspend all but its most needed operations as the result of the U.S. Congress’ failure to compromise upon appropriations that would have funded the government in fiscal year 2014. It should be duly noted that since March 26, 2013 numerous government operations have been funded under the Consolidated and Further Continuing Appropriations Act [Pub. L. No. 113-6].
As a reminder, the United States Government operates on a fiscal year that runs from October 1 – September 30, and Congress is required to appropriate funds for the approaching fiscal year by the beginning of that year (i.e., October 1, 2013). Historically speaking many legislators often fail to do so, but typically they can agree upon a Continuing Budget Resolution that provides temporary funding—typically at the previous fiscal year’s spending rates—for the short-term period(s) while negotiations for the full-year appropriations continue. However, as both Democrats and Republicans continue to debate many federal buildings across the country have remained closed since October 1st including access to national parks, monuments, and museums coupled with hundreds of thousands of non-essential federal employees being furloughed.
Administrative Effect on the Internal Revenue Service
On October 8, 2013 the Internal Revenue Service (hereinafter the “Service”) updated its online notice about the government shutdown and reminded taxpayers on extension that the October 15 deadline is still in effect. The Service emphasized that Read More