Yeah, Science! IRS Issues Guidance Section 501(c)(3) Scientific Organizations

In the Netflix series, Breaking Bad, character Jesse Pinkman exclaimed, “Yeah, Science!!” as his meth-lab mentor, Walter White, displayed how chemistry can be used to hone their joint venture. While the activity in which they were engaged may have been “scientific,” I doubt that activity would qualify as “scientific” as that term is used in section 501(c)(3), Title 26 of the Internal Revenue Code.

Under section 501(a) of the Code, an organization described in subsection 501(c) shall be exempt from federal income taxation. Organizations qualified under section 501(c)(3) include organizations organized and operated exclusively for, among other listed things, religious, charitable, educational, and scientific purposes.

The Treasury Regulations (26 C.F.R. § 1.501(c)(3)-1(d)(5)) provides a lengthy definition and explanation of the term “scientific” as used and intended in section 501(c)(3). In a nutshell, a scientific organization must be organized and operated in the public interest. Research, for example, must be for the public interest and not the type ordinarily carried on as an incident to commercial or industrial operations. Research may qualify under section 501(c)(3) if: (a) the results are made available to the public on a nondiscriminatory basis; (b) the research is performed for the United States, or any of its agencies or instrumentalities, or for a State or political subdivision thereof; or (c) the research is directed toward benefiting the public.

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In order for a deferred compensation trust to the “qualified,” it must comply with all of §401s specific requirements.  Complete compliance creates tax-deferred status.  §501 states (emphasis mine),

An organization described in subsection (c) or (d) or section 401(a) shall be exempt from taxation under this subtitle unless such exemption is denied under section 502 or 503.

One of 401’s most important requirements is that funds can only be used for the benefit of the employees.  §401(a)(2) states in relevant part, Read More

Hale Stewart

A quick reminder about sending investment portfolios offshore.

The U.S. taxes residents on worldwide income. From the Treasury Regulations:

In general, all citizens of the United States, wherever resident, and all resident alien individuals are liable to the income taxes imposed by the Code whether the income is received from sources within or without the United States.

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Peter Scalise

The American Institute of Certified Public Accountants (hereinafter “AICPA”) has requested the Department of the Treasury and the Internal Revenue Service (hereinafter the “Service”) to issue some form of immediate administrative authority governing the enhanced R&D Tax Credit Program (hereinafter “RTCP”) in connection to qualifying Small Businesses and qualifying Start-Up Companies to accurately calculate the R&D Tax Credit from a quantitative perspective effective for tax years beginning on or after January 1, 2016.

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On October 3rd of 2016, the Internal Revenue Service (hereinafter “the Service”) issued Final Treasury Regulations setting forth guidance on research and development efforts in connection to Internal Use Software (hereinafter “IUS”) for purposes of claiming the Research & Development Tax Credit (hereinafter “RTC”) under I.R.C. § 41.

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On November 24th of 2015, the Internal Revenue Service (hereinafter the “Service”) streamlined the compliance for the Tangible Property Regulations (hereinafter “TPR”) for small businesses by increasing the safe harbor threshold for deducting certain capital items from $ 500 to $ 2,500 under IRS Notice 2015-82. The scope affects businesses that do not maintain an Applicable Financial Statement (hereinafter “AFS”) such as an audited financial statement. It applies to amounts spent to acquire, produce or improve tangible property that would normally qualify as a capital item.

The new $2,500 threshold applies to any such item that is substantiated by an invoice. As a result, small businesses will be able to immediately deduct expenditures that would otherwise need to be spread over a period of years through annual depreciation deductions. The new $2,500 threshold takes effect starting with tax year 2016. Read More


On Friday, January 16th of 2015, The Treasury Department and Internal Revenue Service (hereinafter the “Service”) released for publication in the Federal Register a notice of proposed rulemaking (REG-153656 -03) concerning the application of the credit for increasing research activities pursuant to I.R.C. § 41 for computer software that is developed by or for the taxpayer, for the taxpayer’s internal use.

These Proposed Treasury Regulations have been long-awaited as the Service previously issued Final Treasury Regulations (T.D. 9104) governing many aspects of the Research Tax Credit (hereinafter “RTC”) back in 2003, but deferred addressing the guidelines dealing with Read More


On Monday, July 21 of 2014, the Department of Treasury and Internal Revenue Service (hereinafter the “Service”) issued Final Treasury Regulations under T.D. 9680 to amend the definition of research and experimental expenditures pursuant to I.R.C. § 174. These Final Treasury Regulations finalized and replaced the previously issued Proposed Treasury Regulations that were published on September 6, 2013. As a reminder, Treasury Regulations provide the official interpretations of the Internal Revenue Code by the Department of Treasury and have the force and effect of law. The most common forms of Treasury Regulations include: Read More

TaxConnections Blog Post

On Tuesday, November 26th The Department of Treasury released final treasury regulations governing the Net Investment Income Tax (hereinafter “NIIT”) that was included in the Affordable Care Act. The 3.80% tax took effect on January 1, 2013 and applies to individuals, estates and trusts that have certain investment income above certain threshold amounts.

More specifically, individuals will owe the 3.80% tax if they have Net Investment Income and also have “Modified Adjusted Gross Income” above the following thresholds: Read More

U.S.Treasury To Insure Money Market Mutual FundsIntroduction

The Department of Treasury finally issued their much awaited final treasury regulations governing the proper tax treatment for repair and maintenance expenditures on Friday, September 13th. The final treasury regulations replace the temporary regulations previously issued in December of 2011. As with temporary treasury regulations, the final treasury regulations have the force and effect of law on both taxpayers and the government and any deviation from these treasury regulations will require the filing of Form 8275-R entitled “Regulation Disclosure Statement” for taking a position contrary to a treasury regulation in either temporary or final form. These final treasury regulations are meant to provide further clarity and reduce controversy over the determination of whether an expenditure may be currently deducted as a repair under I.R.C. § 162(a) or must be capitalized under I.R.C. § 263(a). While generally effective for tax years beginning on or after January 1, 2014, taxpayers have the option of applying the final treasury regulations to tax years beginning on or after January 1, 2012

A Practical Guide to the Scope and Application of the Final Treasury Regulations

The subsequent synopsis will serve as a practical guide to the scope and application of the final treasury Read More

TaxConnections Blogger Peter J. Scalise posts about proposed Treasury RegulationsProposed Treasury Regulations issued on September 5, 2013 provide that if expenditures qualify as research or experimentation expenditures, it is irrelevant whether a resulting product is ultimately sold or used in the taxpayer’s trade or business.

As a synopsis, I.R.C. § 174 allows taxpayers to elect to take a current deduction for research and experimentation expenditures in the tax year they are paid or incurred or to defer certain research and experimentation expenditures and amortize them. Since its enactment in 1954, I.R.C. § 174(c) has provided that I.R.C. § 174 does not apply to any expenditure for the acquisition or improvement of land, or for the acquisition or improvement of property to be used in connection with the research or experimentation and of a character that is subject to depreciation or depletion. In 1957, the IRS (hereinafter the “Service”) issued Treas. Reg. § 174-2(b)(1) and (b)(4) to implement this rule. This is referred to as the “Depreciable Property Rule”.

Tax professionals have long debated on whether the sale of a product resulting from otherwise qualifying research or experimentation expenditures should subsequently disqualify those expenditures from I.R.C. § 174 treatment. The Service had previously taken the position that I.R.C. § 174(c) precluded I.R.C. § 174 treatment in the case of a subsequent sale of a Read More