The Senate Finance Committee Agrees to Expand the Federal-Level Research & Experimentation Tax Credit for Certain Small Businesses

On April 3, 2014, The Senate Finance Committee agreed to expand the Federal-Level Research and Experimentation Tax Credit (hereinafter “RTC”) for certain small businesses, making the tax incentive available to companies that don’t have an income tax liability.

The change, pushed by Senator Chuck Schumer (D-N.Y.) and other lawmakers on the Hill, proposes to make the RTC available to many start-up companies that typically aren’t able to claim it during their first years in operation, as Senator Chuck Schumer indicated at the Finance Committee’s markup on expired tax incentives. Senators across both sides of aisles approved the proposal on a voice vote, with no objections.

Pursuant to the currently expired statute, companies can take the RTC only if they have income tax due. With the amendment, they can take the credit in the following year, even without a tax liability. Companies would claim the R&D credit against their employment taxes rather than their income taxes, Senator Chuck Schumer said. In order to qualify for the Startup Innovation Credit, a company must be less than five years old and have less than $5 million in gross receipts.

Due to the fact that the expired RTC has overwhelming support on both sides of aisles it was said that its extension is one imperative reason not to put off the extenders package any longer.

In accordance with Circular 230 Disclosure

About the Author
Peter J. Scalise serves as the National Partner-in-Charge of the Federal Tax Credits and Incentives Practice at SAX CPAs LLP. Peter is a highly distinguished member of the Accounting Today Top 100 Influencers and has approximately thirty years of progressive Big 4 and Top 100 public accounting firm experience developing, managing, and leading large scale tax advisory practices on a regional, national, and global level.
Peter also serves as a passionate philanthropist and a member of several Boards of Directors and Boards of Advisors for local, regional, and national charities in connection with poverty and hunger alleviation; economic development; environmental conservation; health and social services; supporting veteran and military service personnel along with preserving arts and cultural programs.

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