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18 Oct 2016

Final Research Credit Regulations Issued for Internal Use Software

Final regulations were published on October 4, 2016 relating to the research credit for internal use software development. These final regulations apply a majority of the rules proposed in January of 2015. The final regulations should provide guidance to resolving controversy between taxpayers and the IRS on internal use software issues. These regulations are more favorable to taxpayers than the proposed regulations with respect to defining internal-use software. Following are two key favorable changes.

Defining internal use software- To be considered internal use software under the final regulations, the software must be developed by the taxpayer for use in general and administrative functions that facilitate and support the conduct of the taxpayer’s trade or business. These functions are limited to financial management, human resources, and support services. Previously, to be exempt from the internal use software definition, the software had to be commercially sold, licensed, leased, or otherwise marketed to third parties, or software that enabled taxpayers to interact with third parties or allow third parties to initiate functions or review data on the taxpayer’s system. Now under the final regulations, as long as the software is not developed for general and administrative functions, it will not be defined as internal use software.

High threshold of innovation test- When software is defined as internal use, an additional 3 part test is required to be met to qualify for the research credit. Under the final regulations, the second of the three tests, significant economic risk, was expanded to not exclude design uncertainty as an element of technical uncertainty. Previously the taxpayer had to show uncertainty with respect to only capability or method. Now under the final regulations, a taxpayer can meet the significant economic risk test if they demonstrate design uncertainty, or uncertainty with respect to capability or method.

Effective date- The regulations will apply to tax years beginning on or after October 4, 2016. The regulations state that the IRS will not challenge return positions consistent with the final or proposed regulations for any tax year ended on or after January 20, 2015.

8 Feb 2016

Minnesota updates form for 2015

The Minnesota form for the Credit for Increasing Research Activities, Schedule RD, has changed effective for the 2015 tax year.
The current method of calculating the Minnesota credit has not changed. However, an entirely new section of the form, requesting additional information, has been added to page 2. The additional information asks questions related to whether or not the taxpayer had assistance from a consultant/CPA in preparing the credit or in conducting a study. It also requires the taxpayer to list the name and contact information of the consultant and asks for permission to discuss the credit with the person who assisted. In addition, it also inquires as to how each type of qualified research expenses (wages, supplies, and contract costs) was calculated. The options include review of contemporaneous records, estimation, or a combination.
These questions are similar to the initial information request that a taxpayer would typically receive at the beginning of an examination.

19 Jan 2016

Hull & Knarr welcomes industry veteran Amy Moon CPA, MBT

Amy Moon has joined Hull & Knarr as Executive Director. With over 20 years combined experience at Ernst & Young and Larson Allen where she focused on research credit incentives, Amy brings an expertise that includes leading R&D studies and working with the IRS and Minnesota Department of Revenue on both the examination and appeals process for research credits. During her 24 years in tax she has worked with companies of varying sizes, from start-up to Fortune 100, in a wide variety of industries, including manufacturing, retail, and financial services.

We are proud to consider Amy Moon a part of the Hull & Knarr team.

21 Dec 2015

Permanent Extension of Research Credit: President signs year-end tax legislation

The White House announced that President Obama on Friday, December 18, 2015, signed into law H.R. 2029, the “Consolidated Appropriations Act, 2016.” This legislation combines and includes the tax provisions of the “Protecting Americans from Tax Hikes Act of 2015” (PATH Act) and the omnibus spending bill. Certain provisions have an effective date based on the “date of enactment” which is December 18, 2015.
The research credit has been reinstated for qualified research expenses paid or incurred on or after January 1, 2015. The current methods of calculating the credit have not changed as a result of the legislation. Taxpayers still have the option of electing a traditional regular credit at a rate of 20%, or the alternative simplified credit (ASC) at a rate of 14%.
Effective for research credits determined for tax years beginning after 2015, certain businesses with average annual gross receipts of $50 million or less will be allowed to offset their AMT liability with the credits. Also, for tax years beginning after 2015, certain start-up companies with gross receipts for the year of less than $5 million will be allowed to elect to apply up to $250,000 of their research credit against their payroll tax liability, instead of their income tax liability.

26 May 2015

Congress pushing for permanency of the R&D Tax Credit

Read the latest from Washington here.

17 Mar 2015

Hull & Knarr teams up with Indy Lights driver Scott Anderson for 2015

Check out the press release here.