Who is eligible for the R&D tax credit?
Whether or not a taxpayer is engaged in a trade or business for purposes of qualifying for the deduction under I.R.C. §174 is a factual determination. Case law suggests that a taxpayer may establish that research expenditures were made in connection with a trade or business by showing a nontax profit motive and active involvement demonstrated by substantial and regular involvement in the activity.
A good faith intention to make a profit is required, but the expectation of profit need not be reasonable. Courts have held that expenditures of startup enterprises are deductible where the taxpayer demonstrates a realistic prospect of entering a trade or business involving technology. To this end, an objective intent to enter a trade or business and the capability to do so must be shown.
Take advantage of the R&D tax credit with expert insights from Bloomberg Tax
The 2017 TCJA tax changes are further complicating federal tax planning strategies for future R&D acquisition and investment. But the R&D tax credit can be an important part of corporate tax planning strategies to help companies to innovate and remain competitive in the marketplace.
Our Guide to R&D Tax Rules and Analysis provides answers on how practitioners can best apply the latest changes to the R&D Expensing Rules from the IRS and Treasury Dept. For an even deeper dive, download our R&D Overview of §41 and §174 and discover how to maximize your R&D tax credit and amortization opportunities.
Discover all the resources, innovations, and unmatched expertise that only Bloomberg Tax provides, including up-to-the-moment intelligence and expert analysis. Request a demo to learn how Bloomberg Tax helps tax professionals in the technology industry plan today for the realities of tomorrow.