Sunday, September 5, 2010

President Obama to reportedly outline a proposal to make Research Tax Credit permanent

According to numerous sources, President Obama will ask Congress on Wednesday to both expand, and make permanent, the research tax credit under section 41.  Under current law, the federal research credit expired for qualified expenses (as defined under section 41(b)) paid or incurred after December 31, 2009.

While details are still scarce, here is what I've seen so far.  Please note that until something official comes out, these are just unconfirmed rumors.
  • Would expand the credit percentage under the Alternative Simplified Method (under section 41(c)(5)) from the generally-applicable pre-2010 amount of 14% to 17%.
  • The $100 billion proposal will be announced at a speech in Cleveland on September 8, as part of a discussion on the economy.
  • Of the $100 billion, $85 billion represents the 10-year cost of making the credit permanent.  The other $15 billion is the reported cost of expanding it.
  • I have seen no mention of whether these proposals would apply retroactively (i.e., starting January 1, 2010).  My personal expectation is that it would, especially in light of the upcoming midterm elections, but we're likely to find out on Wednesday.
  • No information is available regarding the standard computation method, but if House Bill 422 and Senate Bill 1203 are any indication (and which seem to have substantial bipartisan support), I suspect that the standard computation method will not be brought back.  Observation:  The standard method is a thorn in many sides due to taxpayers generally being required to base their research credit computations in part on their activities during the 1984 - 1988 time frame.  Not surprisingly, many taxpayers don't have information (much less documentation) going back that far.

More to come...

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