Claiming the Section 41 R&D Credit: Small Business Provisions

For many small and medium-sized businesses, the R&D tax credit is one of the most underutilized of all tax benefits. The calculation of qualified research expenses (QREs) is challenging.

Key provisions make it easier for small businesses to utilize the R&D credit. Section 41 now allows businesses with less than $50 million in gross receipts to offset R&D credit amounts against alternative minimum tax (AMT) liability. Also, entities with less than $5 million in gross receipts and no more than five years of prior receipts may offset R&D credit amounts against payroll tax expenses.

Additionally, IRS regulations on internal-use software provide clear guidance and favorable rules for including internal-use software in QRA determinations.

Section 41 allows a credit for a percentage of a QRE that a taxpayer incurs engaging in QRAs. The Code provides a four-part test to determine whether an activity can be considered a QRA. Expenditures, including wage expenses that have sufficient nexus to the QRA, can be included in calculating the expenditure base. Tax advisers can guide taxpayers in utilizing this important and overlooked credit.

Listen as our experienced panel provides a thorough and practical review of calculating, claiming, and substantiating a Section 41 R&D credit.

1. Overview of Section 41 R&D credit
2. Four-part test to determine QRAs
3. IRS regulations on internal-use software inclusion in QRA calculations
4. Sampling and allocation methods for QREs
5. Documentation and substantiation of credit claim
6. Small business strategies and applying credits against AMT or payroll tax liability

The panel will discuss these and other important topics:

• The four-part test to determine whether an activity can be considered a QRA for purposes of claiming a Section 41 R&D credit
• Documentation and substantiation requirements and practices from court cases
• Sampling strategies for including wage QREs and other indirect costs in the credit calculation
• Considerations for small businesses claiming a Section 41 R&D credit

Learning Objectives

After completing this course, you will be able to:

• Recognize the tests for determining whether an activity qualifies as a QRA for purposes of claiming a Section 41 R&D credit
• Identify wage QREs and other indirect expenditures under Section 41
• Discern strategies when eligible small companies may use IRC 41 credits to offset payroll tax or AMT liabilities
• Establish the special rules for the treatment of internal-use software
• Verify that all R&D tax benefits available are utilized for the client's benefit

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience at mid-level within the organization, preparing business tax forms and schedules. Specific knowledge of business taxation, research and development tax credits, creditable expenses, qualified research activities, and documentation required to claim the IRC 41 tax credit; familiarity with allocation methods for qualified research expenditures, AMT, and definition of internal use software.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).