R&D Tax Credits - Are you ready for what’s next?

30 November, 2020

One thing is certain about 2020, the ground beneath us is constantly shifting. Navigating these shifts can be challenging, but with the proper planning it can be rewarding. The question is are you ready to navigate this evolving landscape, capitalize on these opportunities and prepared to move when the time is right.

As we approach year end, now is the time to ask if your organization is ready….

If R&D tax credits become refundable?

  • Do you have a plan in the instance the refundable credit becomes law?
  • Do you have the systems, process and technology in place to efficiently and effectively calculate, document and sustain refundable credits?

If IRC Section 174 Capitalization in 2022 isn’t repealed?

  • Have you considered the impact of 174 capitalization?
    • Do you have a process in place to be able to readily identify and calculate the 174 expenses that need to be capitalized?
  • Have you considered the interactions between R&D and 174 capitalization and how to maximize the Company’s benefits?

If your R&D credit is audited by the IRS or state tax authorities?

  • Are your credits going through a contentious exam or an exam that lacks movement?
  • Did the engineer use sampling to audit the research credit?
  • Do you have support with IRS Service and statistical sampling expertise?
  • Is MITRE involved?
  • Have you considered refreshing the current credit process to enhance relationships or exam outcomes with the IRS or state taxing authorities?

To identify BEAT planning opportunities?

  • Are you currently in BEAT?
    • The R&D tax credit can help offset BEAT payments for tax years prior to December 31, 2025, could this help you?
    • Is there an opportunity to forego the 280C election and amortize R&D expenses to minimize the BEAT implications?

If states like California (CA) limit the use of NOLs and R&D credits?

  • Business tax credits in CA may not reduce applicable tax by more than $5M for tax years 2020 – 2022. Do you have significant R&D activity in CA or already claim research credit in CA?

To identify qualified research expenditures related to cyber initiatives and advisory software development projects?

  • Have you asked your CISO:
    • Are you spending technology budgets to adopt emerging cybersecurity technologies that identify, protect, detect, respond and recover from cybersecurity threats?

For due diligence if a company is acquired/selling?

  • If you are selling, have you considered maximizing your research credit to improve the company’s value?
  • Has the appropriate language been considered to retain ownership for unclaimed research credit attributes?
  • Has appropriate language been prepared to properly disclose R&D credit attributes?
  • Do you have the expertise to assess the level of qualifying activity?

For the revised ASC 730 Directive?

  • To use the same US financial statements to reconcile book income to federal tax income on Schedule M-3?
  • To comply with additional Appendix C instructions to remove all ineligible GAAP internal use software and non-ASC 730 expenditures reported in the financial statements?
  • Do you have the proper support in place to document the Directive requirements?

We can all agree that the first step to find an answer is to ask the right questions. Asking yourself “Are you Ready?” is a great place to start and will provide you with the launching off point to evaluate the potential impact on your R&D credits and what steps you can take to plan accordingly. If you have any additional questions regarding any of these above issues, please reach out to one of our R&D credit specialists to help navigate the shifting landscape, enabling you to be properly prepared, and to make sure that you “Are Ready.”

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

Contact us

Brett Ritter

Partner, National R&D Tax Services Leader, PwC US

Randel Friedman

Partner, PwC US

Bob Alperin

Partner, PwC US

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