RSM Resources

Congress passed H.R. 6111 on December 9, 2006, which provided a seamless extension of the R&D tax credit until the end of 2007.  President Bush is expected to sign the bill into law. 

The R&D tax credit equals 13% of qualified expenses over a base amount.  The base amount is calculated from 1984 to 1988 information if the business incurred qualified expenses and gross receipts during that time period.  Taxpayers that were not in existence during the 1984 to 1988 time period follow the start up company rules. 

Alternatively, a taxpayer may calculate the R&D tax credit using the alternative incremental credit (AIC) method.  A taxpayer receives a credit as long as its qualified expenses exceed one percent of gross receipts.  H.R. 6111 provided for an increase in alternative incremental credit (AIC) percentages beginning in 2007:

• 3% (increase from 2.65%) of qualified research expenses greater than 1% and less than 1.5% of average annual gross receipts;
• 4% (increase from 3.2%) of qualified research expenses greater than 1.5% and less than 2% of average annual gross receipts;
• 5% (increase from 3.75%) of qualified research expenses exceeding 2% of average annual gross receipts.

The legislation created a new calculation method, the Alternative Simplified Credit, beginning in 2007:

• Credit equals 12% of qualified research expenses that exceed 50% of the average qualified research expenses for the three preceding years.
• If the taxpayer does not have qualifying expenses in all three preceding tax years, the credit is 6% of the current year qualified research expenses. 

RSM R&D team information:
RSM McGladrey’s national R&D tax practice includes 65 professionals with extensive experience conducting research credit studies and defending R&D claims through IRS examination and appeals. Our team includes technical personnel (engineers, software developers, etc.) skilled in identifying and supporting qualified R&D activities. 

Taxpayers often struggle to separate the research portion of an activity from the routine engineering and production activities. Our technical resources will work with your technical staff to determine the activities that qualify with minimal burden on your people. We have found that our technical specialists working closely with the tax professionals on our team develop a high quality work product. 

We will also work with your company to develop methods to track R&D expenditures on a prospective basis. We will educate your people on the benefits to help them document the information needed for future R&D credits. 

Generally, we can estimate the potential benefit available to your company in one day. We will provide a range of R&D tax credits available for all open tax years, risk areas and an estimate of our hours and fees to execute a research credit project.