The Research & Experimentation Tax Credit is designed to incentivize US companies to invest in R&D, create high paying jobs in the US, and create new technologies and innovations, thereby stimulating economic growth and opportunity. Research shows that the benefits of the credit outweigh the costs in lost tax revenue, and the tax credit is effective in increasing R&D activity in the US.

H.R. 880 American Research and Competitiveness Act of 2015[1]

H.R. 880 was introduced February 11, 2015, and passed in the House on May 20, 2015 and goes to the Senate next for consideration. H.R. 880 Bill.

H.R. 880 revises and makes permanent (for taxable years beginning after December 31, 2014) the alternative simplified method for calculating the research credit and increases the rate to 20% from 14%. In 2014 and prior years, taxpayers could claim a research credit under the alternative simplified method of 14% of the amount by which qualified research expenses exceeded the base amount for that year. Over the last 30 years, the research credit has been allowed to expire eight times and be retroactively reinstated 14 times. US companies could not rely on the research tax credit in planning for research spending, and small businesses who needed the tax credit most were often limited by AMT tax. The uncertainty surrounding the research tax credit impacts how U.S. businesses invest in R&D.

The proposal also provides that, in the case of an eligible small business[2], the research credit determined under section 41 for taxable years beginning after December 31, 2014 is a specified credit. Thus, the research credits of an eligible small business may offset both regular and AMT liability. The research tax credit historically did not offset taxpayer’s AMT liability, so many business owners in AMT did not recognize the benefit of their investments into R&D until their tax liability increased above AMT or fell below AMT.

The rate is reduced to 10% if a taxpayer has no qualified research expenses in any one of the three preceding taxable years. This is an increase from the former 6% rate.

The proposal repeals the traditional 20% research credit calculation method (regular method).

The proposal also makes permanent the basic research credit and the energy research credit (both with credit rates of 20-percent), and changes the base period for the basic research credit from a fixed period to a three-year rolling average. It is unclear, given past history if this bill will become law.

H.R.1806 America COMPETES Reauthorization Act of 2015

 

H.R.1806 was introduced April 15, 2015, and passed in the House on May 20, 2015 and goes to the Senate next for consideration. H.R. 1806 Bill Summary.

The COMPETES Act of 2007 and its 2010 reauthorization had bipartisan goals to fund research and development to keep our nation competitive. The 2015 America COMPETES Reauthorization Act provides for $33 billion in funding for federal scientific research and research grants between fiscal years 2016 and 2017, with across the board funding cuts for the Department of Energy (DOE), the National Science Foundation (NSF), the National Institute of Standards and Technology (NIST), and the Office of Science and Technology Policy (OSTP). H.R. 1806 prioritizes funding for various scientific disciplines, and sets maximums on funding. The 2015 COMPETES bill is criticized by Democrats who protest the funding caps and new research grant requirements, and accuse Republicans of “politicizing” science by targeting funding cuts for climate change research and renewable energy. The White House also issued a Statement of Administration Policy declaring that the president would veto the bill. https://www.whitehouse.gov/sites/default/files/omb/legislative/sap/114/saphr1806r_20150518.pdf

[1] Joint Committee on Taxation, Description of H.R. 880, the “American Research and Competitiveness Act of 2015” (JCX-42R-15), February 11, 2015.

[2] IRC section 38(c)(5)(C).