1. Research and Development Credit November 2013

2. Background  Section 41 of Internal Revenue Code provides a tax credit based on taxpayer’s spending on “qualified research”  Qualified research – for the purpose of developing new or improved “business component”  Business component – product, process, software, technique, formula or invention  Active trade or business requirement

3. Research Defined  Expenditures incurred to conduct research and development in the experimental or laboratory sense  undertaken to discover information that will eliminate uncertainty  Technological in nature – rely on science  Process of experimentation

4. Excluded Activities  Research after commercial production  Adaptation of existing business components  Reverse engineering  Surveys, studies, quality control testing  Foreign research

5. Qualified research expenses  Wages for qualified services  Supplies  Use of computer time  Contract research expenditures – at 65%  Qualified research consortia expenses – at 75%

6. PBC Template  Included in standard PBC as separate tab

7. Regular Credit Method  Credit = 20% of the qualified research expenditures that exceed base amount  Fixed base percentage calculation  Reduced credit – election  See example

8. Alternative simplified credit  Credit is 14% of the QREs for the year that exceed 50% of average QREs for previous 3 years  Reduced credit election  See example