Source: http://www.rdtaxsavers.com/IRCStatutes
Timestamp: 2019-04-18 10:19:46
Document Index: 125628134

Matched Legal Cases: ['§ 41', '§ 41', '§ 41', '§ 41', '§ 41', '§ 41', '§ 41', '§ 41', '§ 174', '§ 174', '§ 174', '§ 174', '§ 174', '§ 174']

IRC Section 41 - R&D Tax Savers
The Internal Revenue Code of 1986 (IRC) is the domestic federal statuatory tax law of the United States. Implemented by the Internal Revenue Service (IRS), it represents the codified procedures and administration of legislation enacted by Congress. It is organized into many sections covering income tax, payroll taxes, estate taxes, gift taxes, and excise taxes.
Section 41 and Section 174 are responsible for defining and explaining the specific details related to claiming and calculating the R&D (formally, the Research & Experimentation) tax credit.
Internal Revenue Code Section 41
Title 26: Internal Revenue Code -- Subtitle A: Income Taxes -- Chapter 1: Normal Taxes and Surtaxes -- Subchapter A: Determination of Tax Liability -- Part IV: Credits Against Tax -- Subpart D: Business Related Credits -- Section 41: Credit for Increasing Research Activities of the Code of Laws of the United States of America describes the credit for increasing research activities.
Source: IRC Section 41 - Cornell Legal Information Institute
26 USC § 41(a) - General rule
26 USC § 41(b) - Qualified Research Expenses (QRE)
Clause (iii) shall not apply to any amount to the extent that the taxpayer (or any person with whom the taxpayer must aggregate expenditures under subsection (f)(1) receives or accrues any amount from any other person for the right to use substantially identical personal property.
(i) In general The term "wages" has the meaning given such term by section 3401 (a).
(ii) Self-employed individuals and owner-employees In the case of an employee (within the meaning of section 401 (c)(1)), the term "wages" includes the earned income (as defined in section 401(c)(2)) of such employee.
(iii) Exclusion for wages to which work opportunity credit applies The term "wages" shall not include any amount taken into account in determining the work opportunity credit under section 51 (a).
(i) In general Subparagraph (A) shall be applied by substituting "75 percent" for "65 percent" with respect to amounts paid or incurred by the taxpayer to a qualified research consortium for qualified research on behalf of the taxpayer and 1 or more unrelated taxpayers. For purposes of the preceding sentence, all persons treated as a single employer under subsection (a) or (b) of section 52 shall be treated as related taxpayers.
(ii) Qualified research consortium The term "qualified research consortium" means any organization which-
(I) is described in section 501 (c)(3) or 501 (c)(6) and is exempt from tax under section 501 (a),
(i) In general In the case of amounts paid by the taxpayer to-
(II) an institution of higher education (as defined in section 3304 (f)), or
(III) an organization which is a Federal laboratory, for qualified research which is energy research, subparagraph (A) shall be applied by substituting "100 percent" for "65 percent".
(ii) Eligible small business For purposes of this subparagraph, the term "eligible small business" means a small business with respect to which the taxpayer does not own (within the meaning of section 318) 50 percent or more of-
(iii) Small business For purposes of this subparagraph-
(I) In general The term "small business" means, with respect to any calendar year, any person if the annual average number of employees employed by such person during either of the 2 preceding calendar years was 500 or fewer. For purposes of the preceding sentence, a preceding calendar year may be taken into account only if the person was in existence throughout the year.
(II) Startups, controlled groups, and predecessors Rules similar to the rules of subparagraphs (B) and (D) of section 220 (c)(4) shall apply for purposes of this clause.
(iv) Federal laboratory For purposes of this subparagraph, the term "Federal laboratory" has the meaning given such term by section 4(6) of the Stevenson-Wydler Technology Innovation Act of 1980 (15 U.S.C. 3703 (6)), as in effect on the date of the enactment of the Energy Tax Incentives Act of 2005.
(4) Trade or business requirement disregarded for in-house research expenses of certain startup ventures In the case of in-house research expenses, a taxpayer shall be treated as meeting the trade or business requirement of paragraph (1) if, at the time such in-house research expenses are paid or incurred, the principal purpose of the taxpayer in making such expenditures is to use the results of the research in the active conduct of a future trade or business-
26 USC § 41(c) - Base amount
(i) Taxpayers to which subparagraph applies The fixed-base percentage shall be determined under this subparagraph if-
(ii) Fixed-base percentage In a case to which this subparagraph applies, the fixed-base percentage is-
(IV) in the case of the taxpayer's 8th such taxable year, 1/2 of the percentage which the aggregate qualified research expenses of the taxpayer for the 5th, 6th, and 7th such taxable years is of the aggregate gross receipts of the taxpayer for such years,
(iii) Treatment of de minimis amounts of gross receipts and qualified research expenses The Secretary may prescribe regulations providing that de minimis amounts of gross receipts and qualified research expenses shall be disregarded under clauses (i) and (ii).
(D) Rounding The percentages determined under subparagraphs (A) and (B)(ii) shall be rounded to the nearest 1/100th of 1 percent.
(4) Election of alternative incremental credit
At the election of the taxpayer, the credit determined under subsection (a)(1) shall be equal to the sum of-
(i) 3 percent of so much of the qualified research expenses for the taxable year as exceeds 1 percent of the average described in subsection (c)(1)(B) but does not exceed 1.5 percent of such average,
(ii) 4 percent of so much of such expenses as exceeds 1.5 percent of such average but does not exceed 2 percent of such average, and
(iii) 5 percent of so much of such expenses as exceeds 2 percent of such average.
(5) Election of alternative simplified credit
At the election of the taxpayer, the credit determined under subsection (a)(1) shall be equal to 14 percent (12 percent in the case of taxable years ending before January 1, 2009) of so much of the qualified research expenses for the taxable year as exceeds 50 percent of the average qualified research expenses for the 3 taxable years preceding the taxable year for which the credit is being determined.
(i) Taxpayers to which subparagraph applies The credit under this paragraph shall be determined under this subparagraph if the taxpayer has no qualified research expenses in any one of the 3 taxable years preceding the taxable year for which the credit is being determined.
(ii) Credit rate The credit determined under this subparagraph shall be equal to 6 percent of the qualified research expenses for the taxable year.
An election under this paragraph shall apply to the taxable year for which made and all succeeding taxable years unless revoked with the consent of the Secretary. An election under this paragraph may not be made for any taxable year to which an election under paragraph (4) applies.
(6) Consistent treatment of expenses required
(7) Gross receipts
For purposes of this subsection, gross receipts for any taxable year shall be reduced by returns and allowances made during the taxable year. In the case of a foreign corporation, t here shall be taken into account only gross receipts which are effectively connected with the conduct of a trade or business within the United States, the Commonwealth of Puerto Rico, or any possession of the United States.
26 USC § 41(d) - Qualified research defined
26 USC § 41(e) - Credit allowable with respect to certain payments to qualified organizations for basic research
(B) Nondesignated university contributions For purposes of this paragraph, the term "nondesignated university contribution" means any amount paid by a taxpayer to any qualified organization described in paragraph (6)(A)-
(i) In general The cost-of-living adjustment for any calendar year is the cost-of-living adjustment for such calendar year determined under section 1 (f)(3), by substituting "calendar year 1987" for "calendar year 1992" in subparagraph (B) thereof.
(ii) Special rule where base period ends in a calendar year other than 1983 or 1984 If the base period of any taxpayer does not end in 1983 or 1984, section 1 (f)(3)(B) shall, for purposes of this paragraph, be applied by substituting the calendar year in which such base period ends for 1992. Such substitution shall be in lieu of the substitution under clause (i).
(i) is an institution of higher education (within the meaning of section 3304 (f)), and
(ii) is described in section 170 (b)(1)(A)(ii).
(i) is described in section 501 (c)(3) and is exempt from tax under section 501 (a),
(I) section 501 (c)(3) (other than a private foundation), or
(II) section 501 (c)(6),
(ii) is exempt from tax under section 501 (a),
(II) substantially all of the basic research payments received by it, for grants to, or contracts for basic research with, an organization described in subparagraph (A).
(i) is described in section 501 (c)(3) and is exempt from tax under section 501 (a) (other than a private foundation),
(i) basic research conducted outside of the United States, and (ii) basic research in the social sciences, arts, or humanities.
(iii) a service organization (as defined in section 414 (m)(3)).
26 USC § 41(f) - Special rules
(ii) the credit (if any) allowable by this section to each such member shall be its proportionate shares of the qualified research expenses, basic research payments, and amounts paid or incurred to energy research consortiums, giving rise to the credit.
(ii) the credit (if any) allowable by this section to each such person shall be its proportionate shares of the qualified research expenses, basic research payments, and amounts paid or incurred to energy research consortiums, giving rise to the credit.
If, after December 31, 1983, a taxpayer acquires the major portion of a trade or business of another person (hereinafter in this paragraph referred to as the "predecessor") or the major portion of a separate unit of a trade or business of a predecessor, then, for purposes of applying this section for any taxable year ending after such acquisition, the amount of qualified research expenses paid or incurred by the taxpayer during periods before such acquisition shall be increased by so much of such expenses paid or incurred by the predecessor with respect to the acquired trade or business as is attributable to the portion of such trade or business or separate unit acquired by the taxpayer, and the gross receipts of the taxpayer for such periods shall be increased by so much of the gross receipts of such predecessor with respect to the acquired trade or business as is attributable to such portion.
If, after December 31, 1983-
(i) a taxpayer disposes of the major portion of any trade or business or the major portion of a separate unit of a trade or business in a transaction to which subparagraph (A) applies, and
(ii) the taxpayer furnished the acquiring person such information as is necessary for the application of subparagraph (A), then, for purposes of applying this section for any taxable year ending after such disposition, the amount of qualified research expenses paid or incurred by the taxpayer during periods before such disposition shall be decreased by so much of such expenses as is attributable to the portion of such trade or business or separate unit disposed of by the taxpayer, and the gross receipts of the taxpayer for such periods shall be decreased by so much of the gross receipts as is attributable to such portion.
The term "controlled group of corporations" has the same meaning given to such term by section 1563 (a), except that-
(A) "more than 50 percent" shall be substituted for "at least 80 percent" each place it appears in section 1563 (a)(1), and
(B) the determination shall be made without regard to subsections (a)(4) and (e)(3)(C) ofsection 1563.
(I) described in section 501 (c)(3) and is exempt from tax under section 501 (a) and is organized and operated primarily to conduct energy research, or
(II) organized and operated primarily to conduct energy research in the public interest (within the meaning of section 501 (c)(3)),
All persons treated as a single employer under subsection (a) or (b) ofsection 52 shall be treated as related persons for purposes of subparagraph (A)(iii) and as a single person for purposes of subparagraph (A)(iv).
26 USC § 41(g) - Special rule for pass-thru of credit
(4) is a shareholder in an S corporation, the amount determined under subsection (a) for any taxable year shall not exceed an amount (separately computed with respect to such person's interest in such trade or business or entity) equal to the amount of tax attributable to that portion of a person's taxable income which is allocable or apportionable to the person's interest in such trade or business or entity. If the amount determined under subsection (a) for any taxable year exceeds the limitation of the preceding sentence, such amount may be carried to other taxable years under the rules of section 39; except that the limitation of the preceding sentence shall be taken into account in lieu of the limitation of section 38 (c) in applying section 39.
26 USC § 41(h) - Termination
This section shall not apply to any amount paid or incurred-
(A) after June 30, 1995, and before July 1, 1996, or
(B) after December 31, 2011.
(2) Termination of alternative incremental credit
No election under subsection (c)(4) shall apply to taxable years beginning after December 31, 2008.
(2) 1 Computation for taxable year in which credit terminates
In the case of any taxable year with respect to which this section applies to a number of days which is less than the total number of days in such taxable year-
(A) the amount determined under subsection (c)(1)(B) with respect to such taxable year shall be the amount which bears the same ratio to such amount (determined without regard to this paragraph) as the number of days in such taxable year to which this section applies bears to the total number of days in such taxable year, and
(B) for purposes of subsection (c)(5), the average qualified research expenses for the preceding 3 taxable years shall be the amount which bears the same ratio to such average qualified research expenses (determined without regard to this paragraph) as the number of days in such taxable year to which this section applies bears to the total number of days in such taxable year.
Download a PDF of the IRC Section 41 for your convenience.
Title 26: Internal Revenue Code -- Subtitle A: Income Taxes -- Chapter 1: Normal Taxes and Surtaxes -- Subchapter B: Computation of Taxable Income -- Part VI: Itemized Deductions for Individuals and Corporations -- Section 174: Research and Experimental Expendituresof the Code of Laws of the United States of America describes details of research and experimental expenditures.
Source: IRC Section 174 - Cornell Legal Information Institute
26 USC § 174(a) - Treatment as expenses
(A) Without consent A taxpayer may, without the consent of the Secretary, adopt the method provided in this subsection for his first taxable year-
(B) With consent A taxpayer may, with the consent of the Secretary, adopt at any time the method provided in this subsection.
(3) Scope The method adopted under this subsection shall apply to all expenditures described in paragraph (1). The method adopted shall be adhered to in computing taxable income for the taxable year and for all subsequent taxable years unless, with the approval of the Secretary, a change to a different method is authorized with respect to part or all of such expenditures.
26 USC § 174(b) - Amortization of certain research and experimental expenditures
(2) Time for and scope of election The election provided by paragraph (1) may be made for any taxable year beginning after December 31, 1953, but only if made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof). The method so elected, and the period selected by the taxpayer, shall be adhered to in computing taxable income for the taxable year for which the election is made and for all subsequent taxable years unless, with the approval of the Secretary, a change to a different method (or to a different period) is authorized with respect to part or all of such expenditures. The election shall not apply to any expenditure paid or incurred during any taxable year before the taxable year for which the taxpayer makes the election.
26 USC § 174(c) - Land and other property
26 USC § 174(d) - Exploration expenditures
26 USC § 174(e) - Only reasonable expenditures eligible
26 USC § 174(f) - Cross references
Download a PDF of the IRC Section 174 for your convenience.