2007 Tax Year Provides a Renewed Opportunity for taxpayers to Gain the Benefits of a Section 41 R&E Credit Claim

Historically, some organizations have had difficulty tracking the information necessary to calculate and update the 1984 – 1988 base period calculation. This is often the case for organizations that have engaged in several acquisitions or dispositions of businesses during the intervening time period.

This year there is a new alternative that no longer requires using a base period that is over 20 years old. Congress passed the Tax Relief and Health Care Act of 2006 in which it sets forth a new Section 41 credit calculation basis beginning for the tax year 2007. This new, Alternative Simplified Credit calculation allows companies to determine their credit basis using a three-year rolling average rather than using the 1984-1988 base year period. This simple change provides a potentially lucrative planning opportunity for many companies by:

  • Eliminating the extensive calculations required to determine the 1984 – 1988 base period when entities are added or sold from a controlled group of corporations.
  • Eliminating gross receipts as part of the credit calculation, making research credit estimation much simpler in the planning process.
  • Enabling companies that historically did not get over the base period hurdle to now claim a credit using the new hurdle calculations.
  • Simplifying the claim calculations and eliminating a potential issue with the IRS by removing the 1984 – 1988 base period calculation as an issue.

While the Simplified Alternative Credit calculation is not for all tax payers, it does provide relief and benefit for a number of companies that have not historically been able to make a Section 41 credit claim.

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BCP is an engineering services firm with 26 years of engineering experience and know-how. Over the last six years, we have developed a unique approach to R&D and an experienced team of R&D engineers and professionals that work for and with your tax group to provide complete and accurate technical substantiation for your R&D claim.

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