As you are likely aware, the Research and Development (R&D) Tax Credit has yet to be renewed for the 2010 tax year. Historically, the tax credit has expired and been retroactively renewed five times in its brief history. While there are no certainties, it is highly likely that the R&D Tax Credit will be renewed retroactively as it has been in the past since its inception. As a note, the expiration of the tax credit does not impact the R&D tax deduction, which should be part of your tax planning strategy.
In addition to R&D tax planning, many Electric Utilities are taking new positions on Units of Property (UOP). Currently, the IRS and the Electric Utility industry are engaged in UOP discussions regarding Transmission and Distribution (T&D) assets and will soon turn their attention to Generation assets. With this pending tax accounting change, and the likely momentary lapse in R&D, companies should take time to think through their capital asset tax assessment and documentation strategies and processes to best manage and leverage these pending changes.
- Increased Tax Benefit at Exams
- Increase Technical and Contemporaneous Data Availability
- Reduced Data Collection Cost
- Reduced Internal/Vendor Processing and Preparation Time
- Inclusion of Tax Benefits on Current Returns
- Reduction in Duplication and Wasted Effort
- Increase Tax Resource Availability to Focus on Other Tax Areas/Concerns
The answer is actually relatively simple, however as most things, it boils down to execution. As an engineering firm that has developed specific tax expertise, we see great opportunity for Electric Utilities to initiate comprehensive planning for capital assets. At its core, BCP’s Asset Process Planning (APP) involves enveloping and building decisions trees based on your company’s desired tax treatment for capital assets. Once this tax basis and foundation is understood and defined, we assist you developing greater involvement on the front-end with your company’s asset planners and project development processes. By engaging these planning processes early on, it enables your engineering and project management groups to understand the core data and documentation needs on the front-end of projects, the potential financial impact of the projects, and improves your planning cycle as well as reduces back-end reactive tax management. Your tax group will more easily identify core projects and the specific tax benefits/treatment those projects will provide. With proper upfront engagement, you can more readily identify:
- Unique Projects Containing Tax Opportunities
- Better Identify Eligible Projects
- Isolate R&D tax credit opportunities (that are part of asset repairs)
- Engage in Contract Review for Tax Purposes
- Identify Missed Opportunities to leverage other tax opportunities
While we admit employing a process such as this may not feel like a flashy fix, it can be one of the most effective means to improving the treatment of Capital Assets through improving your internal tax processes, increasing company-wide knowledge and exposure, as well as increasing tax benefits obtained. It is a very manageable process and will reduce tax uncertainty and increase your tax department’s limited resources to other value-added areas and/or concerns.
To find out more about our APP process and how BCP can help your tax department move forward, contact Greg Lormand at 504-361-4236 x333 or email us at [email protected] for more information.
BCP is uniquely positioned to provide your organization with the necessary complimentary skill sets to work directly with your organization and bridge the gap between engineering and tax. Our 30+ years of Electric Utility engineering experience allows us to understand the key issues your engineering and project management groups face and translate their projects to meaningful tax language and meaningful tax benefit. More importantly we bring a fresh and new perspective to the tax world that tax firms cannot bring. We bring a problem-solving mindset, from minds that are focused on factual solutions and results that you can trust.