R&E alternative incremental credit analysis: sec. 280C's impact.If a taxpayer chooses the alternative incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. credit (AIC AIC Association des Infermières Canadiennes. ) computation Computation is a general term for any type of information processing that can be represented mathematically. This includes phenomena ranging from simple calculations to human thinking. instead of the standard method, Sec. 280C will still apply. Therefore, a comparative analysis between the AIC and the standard research and experimentation (R&E) credit to determine which will provide the most benefit should be done on an after-tax basis After-tax basis The comparison basis used to analyze the net after-tax returns on a corporate taxable bond and a municipal tax-free bond. (i.e., net of the Sec. 280C add-back). A careful examination of the facts should be undertaken. If one makes the AIC election, one must have IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. consent to revoke To annul or make void by recalling or taking back; to cancel, rescind, repeal, or reverse. revoke v. to annul or cancel an act, particularly a statement, document, or promise, as if it no longer existed. it (Sec. 41(c)(4)(B)). In light of the fact that the credit is due to expire May 31, 1997, and no one knows whether an extension will be made, this analysis becomes much more important. If there is an extension, and the base period for calculating the credit changes from 1984 - 1988 to some other period, this election could have a significantly adverse effect in future years. In addition, if the AIC is elected, the credit applies to tax years beginning after June 30, 1996. Therefore, for calendar year-end taxpayers, the 11-month period for applying the credit is Jan. 1, 1997 through Nov. 30, 1997 (compared to January 1 through May 31 for the standard R&E credit). The AIC method provides a threetiered system for determining the amount of the credit, which is the sum of: 1. 1.65% the qualified research expenses (QREs) that exceed 1% of the average gross receipts the total of the receipts, before they are diminished by any deduction, as for expenses; - distinguished from net profits. - Bouvier. See under Gross, a. os> See also: Gross Receipt (Grs) for the prior four years, but does not exceed 1.5% of the average GRs; 2. 2.2% of such QREs between 1.5% and 2% of the average GRs; and 3. 2.75% of such QREs that are over 2% of the average GRs. Therefore, to the extent the taxpayer does not make a Sec. 280C election, the Sec. 174 deduction will be reduced (i.e., the add-back) by the amount of the credit determined under the threetiered system. If the election is made, the taxpayer will claim a reduced credit that is 65% of the total determined under the AIC method. The calculation under the threetiered system (taking into account the Sec. 280C effect) would result in credit percentages as follows: 1. 1.65% x 0.65 = 1.07% 2. 2.20% X 0.65 = 1.43% 3. 2.75% x 0.65 = 1.79% |
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