The American Institute of CPAs is asking the Internal Revenue Service and the Treasury Department to issue clarifying regulations on the expansion of research tax credit benefits for small business startups.
The Protecting Americans from Tax Hikes Act of 2015, also known as the PATH Act, expanded the research tax credit to offset some of the payroll tax liabilities of startup companies involved in qualified research activities. The AICPA sent a letter last week pointing to the designation of the credit as a “specified credit” used to offset the alternative minimum tax liability of an eligible small business.
“The expansion of the research credit regime, as part of the PATH Act for start-up companies with payroll tax liabilities, as well as AMT taxpayers, is an important opportunity for many small businesses performing qualified research to realize a financial benefit from claiming the research credit for the first time,” AICPA Tax Executive Committee chair Annette Nellen wrote in the letter.
Among the recommendations, the AICPA asked the IRS and the Treasury to issue regulations or other guidance to define “gross receipts” and clarify the order of the elections made. The regulations should also clarify that a taxpayer is eligible to make the section 41(h) election for its current taxable year even if it has $5 million or more in gross receipts in one or more of the four taxable years immediately preceding the credit year.
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