59%(34)20 out of 34 people found this document helpful
This preview shows page 14 - 16 out of 39 pages.
alcohol fuels for which there is an excise tax exemption for fuel taxes. Code Sec. 40.The alcohol fuels credit is claimed as one of the components of the general business credit. Thus, it is subject to the maximum tax liability rules and the carryback and carryforward rules.Taxpayers may elect to have the alcohol fuels credit not apply for any tax year. The election may be made or revoked at any time before the three-year period beginning on the last date for filing a return for such tax year, without regard to extensions.Research CreditA tax credit is allowed for qualifying research and development expenditures paid or incurred after June 30, 1996, and before January 1, 2014. The research credit is equal to the sum of (1) 20 percent of the excess (if any) of the qualified research expensesfor the tax year over the base amount and (2) 20 percent of the basic research payments.Code Sec. 41(a). Thus, the research activities credit has two components: an incremental credit and a basic research credit.Incremental Research Activities CreditThe credit for increasing research activities applies only to research expenditures incurred in carrying on a trade or business in which a taxable entity is already engaged. Expenditures incurred, for example, in developing or improving a product, a formula, an invention, a plant process, or an experimental model are eligible for the credit. No credit is available for expenses relating to a potential trade or business. Thus, new businesses conducting research for future production that undertake research geared to the development of a new business activity may not claim the credit.Qualified research expenses are the same as those costs eligible for a deduction under Code Sec. 174 (see ¶6435) other than expenses for foreign research, research in the social sciences, arts or humanities, or subsidized research. Credit-eligible research is limited to research undertaken to discover information that is (1) technological in nature and (2) intended to be useful in the development of a new or improved business component. Further, the research must be elements of a process of experimentation for a functional purpose (i.e., it must relate to a new or improved function, performance, reliability, or quality). Qualified research expenses cover in-house expenses for the taxpayer’s own research (wages for substantially engaging in or directly supervising or supporting research activities, supplies, and computer use charges) and 65 percent of amounts paid or incurred for qualified research done by a person other than an employee of the taxpayer. Prepaid contract research expenses are to be taken into account over the period in which the research is conducted.Basic Research CreditThe second element of the research credit computation is 20 percent of the basic research payments. This is sometimes referred to as the university research credit because the credit is available to corporations for basic research to be performed by universities, colleges, and other
qualified organizations (scientific research organizations, organizations promoting scientific research, and organizations that make basic research grants). The amount of basic research