Federal Research Tax Credit: Maximizing Your Company's Tax Savings

Tax Court's Union Carbide Decision Creates New Opportunities, New Limitations

Recording of a 100-minute CPE/CLE webinar with Q&A


Conducted on Tuesday, May 26, 2009

Program Materials

This seminar will analyze the Tax Court's Union Carbide decision, particularly emphasizing its impact on businesses' processes for documenting and qualifying expenditures for the federal research tax credit. The panel will also explain and offer their perspectives on recent IRS guidance on the research credit.

Description

Until the U.S. Tax Court's recent ruling in Union Carbide Corp. v. Commissioner, companies had not had any meaningful court guidance on the federal research credit since 2001. The new decision helps clarify longstanding areas of confusion for those claiming the credit.

Businesses claiming this mainstream tax incentive can look to the decision for helpful guidance on the government's often troublesome "discovery test," reconstruction of a credit base period, the experimentation process, recordkeeping, and substantiation of qualifying expenses and wages.

However, not all the news was good from the decision. Businesses now will have a tougher time counting supplies toward the research credit. Meanwhile, tax advisors and executives must also put into perspective IRS pronouncements that affect research credit compliance.

Listen as our panel of veteran federal tax advisors and tax credit specialists analyzes the favorable and unfavorable aspects for corporate taxpayers from the Union Carbide ruling and IRS guidance on the federal research credit.

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Outline

  1. Deconstructing the U.S. Tax Court decision in Union Carbide Corp. v. Commissioner
    1. Understanding and reacting to favorable aspects of the ruling
      1. The apparent end to IRS application of the “discovery test” to pre-2004 open tax years
      2. IRS regs resolve questions about qualifying research for tax years ending after 2003
      3. IRS position in Union Carbide can help businesses with open years preceding the regs
      4. The need to fully document the “process of experimentation” remains
    2. Implications for companies that “scale up” research from a pilot facility to actual production
      1. Tests to ensure that full-scale production will not cause problems count as qualifying research
    3. Use of the “Cohan rule” in determining base-period qualified research expenses
      1. Union Carbide ruling supports using reasonable estimates of expenses, in order to obtain deductions
      2. This is a favorable development for companies that would have difficulty obtaining detailed base-period records
    4. Negative implications from the court’s position on distinguishing between a product and the production process
      1. This means supplies will very likely not be counted toward the credit
      2. The Union Carbide ruling emphasizes the importance of proper documentation and claiming research credits on timely filed return
  2. Exploring IRS guidance on the research credit, for context
    1. Discussing relevant chief counsel’s rulings
    2. Discussing applicable provisions from 2008 audit guide

Benefits

The panel will thoroughly explore these and other important aspects of the federal research credit due to recent developments:

  • The base period determination: How large corporations can use reasonable estimates to obtain deductions.
  • The apparent end of the retroactive "discovery test": How to take advantage for open, pre-2004 tax years.
  • The inability to qualify supplies costs: How companies must handle documentation going forward.
  • The impact of IRS guidance: What recent rulings, audit guides, etc. mean for research credit claims.

Faculty

Bruce Warner
Bruce Warner

President
Warner Tax Consulting

He has more than 15 years experience working with the federal research credit, including six years as an IRS District...  |  Read More

Kendall Fox
Kendall Fox
Tax Partner and Leader, U.S. National Research and Development Team
PricewaterhouseCoopers

He has spent most of his work experience in the 1990s and 2000s on performing, managing, directing and defending...  |  Read More

Kathleen King
Kathleen King

Managing Director, Research Credit and Incentive Services
Alvarez & Marsal Taxand

Ms. King specializes in working with corporate taxpayers on tax incentives, including research credits. She has...  |  Read More

Joseph Maselli
Joseph Maselli
Director, Washington National Tax Services
PricewaterhouseCoopers

Before joining PricewaterhouseCoopers in 2006, he spent 32 years with the IRS Chief Counsel's Office, most recently as...  |  Read More

Christine Kachinsky
Christine Kachinsky
Federal Tax Partner, Accounting Methods and Credits
KPMG

She is Co-Leader of the firm's U.S. Research Credit Practice and a member of its Global R&D Incentives Team. She...  |  Read More

David Culp
David Culp
Senior Manager in Pass-Throughs Group, Washington National Tax Practice
KPMG

He has advised business clients on the federal research credit for 16 years and also works extensively in depreciation,...  |  Read More

Other Formats
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On-Demand Seminar Audio

$247