Thank you for attending our Research & Development Tax Credit Overview webinar. We hope you enjoyed the course and find the information useful towards understanding the R&D Tax Credit. We encourage you to reach out to us for any additional concerns you may have regarding the material covered in class. We hope that you will be joining us next year for our future webinar presentations.

For your convenience, we have provided you with the Questions & Answers from the webinar presentation.

Question:
Are all legal fees paid to obtain a patent deducted under code section 174 included as R&D expenses on form 6785 line 8 (enter applicable of contract research expenses)?

Answer:
Attorney fees related to the patent are generally not qualified for the credit. They are 174 expenses, but they are not necessarily qualified for the credit under Sec. 41.

Question:
Can you provide a better understanding of a "Business Component" as discussed in the Bayer case vs. Cost Centers?

Answer:
Business component – they wanted the Bayer company to provide a list of all the thousands of items developed (i.e., drug formulas). The company had tracked the costs in various cost centers for each research facility (i.e., chemists’ payroll).

Question:
Did the extender package actually pass?

Answer:
No. The tax extender package had not passed as of the date of the webinar.

Question:
Did the Kansas R & D credit survive Brownback's changes to KS tax beginning in 2013? How much is it?

Answer:
Yes. The KS R&D Credit is 6.5% of the current year Qualified R&D expenditures over the average Qualified Expenditures incurred in the current and immediately preceding 2 tax years.

Question:
Does Oklahoma have a credit for R&D?

Answer:
No. Oklahoma does not have an R&D credit. However, Oklahoma does have a Research & Development New Jobs Credit available.

Question:
For a US Government contractor, can qualified R&D expenditures under a time and materials (T&M) contract avoid the application of the funded research restrictions?

Answer:
True Time & Materials (T&M) contracts for a Government contractor are not considered qualified R&D expenditures. However, the contract is the key and one should carefully review the payment and other terms of the contract.

Question:
For small inventors and business, are there good software programs you are aware of to track and help get started with collection of data?

Answer:
Yes there are some available. I can contact you to discuss in more detail.

Question:
Has the Family & business tax cut certainty Act of 2012 been approved?

Answer:
No. Not as of the date of the webinar (11/27/2012).

Question:
How do you bill for this service? Is it contingent, based on recovery or the credit?

Answer:
The fee is determined by a few different items such as size of company and amount of R&D work needed on our part. It is not contingent based. It's a fixed fee, not to exceed a specified amount.

Question:
How would developing a new software program meet the 3rd part of the 4 part test - process of experimentation?

Answer:
Thanks for the question - software is a good opportunity. The writing of code and testing can qualify. The first thing you want to ask is are they having to develop code or are they adapting off the shelf programs and "plugging them in" and writing minor items to make the programs work. Software can definitely qualify and be shown from the various code versions and logs software companies usually keep.

Question:
I have a biotech startup that is doing R&D on just one potential product. Are all expenses avail for R&D credit?

Answer:
They could. It depends on what is being done and what costs are being incurred.

Question:
How does #3 of the R&D 4-Part Test (evaluate alternatives) vary from Non-Qualified Activities (Adaptation of an existing business component)?

Answer:
"Adaptation of an existing business component" is "any research related to the adaptation of an existing business component to a particular customer's requirement or need".

Question:
If after filing your tax return you determine an R&D credit was available, how does one go about claiming and utilizing the credit?

Answer:
You must amend the return for the prior year to claim the credit. This may result in a refund for the prior year if the company is able to utilize the credit. If not, then the credit may be carried back 1 year and forward 20 years as part of the general business credits the company has available until fully utilized.

Question:
Max fixed base = 16% of what?

Answer:
The Maximum 16% Fixed Base % is set by the code. The Fixed Base % is multiplied against the 4 Year Prior Gross Receipts to get the Base Amount Limitation.

Question:
Does Montana have an R&D credit? Nonfundable?

Answer:
No - Montana does not have an R&D Credit. The credit expired on Dec. 31, 2010. However, unused credits may be carried back or forward as previously allowed.

Question:
Must the activity be manufacturer based resulting in a tangible item to qualify for the credit or would say computer software development qualify?

Answer:
No. The activity does not have to be manufacturing based. Many industries can qualify for the credit. Manufacturers and computer software companies are only two examples.

Question:
My company filed their 11120S late this year. Will they qualify for a credit?

Answer:
Yes - they can still claim a credit, but unless they filed a protective Form 6765 for the R&D credit - they will have to use the Regular Credit Method to determine the amount available.

Question:
PA R&D credit?

Answer:
Yes. PA does have a credit available. There is a limited pool amount each year allowed by the state.

Question:
Is the evaluation form required to be completed in order to receive CPE credit?

Answer:
no. it's not required.
Question:
If you have a R&D credit for 2008 and cannot use it in 2008 because the taxpayer is subject to AMT in 2008, can the 2008 credit be carried back and used to offset the 2007 tax liability assuming the taxpayer is NOT subject to AMT in 2007?

Answer:
Only 2010 R&D Credits generated can be used to offset AMT in 2010 or any years to which the 2010 R&D credits are carried back or forward. The 2008 & 2009 R&D credits being carried forward are not able to be used to offset AMT.

Question:
To clarify, no late relief on the election under 9100 for late elections, assuming no credit originally taken?

Answer:
Correct, no late relief is available. If you timely filed your original return and elected the ASC (Alternative Simplified Credit Method) then you cannot use relief under Reg. 301.9001 to change to the Regular Credit Method. The reverse is also true. You cannot change from the Regular Method to the ASC Method after your original return is timely filed.

Question:
Under the Start-Up fixed base % what does it become fixed at in Year 11? Is it based on the average of the prior 10 years?

Answer:
The Fixed Base % becomes fixed in Year 11 and stays fixed unless the company acquires or disposes of a company or a substantial part of a business. Year 11 Fixed Base % is calculated using 5 years worth of QREs and Gross Receipts from the 6 years available (the 5th - 10th years). What this means is the company determines which year out of the years 5 - 10 produces the highest % on its own and eliminates it from the Fixed Base % calculation. Thus, the company is left with only 5 years worth of QREs and GR's to calculate the Year 11 Fixed Base %.

Question:
Are fees generally calculated on a contingency basis or fixed fee?

Answer:
KBKG arrangements are only Fixed Fee arrangements.

Question:
what are the tax credits available in New York state?

Answer:
Yes, New York has an R&D credit available under a program called the "Qualified Emerging Technologies Company (QETC)". A company that increases staff and make significant financial investments in NY may also be able to qualify under the Excelsior Jobs Program.

Question:
What size companies do you work with?

Answer:
We work with all sizes. Large global corporations and small S Corps with under $10M.

Question:
Can you amend returns to take a credit?

Answer:
Yes, you can.

Question:
What is the 4 part test?

Answer:
I hope you were able to see the slide showing the 4 part test. Please let us know if you need us to send you a copy.

Question:
I have a small manufacturer that I consult with that develop several new products.

Answer:
Great. As a starting point look to see how much in estimated wages, supplies & outside contract services they may spend on those items. If you need help estimating the potential credit benefit please let me know. I'd be glad to help you.