Thank you for attending our RD 101: Research & Development Tax Credit Overview webinar on 8/20/13. 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. As promised answers to your questions from the webinar are listed below:

Q: All the subsidiaries are single member LLC and owned by an S-Corp parent company. Using regular method.
A: One more thing – remember to examine the ASC method if they’ve had R&D in all 3 of the prior years as well as the current year.

Q: If a parent company has several subsidiaries and only one has R&D expenditures. For the gross receipts purposes, do we need to include all the subsidiaries?
A: Do they file a consolidated return? Remember, you will want to calculate each year’s credit under both the Regular Credit Method, and the ASC Method and use whichever provides the largest benefit each year. The ASC Method does not use the Gross Receipts in the ASC calculation. Also, you can switch methods each year as long as you do it on an original timely filed return.

Q: All the subsidiaries are single member LLC and owned by an S-Corp parent company. Using regular method.
A: Based on what you’ve described I would say yes you would include them in the calculation.

Q: Any problem with switching methods year to year going forward.
A: You can switch back and forth between the methods every year provided you make the ASC election on the original timely filed return.

Q: Can a taxpayer switch from year to year between ASC and Regular Method?
A: Yes. Absolutely. Whichever produces the best result. When filed on original timely filed return it’s automatic and you can change back and forth every year.

Q: Can carry forwarded R&D credit be used in any way if the business the R&D was associated with has been closed.
A: Generally no. What type of entity was it? C Corp, S Corp, LLC?

Q: Does Colorado have an R&D credit? Also, at what point is it feasible to put the amount of time into calculating the credit?
A: Yes, Colorado does have a state credit.

Q: Does Vermont have something?
A: Yes – Vermont does have a state credit.

Q: Hello, can you please elaborate on the example of a sole proprietor using Schedule C income in place of wages for QRE? Would a sole proprietor track their time and use a percentage of their gross receipts?
A: The sole proprietor would use his self-employment earnings as his “wages” and determine how much of his time was spent on qualified R&D activities. He would multiple his “wages” times the R&D time % to get his qualified ‘wage’ amount to use in the credit calculation.

Q: I thought that you were going to cover the California R&D credit calculations. Do you know why CA uses different sales (only sales within CA) for its credit calculation?
A: Each state with an R&D credit available will give a credit limited to the R&D activity done in their respective state. Thus, state credit calculations only factor in that state’s Gross Receipts and R&D expenses incurred in that state. As a result, a company with multiple R&D sites in different states can potentially get a credit in each state.

Q: Other than the implementation of the ASC, have there been any major adjustments to the calculation in recent years?
A: No major changes to the calculations. However, the recent extension changed the allocation of the Group Credit for tax years beginning after 12/31/2011.

Q: Regarding wages, I have a client whose employees are all members in an LLC and are getting paid guaranteed payments. Their guaranteed payments are exempt from Social Security taxes for religious reasons. Would these guaranteed payments count for R&D tax credit purposes?
A: For an LLC taxed as a parthership, guaranteed payment can qualify. Look to their K-1 Boxes 1 & 14, Self-employment income. Not all items in Box 14 qualify so please let us know if you have a question. The ‘net earnings from self-employment’ under section 1402(a) is what you need to determine.

Q: Would $10million revenue manufacturing company that spends $100K per year (guaranteed payments, supplies) developing and testing cattle equipment potentially qualify for the R&D credit?
A: Yes, it sounds like they could. More information would be needed to give a firm answer.
Q: Some more info about my client; they are in software business, formed 3 years ago and has had NOL all three years. Hope it is not too late to take advantage of QRE for my client or the prospective buyer.
A: No, it’s not too late. Each year stands on its own. The credit can still be calculated and carried forward if they are not able to be used in the year they are generated due to the NOL.

Q: My client has had losses since formation. Now the co is being sold; can the buyer get the QRE credit?
A: The seller would need to claim the credits on amended returns. Any unused credits carried forward may be of value to the acquiring company but will have limitations on usage.

Q: Thank you. We have a client who has inquired about R&D credit opportunities. I will keep your contact information. We may have questions and may require assistance in doing a study for them.
A: Great, Thank you, and thank you for attending this morning.
Q: Was the Eligible Small Business credit only applicable for the 2010 year with regard to the expanded carryback period? Thanks.
A: Yes – Only available for 2010 year. It was a special rule to help spur the economy. No other years have this option.

Q: The audio is breaking up on my end and continuously losing connection. Is this a problem for others or is it just me?
A: Sorry to hear you had issues. Audio is best using the phone number. Use of sound on computers is generally not good, as many have audio issues using computers. Thank you for letting us know.

Q: What about the State of Mississippi?
A: MS has an R&D Skills Tax Credit. Not the same calculation as the R&D credit we discussed.

Q: What is the best place to read more and get specific examples of activities that are QRE?
A: The code and regs give some examples, along with the BNA on the R&D Credit. If you have a specific example you’d like to run by me I’d be glad to help.