Congress passed a two-year extension for the R&D Tax Credit as part of the Fiscal Cliff Relief bill. The "American Taxpayer Relief Act of 2012" (the Act), which the President signed into law on Jan 2, 2013, extends the credit retroactively and is now set to expire at the end of 2013. This is the 15th credit extension since the original enactment in 1981. The latest credit provisions expired for those R&D expenditures which were paid or incurred after December 31, 2011. For fiscal year-end taxpayers, the retroactive extension will provide an opportunity to amend their 2011 return in order to claim those qualified expenditures which occurred in 2012.

The Act also addresses the adjustments required for qualified research expenses (QREs), gross receipts & the related base period when there is an acquisition or disposition of a trade or business, or a major portion of a trade or business. The adjustments are based on the number of days from the date of acquisition through the end of the acquiring person’s tax year.

Finally, the Act also simplifies the allocation of the controlled group credit among its members. The controlled group credit is allocated based on each member’s proportionate share of the group’s total QREs. The two year retroactive extension is great news for businesses that currently qualify for the R&D tax credit. Hopefully, as Congress continues to work through the fiscal issues, they will find a way to make the R&D credit permanent.

If you are developing, improving or refining products, processes, formulas, and computer software, you may qualify for the R&D Tax credit. » Find out if you qualify for the R&D tax credit