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A New and Improved Credit?
Bill Introduced to Extend the Research Tax Credit
by David M. Hull, CPA
Momentum is building in Congress to pass an extension of the research tax credit. House Ways and Means Committee Chairman Charles Rangel told reporters on May 7, “It's a top priority.” The exact nature of that extension has yet to be determined.
On April 17, 2008 a bill was introduced in the U.S. Senate that would extend the Federal Research Tax Credit. The Baucus-Grassley bill, named for Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Chuck Grassley (R-IA), would extend the Research Tax Credit through the end of 2009 as well as make certain changes:
- Repeals the Alternative Incremental Research Credit (AIRC) effective 2008. (The Alternative Simplified Credit, introduced in 2007, essentially obsoletes the AIRC.)
- Increases the Alternative Simplified Credit from percentage from 12% for 2007 to 14% for 2008 and 16% for 2009.
The elimination of the AIRC and the increase in the Alternative Simplified Credit is further transitioning to the form that is most likely to be made permanent. Both Senators Baucus and Grassley have previously introduced legislation to replace all the various calculation methods with the Alternative Simplified Credit. At 16% the Alternative Simplified Credit produces credits greater than the other calculation methods for many taxpayers. The Senators have introduced a target of 20% for either the permanent version or the next extensions.
H&K has modeled various scenarios to compare a 20% Alternative Simplified Credit with the outputs of various other calculation methods. At 20%, the Alternative Simplified Credit will produce the largest credit for all but the most extreme situations. Any opposition from taxpayers regarding the elimination of previous calculation methods should all but collapse at that point.
Congress is slamming through many consensus tax bills at this time. Look for this version to be passed quickly. The House appears to be on the same page, but predicting Congress is always a guess. Chairman Rangel has the House discussing a one year extension at this time. We'll keep you posted as things progress.
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