Research credit extended.

• Author: Mondoro, Anthony J., Jr.

The long-awaited extension of the Sec. 41 research credit arrived in the Emergency Economic Stabilization Act of 2008, P.L. 110-343 (EESA), which contains the Tax Extenders and Alternative Minimum Tax Relief Act of 2008. On October 3, 2008, Congress passed the act and President Bush signed it into law.

The research credit had expired for amounts paid or incurred after December 31, 2007; however, EESA retroactively extends the research credit to amounts paid or incurred after December 31, 2007, and before January 1, 2010, with the following changes: EESA increases the credit rate under the alternative simplified credit (ASC) method from 12% to 14%, but only for tax years ending after December 31, 2008. Also, the alternative incremental research credit (AIRC) is eliminated for tax years beginning after December 31, 2008.

Implications

Given the current economic conditions, this retroactive extension potentially creates both cash benefits and earnings-per-share benefits for taxpayers. As a result of the retroactive extension of the research credit implemented under this law, taxpayers will need to consider the financial statement effect of the research credit's now being available for 2008. Taxpayers will also need to consider the effect of the research credit's retroactive extension on their estimated tax payments for the 2008 tax year.

Fiscal-year taxpayers that...