Recent changes in IRS rules governing the research and development (R&D) tax credit are good news for innovative companies. Under previous regulations many businesses found it difficult--if not impossible--to meet the very stringent requirements for receiving this credit. The new rules relax or eliminate many of those hurdles.
The credit rewards companies for their innovation and willingness to take risks in research and development activities in the United States. The amount of the credit is based on the amount spent on R&D, as well as the level of the company's gross receipts.
A common misconception about the R&D credit is that only "high-tech" companies qualify. In fact, almost any type of company focusing on the research and development of new products and processes can reap the benefits.
Under the old rules, taxpayers wishing to receive the credit were subject to the "discovery test," which required that the R&D activities not only be aimed at creating new and improved products or processes, but also that they meet the almost unattainable standard of expanding, exceeding and refining the "common body of knowledge" of a particular field of science or engineering.
The new rules require that the research be intended to discover something that is technological in nature. In other words, the research must simply be conducted for the purpose of creating or improving products or processes using the...