Fall 2009 issue of Horizons

Raise Your Expectations CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS

Three Great Reasons to Claim the R&D Tax Credit For manufacturing and distribution businesses, R&D activities often are critical to maintaining and expanding market share. The federal research and development tax credit is a cash benefit available for "increasing research activities,” where research expenditures are "undertaken for the purpose of discovering information ... which is technological in nature ..." Some clients wait for the right time to undergo an R&D tax credit study. There is no better time than now to investigate the benefits your business can realize through an R&D tax credit study. Here are three great reasons to claim R&D credits this year: 1. Recent Favorable Tax Case — Early in June, the Fifth Circuit Court of Appeals vacated the ruling on U.S. v. McFerrin. InMcFerrin, a Texas District Court ruled that research and development activities had to apply an old regulatory standard, generally referred to as the "discovery test." In vacating the decision, the court noted that taxpayers are able to estimate expenses if they can show that they performed qualified R&D activities. Evidence may include testimony and institutional knowledge of employees. This decision re-opens the door for businesses to look back at prior years for R&D activities. By Linda Paradis, CPA

2 Legislative Proposal for R&D — One of the key .proposals in President Obama's package of business tax incentives is to make the research credit permanent. Previously, the R&D credit has been given only one and two-year extensions, making it difficult to plan for future benefits. We believe there will be broad support for this proposal in Congress. 3. Higher Credit Percentage — Since 2007, businesses have been able to elect the research credit's Alternative Simplified Credit. For 2009, the ASC R&D credit percentage increases from 12 percent to 14 percent, making it closer to the traditional R&D credit, which has a rate of 20 percent. The primary advantages of the ASC are two-fold. First, the ASC looks at the increase in research expenditures only. The traditional credit compares the percentage increase in research expenditures to the increase in revenues. When a business' top-line growth is greater than its increases in R&D, the traditional credit may be zero, but the ASC often will provide a benefit. Second, the ASC looks at a maximum of three years of R&D expenditure history. In computing the traditional credit, businesses often were required to look at historical periods and tax returns extending back into the 1980s. With the ASC, businesses can take advantage of the R&D credit without the inconvenience of finding ancient records. There are other great reasons to claim the R&D credit as well, including the positive impact on the workforce when cash benefits are documented and realized. If you would like to investigate the potential benefits for your company, contact Linda Paradis, tax partner, or your RubinBrown advisor.

Questions? Contact:

Linda Paradis, CPA Partner Manufacturing and Distribution Services Group 314.290.3382 linda.paradis@rubinbrown.com

36 u fall 2009 issue