Yes, even if you are in a loss position this year, it is still beneficial to you to complete R&D tax credit study every year. For the current year, yes, you must be profitable (and no NOL left) to utilize the federal credit. However, the credit carries forward 20 years and back one year. Thus, it could be of immediate benefit if your company was profitable in the prior years and can be saved for use in future profitable years. Also, if you are GA tax filer, you can get benefit from filing GA research credit tax form. The carryforward of an R&D tax credit will also help with quarterly tax estimates since you will know the credit will bring value by offsetting your tax liability at the end of tax year.

Besides these technical benefits, many experts say a company is better off to go through R&D study now versus waiting until they can use it for the following reasons:

• It’s cleaner than amending tax returns (amending return can be burdensome especially for companies who have businesses in multiple states). Besides, IRS audit risk is getting higher with amended return.
• Before you come out of NOLs, if you maximize your opportunity for claiming R&D credit, you can get a benefit right away when it turns to profitable year.
• Companies that claim the credit on-going basis will have stronger and cleaner project tracking
• Companies will also have better-educated engineers in terms of R&D tax credit who will ultimately better contribute capturing qualified activities and expenses. (keep securing engineering jobs as well)

Unfortunately, R&D credit is not a refundable credit, which means that if the credit is in excess of the tax liability, you cannot get a refund greater than the amount of the tax that is owed. For example, if your tax credit is $120 and your tax liability is only $100, then you will receive a credit of only $100. The remaining $20 will be carried forward though.

With regards to small businesses (5 million or less in gross receipt), however, the government allows them to take the R&D credit against their payroll taxes (essentially making it refundable). In addition, the government also allows small businesses (50 million or less) to take the R&D credit against their AMT.

No. not necessarily. You can carry the tax credit amount from the previous years R&D study over to future years. However, 1) if you are in a better position using Alternative Simplified Credit (ASC) method, you might want to amend the return and elect/use ASC method; or 2) if you were in taxable income position in the prior years, then you should carry back your R&D tax credit to offset some or all of your original tax liability you paid earlier.

It depends. Typically funded research is not qualified research under IRC 41(d)(4)(h). Research performed for a customer (or government) under a contract is considered funded if either of these statements hold true: — The amounts payable under the agreement are not contingent on the success of the research. — The taxpayer does not retain substantial rights in the research. In other words, as long as the taxpayers bear the financial risk and retain substantial rights in the results of the research, (meaning if the research is not successful, you wouldn’t get any money back) the reimbursement amount can be still included in R&D tax credit calculation.

Typically, the “funded research” is not qualified within the meaning of section 41(d)(4)(h). However, transfers between members of the controlled group are “generally disregarded” under Regulation section 1.41-6(i)(1) due to “single taxpayer rule”. Also, a foreign corporation can be treated as a member of controlled group. Thus, even if you are being reimbursed for your research expenditures by your foreign parent, since you are the single taxpayer in U.S., you are entitled to claim the qualified research.

It depends. If the employees are paid directly by the U.S. subsidiary (and are considered U.S. employees), then the U.S. subsidiary would be entitled to claim amounts paid to the employees as wage QREs. If the foreign parent pays the employees directly, any such QREs would not be allowed to be included in the U.S. subsidiary’s research expenditures even though the qualifying research is being performed in the U.S.