News and Insights

Congress Extends Research and Experimentation ("R&E") Tax Credit Update

Tax Development Dec 22, 2014

On December 19, 2014, the President signed into law the Tax Increase Prevention Act of 2014, which renews a collection of expired tax provisions commonly referred to as “tax extenders.” It includes a one-year extension of one of the most important tax incentives for U.S. businesses—the Research and Experimentation Tax Credit (“R&E Credit”) commonly known as the R&D Tax Credit. The R&E Credit expired on December 31, 2013, but the credit has a history of extension, expiration, and renewal. Since it was introduced in 1981, the credit has been extended 16 times and has been allowed to expire nine times. When it has expired, the credit has almost always been retroactively reinstated to provide continued benefits to taxpayers.

The frequent legislative deliberations around the R&E Credit have caused many taxpayer headaches. The last time the credit was renewed followed an expiration of the credit at the end of 2011. Congress debated retroactive renewal all the way through December 31, 2012, before passing the bill that extended the credit through the end of 2013. The late passage of the legislation meant that President Obama could not sign the bill into law until January 2, 2013. For taxpayers with a December 31st year end, that meant that the benefit of the R&E Credit could not be reported in their 2012 financial statements. Instead, the benefit had to be recognized in the following year.

Taxpayers have long waited for the R&E Credit to become a permanent part of the Internal Revenue Code. Congress debated this measure in 2014, but midterm politics prevented the initiative from moving forward. The Tax Increase Prevention Act of 2014 extends the current credit regime for qualified research expenses incurred through December 31, 2014. This is good news for all taxpayers interested in booking a financial statement benefit for the R&E Credit for their 2014 year end. Larger debates about a permanent credit and/or reforms to the credit calculation await the new Congress in 2015.


Jeff Malo

Stephanie Shell-Condon