Issue Can Wahoo’s new project satisfy the qualification requirements of the research and experimentation (R&E) tax credit, and any benefit could be provided for the company if using a tax credit? According to Internal Revenue Code (IRC), any documentation should be provided to corroborate the tax credit? And what is the most favorable method for company to treat the R&E expenditures?
Facts
Wahoo Software Inc., which provides communication software and related products for health and related fields, has grown readily in recent years. Wahoo has a balance of $110 million in net operating loss for GAAP and income tax purposes from 2008 to 2011, but it has been profitable since 2012 and has generated total $55 million in taxable income at the beginning of 2016. In order to achieve a goal of making a suite of four existing products, which are presently not compatible with each other, and having a seamless operation, the company is working on an R&D project to develop these four original products and offer them on an individual platform. Susan Wilson, the controller of Wahoo Software, is considering whether this project can qualify for the R&E income tax credit and be used to reduce the company’s tax expense.
Legal Analysis According to the IRC, section …show more content…
In addition, the purposes of working on this project are to create new features to four original products and to offer a single platform to make a suit of these products so that they can have a seamless operation. So, working on this project is to discover the information that is technological in nature. Moreover, substantially all the activities of this project are included in the process of experimentation and play an important role in developing new functions. Thus, Wahoo’s new project satisfies all the above requirements of IRC section 41(d)(1) and qualifies for the R&E tax
Facts
Wahoo Software Inc., which provides communication software and related products for health and related fields, has grown readily in recent years. Wahoo has a balance of $110 million in net operating loss for GAAP and income tax purposes from 2008 to 2011, but it has been profitable since 2012 and has generated total $55 million in taxable income at the beginning of 2016. In order to achieve a goal of making a suite of four existing products, which are presently not compatible with each other, and having a seamless operation, the company is working on an R&D project to develop these four original products and offer them on an individual platform. Susan Wilson, the controller of Wahoo Software, is considering whether this project can qualify for the R&E income tax credit and be used to reduce the company’s tax expense.
Legal Analysis According to the IRC, section …show more content…
In addition, the purposes of working on this project are to create new features to four original products and to offer a single platform to make a suit of these products so that they can have a seamless operation. So, working on this project is to discover the information that is technological in nature. Moreover, substantially all the activities of this project are included in the process of experimentation and play an important role in developing new functions. Thus, Wahoo’s new project satisfies all the above requirements of IRC section 41(d)(1) and qualifies for the R&E tax