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Federal Research Tax Credit Update

The American Taxpayer Relief Act of 2012 extended the Credit for Increasing Research Activities (“The R&D Tax Credit”) from Jan. 1, 2012 through the end of 2013. The extension marks the 16th time the credit has been extended since its origination in 1981.

In addition to extending the popular credit, the legislation also clarifies the rules relating to the use of the credit by companies that convey ownership of their business or dispose of a business unit. The revised regulations described in the ATRA ensure entitlement of the qualified research expenses incurred prior to the change in ownership for inclusion in the seller’s research credit computation.

The ATRA also includes revised rules relating to the allocation of the credit among members of a controlled group of businesses. Under the new regulations, controlled groups must allocate the group credit to each member company in proportion to the member’s contribution to the group’s total QREs. The revised allocation methodology applies to tax years beginning after Dec. 31, 2011.

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