How to Compute the Research & Development Tax Credit in a Merger or Acquisition
The American Taxpayer Relief Act of 2012 (the Act) extends the Section 41 Research & Experimentation Tax Credit (or the R&D Tax Credit) for two years retroactively from January 1, 2012 – December 31, 2012. In addition, the Act clarifies the treatment of qualified research expenditures (QREs) in an acquisition or disposition of a trade or business.
The taxpayer acquiring the trade or business is to prorate the target’s QREs, gross receipts and related base year impact using the number of days from the time of the acquisition to the end of the year. A similar approach should be used for the disposition of a trade or business.
In addition, the Act clarifies the research credit allocation among group members. The credit is to be allocated among members based on each member’s proportionate share of the group’s total qualified research expenditures. The Act also provides guidance on how to allocate QREs and gross receipts when the acquiring taxpayer has a different tax year from the taxpayer disposing of the business.
This guidance is effective for tax years beginning after December 31, 2011.