The Research Tax Credit: A Temporary and Incremental Dinosaur
Posted: 13 Dec 2001
This article provides a critique of the current research credit regime under section 41 of the Internal Revenue Code. The article notes that there are three major problems: (1) the fact that more than 20 years after its enactment many of the key concepts that are critical to entitlement to the credit remain undefined; (2) the continuing uncertainty caused by the failure to make the credit permanent; and (3) the outdated, complex, arbitrary, and irrational operation of the credit's incremental structure. While most suggestions for improving the credit have focused on the first two problems, the article recommends major modifications to or the elimination of the incremental formula. As explained in this article, until the incremental formula used to compute the research credit is redesigned, the credit will not be effective incentive that produces fair and certain results for U.S. taxpayers.
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