Year-End Tax Reform, State and Local Tax Strategies, and R&D Tax Credits for Tech, Life Sciences, and Communications Companies

In this fourth quarter update, we cover some of the most important tax issues for companies in the technology, clean technology, life sciences, and communications and media industries and touch on what your organization can do to stay ahead of them.

Tax Reform

On December 2, 2017, the Senate passed the Tax Cuts and Jobs Act, a tax reform bill that seeks to reduce tax rates for corporations and individuals following a strategy outlined in our previous Alert.  A similar tax bill was passed by the House of Representatives on November 16, 2017. The White House and Congressional leadership plan to have a unified tax reform bill ready for the president to sign into law before the Christmas holiday.

Potential Reconciliation Changes

Several updates to the unified tax reform bill are likely to occur during the reconciliation process.

Individuals

  • Further changes to the tax brackets and rates
  • Fewer itemized deductions
  • Alternative minimum tax (AMT) may be repealed
  • Taxation of flow-through income may move to preferred rates

Corporations

  • Tax rates may still drop—likely to 20%
  • AMT may be repealed
  • Ability to use net operating losses (NOLs) may be limited with an offset 80% or 90% of taxable income

International Provisions

  • Transition tax on existing exploration and production (E&P) companies
  • Future dividends from foreign corporations may not be subject to tax
  • Potential excise tax on payments for foreign entities

It’s difficult to predict what provisions will survive the reconciliation process. Other changes may also occur, and if a new tax law is passed before the end of 2017, there may be actions that you can take to reduce your overall tax impact.

2017 Year-End State and Local Tax Update

Many states changed their laws this year to generate more tax revenue from out-of-state companies, creating potential tax implications for technology, communications and media, and life sciences companies. Companies should be diligent about identifying changes in their income tax, sales and use tax, or other tax exposure.

In our recent webcast, we discussed some of the new laws and illustrate how the current tax environment may impact your company. View the webcast on-demand here

IRS Offers One-Time Exception to Claim $250,000 Payroll Tax Credit

The IRS granted a one-time exception to the R&D payroll tax credit, giving tax filers until January 2, 2018, to amend their 2016 tax returns and claim it.

The documentation required by the IRS to claim the credit can take several weeks to prepare, so companies should take action soon to meet the upcoming deadline. Filing for the credit may require coordination between a company’s tax preparers and payroll providers or professional service organizations (PEOs). Read more in our Insight .

2017 Year-End Tax Guide

Whether or not tax reform passes, there are still actions you can take to reduce your overall tax liability. Our complimentary annual tax guide can help you make more informed year-end tax planning decisions. Download the guide here .

Global Tax Strategies Guide

When it comes to worldwide expansion, even the simplest transactions can be complex, costly, and time consuming. Our complimentary Global Tax Strategies Guide can help you establish a more efficient and cost-effective expansion plan for your business, finding the right balance between implementation costs and your tax exposure. Download the guide here

IRS Announces One-Year Delay in the Application of Section 1.385-2

The United States Department of the Treasury and the IRS issued Notice 2017-36, announcing a one-year delay in the application of the documentation requirements in final regulations under Section 385.

Under Section 385, the Treasury is authorized to prescribe rules to determine whether certain instruments between related parties are treated as debt or equity—or as in part debt and in part equity. The Treasury and IRS intend to amend the documentation regulations to apply only to interests issued or deemed issued on or after January 1, 2019.

Federal Research Tax Credit Safe-Harbor Based on ASC 730 Costs

The IRS Large Business and International Division (LB&I) introduced a research credit directive for taxpayers that report R&D costs on audited financial statements. This directive will allow these taxpayers to take advantage of a safe harbor under which an adjusted amount of their ASC 730 R&D costs can be used as qualified research expenses (QRE) for the Section 41 research credit.

If a taxpayer complies with the requirements of the directive, the LB&I examiners won’t challenge certain QRE amounts for the R&D credit. Taxpayers should perform a feasibility analysis to determine if the safe harbor would be beneficial as compared to their current approach for identifying QREs.

Available Tax Strategies

Taxpayers who’ve purchased, built, or improved their real estate holdings can benefit from current tax rates by employing strategies and deductions that may not be available, or as valuable, in future years. Read more in our Insight .

We’re Here to Help

Moss Adams continuously reviews the regulatory and tax landscape for technology, life sciences, and communications and media companies. For more information about any of the issues discussed above or for insight on how they may impact your business, contact your Moss Adams professional.