Moldy Oldy Credits

[Snaggletooth]

I just took over an 1120 for a CPA who retired after serving this client for years.

Appears to be a well-prepared return, very intact, and with well-flowing schedules and information.

Except for one thing. There is a carryforward of $600,000 of research and development credit, some of it stretching back to 1997. The corporation has sold their manufacturing operation and is now only a merchandiser and, as a result, has not had any R&D since 2003. They have not had a profit since 2006, and deals with a product directly impacted by the recession.

I will admit that the R&D credit is a weak link in my experience, but I will get up to speed to do this return. One of the things I did learn is that the credit is subject to recapture if the corporation decreases (rather than increases) their R&D expenditures. How then can this credit survive without decreasing? And shouldn't, after so much time, this credit simply "rot out?"

The former CPA had an excellent reputation as being proficient in taxes, whereas others in his firm were auditors and other financial advisors. I don't want to be too quick to criticize him.

Your help is appreciated.

[Snaggletooth]

No Takers

O.K. No takers. This is an incredibly detailed subject, so I didn't expect an outpouring of responses. I believe TTB went as far as they could without creating a 4000-page book of such detail.

This sends me back to the code and regs. I can't make heads or tails of them. Can anyone suggest some "plain English" reading material on the R&D carryforwards?

If so, I will appreciate it.

[luke]

sorry snag

this one is over my head!

[CinSee]

I know very little about it from a CPE I took about 6 years ago.. I don't remember any recapture. I believe you have to increase your research activities over a "base year" so if you have the same amount of expenses as the base year you don't get the credit.

I wish I could find the material for you. I"ve moved about a half dozen times since then and I'm sure it's in the attic somewhere.

[BOB W]

Is this something you can use, maybe unrelated but found it interesting?

The url was not working, so copy and paste to your browser..........

rsmmcgladrey.com/images/docs/bonus_dep_swap.pdf

[Snaggletoof]

Thanks

Thanks for the responses. Actually Bob W, your link was quite helpful.

This is a tough subject -- not just for taxes but for book purposes as well.

Just FYI, the costs which gave rise to the credit expired on 12/31/09, but not
the carryforward. This may be taken with a twist, however, because the credit
has expired before (twice) and has been revived at the end of the next relevant
year.