"In my opinion, there has never been a better opportunity for our clients to take advantage of the research credit than today, given this new simplified calculation," says Moon.

If your organization engages in research related to the design and development of new or improved products or processes, it may be eligible.

How might these tax changes benefit your company?

• Opportunity to take advantage of the research credit (previously many taxpayers didn’t benefit)
  
• Eligibility for higher research credits in 2007 (due to the calculation change)
  
• Elimination of documentation and recordkeeping requirements for 1984-1988
  
• Simplified process to calculate increased research spending (based on actual research spending as opposed to requiring a complex calculation involving gross receipts)

Summary of law change

• Result of The Tax Relief and Health Care Act of 2006 (signed at the end of last year)
  
• Legislature extends the research credit calculation for research expenses incurred through December 2007
  
• Simplified credit calculation based on the incremental research spending that exceeds 50 percent of the prior 3-year average

Ask a manufacturing CPA
If you have questions about this tax law or the alternative simplified credit calculation and how these changes will impact your organization, contact us. For research and development manufacturing tax tips, access the IRS Web site.