Tax Incentives 2016 Update. Prepared for : MGI Presented by: Tax Credit Co. Kathleen Milone, Director Bryan Auernig, Director May 2016

Transcription

1 Tax Incentives 2016 Update Prepared for : MGI Presented by: Tax Credit Co. Kathleen Milone, Director Bryan Auernig, Director May 2016

2 Agenda 1. About Tax Credit Co. 2. Legislative Update-WOTC and R&D 3. Assessing Client Opportunities 4. Contact Information 2

3 Introductions Bryan Auernig Director 7+ Years In Tax Incentive Field Former ADP Sales Executive specializing in CPA focused channel Regular contributor to CPE and speaking engagements Kathleen Milone Director Former Senior Manager in Big 4 national R&D practice, with 10+ years experience Project manager oflarge R&D engagementsfor Fortune 500 companies 3

4 4

5 Some of Our Clients Our Partners 5

6 Legislative Update

7 PATH Act of 2015 Implications WOTC Work Opportunity Tax Credit (WOTC) Extended WOTC for hires through December 31, 2019; Added new targeted group: long-term unemployment, for employees who start work after 12/31/15, requiring: unemployed for more than 27 consecutive weeks; AND must have received federal or state compensation during period of unemployment 7

8 PATH Act of 2015 Implications R&D Research & Development (R&D) Tax Credit Federal R&D credit is now PERMANENT Benefits for tax years beginning after 2015: Eligible small businesses with average annual gross receipts of $50M or less may be able to utilize credit against AMT; DOOR OPENER for certain smaller entities, such as nonpublic C Corps, S Corps, partnerships, and sole proprietorships, who previously may not have been able to claim the credit due to AMT, may now have an opportunity going forward. Eligible start-up companies with gross receipts for the year of less than $5M may make an election to apply up to $250K of its research credit for the tax year against payroll tax liability (FICA), instead of income tax liability DOOR OPENER for certain smaller entities, such as C Corps, S Corps, partnerships, and sole proprietorships, to allow for a more immediate benefit for those company s whose credit would have otherwise been put on a carryforward schedule Why should this be considered NOW? Potential reduction in 2016 quarterly estimated tax payments, if anticipated being an AMT taxpayer for 2016, AND it is determined the average annual gross receipts threshold will be met Assessment of value provided prior to fee proposal 8

9 Other R&D Recent Developments (continued) Jan Proposed Treasury Regulations issued in regard to internal-use software Old Regulations - Taxpayers may follow either all of the internal-use software provisions of 2001 final regulations (REG , Jan. 3, 2001); OR 2001 proposed regulations (T.D. 8930, Dec. 26, 2001) Internaluse software ( IUS ) Non-IUS New Proposed Regulations internal-use software is software used in the general and administrative sense. Software facilitating or supporting the conduct of taxpayer s trade or business. Examples: Financial management/recordkeeping HR management functions workforce management Support services intended to cover the day-to-day back office functions of a taxpayer regardless of industry Impact of the Proposed Treasury Regulations for Software Clarifieddefinition of internal use software (IUS) Retained and modified the single product and production processexceptions to IUS Adopted third-party interaction exception to IUS Provided a definition for dual function software, as well as a safe harbor for such IUS Non-IUS Dual Function 9

10 Tax Credit Co. Value Added

11 Federal & State R&D Credits Federal R&D Tax Credit Section 41 of the Internal Revenue Code provides a credit for 20% of Qualified Research Expenditures (QRE s) over a historical base period amount or can elect the Alternative Simplified Credit ( ASC ) method which is 14% of QREs over half of the prior 3-year average. Eligible costs that contribute to QRE s include: Wages of an actual employee of the taxpayer Outside contractor costs (@65%) Supplies & materials used in the performance of research State-level R&D Credit Benefits of the Federal R&D Credit Permanent cash tax savings Lowers the effective tax rate Can carry forward unused credits up to 20 years (carry back 1yr) Serves as a return on your investment in R&D Can amend tax returns to claim for all open tax years Most states offer a program to incentivize R&D activities, with each state varying in terms of qualification, credit calculation methodology, etc. - R&D State credits are available in ~38 states 11

12 State Incentives 12

13 Tax Credit Co. Value Proposition We focus on helping our clients maximize their R&D credits while mitigating audit risk and minimizing disruption to business operations. Our business model, dedicated R&D team and processes are built for delivering the highest quality in the industry at the best value possible. In addition to Our Process and Our Team, further described in the next slides, some of our key differentiators are: v v v v Best in Class Value, Quality and Risk Mitigation. Dedicated cross-functional R&D team allowing for maximizing effectiveness and efficiencies, flexible pricing and shared risks provide unsurpassed value. Unparalleled R&D expertise. One team approach - R&D specialists, engineering and controversy integrated on every project team. Maximizes quality and project success. Pricing. Initial assessment is complimentary. For implementation, we offer flexible pricing arrangements, such as flat fee or time & materials not to exceed Shared Risk Aligned with Interests: Limited audit defense hours built in. In the event a claim rises to the level of appeals, such appeals defense hours are complimentary 13

14 Tax Credit Co. Value Proposition Our Process Our process is collaborative, builds in quality, transparency and has been fully vetted: TCC gate-based review process. Unique, collaborative approach involves client stakeholders in driving decisions regarding methodology, scope of study, risk tolerance o o o Gate 1: Methodology Review Gate 2: Quantitative Review of Calculation with risk-based analysis Gate 3: Final Deliverable review Nexus. Creates nexus between QREs and business component, even when no formal time tracking exists, which is a critical issue for IRS examination Audit-Roadmap. Deliverables provide an audit-ready roadmap for the IRS, and are flexible enough to be easily adapted if IRS imposes its own independent audit plan Mandatory IDR response. Included as part of your set of customized deliverables, so you are ready for an audit the instant it may occur Quality and risk mitigation. 30-step proprietary implementation and gate-based review process. Unique to the industry. Process reviewed and updated to stay current with IRS requirements. Developed by a former Big 4 IRS Controversy leader specializing in R&D tax credits, along with consultation with ex-irs engineering territory managers. 14

15 Tax Credit Co. Value Proposition Our Team Our team is built for client success Dedicated R&D group. Consisting of a team of cross-functional specialists assigned to every engagement: o o o R&D / Controversy attorneys R&D technical and industry specialists (i.e., engineers) R&D tax specialists Management. All project senior managers assigned on every engagement have a minimum of 10+ years Big 4 experience, and include former Big 4 R&D specialists, Deloitte Controversy and R&D director, and a former leader of a national R&D practice at a top 10 accounting firm. Industry Specialists. Utilize engagement team engineers with industry experience to interface with your engineers, dramatically improving the efficiency of your employees time, the quality of the deliverables, providing better data integrity R&D and Controversy. Embedded Controversy experts from the beginning of every engagement, negating the need for engagement restart if audit occurs and ensures prompt response to IDRs under the new IRS IDR enforcement process 15

16 Meet Our Team - R&D Practice Leaders Profiles Peter Mehta, J.D., LLM, Managing Director 20 years experience in Big 4; 12 in tax controversy Works extensively with IRS Engineering and MITRE specialists nationwide Kathleen Milone, CPA, Director Former SeniorManager in Big 4 national R&Dpractice, with 10+ years experience Project managerof larger&d engagementsforfortune 500 companies Stephanie Condon, Director 10+ years experience in R&D, including Big 4 R&D practice leaderof a national accounting firm Elizabeth Chic, J.D., Senior Manager 10 years experience in Big 4 Tax Controversy Extensive IRS defense experience 16

17 Federal R&D Credit Common Misconceptions Our company does not conduct any R&D activities R&D definition under I.R.C. 41 is very different than how R&D is commonly perceived. Our research is not new to the world, let alone the industry The Discovery Test was eliminated in Research must only be new to the taxpayer. We do not have time to gather documentation Provider should be offering to come on site and gather the documentation. Congress is going to eliminate the credit The Federal R&D credit is now permanent. Our company is not currently paying tax (in NOLs) The Federal R&D credit can be carried back 1 year and carried forward 20 years; Tax credits carry value other than just tax liability financial booking applications Deferred tax assets (DTAs) VERY important if seek to build value for acquisition 17

18 Common Eligible Industries Key Industries Agriculture Architecture Construction Computer Science Defense Contractors Engineering General Contracting Manufacturing All types Oil & Gas Pharmaceuticals Sciences All types Semiconductors Software Development Tool & Die Examples Specialty Aerospace Manufacturer $1.8 million credit over five years Engineering $1.3 million credit over three years Integrated Healthcare $250,000 credit for one year Healthcare $400,000 credit for three years Automotive Manufacturer $600,000 credit for three years 18

19 Contact Information Kathleen Milone Director (323) Bryan Auernig Director (323)