Yair Holtzman
Anchin Block & Anchin LLP, New York, USA

Abstract

The federal Research and Development (R&D) tax credit, also known as the Research and Experimentation (R&E) tax credit is a major US economic incentive intended to encourage innovation and manufacturing within the US. It can provide companies with a significant, direct reduction in income tax liability for increasing their investment in scientific and technology based development projects compared to the previous three years. This investment is usually in the form of qualifying employee activities and other expenses related to product and process development, where the outcome is uncertain. It is therefore worthwhile for any US based business in the chemical industry that is attempting to innovate to consult with an R&D tax credit professional if they are not already claiming this credit. Even if a company is already claiming this credit it is worth examining to ensure this benefit is truly optimized.

OVERVIEW
The chemicals industry is an essential component of the U.S. economy, driving innovation for every other sector. The industry’s approximately 10,000 firms produce more than 70,000 products, accounting for more than $800 billion in revenue and touching 96 percent of all manufactured products.  The industry spans companies from the development of new plastics and injection molding to the development of green polymers to protect the environment, medical devices and pharmaceuticals.

Why did the US government create the research credit? From a financial perspective, research and development is a risky undertaking for businesses. A newly developed product may become tremendously successful and become a great source of revenue.  Similarly a newly developed production process or an improvement to existing process may significantly reduce costs, enhance product quality, increase yield, and enhance product safety and again result in increased cash flow. However, R&D efforts oftentimes fail, generating no immediate return. In these situations, companies might be reluctant to commit resources towards risky research undertakings. By e ...