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White House Threatens to Veto Permanent R&D Tax Credit Bill

The White House issued a statement saying that the President would likely veto H.R. 880 which seeks to enhance and make permanent the federal R&D tax credit:

The Administration supports enhancing, simplifying, and making permanent the Research and Experimentation Credit (“R&D credit”), and offsetting the cost by closing tax loopholes. The President’s Budget proposes to do so as part of pro-growth business tax reform that is revenue neutral over the long term. Making the R&D credit permanent will increase its effectiveness, since it will allow businesses to make investments and create jobs today confident that they will continue to benefit from the credit in the future. Moreover, four-fifths of the R&D credit is attributable to salaries of U.S. workers performing U.S.-based research—meaning that the credit helps create high-skilled jobs, as well as encouraging new innovations and future productivity.

However, the Administration strongly opposes House passage of H.R. 880, which would permanently extend and expand the R&D credit without offsetting the cost, adding to long-run deficits. By making the R&D credit permanent without offsets, H.R. 880 would add $180 billion to the deficit over the next 10 years. H.R. 880 violates the very standard that House and Senate Republicans approved less than a month ago in their concurrent budget resolution, which requires offsetting the cost of any tax extenders that are made permanent with other revenue measures. If the House passes H.R. 880, it will have approved nearly $600 billion in deficit increasing tax cuts mainly for corporations and wealthy estates this year – none of which are provided for in the Republicans’ own budget.


California Competes Credit Update

GO-Biz updated its FAQ for the California Competes Credit on April 29.

Of interest is their update to the table listing historical credit to investment ratios for applications accepted into the second round of the application process:

Gobiz_ratio_1501429

In addition, the have posted a full listing of all credit recipients with links to their respective contracts.


Paul Ryan Comments on Tax Extenders

On April 29 Ways and Means Chairman Paul Ryan spoke at an event for the Christian Science Monitor. The following a a transcript and video of an exchange with reporters regarding the status of tax extender legislation this year:

Question: There have been a few extender bills sort of trickling out of Ways and Means this year, state and local, R&D. Can we expect more of those, and will a permanent solution to all the extenders be a part of a limited tax reform?

Paul Ryan: Yeah, I think that’s a good question…. We likely will do some more bills out of committee. My goal is to avoid what happened last year, which is on December 11th people found out what the tax policy was going to be for two more weeks. I can’t tell you how many farmers I’ve talked to about section 179. They’re going to make a big purchase, like a $250,000 Case Magnum, or something like that, and they have from December 11 until December 31st to make a decision. That was ridiculous. And so all along, we wanted to show where we’re going, what we want to do to help add to certainty – because we had this uncertainty problem – and so yes, I do believe the extenders can be either part of a limited tax reform package this summer, or, if we just can’t come together with the administration on that, then we immediately move the extenders and do those as early in the fall as possible so we can give people time to prepare and plan. So, sooner rather than later as far as I’m concerned, and you know we’re pretty clear about what we think should be permanent.

Question: Let me make sure I get this, tax extenders as early as this summer, and perhaps by fall?

Paul Ryan: Yeah.


GOP Majority Leader Makes Permanent R&D Tax Credit Top Priority

Majority Leader Kevin McCarthy, in a memo released May 1, lists the simplification and permanent extension of the Research and Development Tax Credit a top priority for Congress:

Innovation is essential to achieving and maintaining economic prosperity in this increasingly competitive world. Yet our place as the most innovative nation on earth cannot be taken for granted. We must stay focused on promoting growth and expanding opportunities for the next great idea. In that vein, we will start in May with what I hope will be an ongoing push towards advancing science and technology with consideration of: H.R. 880, the American Research and Competitiveness Act of 2015 (Brady) to simplify and make the research & development tax credit permanent.


BNA’s Laura Mahoney on the California Competes Credit

As always, Laura Mahoney provides detailed clarity on California’s tax incentive programs:

Demand for a new tax credit aimed at business expansion in California continues to outstrip supply as state regulators iron out details for awarding the credit and recouping it if businesses don’t live up to their promises.

About 250 businesses asked for $289 million in credits from a pool of $75 million to be awarded by the Governor’s Office of Business and Economic Development (GO-Biz) April 16. It’s the third application round since the program was created in 2013, and the application window closed Feb. 2.

In the first two rounds, 400 companies asked for $500 million in credits from a pool of $29 million awarded to 29 companies in June 2014, and 286 companies asked for $329 million from a pool of $31 million awarded to 56 companies in January 2015.

A total of $151.1 million is available in the 2014-15 fiscal year, with one more round of applications and award of the final $31.1 million scheduled for June 18. In the next fiscal year, $200 million will be available for the credit.

In exchange for the credit, companies commit to creating and retaining jobs, and investing in equipment, intellectual property and other business development tools. It helps if they plan to invest in areas with high poverty and unemployment rates.
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BNA Incentives Watch on California Competes

BNA’s “Incentive Watch” on the next round of California Competes credit and the ongoing legal controversy regarding regulating consulting fees:

As the deadline looms for another round of California Competes tax credit applications, demand is certainly going to outpace the supply of available credits. With recently issued final regulations for the credit, taxpayers have new considerations in submitting their applications, including a divisive requirement that applicants must disclose contingency fee arrangements.

The California Competes tax credit, first available to taxpayers in 2014, is aimed at fostering business relocation and expansion in California, and replaces the Enterprise Zone Tax Credit in California, which has been phased out. It gives credits to businesses based on several criteria, including job creation. For the most recent application period that closed Feb. 2, the California Competes program received 253 applications, requesting a total of $289 million. Unfortunately for applicants, the Governor’s Office of Business and Economic Development (GO-Biz) will only award $75 million in tax credits during the February application period. California will also award $31.1 million in credits, plus any unallocated funds from previous applications periods, for the final round of applications, which are being accepted starting March 9.

In the January application round, GO-Biz received 286 applications requesting $329 million in credits. Ultimately, 56 companies received $31 million in tax credits. This brought the total amount of credits awarded through the program up to $60 million.

In February, final regulations governing the California Competes credit took effect. Although the final regulations are similar to emergency regulations adopted last year, there are a few changes, including a provision that allows companies to apply for the credit multiple times, provided they meet additional investment and employment requirements.

One of the more controversial regulations is the requirements regarding contingency fee arrangements between applicants and third parties that prepare the credit application. Not only are applicants required to disclose these fee arrangements, but the arrangements will be reviewed by GO-Biz to ensure that fees are reasonable. This regulation led to a lawsuit by Ryan LLC, a tax services firm headquartered in Dallas, Texas, challenging the contingency fee disclosure requirements.

This is not the first time that California has tried to restrict contingency fees. According to the complaint in the Ryan case, California has twice introduced legislation that restricts contingency fee arrangements in tax-related matters, but neither was enacted into law. On the federal level, the DC District Court, in Ridgely v. Lew, invalidated the I.R.S. Circular 230 contingency fee ban on tax practitioners.

The Ryan complaint alleges that GO-Biz abused their rulemaking powers by adopting regulations which conflict with California law. The complaint alleges that California law specifies the factors used in determining which businesses receive California Competes credits and that consideration of the contingency fee arrangement imposes an additional condition on tax credit applicants. California issued an answer to the complaint on Feb. 20.


California Bill Would Provide Small Businesses With Cash Grant For Unused R&D Tax Credits

AB 437, sponsored by California Assembly Speaker Toni Atkins, would provide businesses with less than $5 million in gross receipts to receive a cash grant for between 10 and 15 percent of any unused R&D tax credits.

According to the Sacramento Business Journal:

Under the existing California Research Tax Credit, businesses can reduce their taxes through if they incur certain types of research-related expenses. However, data from the Franchise Tax Board show a majority of the tax credits available to small businesses go unused because the business does not have enough taxable liabilities.

Assembly Bill 437 would allow businesses with revenues of $5 million or less to cash out 10 percent of all R&D tax credits received in 2014 and 2015, and reinvest the money into research and development. Beginning in 2016, businesses would be able to cash out 15 percent of their tax credits.


IRS Authorizes Retroactive WOTC Transition Relief

In March of 2013, because of Congress’ retroactive authorization of the WOTC program, the IRS allowed a brief period of “transition relief” to allow taxpayers to file WOTC applications for employees hired in 2012 retroactively. Normally, the WOTC program requires that applications be submitted within 28-days of an employee’s start date.

There has been speculation that since Congress once again authorized WOTC for the year that has passed, IRS would provide a similar transition relief in 2015 for employees hired in 2014. Today, we received IRS Notice 2015-13 which does just that.

The Notice says, in part:

Because the Act extended the WOTC retroactively for 2014 for members of targeted groups, employers need additional time to comply with the requirements of § 51(d)(13)(A). Accordingly, a taxable employer that hired a member of a targeted group (as defined in §§ 51(d)(2) through (10)), or a qualified tax-exempt organization that hired a qualified veteran described in § 51(d)(3), on or after January 1, 2014, and before January 1, 2015, will be considered to have satisfied the requirements of § 51(d)(13)(A)(ii) if it submits the completed Form 8850 to the appropriate DLA to request certification not later than April 30, 2015.


Ways and Means Committee Passes Permanent R&D Credit

The Ways and Means Committee today passed H.R. 880 making the R&D tax credit permanent.

A similar bill was passed by the House last year, and despite the President calling for the same policy,* has little chance of passage on its own.

*Pages 49-50


California Competes Credit Updates

GO-Biz updated its FAQ for the California Competes Credit on Feb. 6.

Among the changes is an updated table of investment to tax credit ratios that were accepted into the second round:

Gobiz_ratio_150206

In addition, final regulations were approved on 2/5/2015, and a final Statement of Reasons was posted to the website as well.


GO-Biz Received 253 Applications for Latest Round of California Competes Tax Credit

California’s GO-Biz just sent out the following press release:

Sacramento, Calif. – Building on the state’s effort to help businesses expand and create new jobs, the Governor’s Office of Business and Economic Development (GO-Biz) today announced that it received a total of 253 applications with a combined tax credit request of $289 million for the most recent California Competes Tax Credit application period which closed on February 2, 2015.

This fiscal year, GO-Biz is authorized to award $151.1 million in tax credits of which 25% ($37.7 million) is reserved for small businesses. GO-Biz made the first allocation of $31 million on January 15 and is scheduled to make additional awards on April 16, 2015 ($75 million) and June 18, 2015 ($31.1 million plus any unallocated amounts from the previous application periods).

GO-Biz evaluates the most competitive applications based on the factors required by statute, including total jobs created, total investment, average wage, economic impact, strategic importance and more. By April 6, 2015, GO-Biz will post on the California Competes website a list of the applicants recommended for an award. The final decision on whether to award a tax credit is made by the California Competes Tax Credit Committee at a meeting scheduled for April 16, 2015.


Paul Ryan Wants to Deal With Extenders Early

According to Politico:

Chairman Paul Ryan during the [Ways and Means Committee] hearing said he wants to pass extenders earlier this year rather than waiting until the end of the year and making everyone frantic about whether they’ll be continued.


President’s Fiscal Year 2016 Budget Calls for Permanent, Expanded WOTC

The Department of the Treasury’s document, “General Explanations of the Administration’s Fiscal Year 2016 Revenue Proposals,” on pages 51-53, explains the President’s budget proposal regarding WOTC and the Indian Employment Credit:

Reasons for Change

The Indian employment credit and the WOTC have been extended numerous times, but extension has often been retroactive or near the expiration date. This pattern leads to uncertainty for employers regarding the availability of the credit and may limit the incentive the credits provide for employers to employ individuals from the targeted groups. To improve the effectiveness of the credits, both credits should be made permanent. Disabled veterans may pursue educational and other training opportunities after release or discharge from military service before entering the civilian workforce, yet few who pursue such education or training would be likely to complete it within the one-year period in which they would remain qualified for the WOTC under current law. The Administration believes that such education and training is beneficial and that disabled veterans who pursue such opportunities should remain a qualified veteran for the purpose of the WOTC until six months after the education or training is completed.
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WOTC Amendment to the Hire More Heroes Act

The Senate Finance Committee will consider today H.R. 22, the Hire More Heroes Act. H.R. 22 was passed by the House to exempt veterans from being taken into account for purposes of determining the employers to which the employer mandate applies under the Patient Protection and Affordable Care Act.

In the Senate Finance Committee Senators Portman and Cardin have submitted the following amendment to extend WOTC and add a new category:

Short Title: Extend and Expand the Work Opportunity Tax Credit

Description of Amendment: The Work Opportunity Tax Credit (WOTC) provides a tax credit between $1,200 and $9,600 per employee for hiring and retaining members of vulnerable groups.

Eligible groups currently include: veterans, TANF, SNAP, and SSI recipients, ex-felons, the disabled, and summer youth employees. WOTC expired on December 31, 2014. This amendment would extend WOTC through December 31, 2015 and would allow an employer hiring someone who has exhausted their 26 weeks of regular unemployment benefits to be eligible for a 40 percent credit on the first $6,000 of wages paid that first year, or a maximum credit of $2,400 per employee.


Reps Pascrell and Reed Reintroduce Bill to Add Long-Term Unemployed Category to WOTC

PolitickerNJ.com reports:

U.S. Reps. Bill Pascrell, Jr. (D-NJ) and Tom Reed (R-NY), both members of the House Ways and Means Committee, today announced the reintroduction of H.R.481, the Long-term Unemployed Hiring Incentive Act, legislation that would extend the successful Work Opportunity Tax Credit program to make companies that hire long-term unemployed individuals eligible for a tax credit of up to $2400. Similar legislation was introduced in the last Congress, and the legislation was approved by the Senate Finance Committee in S. 2260, the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act.
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