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Abstract: 

Recognizing the vital role that computer technology plays in the U.S. economy, the IRS has issued proposed regulations expanding the research credit for software development. Financial institutions in particular will benefit from these new rules, which focus on software that enables third-party interaction with businesses. Financial institutions investing in technologies to deploy and support solutions such as online banking, online investment services, web-based insurance quoting services, and mobile apps, may now have part of the related development expense subsidized by federal and state governments. The newly proposed regulations continue a recent line of “pro-taxpayer” regulations relating to the research credit, which will expand the utilization of this incentive and reduce the controversy that has historically existed in this area.

Keywords: research credit; Prop. Treas. Reg. Sec. 1.41-1; internal-use software; high threshold of innovation test; R&D credit; dual-application software safe harbor rules

Affiliations:  1: Tax Credits Group.