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University of Texas Develops Breakthrough Energy Innovation

In March of this year, engineers at the Cockrell School of Engineering at the University of Texas at Austin created a breakthrough new yeast strain that could lead to a more efficient biofuel production process, thereby making biofuels less expensive and more competitive with conventional fuels.

Biofuels are the modern energy sources that are developed from living organisms, like animals and plants. When oil prices began to rise, the U.S. increased its investment in biofuels as a source of renewable energy.

The new type of yeast cell, Yarrowia lipolytica, was created through a combination of metabolic engineering and directed evolution. It was engineered to increase its ability to transform simple sugars into lipids which then can be used to replace petroleum-derived products.

Not only could it help with biofuel production, the new yeast strain could also be used in biochemical production to produce oleochemicals, a chemical found in an array of household products, normally created from plant and animal fats and petroleum.

“Our re-engineered strain serves as a stepping stone toward sustainable and renewable production of fuels such as biodiesel,” said Hal Alper, associate professor in the McKetta Department of Chemical Engineering. “Moreover, this work contributes to the overall goal of reaching energy independence.”

Source: news.utexas.edu

2015 R&D Tax Extension Filing Dates Drawing Near

2015 extension filing dates for R&D Tax Credit claims are fast approaching. Key dates for 2015 are as follows:

*Company Type*	*Original Filing Date*	*Extension Filing Date*
Corporations (S,C) *	March 15, 2015	September 15, 2015
Single-member & Multi-member LLC’s, Individuals, Partnerships, Estates and Trusts**	April 15, 2015	October 15, 2015

*Tax returns for 2011 (originally filed in 2012) can be amended until March 15, 2015 or September 15, 2015, based on whether an extension was used in 2012.

**Tax returns for 2011 (originally filed in 2012) can be amended until April 15, 2015 or October 15, 2015, based on whether an extension was used in 2012.

The World Economic Forum recently released The Global Competitiveness Index for 2014-1025 ranking the top innovative countries in the world. The U.S. ranked number 5 behind Finland, Switzerland, Israel and Japan respectively. U.S. companies are spending billions of dollars per year on R&D to promote innovation. Every one of these companies should be claiming the R&D tax credit and receiving a significant reduction in their tax liability.

Bottom line -no matter the industry, no matter the size – if your company is producing, developing, manufacturing or improving products or processes, you are conducting qualified R&D, and therefore deserve a beneficial tax credit.

Never claimed the R&D tax credit before? Not a problem. The specialists at Swanson Reed have extensive knowledge on the R&D tax credit and will manage the process every step of the way. No more wasting time or money – contact a Swanson Reed representative today for more information.

Texas Is Home to a Thriving Biotech Industry

Texas has become a hot spot for scientific and medical research in the United States, with over 30 colleges, institutes and centers working on research and development projects. In 2014, the National Institutes of Health (NIH) database ranked Texas second in the nation for the number of clinical trials being conducted, with more than 16,900 studies in progress.

The numbers don’t lie…

Texas has more than 3,600 businesses engaged in biotechnology R&D and manufacturing.
From 2008 to 2013, venture capitalists invested $1.3 billion in 161 biotech and medical device deals.
The Texas Medical Center in Houston conducts $3.4 billion in R&D every year while housing more than 49,000 students and 106,000 employees.
Through the Texas Emerging Technology Fund (TETF), the state of Texas has raised $145 million in bio-medicine and pharmaceutical projects.

Texas Universities and other health-related institutions invest millions of dollars each year in biotech R&D and intellectual property generation. Texas is home to five of the nation’s top 100 medical schools. The top ten institutions for bio-medical R&D in Texas have invested nearly $2.5 billion in R&D.

Institution	Total Medical R&D Invested (in millions)
The University of Texas M.D. Anderson Cancer Center	$582.1
Baylor College of Medicine-Houston	$450.6
The University of Texas Southwestern Medical Center at Dallas	$388.9
The University of Texas Health Science Center at Houston	$226.7
The University of Texas Health Science Center at San Antonio	$163.8
The University of Texas Medical Branch at Galveston	$139.3
Texas A&M Health Science Center	$77.5
Texas Tech University Health Science Center	$60.6
University of North Texas Health Science Center	$41.9
The University of Texas Health Science Center at Tyler	$12.0
Total	$2,143.4

The Workforce

The biotech workforce in Texas is highly competitive. Texas is one of the top three states in the country for biotech doctorates awarded in agricultural sciences/natural resources, health sciences, life sciences and biological/bio-medical sciences.

The depth and strength of the Texas biotech industry can be seen in the workforce numbers.

Industry	Industry Code	Firms	Employment	Average Annual Wage ($)
Other Basic Organic Chemical Mfg.	32519	105	7,366	114,254
Agricultural Chemical Mfg.	3253	110	3,096	85,477
Pharmaceutical & Medicine Mfg.	3254	155	9,930	105,582
Electromedical Apparatus Mfg.	334510	57	2,039	92,026
Analytical Laboratory Instruments Mfg.	334516	32	1,534	80,434
Medical Equipment and Supplies Mfg.	3391	727	11,519	50,573
Testing Laboratories	54138	840	14,974	67,261
Biotechnology R&D	541711	353	4,485	105,097
Physical, Engineering & Life Sciences R&D	541712	687	15,657	89,997
Medical and Diagnostic Laboratories	6215	1,242	18,307	54,851

Well played, Texas.

Contact a Swanson Reed specialist for further information.

Source: texaswideopenforbusiness.com

The Domestic Production Activities Deduction

The Domestic Production Activities Deduction – also known as the manufacturing deduction or the Section 199 Deduction – was created as part of the Jobs Creation Act of 2004 to promote competition in the global marketplace. The deduction gives domestic manufacturers a tax incentive for conducting certain domestic production activities in the U.S.

Tell me more…

Businesses engaging in qualified production activities can take a tax deduction of 9% of their qualified production activities income (QPAI) or their net income. The deduction cannot be greater than 50% of W-2 wages.

“The deduction equals 9% of the lesser of: (a) qualified production activities income; or (b) taxable income for the taxable year. However, the deduction for a taxable year is limited to 50 percent of the W-2 wages paid by the taxpayer during the calendar year that ends in such taxable year. Qualified production activities include manufacturing, producing, growing, and extracting tangible personal property, computer software, and sound recordings, and the construction and substantial renovation of real property including infrastructure. The production of certain films is also a qualifying activity as are certain engineering or architectural services.” – IRS.gov

The Safe Harbor Rule

Under the safe harbor rule, businesses can claim the deduction if at least 20% of the total costs are the result of direct labor and overhead costs based in the U.S.

Qualified Production Activities

The qualified production activities under Internal Revenue Code Section 199 include:

Manufacturing based in the United States,
Selling, leasing, or licensing items that have been manufactured in the United States,
Selling, leasing, or licensing motion pictures that have been produced in the United States,
Construction services in the United States, including building and renovation of residential and commercial properties,
Engineering and architectural services relating to a US-based construction project,
Software development in the United States, including the development of video games.

Non-qualified production activities include:

Construction services that are cosmetic in nature, such as painting.
Leasing or licensing items to a related party.
Selling food or beverages prepared at a retail establishment.

Calculating the Deduction

Qualified Production Activity Income (QPAI)

The total income generated from qualified production activities. This will be the same as gross income for businesses with only one line of business. For businesses with multiple lines of business, income will need to be distributed accordingly.

Qualified Production Activity Expenses

All expenses directly related to the qualified production activities This will equal your total expenses for businesses with only one line of business. For businesses with multiple lines of business, income will need to be distributed accordingly.

Qualified Production Activities Income (QPAI) minus (-) Qualified Production Activities Expenses equals (=) Qualified Production Activities Net Income times (x) The QPA Deduction Amount of 9% equals (=) The Tentative QPA Deduction.

The Domestic Production Activities Deduction is one of the most beneficial, yet missed tax deductions in the U.S. tax system.

According to Paul Schlather, a senior tax partner with PricewaterhouseCoopers’ Private Company Services practice, “every small business in the manufacturing industry should be looking at this as a tax deduction. While Section 199 comes with a very complex set of rules, chances are small businesses will qualify for the deduction much easier than the rules depict.”
Contact a Swanson Reed specialist to find out more information.

The Information Technology and Innovation Foundation Asks Congress for More Supportive Manufacturing Policies

Congress’ recent Congressional Research Service (CRS) report states that the manufacturing industry has recovered from the Great Recession and is thriving.

The Information Technology and Innovation Foundation (ITIF) found this information to be misleading and released a report today — titled “A Critique of CRS’s ‘U.S. Manufacturing in International Perspective’” — saying the manufacturing industry is still in trouble and needs policymakers’ support to help it flourish again.

“America’s future economic prosperity depends on a healthy manufacturing sector,” said Robert Atkinson, founder and president of ITIF and co-author of the report. “We need to take an honest look in the mirror. Right now, the state of U.S. manufacturing is not a pretty picture. The CRS reports gets it wrong. The real facts are clear: U.S. manufacturing is in trouble and needs help more than ever.”

The ITIF report analyzes and opposes multiple statements from the CRS report:

How many manufacturing jobs did we lose?

The CRS reports a 12 percent loss of manufacturing jobs between 2003 and 2013 based on unofficial data.

The ITIF report found that based on the Bureau of Economic Analysis data, manufacturing employment decreased 30.7 percent between 2003 and 2013.

Is U.S. manufacturing output actually up?

The CRS report compares U.S. manufacturing output to other countries and finds that everything looks as it should with no real concerns.

The ITIF report compares U.S. manufacturing output as a percent of GDP and found that numbers were static at best.

Are there signs of growth?

The CRS report says the future is looking optimistic due to our high manufacturing R&D, high foreign direct investment and a high percentage of domestically manufactured inputs.

The ITIF report found that when controlling for industrial composition, the results are not so favorable for R&D.

The ITIF report continues with suggestions on how Congress could help support the struggling manufacturing industry, including legislation to reduce the corporate tax rate; improve investment incentives, including for R&D; better execute trade rules internationally and support manufacturing innovation and workforce development.

“Clearly, Congress needs to act to get U.S. manufacturing back on track,” said Atkinson. “Policymakers must take seriously the gravity of this situation. It is time to reinvigorate American manufacturing before it’s too late.”

Read the full ITIF report here.

Source: www.benzinga.com

American Innovation : Slowing Down or Just Moving in Another Direction?

There has been a lot of talk lately that American innovation is losing its way. That Americans are not creating and developing like we used to and consequently our country is falling behind other leading nations.

There have been complaints and accusations that companies are focusing on short-term stock prices instead of thinking long-term and investing their money in research and development. Supporters of this theory are saying this is extremely harmful to the U.S. economy and something needs to be done to stop the short-term thinkers.

Others are saying so what if this is the case. If it is true, there is no proof that this is causing the companies to innovate less or that it is negatively affecting the economy as a whole. Also, there is no solid proof that companies are actually innovating less.

The Wall Street Journal reported that S&P 500 companies’ spending on plants and equipment has slightly decreased in the past decade. On the contrary, the National Science Foundation estimates that R&D spending at bigger firms has been steady at 3% since 1995 and has even increased at smaller firms.

Josh Wolfe, founding partner of Lux Capital believes that American innovation is not declining, but instead the process in which it is taking place is changing. Big-name corporations are no longer the breeding grounds of innovation. Small, private companies are the ones innovating and then being bought by the larger public corporations instead of growing big themselves.

This has been the trend in the pharmaceutical industry for decades now. Large pharma corporations are conducting less R&D in-house and are depending on small biotech companies to come up with new products in which they then buy for themselves.

This trend could turn out to be a good thing. We are finding that smaller companies and startups are able to promote an innovative culture while it can be difficult to do so for large corporations that are bogged down by company politics and authority.

As long as we continue to innovate, we don’t really mind where it is coming from. Fortunately, both large and small companies are eligible for the R&D tax credit which can provide that extra cash flow needed for smaller, innovative companies conducting R&D projects.

If you are interested in claiming the R&D tax credit or would like to find out if you are eligible for the credit please contact a Swanson Reed specialist for more information.

Source: qz.com

Texas Leads the Nation In Total Energy Production

Since the discovery of the Spindletop Oilfield in 1901, Texas has been a hub for energy production in the U.S. The Texas energy industry is made up of three sub-industries:

oil and gas exploration and production
electric/coal/nuclear power generation
renewable and sustainable energy generation

Texas’ success in energy production is due to its natural resources and geography, qualified labor force, exceptional transportation systems and leadership in environmental research.

Texas has its own grid which allows its electrical transmissions and energy development to be independent from federal regulation.

With two of the largest wind farms in the western hemisphere, Texas ranks number one in the nation for installed wind capacity with 12,335 MW.

The energy industry is crucial to Texas, contributing over $172 billion to its economy. Overall Texas leads the nation in total energy production, biodiesel production capacity, and solar energy potential.

Nice work, Texas.

If you are conducting business in this industry you should absolutely be taking advantage of the R&D tax credit, both federally and locally. Most activities performed in the energy production industry satisfy the IRS’ 4-part test and therefore qualify for the R&D tax credit. Contact a Swanson Reed specialist for more information or take our eligibility test online today.

Source: texaswideopenforbusiness.com

Altera Corporation v. Commissioner, 145 T.C. No. 3 (2015)

Background

Altera Corporation v. Commissioner, 145 T.C. No. 3 (2015)

This court case is significant to taxpayers who engage in cost-sharing arrangements with foreign affiliates.

Cost-sharing arrangements (CSA) authorize a U.S. entity and its foreign affiliate to co-develop intellectual property and split the associated research and development (R&D) costs so that it is tax-efficient for both parties. For many years, the IRS and taxpayers have been debating whether, in addition to other compensation, the value of stock options and other stock-based corporations (SBC) provided to relevant employees must be added in the costs to be shared by the parties in a CSA. In 2003, the IRS settled the debate by declaring that all parties in a CSA must share any relevant SBC costs.

Basic Facts

Altera U.S., was a participant in a CSA with an offshore subsidiary, Altera International. Altera U.S. provided SBC to employees who performed R&D activities, although the CSA did not include the value of the SBC. Based on the 2003 regulations,the IRS set out to increase Altera International’s cost-sharing payments to Altera U.S. in the amount of Altera International’s proportionate share of the SBC, which increased Altera U.S.’ taxable income. Altera U.S. believed that the regulations were invalid and disputed the allocation.

Court’s Decision

The Tax Court ruled in favor of Altera U.S. and struck down the Regulation under the principles of Motor Vehicle Manufacturers Association of the United States, Inc. v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29 (1983), and sections 553 and 706(2)(A) of the Administrative Procedure Act (APA). The court stated that the IRS failed to satisfy the notice and comment requirements imposed by the APA in their entirety.

If the decision is upheld and finalized, Altera will have a significant impact on CSA and transfer pricing.

Click here to view the full court case.

Mythbusters : R&D Tax Credit Edition

With tax extension filing dates drawing nearer, it’s a good time to take a look at your finances and make sure you are receiving all the credits and benefits available to your business. The R&D tax credit is one of the most underutilized, yet one of the most rewarding incentives available for American companies. This is due to common misconceptions and insufficient knowledge of the credit. It’s time to put these misconceptions to bed.

My company doesn’t qualify for the R&D tax credit

The majority of people think the R&D tax credit is strictly for those super innovative companies that are constantly inventing something and racking up patents. Or This is simply not the case. As long as your activities can satisfy the IRS’ four-part test, you can qualify for the credit.

The IRS’ most recent data proves this theory to be untrue. These are the top industries that claimed the R&D credit in 2012:

Manufacturing — $6.7 billion
Information technology — $1.8 billion
Professional and technical services — $1.1 billion
Retail and wholesalers — $775 million
Finance — $265 million
Mining — $80 million
Utilities — $52 million
Real estate — $ 28 million
Construction — $25 million
Transportation and warehousing — $21 million

Another common misconception that falls under this category is that only large companies with lots of revenue can qualify for the credit. The credit can apply to all companies, no matter the size. In 2012, more than half of the claims came from companies with less than $10 million revenue.

Calculating the credit is too difficult and not the worth the time

In 2012, the amount of credits granted surpassed $11 billion, with the average claim equaling $694,000. Now tell me that number is not worth your time.

With companies like Swanson Reed, time is not an issue. We will handle every step of the filing process for you and will work directly with your personal tax preparer to get the information we need. We also offer a system that can substantiate your claim throughout the year with very little work on your part, so you aren’t left under a pile of paperwork when it comes time to file.

A lot of taxpayers feel that claiming the R&D credit will trigger an IRS audit. This is rare, but sometimes can happen when filing an amended return and claiming the credit. Since our system substantiates your claim for you, you should have all the documentation needed to prove your claim to the IRS. Swanson Reed will guide you through the entire audit process. Read our audit checklist.

I’ve never claimed the credit before, so I can’t start now

Up until recently, taxpayers who didn’t elect the Alternative Simplified R&D Credit on an original return could only elect the Regular R&D credit on an amended return. The Regular Credit may require documentation from decades back, which many companies do not have, so understandably, this acted as a deterrent. Now, taxpayers are able to elect the Alternative Simplified Credit on amended returns making the process much simpler and more lucrative for companies.

Contact a Swanson Reed specialist for more information.

Congressmen Propose “Innovation Box” in Legislation Draft

Charles Boustany (R-La.) and Richard Neal (D- Mass.), members of the House Ways and Means Committee, have introduced a bipartisan proposal to create an “innovation box,” a lower tax rate on business income that is a result of intellectual property, to encourage multinational companies to keep their work within the U.S.

The idea is proposed in a discussion draft of the Innovation Promotion Act of 2015, which focuses on how to attract and keep R&D investment and intellectual property (IP) in the U.S. Boustany and Neal are looking for extensive feedback and suggestions from their fellow congressman to include in an updated version later this fall. They believe that an “innovation box” or “patent box” will prevent foreign takeovers of U.S. companies and help keep jobs in America.

“When American innovators compete, we win,” says Boustany, according to Accounting Today. “Today, our tax code has erected barriers for innovators, forcing them to move overseas to create these exciting new products that are changing the way we live and work every day. We want that activity here in the United States. Congressman Neal and I have released bipartisan draft legislation to begin the conversation on how the United States can attract and retain the brightest minds and best ideas on Earth.”

The draft defines IP and provides a calculation methodology for finding your “Innovation Box Profit,” which other proposals have struggled with in the past. Qualifying Intellectual Property is defined as “ patents, inventions, formulas, processes, designs, patterns and know-how (and property produced using such IP), as well as other types of IP like computer software. The formula takes qualified IP gross receipts minus cost of goods sold and expenses, and multiplies it by the fraction of a company’s budget spent on U.S. R&D, which results in the Innovation Box Profit. That amount is subject to a tax rate of 10 percent, as compared to the current maximum corporate tax rate of 35 percent,” according to Accounting Today.

Other members of Congress are looking forward to the discussion and agree with Boustany and Neal that our tax system is in need of a complete reformation.

“We have to fix our entire tax code—top to bottom,” said House Ways and Means Committee Chairman, Paul Ryan (R – Wis.) in a statement to Accounting Today. “But if we don’t act soon to keep American businesses here at home, that challenge is going to be much harder. Foreign competitors are taking over U.S. companies at an alarming rate, and international pressures are only going to make the problem worse in the coming months. The proposal from Reps. Boustany and Neal can help us stem the tide and protect good American jobs. It will also help ensure the United States continues to be the world’s leader in innovation. Their plan would allow American businesses to better compete with foreign companies and keep their research and development facilities here in the U.S. This is just one piece of international tax reform, but it’s an important one. I applaud Charles and Richie for their work, and look forward to refining the proposal as we move forward on a broader plan to make America more competitive and promote high-paying jobs.”