Are There R&D Tax Credit Opportunities in the Restaurant Industry?

If you own a restaurant, there may be potential research and development (R&D) tax credit opportunities available to you. In 2011, the latest year IRS statistics are available, food companies claimed more than $96 million in R&D tax credits – so now may be a good time to look closer at the benefits of the R&D tax credit, even if historically you did not think you had qualified activities. You may be eligible for federal and state R&D tax credits and incentives if you attempt to develop new or improved:
  • Recipes
  • Formulas
  • Products
  • Manufacturing processes
  • Software
With respect to software development in particular, in January 2015 the IRS and Treasury issued proposed regulations concerning the section 41 research tax credit and its treatment of expenditures related to the development of software, both internal-use (“IUS”) software and non-internal-use software. Under the new regulations and historically, IUS development generally must meet a higher standard to qualify that non-IUS development. The proposed regulations, however, narrow considerably the definition of IUS and thereby broaden considerably the range of software development expenditures eligible for the credit.

The R&D tax credit rules are a complex area of tax law. Contact a BDO restaurant professional if you want to review the requirements for the R&D tax credit to see if you can take advantage of the benefits.