Senators Coons, Roberts, Schumer urge IRS to help startups, small businesses access critical R&D credit

WASHINGTON – This week, U.S. Senators Chris Coons (D-Del.), Pat Roberts (R-Kan.) and Chuck Schumer (D-N.Y.) called on the Internal Revenue Service (IRS) and Treasury Department to encourage the IRS to issue guidance to help startups and small businesses access the research and development (R&D) tax credit.  At the end of 2015, Congress passed tax legislation that not only made the R&D credit permanent, but also expanded the credit to allow startups and small businesses to access it.  The idea to expand the credit to startups was drawn from the Innovators Job Creation Act, a bill Senator Coons introduced with Senators Roberts and Schumer.

“While the legislation sets the framework for ensuring that startups and small businesses can benefit from the R&D tax credit, getting the administrative details right is essential to ensuring that the policy goals of Congress are realized,” the Senators wrote.  “In particular, we view it as vital that Treasury and the IRS use common sense in administering the startup provisions of the R&D tax credit, reflecting the real world of entrepreneurs and new businesses.”

In addition to urging the IRS to issue guidance, the letter also asks the IRS to interpret statute in a way that allows the most startups and small businesses to benefit from the critical R&D credit.  Finally, the letter encourages the IRS to partner with the Small Business Administration to educate the small business community about their potential eligibility for the R&D credit.

Senator Coons is a member of the Small Business Committee and the Ranking Member on the Financial Services and General Government Subcommittee on Appropriations, which oversees funding for the IRS. Coons is a strong advocate for policies to encourage innovation and has long been a champion of the R&D tax credit as a key incentive for investment in advanced research.  Details about his work on the R&D tax credit can be found on his website here.  

The full text of the letter is below.

Dear Commissioner Koskinen and Assistant Secretary Mazur:

We write to encourage the Internal Revenue Service (IRS) to carefully issue guidance to ensure smooth and effective implementation of the R&D credits for startup companies and small businesses that were included in the Protecting Americans from Tax Hikes Act (PATH Act). We were the key sponsors of these provisions in the PATH Act, which were drawn from our Innovators Job Creation Act (S. 455).  This newly expanded credit has the potential to greatly assist new innovative businesses.  

While the legislation sets the framework for ensuring that startups and small businesses can benefit from the R&D tax credit, getting the administrative details right is essential to ensuring that the policy goals of Congress are realized.  In particular, we view it as vital that Treasury and IRS use common sense in administering the startup provisions of the R&D tax credit, reflecting the real world of entrepreneurs and new businesses. 

Specifically, we encourage the IRS to carefully evaluate the definition of gross receipts, so that deserving startups and small businesses are able to access the benefits of the R&D credit.  It is particularly important that startups are not excluded from the credit due to their receipt of government or nonprofit grants, a common source of support for many innovative companies.  Also, we want to ensure that record keeping requirements remain consistent with the intent of the bill.  The statute specifically provides statutory guidance that Treasury should issue “regulations to minimize compliance and recordkeeping burdens” for the startup.  We do not want entrepreneurs to spend significant time and money filling out unreasonable paperwork for the IRS.

Separate from guidance, we believe that a critical part of making these new provisions a success is to ensure that companies are educated about their potential eligibility for the newly expanded R&D tax credit in the PATH Act.  With that goal in mind, we strongly encourage Treasury and the IRS to conduct meaningful outreach to educate small and medium businesses as well as startups about the expansion of the R&D tax credit included in the PATH Act.  The Small Business Administration will be an important partner in this effort.

We appreciate your attention to this important matter.  We look forward to receiving your comments, guidance, and any plans you may have to educate small business owners about the new provisions of the R&D credit.

Sincerely,