{"id":2112,"date":"2020-09-10T04:00:00","date_gmt":"2020-09-10T04:00:00","guid":{"rendered":"https:\/\/gtmtax.com\/insight\/covid-19-research-government-rules-research-credit\/"},"modified":"2025-07-23T20:03:18","modified_gmt":"2025-07-23T20:03:18","slug":"covid-19-research-government-rules-research-credit","status":"publish","type":"insight","link":"https:\/\/gtmtax.com\/insight\/covid-19-research-government-rules-research-credit\/","title":{"rendered":"R&#038;D Credits Opportunity: COVID-19 Research Intersects with Government Contracting Rules for Research Credits"},"content":{"rendered":"<div id=\"sh-block--1639497404\" class=\"sh-block-wrapper text-block \">\n\n\n\n<!-- text-block\/render.twig-->\n<div class=\"container\">\n    <div class=\"wysiwyg layout-1col\">\n        <p class=\"preFade fadeIn\">It\u2019s an interesting time right now in the research credit and contracting world.<\/p>\n<p class=\"preFade fadeIn\">As we search for prevention, treatments, vaccines, and maybe a cure for COVID-19, the U.S. Government is providing many contracting and funding incentives for companies to develop diagnostics, therapeutics, and technologies to assist in dealing with this tragic disease. These incentives apply to companies developing a wide range of solutions including the following:<\/p>\n<ul class=\"checklist\">\n<li class=\"preFade fadeIn\">Pharmaceuticals<\/li>\n<li class=\"preFade fadeIn\">Medical devices<\/li>\n<li class=\"preFade fadeIn\">Diagnostics and testing<\/li>\n<li class=\"preFade fadeIn\">Technology<\/li>\n<li class=\"preFade fadeIn\">Data science<\/li>\n<li class=\"preFade fadeIn\">Artificial intelligence<\/li>\n<li class=\"preFade fadeIn\">And more.<\/li>\n<\/ul>\n<p class=\"preFade fadeIn\">Companies may not realize they are eligible or can still apply. Many of these programs initially had deadlines in the spring but have been extended; some to the fall and others to the end of the year. If we don\u2019t see breakthroughs in the next few months, it\u2019s likely they\u2019ll be extended further.<\/p>\n<p class=\"preFade fadeIn\">These programs can offer funding ranging from a few hundred thousand to millions. If you\u2019re working on something that can assist with COVID-19 \u2013 even tangentially \u2013 there\u2019s probably a program that can help, even if you\u2019re outside the U.S.<\/p>\n<h2 class=\"preFade fadeIn\"><strong>How This Relates to Research Credits<\/strong><\/h2>\n<p class=\"preFade fadeIn\">Historically the three most contentious issues related to the U.S. credit for increasing research activity have been (in no particular order):<\/p>\n<ul class=\"checklist\">\n<li class=\"preFade fadeIn\">Internal-use software<\/li>\n<li class=\"preFade fadeIn\">Tooling and supplies<\/li>\n<li class=\"preFade fadeIn\">Funded research<\/li>\n<\/ul>\n<p class=\"preFade fadeIn\">Let\u2019s look at #3: funded research.<\/p>\n<p class=\"preFade fadeIn\">In the U.S. there are four types of expenses that can be claimed for a research credit:<\/p>\n<ul class=\"checklist\">\n<li class=\"preFade fadeIn\">Wages<\/li>\n<li class=\"preFade fadeIn\">Supplies<\/li>\n<li class=\"preFade fadeIn\">Computer rents\/leases<\/li>\n<li class=\"preFade fadeIn\">Contract research<\/li>\n<\/ul>\n<p class=\"preFade fadeIn\">In order to claim contract research, the research cannot be funded by a third party. Contract research is not funded if (1) payment is contingent on the results of the research, and (2) the contractor maintains rights to the research.<\/p>\n<p class=\"preFade fadeIn\">The I.R.S. has consistently looked at work done when a contract is involved as potentially funded simply because there is a contract between a company and a third party. They then have looked at the payment terms (e.g. fixed fee, time and materials, cost plus, etc.) and the intellectual property (\u201cIP\u201d) rights to determine if the work is funded.\u00a0<strong>What they have not done, however, and this is critical, is look to see if the contract is for actual research or not<\/strong>. In many cases the contracts are silent on research and are actually for managing a development project, or for delivering a report or a product.<\/p>\n<p class=\"preFade fadeIn\">The result has been the disallowance of claims based on financial risk and IP rights when there was no contract research to begin with. The analysis should never have been done.<\/p>\n<p class=\"preFade fadeIn\">Back in late 2019, however, Populous Holdings Inc. (\u201cPopulous\u201d) challenged this approach. They argued that the contracts in question were not contracts for research, they were contracts to produce and deliver a product \u2013 architectural drawings \u2013 and therefore the funded research rules do not apply.\u00a0 In short, the tax court agreed and issued summary judgement in favor of Populous.<\/p>\n<h2 class=\"preFade fadeIn\"><strong>What This Means<\/strong><\/h2>\n<p class=\"preFade fadeIn\">There are significant opportunities to work with government funded programs to develop COVID-19 related solutions. They can be related to prevention, treatment, cure, analysis, diagnostics, assistance for first responders, and much more. Many of these programs are still open, including a number extended beyond their original due dates. If you are successful in winning these contracts or grants, depending on the language of the contract \u2013 the specific detailed scope of work \u2013 you may be eligible for significant tax savings.<\/p>\n<p>Global Tax Management (GTM) can help you determine your R&amp;D tax credit opportunities, and help you navigate other tax challenges in the ever-changing and complex landscape we live in today. Learn about our R&amp;D Tax Credits Services <a href=\"https:\/\/gtmtax.com\/corporate-tax-services\/tax-consulting-planning\/rd-tax-credit-services\/\">here<\/a>. For more information, please contact me at <a href=\"mailto:jforman@gtmtax.com\">jforman@gtmtax.com<\/a>.<\/p>\n\n    <\/div>\n<\/div><\/div>","protected":false},"template":"","meta":{"_acf_changed":false},"class_list":["post-2112","insight","type-insight","status-publish","hentry"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.8 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>R&amp;D Credits Opportunity: COVID-19 Research Intersects with Government Contracting Rules for Research Credits<\/title>\n<meta name=\"description\" content=\"Don&#039;t miss out on funding incentives and R&amp;D tax credits to develop diagnostics, therapeutics, and technologies to assist in dealing with COVID-19.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/gtmtax.com\/insight\/covid-19-research-government-rules-research-credit\/\" \/>\n<meta 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