Businesses May Be Able to "Cash Out" Unused R&D Credits

3 Minute Read
Posted by Randy Eickhoff on Mar 17, 2015 9:37:00 AM

Opening Possibilities with Cash Already Available


Small business owners don't always get to utilize the R&D tax credits that are available to them if they are not profitable or have a low tax liability. Toni Atkins, Assembly Speaker, supports a new bill that could help change all that. Atkins reports that the process begins by using a certificate issued by the Franchise Tax Board when a small business files their tax return. The company would then present the certificate to the state Controller for payment of 10% of their claimed R&D tax credits. Certificates would be issued to companies with revenues of $5 million or less. The program would provide additional working capital for small businesses for the tax years  2014 and 2015. In 2016, the available refund would jump to 15% of the R&D tax credits claimed. Any unused credits would be carried forward to be used in the future. The director of NFIB, John Kabatek, supports this bill because this will enable more businesses to get more products into the pipeline. More products equate to a widespread benefit to the whole country; because small businesses get tangible benefits from the R&D credits they're earning. 

According to the Internal Revenue Code, Section 41, and its application regulations, businesses that conduct development projects that satisfy the following four requirements qualify for R&D tax credits:

Business Component Development

Elimination of Technical Uncertainty

Process of Experimentation

Technological in Nature

Since there are no longer any requirements for qualified R&D to include revolutionary developments, activities such as designing, developing structures and systems applications may also qualify. Many small and medium engineering firms are unsure of how to perform these tests against each of their projects requirements to determine if the R&D tax credits are available for their specific design and development work.

Combined Talents will Increase Tax Credit Benefit Applications

CPA firms may understand the relevant tax laws and regulations, but they are not trained in technical fields that would appropriately quantify and qualify these R&D tax credit tests. Engineering firms understand the specifics of their business project applications for developing structures and systems, but they are not familiar with changing tax laws, especially with reference to the R&D credit applications. CPA's and businesses should seek the advice of a professional like Acena Consulting that offers the best combination of tax law experience as well as extensive expertise in engineering disciplines. Doing so will ensure all available incentives and tax credits are investigated on behalf of the small and medium-sized engineering firms. There are over 7,000 Federal and State incentives and tax credits available for funding. Once a third party firm can evaluate current development projects against the four tests of the Internal Revenue Code, Section 41, there is a model established for further use in project development and design structures. 


Under the existing California research credit , businesses like small engineering firms can reduce their taxes if they incur certain types of research related expenses. This assembly bill allows 10% R&D tax credits from 2014 and 2015 to be refunded in cash. This additional capital can then be reinvested  back into their research and development work. In 2016, the firm can cash out an additional 15% of their tax credits. As an added value benefit, any credits not cashed out are carried over into future years for tax purposes.


Speaker Toni Atkins is actively leading thoughtful efforts to boost the state economy by promoting life science investments and innovations. Speaker Atkins' bill is believed to pave the way to creating highly skilled, high-wage, life science jobs in California. Small companies engaged in biomedical research and development can use their leveraged tax credits to continue developing important breakthrough treatments and medical technologies. 

 Get an R&D Tax credit review where we go over your activities, documentation and give you your estimated R&D tax credits at no charge:

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Randy Eickhoff

Randy Eickhoff

Acena Consulting President Randy Eickhoff, licensed CPA, has partnered with more than 200 companies during more than 20 years of experience securing tax credits and other government incentives. His corporate partners range from multinational technology firms to smaller, privately held manufacturing, sports, and technology enterprises.