The Treasury Inspector General for Tax Administration investigated small businesses using the research credit as a payroll tax offset (up to $250,000 of the credit can be used by eligible businesses to offset the employer share of Social Security taxes). The report said that 143 businesses claimed or received about $11.8 million in potentially erroneous research credits and that the IRS does not have processes to identify small businesses which are ineligible to claim the credit or the proper credit amounts. In response, the IRS said it was developing compliance initiatives.
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