Tax Policy:

Additional Information on the Research Tax Credit

T-GGD-95-161: Published: May 10, 1995. Publicly Released: May 10, 1995.

Additional Materials:

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GAO discussed the future of the Internal Revenue Service's (IRS) research tax credit. GAO noted that: (1) the research tax credit is mainly earned by large corporations in the manufacturing sector; (2) the credit's net benefit to society should be evaluated in terms of the benefits derived from the additional research it stimulates rather than simply on how much research spending it stimulates; (3) it is uncertain whether the credit should be made a permanent part of the tax code, since its net benefit to society is unclear; (4) the revisions made to the credit in 1989 should have increased the amount of research spending stimulated; (5) the fixed credit base has resulted in disbursement disparities; (6) IRS has had difficulty administering the credit, since the definition of qualified research spending is unclear; and (7) Treasury issued final regulations in 1994 designed to clarify which types of research qualify for the credit.

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