Revenue Reconciliation Act of 1989
You can read the entire Act here: Revenue Reconciliation Act of 1989.
CONTENTS:
EXPLANATION OF REVENUE PROVISIONS
Subtitle A. Extensions of Certain Expiring Tax Provisions
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13. Research and experimentation tax credit
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Explanation of Provisions
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Relation of credit to section 174 deduction
The amount of any deduction allowable to a taxpayer under section 174 or any other provision for qualified research expenditures is reduced by an amount equal to 100 percent of the taxpayer’s research credit determined for that year.
The bill clarifies that research expenses are deductible under section 174 only to the extent that they are reasonable under the circumstances. 21
—-footnotes—-
21 Thus, the bill provides for a rule contrary to the holding in Driggs v. United States, 706 F. Supp. 20 (N.D. Tex. 1989). The committee intends that the reasonableness requirement under section 174 be parallel to the reasonable allowance requirement for salaries and other compensation under section 162(a)(1), in that amounts purportedly paid for research may be recharacterized as disguised dividends, gifts, loans, or other similar payments. The committee does not intend that the reasonableness requirement under section 174 be used to question whether or not research activities themselves are of a reasonable type or nature.
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Subtitle H. Technical Corrections Provisions
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Amendments to the Technical and Miscellaneous Revenue Act of 1988
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12. Research tax credit provision: election of reduced credit
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