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Economic Stimulus Options to Promote Innovation and Job Creation
by U.S. ResearchIntensive Emerging Companies. One Time Refund of NOLs in Lieu of Other Tax Benefits to Sustain Critical R&D During Financial Distress.
Description: Allow companies to temporarily elect to receive a refund of their
accumulated net operating losses (NOLs) at a discounted rate in lieu of claiming
qualified research expenses, as defined by Code §41(b), for Tax Year 2008. The
proposal would have the following features:
- Election to receive a refund of accrued NOLs at a discounted rate (i.e., 35%
corporate tax rate minus a discount percentage).
- Refunds must be reinvested in investments that would qualify as U.S.- based
research expenses under Code §41(b).
- Company would permanently forgo the opportunity to claim all NOLs
involved in the computation of the refund.
- Applies only to loss companies in Tax Year 2008.
- Limited to small companies.
- Refund capped at a per company dollar amount
Example: Assuming a discount percentage of 15%, a small biotech/hightech/
clean-tech company with $100M in accumulated NOLs could elect to claim a
refund of $20M on their 2008 tax return ($100M x (35% -] 15%) = $20M). The
$20M refund could only be used to pay for U.S.– based research activities. The
company would forgo the ability to carry forward the remaining $80M in NOLs
for future tax years.
Rationale: Many of America's most-promising companies in the areas of science
and technology are struggling to raise the necessary research funding to survive
the current economic slowdown and may disappear if economic conditions do
not improve in the very near future. In order to save the high-paying, research-intensive
jobs of America's innovation economy, Congress should allow
companies to accelerate the utilization of their tax assets. Companies struggling
to conduct capital-intensive R&D and meet payroll during the economic
downturn will forgo a larger tax benefit in the future to claim a smaller tax
benefit today. The proposal has minimal revenue impact since companies are
only claiming accumulated NOLs at a substantial discount in return for forgoing
the ability to claim remaining NOLs for future tax years.
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