More Software Initiatives to Qualify for R&D Tax Credit

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On January 16th, the U.S Department of the Treasury released new proposed regulations that narrow and provide more clarity regarding the definition of Internal Use Software (IUS), thus making more software development initiatives eligible for the Research and Development (R&D) Tax Credit.

In addition to software development companies, this new proposal will also benefit manufacturers of all kinds, as they are constantly creating or improving products and/or manufacturing processes that often includes software development.

These proposed regulations provide that software is not considered to be developed primarily for internal use, now defined as software used for “administrative functions”, if it is developed to be commercially sold, leased, licensed, or otherwise marketed to third parties, or if it is developed to enable a taxpayer to interact with third parties or to allow third parties to initiate functions or review data on the taxpayer’s system.

These new regulations will encourage companies to continue to invest in “software innovation” that allows them to compete more effectively on a global basis.

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