New Guidance Clarifies Internal Use Software Eligibility For R&D Credit

On January 16, the IRS and the Treasury Department released proposed regulations that provide a definition of software developed primarily for internal use and describe software not developed primarily for internal use. The proposed regulations, once finalized, will be effective for tax years ending on or after the date the final regulations are published in the Federal Register.  However, the IRS will not challenge return positions consistent with the proposed regulations for tax years ending on or after January 20, 2015.

Rules Help SaaS Companies and Others

Although computer software developed primarily for internal use doesn't qualify for the Sec. 41 research credit, except to the extent provided by regulations, previous guidance did not clearly define what internal use software is. The new guidance does so.