The U.S. R&D Tax Credit was established in 1981 under the Economic Recovery Tax Act (championed by Rep. Jack Kemp and Sen. William Roth) to stimulate domestic corporate innovation during a period of economic stagnation. After serving as a temporary “tax extender” that was renewed 15 times over 34 years, the credit was permanently codified into Internal Revenue Code Section 41 by the PATH Act of 2015, which also expanded its benefits to help startups and small businesses offset payroll and Alternative Minimum Tax (AMT) liabilities.
The Origins and Evolution of the R&D Tax Credit
The Research and Development (R&D) Tax Credit was originally enacted as a temporary measure under the Economic Recovery Tax Act of 1981, signed into law by President Ronald Reagan. Spearheaded by Representative Jack Kemp (R-NY) and Senator William Roth (R-DE), the legislation was born out of a period of severe economic stagflation in the late 1970s. The primary objective was to halt the decline of U.S. corporate spending on research and development by providing a direct tax incentive for domestic innovation. Initially, the credit was designed to offset the high costs associated with technical experimentation and to ensure the United States remained a dominant force in global technological advancement.
For decades following its inception, the R&D Tax Credit existed in a state of legislative limbo, functioning as a “tax extender” that Congress had to continually renew—often retroactively. It underwent numerous modifications, most notably the introduction of the Alternative Simplified Credit (ASC) in 2006, which made it easier for companies with complex financial histories to claim the benefit. Finally, after 15 temporary extensions over 34 years, the credit was made a permanent part of the Internal Revenue Code (Section 41) with the passage of the Protecting Americans from Tax Hikes (PATH) Act of 2015. The PATH Act not only cemented the credit’s permanence but also expanded its utility, allowing eligible startups and small businesses to offset the Alternative Minimum Tax (AMT) and utilize the credit against payroll taxes.
What is the History of the R&D Tax Credit?
The Research & Experimentation Tax Credit (or R&D Tax Credit), is a general business tax credit under Internal Revenue Code section 41 for companies that incur research and development (R&D) costs in the United States. The credits are a tax incentive for performing qualified research in the United States, resulting in a credit to a tax return. For the first three years of R&D claims, 6% of the total qualified research expenses (QRE) form the gross credit. In the 4th year of claims and beyond, a base amount is calculated, and an adjusted expense line is multiplied times 14%. Click here to learn more.
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R&D Tax Credit Preparation Services
Swanson Reed is one of the only companies in the United States to exclusively focus on R&D tax credit preparation. Swanson Reed provides state and federal R&D tax credit preparation and audit services to all 50 states.
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R&D Tax Credit Audit Advisory Services
creditARMOR is a sophisticated R&D tax credit insurance and AI-driven risk management platform. It mitigates audit exposure by covering defense expenses, including CPA, tax attorney, and specialist consultant fees—delivering robust, compliant support for R&D credit claims. Click here for more information about R&D tax credit management and implementation.
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Swanson Reed offers R&D tax credit preparation and audit services at our hourly rates of between $195 – $395 per hour. We are also able offer fixed fees and success fees in special circumstances. Learn more at https://www.swansonreed.com/about-us/research-tax-credit-consulting/our-fees/
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