Federal Tax Incentives Framework
Structured federal incentives supporting energy research investment models.
Federal Tax Incentives
At the Scientific Energy Research Consortium, the mission is to provide innovative solutions for the science and technology industry. The organization is committed to advancing the world through cutting-edge research and development.
26 USC § 41 –
Research Tax Credit
An investment in an ERC provides an investor with a 20% tax credit that may be used to offset income tax from other sources of income. Authority for this tax credit is provided under Section 41:
“The research credit shall be an amount equal to…
20% of the amount paid or incurred by the taxpayer in carrying on any trade or business of the taxpayer…including contributions to an energy research consortium for energy research.”
“The term ‘energy research consortium’ means any organization which is described in section 501(c)(3) and is exempt from tax under section 501(a) and is organized and operated primarily to conduct energy research, or organized and operated primarily to conduct energy research in the public interest.”
“The term ‘qualified research’ means research with respect to which expenditures are treated as domestic research or experimental expenditures under section 174A, which is undertaken for the purpose of discovering information which is technological in nature and the application of which is intended to be useful in the development of a new or improved business component of the taxpayer, and substantially (80%) all of the activities of which constitute elements of a process of experimentation for a purpose described in (section 41(d)(3)).”
“Research shall be treated as conducted for a purpose described in this paragraph if it relates to a new or improved function, (improved) performance, or reliability or quality.”
26 USC § 174A –
Research Expense Deduction
An Investor who invests an ERC may claim a deduction equal to the total amount paid or incurred with respect to the cost of the ERC research project. This expense deduction may be applied against other taxable income, thereby reducing the taxpayer’s overall income tax liability.
“There shall be allowed as a deduction any domestic research or experimental expenditures that are paid or incurred by the taxpayer during the taxable year.”
“The term 'research or experimental expenditures' means expenditures incurred in connection with the taxpayer’s trade or business that represent research and development costs in the experimental or laboratory sense.”
26 USC § 197 – Intangibles Amortization
An investment into an ERC for the conduct of qualified research will result in the creation, production, development or improvement of intangible assets such as knowhow any patent, copyright, formula, process, design, pattern, know-how, format, package design, computer software, or interest in a film, sound recording, video tape, book, or other similar property. The investor may benefit from the ratable amortization of the cost basis of qualified intangible assets over 15 years.
“A taxpayer shall be entitled to an amortization deduction with respect to any amortizable section 197 intangible. The amount of such deduction shall be determined by amortizing the adjusted basis (for purposes of determining gain) of such intangible ratably over the 15-year period beginning with the month in which such intangible was acquired.”
“Except as otherwise provided… the term amortizable section 197 intangible means any section 197 intangible acquired after August 10, 1993 (or after July 25, 1991, if a valid retroactive election under § 1.197-1T has been made), and held in connection with the conduct of a trade or business or an activity described in section 212.
