Daily Tax Update - October 3, 2016: IRS Issues Final Regulations on Research Credit for Internal Use Software

IRS Issues Final Regulations on Research Credit for Internal Use Software:  Today, the IRS issued final regulations clarifying the disallowance of the research and development credit for software that is developed by a taxpayer primarily for internal use.  The rules narrow the definition of internal use software to be defined as software used for human resources, support services, and financial management.  These regulations are promulgated under section 41 and finalize proposed regulations issued on January 20, 2015. 

Final Regulations on Earnings-Stripping Submitted for OIRA Review:  The Treasury Department submitted a final version of the controversial earnings-stripping regulations under section 385 to the Office of Information and Regulatory Affairs (OIRA) on September 30.  Executive Order 12866 requires all significant regulatory action to be reviewed by OIRA before taking effect.  OIRA review is seen as one of the final steps before the issuance of final regulations, and OIRA has up to 90 days to review a draft regulation.  While the proposed earnings-stripping regulations were deemed economically significant, the regulations submitted for OIRA review have not been designated as such.  Regulations are deemed economically significant if they are estimated to have an annual effect of $100 million or more on the economy.  The lack of such a designation may mean that there were sufficient changes made in the final regulations, which resulted in their economic effect being estimated at less than $100 million, or possibly that only a portion of the proposed regulations are being finalized.