Abstract
The research tax credit has served as a financial incentive to encourage innovative businesses to increase their spending on research and development of new technologies and products; however, a special provision restricts the ability of businesses to claim the research tax credit for expenditures related to development of internal‐use software. Over the past 30 years, the Internal Revenue Service (IRS) has issued several sets of proposed regulations in an attempt to clearly define internal‐use software but these attempts were criticized as not adequately reflecting the technological advances of the Internet and the important role of software in all business activities. Finally, in October 2016, the IRS issued regulations providing guidance for identifying software development activities that are considered internal‐use software and those that are not, expanding the opportunities for businesses to claim research credits for software‐related expenditures. © 2017 Wiley Periodicals, Inc.
