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Why Do Venture Capital Funds Burn Research And Development Deductions?, Calvin H. Johnson

Calvin H. Johnson

Venture capital funds form a separate corporation for each venture that they support, within their portfolio of diverse ventures. The separate incorporation reduces the tax value that could be achieved from deducting research and development costs. The resulting taxes are draconian, sometimes confiscatory. If R&D deductions were used optimally, taxable investors could achieve a tax regime that does not reduce their pretax return, and taxable investors would drive tax-exempt investors out of the funds. If capital must come from tax-exempt investors, the funds should still be trying to use the R&D deductions against taxable income of the successful ventures. Tax …