Why Do Venture Capital Funds Burn Research and Development Deductions‪?‬

ABSTRACT Venture capital (VC) funds form a separate C corporation for each venture that they support within their portfolio of diverse ventures. The separate incorporation of each portfolio venture loses tax value that could be achieved from deducting research and development (R&D) costs. The tax deductions of the ventures are trapped within a corporation that cannot use them. The resulting taxes are draconian, sometimes confiscatory. If R&D deductions were used optimally, taxable investors could achieve a tax regime that would not reduce their pre-tax return.