Research and Development Incentive Tax Act of 1981

Research and Development Incentive Tax Act of 1981 - Amends the Internal Revenue Code to allow a nonrefundable income tax credit of 25 percent of the qualified research and experimental expenditures paid or incurred by a taxpayer in carrying on a trade or business. Defines "qualified research and experimental expenditures" as those business-related expenditures which are deductible under current provisions of the Internal Revenue Code. Limits the scope of such expenditures, for both the tax credit and tax deduction, to technological research designed to develop or improve products or services. Excludes expenditures for ordinary testing or inspection of materials or products, research funded by public grants, or expenditures involved in acquiring another's patent or process.

Limits the amount of expenditures eligible for the credit to those which exceed the annual average of such expenditures for the immediately preceding three years. Requires taxpayers under common control to aggregate such expenditures for purposes of computing the credit. Sets forth rules for adjusting such expenditure amounts when there is a change in business ownership. Provides for a three-year carryback and seven-year carryover of unused credits.

Allows a taxpayer engaged in a trade or business an income tax credit for 25 percent of the amount contributed to a research reserve. Imposes a maximum credit not to exceed an amount equal to five percent of the taxpayer's income allocable to his trade or business.

Provides for an income tax deduction equal to the aggregate qualified research expenses paid out of the research reserve. Requires that the amounts paid for research or experimentation be performed by an institution of higher education.

Provides for the deductibility of certain contributions of inventory and other property to be used for educational purposes or for research or experimentation.

Qualifies incentive stock options for preferential tax treatment under specified provisions of the Internal Revenue Code. Defines "incentive stock options" as an option granted to an individual connected with his employment by a corporation to purchase stock of any such corporation.