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Research and Development (R&D) Tax Credit studies can offer incredible tax benefits to innovative companies that qualify. To appropriately quantify and support a taxpayer’s R&D credit, it is important to go through the right process. Failure to do so can lead to hefty tax penalties and denial of your tax credit, even if you “should” qualify!

At Calvetti Ferguson, the R&D tax credit study process revolves around three main phases.

Phase 1: Free Initial Consultation and Benefit Estimate (2-4 weeks)

When a taxpayer approaches us about any tax incentive, our initial job is to make sure  the tax incentive truly offers value to the taxpayer. Eligibility for the tax credit does not always mean the taxpayer will benefit from it. Working alongside the firm’s experienced accountants, our tax incentive consultants review tax returns and the taxpayer’s operations to determine their eligibility for the tax credit. Our ultimate objective during this phase is to provide a fee and benefit estimate so the taxpayer can evaluate if the cost benefit is right for them at that time.

During this initial phase, our R&D tax credit experts educate the taxpayer on the R&D tax credit and evaluate the eligibility of the company’s operations. A large part of this initial consultation revolves around the Internal Revenue Code’s 4-part test requirements of the R&D credit, and whether the company’s activities successfully meet those requirements.

The key aspects of this conversation include:

  • Company operations (historical and present)
  • Company financials
  • Employee roles and responsibilities
  • Major projects
  • Project documentation
  • Relevant contracts

During this phase, the time commitment of the taxpayer is usually between 3-10 hours depending on the complexity and organization of the documents and company operations. With this information, we will generate an estimated range of the R&D credit, a timeline for completion, and a fee for the services to be completed.

Phase 2: Qualification and Quantification (3-6 weeks)

Once an agreement is in place between the taxpayer and us, the focus of the study turns to investigate the facts established during the initial discussions by interviewing key technical personnel and analyzing supporting documentation.

Some of the most important aspects of this phase include:

  • Project interviews – What projects were undertaken during the tax year? What was the project development process? Who was involved and why? What documentation is available that supports these facts?
  • Quantifying the wage, contractor, and material expenses associated with those projects
  • Determining which projects and expenses are qualified towards the credit

Ultimately, these facts are used to refine the initial estimated range down to the final credit figure. Through oral interviews and review of documentation, the credit is finalized, and the appropriate tax forms are completed and made available to the taxpayer’s tax preparer. In total, the taxpayer’s time commitment during this phase can range from 8-20+ hours depending on the complexity of the operation’s and R&D activities.

Phase 3: Final Report (6-8 weeks)

Following the completion of the final credit figure and applicable tax forms, we may have some follow-up questions and requests, however, the bulk of the lift is out of the taxpayer’s hands. During this final phase, we prepare a final report outlining the specifics of the study process, the findings, the applicable regulations, and relevant documentation, figures, and exhibits. While this report is not required in advance of claiming the credit, it is an important piece of documentation to support the credit claim and it will be the first line of defense if the IRS ever audits the claim.

If have questions about the process or need assistance, our tax specialists can help. Visit our webpage for more information and fill out the form to receive a complimentary consultation with our team.  

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