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R&D tax credits were enacted to stimulate innovation and research investment in the United States. The stimulus provides material non-dilutive capital to companies that improves their cash flow through reduced federal and state taxes. Furthermore, companies can claim R&D tax credits each year, thus creating a significant reduction to future years’ federal and state tax […]

The R&D tax credit is an incentive the federal government provides to businesses to encourage them to engage in research and development activities. Businesses must meet certain criteria set forth by the Internal Revenue Service (IRS) to be eligible for these credits. Businesses can take advantage of the R&D tax credit if they engage in […]

Companies claiming an R&D tax credit are required to have documentation to substantiate the value of the credit being claimed. The current record-keeping requirement is general and vague, and the IRS has not provided significant guidance as to what documentation is acceptable to substantiate R&D tax credits. Direction regarding substantiation must be gleaned from what […]

The R&D tax credit code and regulations do not specify record-keeping requirements. However, the guidance provided to taxpayers is that they must retain documentation to substantiate the credits being claimed. Project documentation is used to demonstrate the qualified nature of research activities. To qualify for the R&D tax credit, a project must: 1) relate to […]

Taxpayers must meet the process of experimentation “substantially all” test for each R&D project. In the case of Little Sandy Coal Co. Inc. v. Commissioner, the court held a taxpayer was not entitled to the R&D tax credit for activities related to the development of a tanker and a dry dock.  The court determined the […]

Taxpayers should be able to document how an R7d project meets all qualification requirements In the case of Siemer Milling Company v. Commissioner, the court held a taxpayer engaged in the business of milling and selling wheat flour was not entitled to the R&D tax credit.  The court examined seven projects, all related to the […]

Taxpayers should have strong defensible support to rely on time estimates In 1985, Efrem Fudim formed Light Sculpting Co. and innovated a process that became known as rapid modelling. It utilizes ultraviolet light and light-sensitive liquid polymers to fabricate plastic objects directly from instructions provided by a computer-aided design system. Mr. Fudim employed his wife […]

Taxpayers must retain substantial rights to research results to claim R&D tax credits In the case of Tangel v. Commissioner, the court held the taxpayer was not entitled to the R&D tax credit because it did not retain substantial rights to the research it performed.  The court analyzed the terms and conditions of the contract […]

Taxpayers must maintain and document base period detail for R&D credit calculations In the case of Research, Inc. v. United States of America, the court held Research, Inc. was not entitled to additional R&D tax credits for its tax year ending September 20, 1985, due to failure to accurately reflect its base period qualified research […]