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Taxpayers are allowed to file amended returns to reflect any changes or omissions from the original return if the amended return is filed within the three-year statute of limitations. Amended tax returns are an effective tool for capturing overlooked credits from prior years. There are many reasons a company, or individual, may decide to file […]

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 […]

To stimulate research investment in the United States, Congress initially provisioned a general business tax credit under Internal Revenue Code section 41 in conjunction with The Economic Recovery Tax Act of 1981. Although the most substantial investment in research and development is a company’s people (and subsequently their wages), the supplies they use to create, […]

A contract research expense is paid or incurred for the performance of qualified research to the extent it is paid or incurred pursuant to an agreement that (i) is entered into prior to the performance of the qualified research, (ii) provides research be performed on behalf of the taxpayer (taxpayer retains substantial rights to the […]

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 be engaged in carrying on a trade or business for in-house research expenses or contract research expenses to qualify for R&D tax credit consideration.  This is an issue that bears consideration as start-up companies pursue R&D tax credits. The “trade or business” and “in carrying on” requirements for research credit purposes are generally […]

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 […]