Posted on Nov 27, 2017

R&D Credit Qualification

R&D Study

If it is determined in the course of our tax consulting that your firm could qualify for a substantial R&D tax credit, we may suggest a third-party expert to conduct a more extensive R&D study. Our team has experience with initial discovery and phase two project review and qualification for low to medium R&D activities, but we align with experienced tax credit project partners when considering complex or high R&D activities.

For architecture and engineering firms, most use some type of project accounting data that can help R&D experts analyze Qualifying Research Expenses (QREs). The most significant qualifiers or data fields to review include:

  • Contract type
  • Line of business or discipline
  • Project type
  • Phases, sub-phases or tasks
  • Employee hours, titles and departments
  • Subcontractors
  • Project location

This data should be reviewed prior to interviews with leaders or project managers. It will help the R&D expert determine the right questions to ask about each project. You may allow the expert to export the data or provide the expert with templates that include this information and other data requested.

The second phase of an R&D study is the Communications or Project Review Phase. The R&D expert will walk through the four-part test and discuss product development lifecycle to help the project team identify and qualify R&D activities. This phase may take some time to educate firms that are new to R&D QRE qualification, but mentioning the potential tax savings can support participation. Any qualifying activities will be identified by project and phases of development.

The third phase of an R&D study is the calculation of QREs. The R&D expert will review the ratio of each employee’s qualified research hours to total hours worked. Those possible taxable wages will help the expert determine wage expenditures linked to R&D. The same calculations will be made regarding supply costs, subcontractors and contract or agreement expenses.

The final phase of the R&D study is documentation. The QREs calculation will need to be documented to note the QREs by phases/tasks performed on qualifying projects. This level of detail will support a credit claim to the IRS for the current or previous tax years.

Documentation is Critical for R&D Study

According to Barry Devine, an R&D study expert at Corporate Tax Incentives, with offices in California, Denver, Atlanta and Houston, documentation is critical to achieving a successful IRS R&D credit claim. Documentation needs to happen during the normal course of business as a sort of data map to prove R&D activities. The documentation process should not overly burden the firm — once it’s set up, of course.

By following the firm’s standard project set-up guide, you should be able to locate documents consistently under the following categories or standard practices:

  • Document name
  • Location of document
  • Frequency document is generated
  • Document owner or author
  • Instructions to find and access the document
  • Testing results
  • Project timelines
  • Meeting minutes

Your firm may have the documentation in your system, but a consistent process for project documentation will make it easier to claim R&D credits now and in the future.

Talk to the tax team at Cornwell Jackson about your potential R&D qualifying activities. We can review your data to discover qualifying research expenses and help you decide if an R&D study would be financially valuable for your firm.

Continue Reading: Common Qualifying Activities and Case Examples of R&D Credit Qualifications

Gary Jackson, CPA, is a tax partner at Cornwell Jackson. Gary has built businesses, managed them, developed leadership teams and sold divisions of his business, and he utilizes this real world practical experience in both managing Cornwell Jackson and in providing tax planning to individuals and business leaders across North Texas. Contact him at