Andersen Tax Research Credit Services
Companies benefit from R&D Tax Credits for a variety of qualified research activities – not just laboratory research.
The Research & Development Tax Credit (R&D Tax Credit) is among the most significant tax incentives offered to businesses each year. The credit can be worth as much as 20% of a taxpayer’s qualified research expense that exceeds an established base. It creates permanent tax savings, increases cash flow, and lowers a company’s effective tax rate. The credit is based on qualified research activities and related expense. The tax definition of qualified research is broad and extends beyond traditional laboratory research. Any company that develops new or improved products and/or processes, or develops software for use in its operations, may be eligible for the R&D Tax Credit. However, the standards for identifying qualified research are subjective, and taxpayers frequently have difficulty meeting Internal Revenue Service (IRS) requirements for contemporaneous documentation that demonstrates the nexus between qualified activities and their related expense. As a result, the benefit of the R&D Tax Credit is often disallowed or diminished on examination.
Andersen Tax can help you maximize the value of this important tax incentive. R&D Tax Credits can be claimed on original or amended tax returns allowing taxpayers to claim credits for all open tax years. Documentation to support prior-year credits can be compiled long after qualified research is performed. However, the more time that passes between the underlying research and the effort to substantiate the credits claimed, the more invasive the exercise becomes to document credit eligible activity, and the more likely it is that some portion of the prior-year credits will be disallowed. Andersen Tax can help you document all prior year qualified research activities, and at the same time, document your current-year qualified research. By establishing some best practices and nonintrusive procedures to create and capture the data and documentation needed to support future claims, Andersen Tax can help you efficiently maintain the benefits of the R&D Tax Credit on a real-time basis.
R&D Tax Credit Related Incentives
State Research Credits. Many states provide their own R&D Tax Credits to companies that conduct research and development within state borders. Most states adopt some version of the federal rules for credit eligibility, but there are often important differences. The definition of qualified research and gross receipts can vary between jurisdictions. Carryforward periods for unused credits are often different depending on the state. Some state credits are refundable, turning tax liabilities into tax refunds.
Basic Research Credit. Basic research payments made by C corporations to any qualified organization for the advancement of scientific knowledge not having a specific commercial objective may qualify for the Basic Research Credit. Companies that support university research or scientific foundations may claim a credit worth as much as 20% of the eligible payments (the amount paid in excess of an established base).
Orphan Drug Credit. With proper designation from the Food & Drug Administration, pharmaceutical companies that develop new drug treatments for a rare disease or condition can claim a credit equal to 50% of their qualified clinical testing expense.
Energy Research Credit. Payments made to an energy research consortium qualify for a federal tax credit that is equal to 20% of the gross payments made to the qualified institution. Payments must fund qualified energy research, but there is no established base that reduces the amount of the qualified expense.
Partners in Creating Value
Our multidisciplinary team brings a unique combination of skill sets to each R&D Tax Credit engagement including professionals with science and engineering backgrounds who speak the language of your research and development personnel. Our team also includes professionals with backgrounds in tax controversy, providing critical evaluation of the documentation needed to support your R&D Tax Credit and sustain your benefits during IRS examination. We involve federal and state and local tax resources to ensure that the maximum benefit is secured in every jurisdiction where qualified research is performed. We identify any related incentives that may enhance the value of the credits claimed. Where appropriate, we recommend reserves that should be established against these tax incentives, and provide suggested disclosure language if needed for your return.
Our audit-ready deliverables include federal and state R&D Tax Credit calculations and completion of the related tax compliance forms. We author a custom report tailored to the specific research and development activities of your organization, and cross-referenced to the relevant contemporaneous documentation of your credit eligible activities. We also assess your research and development processes to determine where efficiencies can be introduced to the documentation and calculation of your credit, adding value to your business for years to come.
Let Andersen Tax perform a complimentary review of your Research Credit today to see how you can further enhance this important tax incentive.
Jeff R. Malo
New York, NY
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