R&D credit claims are sophisticated business that should not be passed off to subpar market players. When a business or a business client is looking for an R&D partner, consider the following myths and follow the truth to a solid arrangement.

By Jamie Overberg

The adage you get what you pay for is particularly true of R&D credits. When you are paying for subpar product and process, what you typically get is narrowed focus, lack of advice and/or aggressive claims.

Aggressive or frivolous credit claims are a surefire way to invite IRS audits and the potential for the IRS to completely disallow a claim. It also may be grounds for IRS enforcement. Although the extent of the nature of the May 2022 court-ordered raid of alliantgroup in unknown, speculation that alliantgroup was producing aggressive credit claims and providing incomplete credit analyses for CPA firms and their business clients have been circling for almost two decades.

In addition to these third-party providers, we are seeing numerous software and payroll providers adding R&D credits to their service offerings, claiming they offer a process that is “quick and easy” and often, largely automated.

We’ve been doing R&D credits for over 25 years, including working on some of the largest credits in the nation. And, we’ve been dismayed lately as other providers, some long-standing and others new entrants to the market, taint the work we do and dupe businesses into false credit claims.

R&D credit claims are sophisticated business that should not be passed off to subpar market players. When a business or a business client is looking for an R&D partner, consider the following myths and follow the truth to a solid arrangement.

Myth #1: R&D credit claims are “quick and easy.”

False. R&D credits are complicated and require a specific set of tasks to be completed for every claim that results in properly identifying, calculating, and justifying claims.

“Quick and easy” typically leads to inaccurate claims and over-qualifying people and projects. The common issues we see going wrong in the market include:

  • Staff assigned to projects they were not involved in
  • Failure to include all tasks that qualify under “engineering” 
  • Funding issues not considered
  • Contingent fee arrangements on an originally filed return are strictly prohibited.  If someone relates the fee as a benefit to fee ratio, be very wary.  The fee should only be based on the number of interviews and amount of data; not the credit.
  • Incomplete interviews and/or review of documentation

Myth #2: R&D credits can be automated.

False. The R&D credit is a subjective determination and cannot be fully automated. As such, software is not enough to compute credit claims correctly.

Assigning people to projects is an intellectual exercise that must be applied consistently using human intellect. All engineers must be on the same page for definitions. Interviews are necessary for Q&A necessary to drill down on business component, assigning people and projects for consistent results.  

Some elements of R&D credit calculations can be automated. Time accounting is more defensible under an audit.  However, the determination about whether or not the project or tasks met the four-part criteria still has to be made.

If your business or client is contracted with an R&D provider, make sure work is being done by business component, using the correct rules, and correct documentation is being compiled. 

Myth #3: All R&D credit providers are the same.

False. There are R&D credit providers who do things by the book and then there are those that only produce what will maximize their own profit margins, not the client credit. This is a problem in the industry because few companies new to R&D credits actually understand what they should be paying for in order to protect the company and its credits. Like contracting with any new provider, get multiple quotes. Secure a second opinion to identify those you can trust.

Myth #4: Completing a one-minute, online survey on a firm’s website can result in an estimate of your credit claim.

False. The point of the instant estimate is sales, not the actual size of the credit for your company or clients. If it sounds too good to be true, it probably is.

The size of the credit cannot be determined without questions answered and real leg work.

So much client specific information is required to estimate a credit claim. Industry, innovation, risk all factor into credits, items which cannot be easily integrated into a simple algorithm to get you an instant estimate on a complicated credit.

The lessons you learn in life are true in securing tax services. If looking to file R&D tax credits, do not believe the first person you talk to. Verify so that you can trust. Protect your business and your credit claims.

At TaxOps, we concentrate on advising our clients on what they need to know and when to maximize credits the way the IRS expects. Reach out to your TaxOps Min advisor to work with businesses and CPA firm clients.

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