alliantgroup Approach for R&D Tax Credit Process
A Three-Phase, Turnkey Process
We use cutting-edge tools, processes, and technologies that allow us to conduct a nonintrusive, turnkey R&D study and provide the highest quality product deliverable in the industry. These proprietary processes and methodologies provide for an effective and efficient tax credit study. Our study focuses on identifying, substantiating, and documenting qualified research costs throughout your company, from wages to supplies to outsourced contract research expenditures. alliantgroup’s R&D specialists have worked extensively on procuring tax credits for a wide range of industries, and we have leveraged that experience to develop an approach that is designed to effectively calculate and authenticate research tax credits in a manner accepted by the IRS.
The Three Phases of the R&D Study
Phase 1:
Assessment & Feasibility
alliantgroup performs preliminary analysis to identify projects, processes, technologies, and project managers where potential qualifying research expenditures may be found.
Phase 2:
Design & Implementation
alliantgroup designs a detailed work plan and executes the associated implementation strategy through interviews and analysis of technical and financial documentation.
Phase 3:
Quantitative Reporting
This phase includes the preparation and delivery of the detailed R&D Study and its quantitative and qualitative components.
Research and Development Tax Credit
The federal Research and Development Tax Credit is an incentive for organizations to develop innovative solutions and hire technical workers. Part of qualifying for the credit involves satisfying the four-part test. While the whole concept of the test is fairly straightforward, some businesses disqualify themselves due to misunderstandings.
Our industry experts at alliantgroup can help you understand what activities of your business potentially qualify you for significant savings and here we demystify the four-part test.
What is the Four-Part Test?
The Four-Part Test, as the name suggests, is a four-part eligibility test for organizations to understand which of their research and development activities qualify them for a tax credit. Under section 41 of the Internal Revenue Code, the following must be met to potentially qualify for the R&D credit:
General/Permitted Purposes/Business Component Test
alliantgroup performs preliminary analysis to identify projects, processes, technologies, and project managers where potential qualifying research expenditures may be found.
Technological in Nature
To qualify for this criterion, the research process should be technological in nature and must rely on the principles of the physical or biological sciences, engineering, or computer science. In other words, the research should be hard science based and quantifiable.
Elimination of Uncertainty
To satisfy this criterion, the qualified research activity should discover information to eliminate uncertainty concerning the method or capabilities of development or improvement of a business component. Essentially, you need to be solving a problem.
Process of Experimentation
To satisfy this criterion, the business should be employing the scientific method in its process of experimentation, includes modeling, simulation, and hypothesis testing through trial and error.
Does my business qualify?
The above may sound daunting but the truth is many businesses are already satisfying the four-part test on a daily basis without even realizing it. For example, we recently helped a farm claim $7.8 million dollars in credits for their daily activities.
This farm wanted to maintain healthier livestock, so they experimented with different types of feed for their livestock and monitored the results. They also constantly evaluated their animals for diseases and illnesses and tested different treatment options.
These may sound like standard activities on a farm, and that’s because they are but they also qualify.
The R&D Credit can be applied to several businesses in different industries but needs careful consideration. While it may seem challenging, alliantgroup is here to help you understand how your business and qualified research activities are eligible for this credit.
Assessment & Feasibility
We believe each study requires a unique approach. Phase I allows us to gain a detailed understanding of your company so that we can tailor the study around your unique circumstances.
Our work during Phase 1 focuses on obtaining an understanding of your company’s business and research and development activities. alliantgroup performs preliminary analysis and interviews with key personnel to identify projects, departments, processes, technologies, department leaders, and project managers where potential qualifying research expenditures may be found. In addition, we evaluate the type and availability of contemporaneous documentation to substantiate the qualified research expenditures. Using the information gathered, we determine the potential tax savings and future benefits of conducting the Research and Experimentation Tax Credit Study.
Design & Implementation
In Phase 2, alliantgroup designs a detailed work plan and executes the associated implementation strategy. We interview additional company personnel, analyze contemporaneous documentation, link personnel and projects to finalize the quantitative calculation, and gather documentation needed to complete the analysis. This phase entails a full analysis of technical issues related to qualified R&D projects and identification and documentation of qualifying expenditures.
Quantitative Reporting
This phase includes the preparation and delivery of the detailed R&D Study and its quantitative and qualitative components, which will serve as the company’s documentation supporting the R&D tax credits claimed. The reporting phase also includes the preparation of the required amended tax returns. The R&D report is designed and organized to provide a clear audit trail for the IRS or state taxing authority.
