4 Mistakes You Might Be Making On Your R&D Tax Credit Claim

Are you making the most of your R&D tax credit claim? Here are four common mistakes that businesses often make when it comes to claiming their R&D tax credits.

1. Documentation Deficit: Leaving Money On The Table

Robust documentation is the backbone of a successful claim. Keep detailed records of your project objectives, methodologies, challenges encountered, and results achieved. Think meeting notes, technical reports, prototypes, and even emails discussing the innovative aspects. Without solid proof, your claim risks crumbling under scrutiny.

2. Casting A Wide Net: Not All Costs Are Created Equal

While your entire R&D project might seem worthy of a reward, the R&D tax credit isn’t a blanket solution. It specifically targets the innovative aspects, not routine business activities. Common mistakes include claiming marketing costs, routine tasks like quality control, or expenses incurred outside the eligible claim period. Scrutinize your project expenses and isolate the specific portions related to genuine R&D activities. Only those qualify for the credit.

3. Underestimating The “R” In R&D

Not all projects with a science twist automatically qualify for R&D tax credits. Remember, the “R” stands for research, not routine development. Your project should involve overcoming technological or scientific uncertainties, leading to advancements in your field. Simply improving an existing product or process might not be enough. Be prepared to demonstrate the innovative elements and technical challenges tackled within your project.

4. Going Solo When The Stakes Are High

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New Administrative Authority Issued Governing Requirements For Valid R&D Tax Credit Claims

On October 15th, the Internal Revenue Service (hereinafter the “Service”) has set forth additional information that taxpayers will be required to include for a R&D tax credit claim for refund to be considered valid. It should be duly noted that while the statutory authority under I.R.C. § 41 and its corresponding treasury regulations already outline the required statutory and administrative authority to get to a tax return filing position under Circular 230 for a R&D Tax Credit refund claim to be valid, the Service decided that additional administrative authority is warranted to improve the tax administration procedures with clearer instructions for eligible taxpayers to claim the R&D tax credit while reducing the number of disputes over such claims.

Successful tax administration entails ensuring taxpayers truly understand what is required to support the claim for the R&D tax credit. Each year, the Service receives tens of thousands of R&D tax credit claims for credits in the aggregate totaling hundreds of millions of dollars from business entities and individual taxpayers. The Service is currently examining a substantial number of R&D tax credit cases which consume considerable resources from both the Service and our judicial system as many disputes are settled in District Court or Tax Court.

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