Guidelines When Identifying R&D Credit Opportunities.
R&D credit service providers are looking at construction industry companies to identify R&D tax credit opportunities. Design/build, general contractors, and specialists such as electrical and mechanical/HVAC contractors are all candidates for potential R&D credit claims. There are many construction companies whose activities and projects will qualify for R&D tax credits. However, some areas need to be carefully evaluated to ensure that the claim will survive a federal or state audit.
Recent IRS examinations have included engineers in addition to the audit team. These IRS engineers are well-versed in the technical requirements for the R&D tax credit, however they may be learning the nuances of the construction industry. Construction industry R&D credit claims can be significant, requiring detailed support and documentation. Oftentimes, the projects that were not deemed “qualified activities” are as important to the taxpayer’s case as the ones that were qualified.
Federal and state R&D tax credits are lucrative and are often subjected to IRS examination, especially for large refund claims. The IRS Tier 1 designation was removed in 2013 and replaced with a Coordinated Issue Approach. However, the credit still receives a significant amount of scrutiny.
If you are a CPA and are reviewing an R&D claim prior to putting it on a tax return, ask the following questions:
- Have the client’s contracts been reviewed? Are they qualified (firm fixed price is best)?
- How were projects reviewed and selected?
- Are costs allocated on a project-basis? Did the R&D credit preparer request and include employee time tracking data (if available)?
- Are the activities qualified? Where did the R&D credit provider “draw the line” between qualified and non-qualified activities?
- Have non-qualified costs been excluded?
- Are routine engineering activities excluded?
If you are a construction company and are looking to claim the R&D tax credit, ask the following questions:
- Does your service provider have experience with construction R&D claims?
- Did your provider review contracts?
- Did your provider take a “deep-dive” into your projects and activities?
- Has your provider discussed credit utilization?
Contact TRCG Advisors for a complimentary assessment to determine qualifying R&D tax credit eligibility.