The following are general items for consideration when reviewing an R&D claim prior to inclusion on the tax return.
- Contemporaneous documentation – provided documentation (technical emails, meeting minutes, project timelines, etc.) should adequately substantiate the qualifying activities and provide nexus between the activities and qualifying employees.
- Project write-ups – are these thoroughly written with each question addressed in detail? Are the number of project narratives adequate considering the amount of R&D credit?
- C-Suite Employees – have activities and associated qualifying percentages for these employees been thoroughly substantiated and documented?
- Employees with non-technical job titles (sales, marketing, etc.) - have activities and associated qualifying percentages for these employees been thoroughly substantiated and documented?
- Payroll Tax Credit – ensure that the taxpayer has no gross receipts (including investment income) outside of the 5-year period ending with the claim year and that total gross receipts for the claim year equal $5M or less.
- Regular Research Credit calculation method – have all-inclusive gross receipts been entered (for the fixed-base percentage calculated within the application)?
- Have R&D-related contracts been examined to determine rights and risks (i.e. funded research)?
- Were actual Box 1 W-2 amounts used for wage QREs?
- Consistency considerations (per IRC 41(c)(5)(A)):
- For both RRC & ASC, have base period QREs been identified and accumulated consistently with the claim year QREs?
- To the extent an employee/contractor/supply expense was qualified in the claim year, was this expense included in the base period (assuming the expense qualified in a similar way to the claim year QRE) and vice versa?
- If electing 280C, is the election being made on a timely-filed return including extension? The election is invalid if made on an amended return.