There are specific instances in which CPAs simply don’t know what they don’t know about capturing R&D tax credits, and the choices made can manifest into issues later down the line.

The following are some signifiers of problematic practices for claiming R&D tax credits:

1. The CPA lacks the subject matter expertise (SME) in R&D tax credits (e.g., no R&D specialty practice areas. SME is necessary to close the loophole of properly substantiating credit claims, especially if under scrutiny by the IRS or the state.

3. There are no R&D study procedures in place to maximize and fully document their client’s R&D credit claims. Many times, CPAs have the client gather the company’s R&D documentation and expenses, and the CPA only completes the research credit form, with little or no knowledge of whether the client is eligible for the credit or not.

If your CPAs are taking shortcuts on the process of claiming R&D tax credits for clients by taking basic information, filling out the form and calling it a day, they are doing a huge disservice to your firm’s clients.

You Must Be Documenting R&D Activities All Along

It is very common for a client to not use the credits right away, and going through a thorough and full-on R&D study may not be prudent for those clients who are in a tax loss situation.

However, in five or six years when a client is able to utilize their R&D tax credits, a lack of documentation and substantiation could create red flags under examination.

For example, a client could easily be audited by the IRS and because the CPA was only presenting basic information on past tax returns, the information needed to substantiate the credit claims won’t be there. This is a problem so big that hiring an R&D expert to defend the credits becomes much more difficult and costly.

Myth Versus Reality: The Truth About Most R&D Audits

There is a prevailing misconception about R&D tax credit claims being audited a lot. That’s a direct result of 90% of claims not having nearly enough documentation.

The underlying problem is a lack of solid documentation that goes with substantiating R&D tax credit claims. At the minimum, your clients should be consistently gathering all documentation that directly relates to a client’s R&D activities, even if they aren’t currently claiming or utilizing the credits.

The proper steps to service your clients with R&D tax credit opportunities should mimic the following steps:

1. Set processes in place to capture current documentation for all R&D activities and expenses

2. Identify and analyze the client’s fact and circumstances to determine when it is time to use pursue any R&D tax credit benefits

3. Bring in an R&D expert to conduct a proper R&D study

Imagine if your CPAs offered services to clients that helped them build the process of capturing all R&D documentation in their daily operations.

That’s the level of partnership an outsourced tax consultant offers CPA firms who simply don’t have the bandwidth or expertise in R&D to execute this service properly.

Once you establish the process to capture this information in real time, it just becomes a natural part of the client’s business processes and lessens the burden on the client. That’s the type of guidance and support a tax consulting firm provides.

Ready to learn more about capturing R&D tax credits for your firm’s clients? Download your complimentary, educational guide below.