How to Successfully Continue Your R&D Credit Claims

Written by Charlotte Ochs. Updated Mar 13, 2019.

BePreparedWhat does it mean to be prepared? Googling it, you’ll find the word ‘prepared’ defined as ‘ready to do or deal with something,’ but the relevance of this definition has a lot to do with what that ‘something’ is.

If you are an insurance company, ‘something’ is taking precautions for the peace of mind that your loved ones will be taken care of financially.

If you are a Boy Scout, ‘something’ is to be in a state of readiness in mind and body to do your duty, being able to do the right thing at the right moment.

Learn more about identifying and documenting your R&D expenses to gain tax savings

If you are the treacherous lion Scar in Disney’s The Lion King, ‘something’ is rallying your hyena henchmen with a song to Be Prepared for when you take the throne after doing away with both Simba and Mufasa.

And if you are a business that worked with CTI this year to identify and calculate your Research and Development (R&D) Tax Credit, ‘something’ is taking steps to maintain documentation for possible review and for maximizing continued claims of the R&D credit moving forward.

What R&D documentation should I maintain and for how long?

For the year or years that the credit was just identified, calculated, and claimed, you should maintain the records for at least seven years in the event that any of the credit years are reviewed by the IRS or a state agency.

What documents should you maintain? Treasury Regulations 1.41-4(d) state that “a taxpayer claiming a credit under IRC Section 41 must retain records in sufficiently useable form and detail to substantiate that the expenditure claimed is eligible for the credit.”

There is no specific set or list of documents that are required and it is a case-by-case basis depending on your business and activities. However, documentation that can identify the nexus between the activities and the employee is ideal.

Project accounting and time tracking by project and activities are great but not all businesses maintain this type of documentation. Below are just a few examples of the types of documentation that can help to support the credit:

  • Emails
  • Meeting notes
  • Calendars identifying meetings where technical issues for a project were discussed
  • Modeling and simulation videos
  • Design iterations

This list is not exclusive and there are many types of documentation that can support your claim for the R&D Tax Credit. If you have any questions regarding documentation you can reach out to your CTI Account Manager for help answering any of your questions.

How can I document R&D activity going forward to maximize success?

Since it is still early in the current tax year, now is the time to implement solutions for tracking and identifying potential projects and employees on a go-forward basis for consideration in the current year Research Credit calculation.

One method for capturing this information is to create and maintain a spreadsheet that tracks the following R&D project-related attributes:

  • Name of the project or specific jobs related to a project.
  • Brief description of the project consisting of a just a sentence or two to spark your memory at the end of the year.
  • All employees that work on the project. When doing so, it is better to be overly inclusive and then exclude employees at the end of the year as qualified employees are identified.
  • Brief description of the employees activities. Just a short statement to spark your memory at the end of the year.
  • Types of documentation created during the execution and implementation of the project or job.

Instituting a process to track the information above throughout the year will make it easier to identify qualified projects, activities, and employees for calculating the credit when tax time returns next year. Furthermore, it will help in creating a nexus between the employees and the projects since this is being tracked in the year of the activities as projects are taking place.

Stay Prepared with CTI

By following a process like the one described above, you are preparing contemporaneous documentation that can help maximize your credit benefits. Furthermore, having partnered with CTI, you have an experienced R&D Tax Credit consultant you can reach out to throughout the year to ask questions regarding potential projects and activities.

Now, isn’t that something?


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Topics: R&D Tax Credit

Charlotte Ochs

Written by Charlotte Ochs

Charlotte has over a decade's experience as an attorney representing individuals, partnerships, and corporations in many areas of federal and state tax law. With her Masters in Tax Law from the University of Houston and a license to practice before the United States Tax Court, she has successfully defended taxpayers in IRS proceedings from across several industries.