R&D Tax Credits for Kentucky Software Company

R&D Tax Credits for Kentucky Software Company

Client Profile
The client is a software company based in Kentucky specializing in the design and development of technology solutions. Prior to our involvement, the company had not evaluated eligibility for the federal R&D Tax Credit. During a review with their CPA and McGuire Sponsel, they found their development work may qualify as research. We initiated the engagement to assess eligibility, quantify potential credits, and address missed opportunities in prior tax years.

Process
To start, our R&D team evaluated the company’s development activities against the four-part test under IRC §41 to determine qualification. This included evaluating technical uncertainty, the company’s process of experimentation, and the nature of the software development work performed.

After confirming eligibility, our team analyzed qualified research expenses across the 2022–2025 tax years. This required collaboration with company personnel to gather wage data, project details, and supporting technical documentation.

At the same time, our team worked closely with the client’s CPA to address procedural requirements. This included preparing the necessary documentation to support amended federal R&D Credit claims. We also prepared the necessary statements to make the small business election and late §280C(c)(3) election on the 2022 through 2024 years. All supporting schedules and narratives were developed to align with IRS documentation expectations.

Results
The engagement resulted in the identification and substantiation of previously unclaimed federal R&D tax credits:

• $200,000 in combined federal R&D Credits for tax years 2022–2025
• Required R&D Credit documentation for amended returns
• Small business election and late §280C election statements prepared and coordinated with the CPA

In addition to the retroactive benefit, the client is now positioned to continue claiming the R&D credit for 2026 and future tax years, with a clearer understanding of qualifying activities and documentation requirements.